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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File number 000-19809
DURA PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-3645543
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5880 PACIFIC CENTER BLVD., SAN DIEGO, CALIFORNIA 92121
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE IS (619) 457-2553
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[ X ] Yes [ ] No
The number of shares of the Registrant's Common Stock outstanding as of July 1,
1997 was 43,848,063.
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DURA PHARMACEUTICALS, INC.
INDEX
Page No.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
December 31, 1996 and June 30, 1997 . . . . . . . . 3
Consolidated Statements of Operations -
Three and six months ended June 30, 1996 and 1997 . 4
Consolidated Statements of Cash Flows -
Six months ended June 30, 1996 and 1997 . . . . . . 5
Notes to Consolidated Financial Statements. . . . . . 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . 7-11
Risks and Uncertainties . . . . . . . . . . . . . . . 11-18
PART II - OTHER INFORMATION
Item 2. Changes in Securities . . . . . . . . . . . . . . . . 19
Item 4. Submission of Matters to a Vote of Security Holders . 19
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . 20
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . 21
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DURA PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>
ASSETS DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................................ $131,101 $ 41,008
Short-term investments........................................... 109,244 145,186
Accounts and other receivables................................... 24,092 22,975
Inventory........................................................ 7,544 13,792
--------- ---------
Total current assets........................................ 271,981 222,961
PROPERTY............................................................ 27,500 39,956
LICENSE AGREEMENTS AND PRODUCT RIGHTS............................... 186,750 251,704
GOODWILL............................................................ 6,630 8,603
OTHER............................................................... 11,809 12,312
--------- ---------
Total....................................................... $504,670 $ 535,536
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities......................... $25,819 $ 34,121
Current portion of long-term obligations......................... 26,298 22,896
--------- ---------
Total current liabilities................................... 52,117 57,017
LONG-TERM OBLIGATIONS............................................... 6,670 6,910
OTHER NON-CURRENT LIABILITIES....................................... 2,306 2,891
--------- ---------
Total liabilities........................................... 61,093 66,818
--------- ---------
--------- ---------
SHAREHOLDERS' EQUITY:
Preferred stock, no par value, shares authorized - 5,000,000;
no shares issued or outstanding
Common stock, no par value, shares authorized - 100,000,000;
issued and outstanding - 43,183,591 and 43,847,803,
respectively.................................................... 525,350 531,377
Accumulated deficit............................................... (78,992) (60,923)
Unrealized gain (loss) on investments............................. (38) 76
Warrant subscriptions receivable.................................. (2,743) (1,812)
-------- ---------
Total shareholders' equity................................... 443,577 468,718
Total........................................................ $504,670 $535,536
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
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DURA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
IN THOUSANDS, EXCEPT PER SHARE DATA
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- ---------------------
1996 1997 1996 1997
---------- --------- -------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Sales.......................................... $ 12,905 $ 35,404 $ 26,960 $ 69,339
Contract....................................... 5,895 8,227 10,426 15,184
--------- --------- -------- ---------
Total revenues............................ 18,800 43,631 37,386 84,523
--------- --------- -------- ---------
OPERATING COSTS AND EXPENSES:
Cost of sales.................................. 3,799 7,976 7,422 15,946
Clinical, development and regulatory........... 3,720 6,593 7,119 12,353
Selling, general and administrative............ 7,419 16,760 15,272 32,752
--------- --------- -------- ---------
Total operating costs and expenses........ 14,938 31,329 29,813 61,051
--------- --------- -------- ---------
OPERATING INCOME............................... 3,862 12,302 7,573 23,472
--------- --------- -------- ---------
OTHER:
Interest income................................ 1,501 2,992 2,410 6,379
Other - net.................................... (224) (125) (518) (278)
--------- --------- -------- ---------
Total other............................... 1,277 2,867 1,892 6,101
--------- --------- -------- ---------
INCOME BEFORE INCOME TAXES..................... 5,139 15,169 9,465 29,573
PROVISION FOR INCOME TAXES..................... 530 5,887 800 11,504
--------- --------- -------- ---------
NET INCOME..................................... $ 4,609 $ 9,282 $ 8,665 $ 18,069
--------- --------- -------- ---------
--------- --------- -------- ---------
NET INCOME PER SHARE........................... $ 0.12 $ 0.20 $ 0.23 $ 0.38
WEIGHTED AVERAGE NUMBER OF
OF COMMON AND COMMON
EQUIVALENT SHARES.............................. 38,679 47,327 37,277 47,285
</TABLE>
See accompanying notes to consolidated financial statements.
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DURA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
IN THOUSANDS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1996 1997
--------- ---------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES.................. $ 11,987 $ 30,241
--------- ---------
INVESTING ACTIVITIES:
Purchases of short-term investments...................... (88,371) (141,604)
Sales and maturities of short-term investments........... 29,941 105,776
Product acquisitions..................................... - (69,731)
Purchases of long-term investments....................... (5,000) -
Capital expenditures..................................... (3,390) (13,735)
Other.................................................... (3,803) (1,155)
--------- ---------
Net cash used for investing activities............. (70,623) (120,449)
--------- ---------
FINANCING ACTIVITIES:
Issuance of common stock and warrants.................... 152,642 3,615
Principal payments on notes payable...................... (7,057) -
Principal payments on long-term obligations.............. (5,500) (3,500)
--------- ---------
Net cash provided by financing activities.......... 140,085 115
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....... 81,449 (90,093)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD........... 25,554 131,101
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................. $107,003 $ 41,008
--------- ---------
--------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amounts capitalized)................... $ 105 $ 0
Income taxes............................................ $ 8 $ 4,438
</TABLE>
See accompanying notes to consolidated financial statements.
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DURA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared by Dura Pharmaceuticals, Inc. ("Dura" or the "Company") in
accordance with the instructions to Form 10-Q. The consolidated financial
statements reflect all adjustments, consisting of only normal recurring
accruals, which are, in the opinion of management, necessary for a fair
statement of the results of the interim periods presented. These
consolidated financial statements and notes thereto should be read in
conjunction with the audited financial statements and notes thereto included
in the Company's 1996 Annual Report to Shareholders, which statements and
notes are incorporated by reference in the Company's Annual Report on Form
10-K for the year ended December 31, 1996. The results of operations for the
interim periods are not necessarily indicative of results to be expected for
any other interim period or for the year as a whole.
The consolidated financial statements include the accounts of Dura and its
wholly owned subsidiaries, Health Script Pharmacy Services, Inc. ("Health
Script") and Dura Delivery Systems, Inc. ("DDSI"). All intercompany
transactions and balances are eliminated in consolidation.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect amounts reported in the consolidated financial statements and
related notes. Changes in the estimates may affect amounts reported in
future periods.
2. LICENSE AGREEMENTS AND PRODUCT RIGHTS
On May 7, 1997, the Company acquired from Syntex (USA), Inc. and other
members of the Roche Group the exclusive U.S. rights to the intranasal
steroid products Nasarel-R- and Nasalide-R- for $70 million, which was paid
at closing. Additional future contingent payments totaling $15 million are
due through December 1998, subject to the products remaining without a
competing nasal formulation of flunisolide.
3. LOAN AGREEMENT
In April 1997, the Company entered into a loan agreement with a bank which
provides for the borrowing of up to $50 million on an unsecured basis through
May 1, 1999. Borrowings under the agreement bear interest at the bank's
reference rate or an offshore rate plus 1.5% as selected by the Company. The
agreement places restrictions on the payment of cash dividends and on the
incurrence of additional indebtedness by the Company. As of June 30, 1997,
no borrowings were outstanding on this loan.
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4. COMMON STOCK
Effective July 2, 1997, the Company changed its state of incorporation from
California to Delaware. In connection with this change, the outstanding
shares of the Company's no par value common stock were automatically
converted into and exchanged for an equal number of shares of $.001 par value
common stock.
5. INCOME TAXES
The provisions for income taxes for the periods ended June 30, 1996 and 1997
reflect the expected combined Federal and state tax rates offset by the benefit
from the utilization of net operating loss carryforwards. During the three and
six month periods ended June 30, 1997, substantially all of the benefit from
available net operating loss carryforwards relates to tax deductions from the
exercise of previously granted stock options and, as such, has been credited
directly to common stock.
6. NET INCOME PER SHARE
Net income per share is computed based on the weighted average number of common
and common equivalent shares outstanding during the period. Net income per
share is unchanged on a fully diluted basis for all periods presented.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No.
128"). SFAS No. 128 requires the presentation of basic and diluted earnings
per share amounts. Basic earnings per share is calculated based on the
weighted average number of common shares outstanding during the period while
diluted earnings per share also gives effect to all potential dilutive common
shares outstanding during the period such as options, warrants, convertible
securities, and contingently issuable shares. SFAS No. 128 is effective for
periods ending after December 15, 1997. If SFAS No. 128 had been applied for
the three and six month periods ended June 30, 1996 and 1997, basic and
diluted net income per share would have been as follows:
Three Months Six Months
Ended June 30, Ended June 30,
1996 1997 1996 1997
---- ---- ---- ----
Net income per share - basic $0.14 $0.21 $0.27 $0.42
Net income per share - diluted $0.12 $0.20 $0.23 $0.38
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This information should be read in conjunction with the consolidated financial
statements and the notes thereto included in Item 1 of this Quarterly Report and
the audited financial statements and
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notes thereto and Management's Discussion and Analysis of Financial Condition
and Results of Operations for the year ended December 31, 1996 contained in
the Company's 1996 Annual Report to Shareholders, which is incorporated by
reference in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996. See "Risks and Uncertainties" for trends and
uncertainties known to the Company that could cause reported financial
information not to be necessarily indicative of the future, including
discussion of the effects of seasonality on the Company.
OVERVIEW
During the second half of 1996 and the first half of 1997, the Company made
significant acquisitions of product rights and licenses. In July 1996, the
Company acquired the worldwide rights to the Entex-R- products, consisting of
four prescription upper respiratory drugs. In September 1996, the Company
acquired the exclusive U.S. marketing rights to the patented antibiotics
Ceclor-R- CD and Keftab-R-. In May 1997, the Company acquired the exclusive
U.S. rights to the intranasal steriod products Nasarel-R- and Nasalide-R-.
The acquisition of these products has had a material impact on the Company's
financial position and results of operations.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 AND 1997
Total revenues for the three-month period ended June 30, 1997 were $43.6
million, an increase of $24.8 million, or 132%, over the same period in
1996. Net income for the three-month period ended June 30, 1997 was $9.3
million, an increase of $4.7 million, or $0.08 per share, over the same
period in 1996.
Pharmaceutical sales for the three-month period ended June 30, 1997 were
$35.4 million, an increase of 174% over the same period in 1996. This
increase was due primarily to new product acquisitions of the Entex products,
Ceclor CD, Keftab, Nasarel and Nasalide.
Gross profit (pharmaceutical sales less cost of sales) for the three-month
period ended June 30, 1997 was $27.4 million, an increase of $18.3 million as
compared to the same period in 1996. Gross profit as a percentage of sales
for the three-month period ended June 30, 1997 was 77%, compared to 71% for
the same period in 1996. This increase is due primarily to higher gross
margins earned on sales of the Entex products, Ceclor CD, Keftab, Nasarel and
Nasalide as compared to the average gross margins earned on the Company's
other products.
Contract revenues for the three-month period ended June 30, 1997 were $8.2
million, an increase of $2.3 million, or 40%, as compared to the same period
in 1996. The Company, under agreements with several companies, conducts
feasibility testing and development work on various compounds for use with
Spiros-TM-, a proprietary pulmonary drug delivery system. Contract revenues
from Spiros-related development and feasibility agreements for the
three-month period ended June 30, 1997 were $7.8 million, including $6.8
million, from Spiros Development Corporation ("Spiros Corp."), as compared to
$4.6 million, including $4.1 million, from Spiros Corp., for the same period
in 1996. Contract revenues from royalties were $453,000 for the three-month
period ended June 30, 1997 and $1.3 million for the same period in 1996.
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Clinical, development and regulatory expenses for the three-month period
ended June 30, 1997 were $6.6 million, an increase of $2.9 million over the
same period in 1996. The increase reflects expenses incurred by the Company
under feasibility and development agreements covering the use of various
compounds with Spiros.
Selling, general and administrative expenses for three month period ended
June 30, 1997 were $16.8 million, an increase of $9.3 million as compared to
the same period in 1996. Such expenses decreased as a percentage of total
revenues to 38% as compared to 39% for the same period in 1996. The dollar
increase is primarily due to increased costs incurred to support the
Company's sales and contract revenue growth, including costs associated with
expanding the Company's sales force, higher marketing costs relating to the
newly-acquired products, and amortization of newly-acquired product rights.
The decrease as a percentage of revenues reflects the growth of
pharmaceutical sales due to new product acquisitions and the growth of
contract revenues.
Interest income for the three-month period ended June 30, 1997 was $3.0
million, an increase of $1.5 million as compared to the same period in 1996.
The increase is due primarily to higher balances of cash and short-term
investments resulting from public stock offerings completed in May and
November 1996.
The Company's effective tax rate was 39% for the three-month period ended
June 30, 1997 compared to 10% for the same period in 1996. This increase is
primarily due to the utilization of net operating loss carryforwards in 1996.
Net operating loss carryforwards available in 1997 relate primarily to tax
deductions for previously exercised stock options; accordingly, the related
benefit from their utilization will be credited to common stock.
SIX MONTHS ENDED JUNE 30, 1996 AND 1997
Total revenues for the six-month period ended June 30, 1997 were $84.5
million, an increase of $47.1 million, as compared to the same period in
1996. Net income for the six-month period ended June 30, 1997 was $18.1
million, an increase of $9.4 million, or $0.15 per share, over the same
period in 1996.
Pharmaceutical sales for the six-month period ended June 30, 1997 were $69.3
million, an increase of 157% over the same period in 1996. This increase is
due primarily to new product acquisitions of the Entex products, Ceclor CD,
Keftab, Nasarel and Nasalide.
Gross profit for the six-month period ended June 30, 1997 was $53.4 million,
an increase of $33.9 million as compared to the same period in 1996. Gross
profit as a percentage of sales for the six-month period ended June 30, 1997
was 77%, as compared to 72% for the same period in 1996. This increase is
due to higher gross margins earned on sales of the Entex products, Ceclor CD,
Keftab, Nasarel and Nasalide as compared to the average gross margins earned
on the Company's other products.
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Contract revenues for the six-month period ended June 30, 1997 were $15.2
million, an increase of $4.8 million, or 46%, as compared to the same period
in 1996. The Company, under agreements with several companies, conducts
feasibility testing and development work on various compounds for use with
Spiros-TM-. Contract revenues from Spiros-related development and
feasibility agreements for the six-month period ended June 30, 1997 were
$15.1 million, including $12.2 million from Spiros Corp., as compared to $8.7
million, including $7.8 million from Spiros Corp. for the same period in
1996. Contract revenues from royalties were $619,000 for the six-month
period ended June 30, 1997 and $1.7 million for the same period in 1996.
Clinical, development and regulatory expenses for the six-month period ended
June 30, 1997 were $12.4 million, an increase of $5.2 million over the same
period in 1996. The increase reflects expenses incurred by the Company under
feasibility and development agreements covering the use of various compounds
with Spiros.
Selling, general and administrative expenses for the six-month period ended
June 30, 1997 were $32.8 million, an increase of $17.5 million as compared to
the same period in 1996. Such expenses decreased as a percentage of total
revenues to 39% as compared to 41% for the same period in 1996. The dollar
increase is primarily due to increased costs incurred to support the
Company's sales and contract revenue growth, including costs associated with
expanding the Company's sales force, higher marketing costs relating to the
newly-acquired products, and amortization of newly-acquired product rights.
The decrease as a percentage of revenues reflects the growth of
pharmaceutical sales due to new product acquisitions and the growth of
contract revenues.
Interest income for the six-month period ended June 30, 1997 was $6.4
million, an increase of $4.0 million as compared to the same period in 1996.
The increase is due primarily to higher balances of cash and short-term
investments resulting from public stock offerings completed in May and
November 1996.
The Company's effective tax rate was 39% for the six-month period ended June
30, 1997 compared to 8% for the same period in 1996. This increase is
primarily due to the utilization of net operating loss carryforwards in 1996.
Net operating loss carryforwards available in 1997 relate primarily to tax
deductions for previously exercised stock options; accordingly, the related
benefit from their utilization will be credited to common stock.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and short-term investments decreased by $54.1 million
to $186.2 million at June 30, 1997 from $240.3 million at December 31, 1996.
The decrease is due primarily to the acquisition of the intranasal steroid
products Nasarel and Nasalide for $70 million in May 1997 and capital
expenditures of $13.7 million, partially offset by cash generated from
operations. Working capital decreased by $54.0 million to $165.9 million at
June 30, 1997 from $219.9 million at December 31, 1996.
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At June 30, 1997, the Company had an aggregate of $29.8 million in long-term
obligations, of which $22.9 million is to be paid during 1997. As of June
30, 1997, additional future contingent obligations totaling $97.9 million
relating to product acquisitions are due through 2004.
In April 1997, the Company entered into a loan agreement which provides for
the borrowing of up to $50 million on an unsecured basis through May 1,
1999. As of June 30, 1997, no borrowings were outstanding under this loan.
The Company provides development and management services to Spiros Corp.
pursuant to various agreements for the development of Spiros Corp.'s dry
powder drug delivery technology. Dura records contract revenues from Spiros
Corp. equal to amounts due for such services, less a pro rata amount
allocated to a warrant subscription receivable. The Company has a purchase
option to acquire all of the shares of Spiros Corp. which is exercisable
through December 31, 1999, at predetermined prices, payable at the Company's
option in cash or common stock or a combination thereof. In addition, the
Company has an option, through specified dates, to acquire Spiros Corp.'s
exclusive rights for use of Spiros with albuterol in the cassette version for
a minimum of $15 million in cash.
The Company anticipates that its existing capital resources, together with
cash expected to be generated from operations and available bank borrowings,
should be sufficient to finance its operations and working capital needs
through at least June 1998. Significant additional resources, however, may
be required in connection with product or company acquisitions, in-licensing
opportunities, or the development of Spiros products. At present, the Company
is actively pursuing the acquisition of rights to several products and/or
companies which may require the use of substantial capital resources;
however, there are no present agreements or commitments with respect to such
acquisitions.
RISKS AND UNCERTAINTIES
FORWARD-LOOKING STATEMENTS - The Company cautions readers that the
statements in this quarterly report that are not descriptions of historical
facts may be forward-looking statements that are subject to risks and
uncertainties. Actual results could differ materially from those currently
anticipated due to a number of factors, including those identified below. The
Company undertakes no obligation to release publicly the results of any
revisions to these forward - looking statements to reflect events and
circumstances arising after the dates hereof.
REDUCTION IN GROSS MARGINS
There is no proprietary protection for most of the products sold by the
Company and substitutes for such products are sold by other pharmaceutical
companies. The Company expects average selling prices for many of its products
to decline over time due to competitive and reimbursement pressures. While the
Company will seek to mitigate the effect of this decline in average selling
prices, there can be no assurance that the Company will be successful in these
efforts.
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THIRD-PARTY REIMBURSEMENT; PRICING PRESSURES
The Company's commercial success will depend in part on the availability of
adequate reimbursement from third-party health care payers, such as government
and private health insurers and managed care organizations. Third-party payers
are increasingly challenging the pricing of medical products and services. There
can be no assurance that reimbursement will be available to enable the Company
to achieve market acceptance of its products or to maintain price levels
sufficient to realize an appropriate return on the Company's investment in
product acquisition, in-licensing and development. The market for the Company's
products may be limited by actions of third-party payers. For example, many
managed health care organizations are now controlling the pharmaceuticals that
are on their formulary lists. The resulting competition among pharmaceutical
companies to place their products on these formulary lists has created a trend
of downward pricing pressure in the industry. In addition, many managed care
organizations are pursuing various ways to reduce pharmaceutical costs and are
considering formulary contracts primarily with those pharmaceutical companies
that can offer a full line of products for a given therapy sector or disease
state. There can be no assurance that the Company's products will be included on
the formulary lists of managed care organizations or that downward pricing
pressure in the industry generally will not negatively impact the Company's
operations.
DEPENDENCE ON ACQUISITION OF RIGHTS TO PHARMACEUTICAL PRODUCTS
The Company's strategy for growth is dependent, in part, upon acquiring,
in-licensing and co-promoting pharmaceuticals targeted primarily at allergists,
ear, nose and throat specialists, pulmonologists and a selected subset of
pediatricians and generalist physicians. Other companies, including those with
substantially greater resources, are competing with the Company for the rights
to such products. There can be no assurance that the Company will be able to
acquire, in-license or co-promote additional pharmaceuticals on acceptable
terms, if at all. The failure of the Company to acquire, in-license, co-promote,
develop or market commercially successful pharmaceuticals would have a material
adverse effect on the Company. Furthermore, there can be no assurance that the
Company, once it has obtained rights to a pharmaceutical product and committed
to payment terms, will be able to generate sales sufficient to create a profit
or otherwise avoid a loss.
DEVELOPMENT RISKS ASSOCIATED WITH SPIROS -TM-
Spiros will require significant additional development. There can be no
assurance that development of Spiros will be completed successfully, that Spiros
will not encounter problems in clinical trials that will cause the delay or
suspension of such trials, that current or future testing will show Spiros to be
safe or efficacious or that Spiros will receive regulatory approval. In
addition, regulatory approvals will have to be obtained for each drug to be
delivered through the use of Spiros prior to commercialization. Moreover, even
if Spiros does receive regulatory approval, there can be no assurance that
Spiros will be commercially
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successful, have all of the patent and other protections necessary to prevent
competitors from producing similar products and not infringe on patent or other
proprietary rights of third parties. The failure of Spiros to receive timely
regulatory approval and achieve commercial success would have a material adverse
effect on the Company.
RISKS ASSOCIATED WITH RECENT ACQUISITIONS
In September 1996, the Company acquired from Lilly the exclusive U.S. rights
to market and distribute Keftab and Ceclor CD and entered into a manufacturing
agreement with Lilly which terminates in certain circumstances. In May 1997, the
Company acquired from Syntex the exclusive U.S. rights to the intranasal steroid
products Nasarel and Nasalide. Any interruption in the supply of these products
due to regulatory or other causes could result in the inability of the Company
to meet demand and could have a material adverse impact on the Company.
The Company has limited experience in marketing antibiotic products, such as
Keftab and Ceclor CD, and steroid products, such as Nasarel and Nasalide. Ceclor
CD was not previously marketed to physicians prior to its October 1996 launch by
Dura, and no assurance can be given that the Company will be able to continue to
successfully compete with currently available products. Failure to successfully
market and sell Keftab, Ceclor CD, Nasarel or Nasalide would have a material
adverse effect on the Company's business, financial condition and results of
operations.
CUSTOMER CONCENTRATION; CONSOLIDATION OF DISTRIBUTION NETWORK
The distribution network for pharmaceutical products has in recent years
been subject to increasing consolidation. As a result, a few large wholesale
distributors control a significant share of the market and the number of
independent drug stores and small chains has decreased. Further consolidation
among, or any financial difficulties of, distributors or retailers could result
in the combination or elimination of warehouses thereby stimulating product
returns to the Company. Further consolidation or financial difficulties could
also cause customers to reduce their inventory levels, or otherwise reduce
purchases of the Company's products which could result in a material adverse
effect on the Company's business, financial condition or results of operations.
Dura's principal customers are wholesale drug distributors and major drug
store chains. For the six months ended June 30, 1997, four wholesale customers
individually accounted for 20%, 18%, 17% and 14% of sales. For 1996, three
wholesale customers individually accounted for 17%, 14% and 13% of sales. Two
wholesale customers individually accounted for 16% and 11% of 1995 sales, and
three wholesale customers individually accounted for 21%, 14% and 12% of 1994
sales. The loss of any of these customers could have a material adverse effect
upon the Company's business, financial condition or results of operations.
SEASONALITY AND FLUCTUATING QUARTERLY RESULTS
Historically, as a result of the winter cold and flu season, industry-wide
demand for respiratory products has been stronger in the first and fourth
quarters than in the second and third quarters of the year. In addition,
variations in the timing and severity of the winter cold and flu season have
influenced the Company's results of operations in the past. While the growth and
productivity of the Company's sales force and the introduction by the Company of
new products have historically mitigated the impact of seasonality on the
Company's results of operations, recent product acquisitions by the Company,
especially Keftab and Ceclor CD, which are used to treat respiratory infections,
are likely to increase the impact of seasonality on the Company's results of
operations. No assurances can be given that the Company's results of operations
will not be materially adversely affected by the seasonality of product sales.
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<PAGE>
COMPETITION
Many companies, including large pharmaceutical firms with financial and
marketing resources and development capabilities substantially greater than
those of Dura, are engaged in developing, marketing and selling products that
compete with those offered by the Company. The selling prices of such products
typically decline as competition increases. Further, other products now in use
or under development by others may be more effective than Dura's current or
future products. The industry is characterized by rapid technological change,
and competitors may develop their products more rapidly than Dura. Competitors
may also be able to complete the regulatory process sooner, and therefore, may
begin to market their products in advance of Dura's products. Dura believes that
competition among both prescription pharmaceuticals and pulmonary drug delivery
systems aimed at the respiratory infection, allergy, cough and cold, and asthma
and COPD markets will be based on, among other things, product efficacy, safety,
reliability, availability and price.
Dura directly competes with at least 25 other companies in the U.S. which
are currently engaged in developing, marketing and selling respiratory
pharmaceuticals. Additionally, there are at least 10 companies currently
involved in the development, marketing or sales of dry powder pulmonary drug
delivery systems. There are two types of dry powder inhalers ("DPIs")
currently in commercial use worldwide. In the U.S., individual dose DPIs
currently are marketed, including the Rotohaler-TM- (developed and marketed
by Glaxo Wellcome, Inc.) and the Spinhaler-R- (developed and marketed by
Fisons Limited). The Turbuhaler-R- (developed and marketed by Astra
Pharmaceuticals), a multiple dose DPI and the leading DPI in worldwide sales,
is considered the current industry standard. In June 1997, the Food and Drug
Administration ("FDA") approved for marketing the first Turbuhaler product in
the United States.
DEPENDENCE ON THIRD PARTIES
The Company's strategy for development and commercialization of certain of
its products is dependent upon entering into various arrangements with corporate
partners, licensors and others and upon the subsequent success of these
partners, licensors and others in performing their obligations. There can be no
assurance that the Company will be able to negotiate acceptable arrangements in
the future or that such arrangements or its existing arrangements will be
successful. In addition, partners, licensors and others may pursue alternative
technologies or develop alternative compounds or drug delivery systems either on
their own or in collaboration with others, including the Company's competitors.
The Company has limited experience manufacturing products for commercial
purposes and currently does not have the capability to manufacture its
pharmaceutical products and therefore is dependent on contract manufacturers for
the production of such products for development and commercial purposes. The
manufacture of the Company's products is subject to current Good Manufacturing
Practice ("cGMP") regulations prescribed by the FDA. The Company relies on a
single manufacturer for each of its products. In the event that the Company is
unable to obtain or retain third-party manufacturing, it may not be able to
commercialize its products as planned. There can be no assurance that the
Company will be able to continue to obtain adequate supplies of such products in
a timely fashion at acceptable quality and prices. Also, there can be no
assurance that the Company will be able to enter into agreements for the
manufacture of future products with manufacturers whose facilities and
procedures comply with cGMP and other regulatory requirements. The Company's
current dependence upon others for the manufacture of its products may adversely
affect future profit margins, if any, on the sale of those products and the
Company's ability to develop and deliver products on a timely and competitive
basis.
LIMITED MANUFACTURING EXPERIENCE
The Company's principal manufacturing facility is located in a Company-owned
building adjacent to its headquarters. The facility initially is intended to be
used to formulate, mill, blend and manufacture drugs to be used with Spiros,
pending regulatory approval. Equipment purchases and validation are currently
scheduled through 1997. The Company's manufacturing facility must be registered
14
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with and licensed by various regulatory authorities and must comply with cGMP
requirements prescribed by the FDA and the State of California. The Company is
currently expanding its facilities to provide additional manufacturing
capabilities. The Company will need to significantly scale up its current
manufacturing operations and comply with cGMPs and other regulations prescribed
by various regulatory agencies in the United States and other countries to
achieve the prescribed quality and required levels of production of such
products and to obtain marketing approval. Any failure or significant delay in
the validation of or obtaining a satisfactory regulatory inspection of the new
facility or failure to successfully scale up could have a material adverse
effect on the Company's ability to manufacture products in connection with
Spiros.
MANAGING GROWTH OF BUSINESS
The Company has experienced significant growth as total revenues
increased 58% in fiscal 1995, 102% in fiscal 1996, and 126% for the first six
months of 1997, as compared to prior periods, primarily as a result of the
acquisition or in-licensing of additional respiratory pharmaceutical
products. During fiscal 1997, the Company executed an agreement relating to
the acquisition of the rights to the Nasarel and Nasalide products. During
fiscal 1996, the Company executed agreements relating to the acquisition of
the rights to the Entex, Ceclor CD and Keftab products. During fiscal 1995,
the Company executed three agreements relating to the acquisition,
in-licensing and co-promotion of products and acquired Health Script. Due to
the Company's emphasis on acquiring and in-licensing respiratory
pharmaceutical products, the Company anticipates that the integration of the
recently acquired businesses and products, as well as any future
acquisitions, will require significant management attention and expansion of
its sales force. The Company's ability to achieve and maintain profitability
is based on management's ability to manage its changing business effectively.
UNCERTAINTY OF PROFITABILITY; NEED FOR ADDITIONAL FUNDS
The Company has experienced significant operating losses in the past,
and, at June 30, 1997, the Company's accumulated deficit was $60.9 million.
Although the Company achieved profitability on an annual basis in 1996 and in
the first six months of 1997, there can be no assurance that revenue growth
or profitability will continue on an annual or quarterly basis in the future.
The acquisition and in-licensing of products, the expansion of the Company's
sales force in response to acquisition and in-licensing of products, the
maintenance of the Company's existing sales force, the upgrade and expansion
of its facilities, continued pricing pressure and the potential exercise of
the Spiros Purchase Option or the Albuterol Purchase Option (as defined
below), as well as funds that Dura, at its option, may provide for Spiros
development, both internally and through Spiros Corp., will require the
commitment of substantial capital resources and may also result in
significant losses. Depending upon, among other things, the acquisition and
in-licensing opportunities available, the Company may need to raise
additional funds for these purposes. The Company may seek such additional
funding through public and private financing, including equity or debt
financing. Adequate funds for these purposes, whether through financial
markets or from other sources, may not be available when needed or on terms
acceptable to the Company. Insufficient funds may require the Company to
delay, scale back or suspend some or all of its product acquisition and
in-licensing programs, the upgrade and expansion of its facilities, the
potential exercise of the Spiros Purchase Option and/or the Albuterol
Purchase Option and further development of Spiros. The Company anticipates
that its existing capital resources, together with cash expected to be
generated from operations and available bank borrowings, should be sufficient
to finance its current operations and working capital requirements through at
least June 1998.
15
<PAGE>
POTENTIAL EXERCISE OF PURCHASE OPTIONS FOR SPIROS CORP.; CALLABLE COMMON STOCK
AND ALBUTEROL PRODUCT; DILUTION
Dura has an option to purchase all of the currently outstanding shares of
callable common stock of Spiros Corp. ("Spiros Purchase Option"). If Dura
exercises the Spiros Purchase Option, it will be required to make a substantial
cash payment or to issue shares of Common Stock, or both. A payment in cash
would reduce Dura's capital resources. A payment in shares of Common Stock would
result in a decrease in the percentage ownership of Dura's shareholders at that
time. The exercise of the Spiros Purchase Option will likely require Dura to
record a significant charge to earnings and may adversely impact future
operating results. If Dura does not exercise the Spiros Purchase Option prior to
its expiration in December 1999, the Company's rights in and to Spiros with
respect to certain compounds will terminate. Dura also has the option to provide
funding for Spiros development in certain circumstances. Development of Spiros
Corp. products will require significant additional funds. Dura believes that the
current funds of Spiros Corp. will be sufficient to fund product development by
Spiros Corp. through 1997.
As part of the Company's contractual relationship with Spiros Corp., the
Company received an option to purchase certain rights to an albuterol product in
a cassette version of Spiros ("Albuterol Purchase Option") exercisable at any
time through the earlier of 60 days after FDA approval of such albuterol product
or December 31, 1999. If the Company exercises the Albuterol Purchase Option, it
will be required to make a cash payment of at least $15 million which could
have an adverse effect on its capital resources. The Company may not have
sufficient capital resources to exercise the Albuterol Purchase Option which may
result in the Company's loss of valuable rights. In addition, continuation of
development and commercialization of an albuterol product in a cassette version
of Spiros may require substantial additional expenditures by Dura. Dura has not
made any determination as to the likelihood of its exercise of the Spiros
Purchase Option or the Albuterol Purchase Option.
GOVERNMENT REGULATION; NO ASSURANCE OF FDA APPROVAL
Development, testing, manufacturing and marketing of the Company's products
are subject to extensive regulation by numerous governmental authorities in the
U.S. and other countries. The process of obtaining FDA approval of
pharmaceutical products and drug delivery systems is costly and time-consuming.
Any new pharmaceutical product must undergo rigorous preclinical and clinical
testing and an extensive regulatory approval process mandated by the FDA.
Marketing of drug delivery systems also requires FDA approval, which can be
costly and time consuming to obtain. The Company will need to obtain regulatory
approval for each drug to be delivered through the use of Spiros. There can be
no assurance that the pharmaceutical products currently in development, or those
products acquired or in-licensed by the Company, will be approved by the FDA. In
addition, there can be no assurance that all necessary clearances will be
granted to the Company or its licensors for future products or that FDA review
or actions will not involve delays adversely affecting the marketing and sale of
the Company's products. For both currently marketed and future products, failure
to comply with applicable regulatory requirements can, among other things,
result in the suspension of regulatory approval, as well as possible civil and
criminal sanctions. In addition, changes in regulations could have a material
adverse effect on the Company.
The FDA is continuing an evaluation of the effectiveness of all drug
products containing ingredients marketed prior to 1962 (the year of enactment of
the "Drug Amendments of 1962" to the Federal Food, Drug and Cosmetic Act) as
part of its Drug Efficacy Study Implementation ("DESI") program and will
determine which drugs are considered "new drugs" requiring approval through a
New Drug Application ("NDA") for marketing. A Policy Guide (CPG 440.100) issued
by the FDA indicates that the FDA will implement procedures to determine whether
the new drug provisions are applicable to existing products. If a final
determination is made that a particular drug requires an approved NDA, such
approval will be required for marketing to continue. If such a determination is
made, the FDA might impose various
16
<PAGE>
requirements; for example, it might require that the current product be the
subject of an approved NDA, that the product be reformulated and an NDA approval
be obtained, that the product must be sold on an over-the-counter basis rather
than as a prescription drug or that the product must be removed from the market.
The Company believes that nine of its prescription pharmaceutical products may
be covered by paragraph B of the Policy Guide and it is aware that one of its
products may be considered to be similar or related to a DESI drug. Also, it is
not aware of evidence to substantiate that three of its products have the same
formulation or conditions for use as products marketed before November 13, 1984.
There can be no assurance as to which regulatory course the FDA will follow, if
any, with respect to many of the Company's pharmaceutical products or whether
the Company will be able to obtain any approvals that the FDA may deem
necessary. If any negative actions are taken by the FDA, such actions could have
a material adverse effect on the Company's business. Health Script is subject to
regulation by state regulatory authorities, principally state boards of
pharmacy. In addition, Health Script is subject to regulation by other state and
federal agencies with respect to reimbursement for prescription drug benefits
provided to individuals covered primarily by publicly-funded programs.
PATENTS AND PROPRIETARY RIGHTS
The Company's success will depend in part on its ability to obtain patents
on current or future products or formulations, defend its patents, maintain
trade secrets and operate without infringing upon the proprietary rights of
others, both in the U.S. and abroad. However, only six of the pharmaceuticals
currently marketed by the Company are covered by patents. The Company also has
licenses or license rights to certain other U.S. and foreign patent and patent
applications. There can be no assurance that patents, U.S. or foreign, will be
obtained, or that, if issued or licensed to the Company, they will be
enforceable or will provide substantial protection from competition or be of
commercial benefit to the Company or that the Company will possess the financial
resources necessary to enforce or defend any of its patent rights. Federal court
decisions establishing legal standards for determining the validity and scope of
patents in the field are in transition. There can be no assurance that the
historical legal standards surrounding questions of validity and scope will
continue to be applied or that current defenses as to issued patents in the
field will offer protection in the future. The commercial success of the Company
will also depend upon avoiding the infringement of patents issued to competitors
and upon maintaining the technology licenses upon which certain of the Company's
current products are, or any future products under development might be, based.
Litigation, which could result in substantial cost to the Company, may be
necessary to enforce the Company's patent and license rights or to determine the
scope and validity of proprietary rights of third parties. If any of the
Company's products are found to infringe upon patents or other rights owned by
third parties, the Company could be required to obtain a license to continue to
manufacture or market such products. There can be no assurance that licenses to
such patent rights would be made available to the Company on commercially
reasonable terms, if at all. If the Company does not obtain such licenses, it
could encounter delays in marketing affected products while it attempts to
design around such patents or it could find that the development, manufacture or
sale of products requiring such licenses is not possible. The Company currently
has certain licenses from third parties and in the future may require additional
licenses from other parties to develop, manufacture and market commercially
viable products effectively. There can be no assurance that such licenses will
be obtainable on commercially reasonable terms, if at all, or that the patents
underlying such licenses will be valid and enforceable.
PRODUCT LIABILITY AND RECALL
The Company faces an inherent business risk of exposure to product liability
claims in the event that the use of its technologies or products is alleged to
have resulted in adverse effects. Such risks will exist even with respect to
those products that receive regulatory approval for commercial sale. While the
Company has taken, and will continue to take, what it believes are appropriate
precautions, there can be no assurance that it will avoid significant product
liability exposure. The Company currently has product
17
<PAGE>
liability insurance; however, there can be no assurance that the level or
breadth of any insurance coverage will be sufficient to fully cover potential
claims. There can be no assurance that adequate insurance coverage will be
available in the future at acceptable costs, if at all, or that a product
liability claim or recall would not materially and adversely affect the business
or financial condition of the Company.
ATTRACTION AND RETENTION OF KEY PERSONNEL
The Company is highly dependent on the principal members of its management
staff, the loss of whose services might impede the achievement of development
objectives. Although the Company believes that it is adequately staffed in key
positions and that it will be successful in retaining skilled and experienced
management, operational and scientific personnel, there can be no assurance that
the Company will be able to attract and retain such personnel on acceptable
terms. The loss of the services of key scientific, technical and management
personnel could have a material adverse effect on the Company, especially in
light of the Company's recent significant growth.
CHANGE IN CONTROL
Certain provisions of the Company's charter documents and terms relating to
the acceleration of the exercisability of certain warrants and options relating
to the purchase of such securities by the Company in the event of a change in
control may have the effect of delaying, deferring or preventing a change in
control of the Company, thereby possibly depriving shareholders of receiving a
premium for their shares of the Common Stock.
VOLATILITY OF COMPANY STOCK PRICE
The market prices for securities of emerging companies, including the
Company, have historically been highly volatile. Future announcements concerning
the Company or its competitors may have a significant impact on the market price
of the Company's Common Stock. Such announcements might include financial
results, the results of testing, technological innovations, new commercial
products, changes to government regulations, government decisions on
commercialization of products, developments concerning proprietary rights,
litigation or public concern as to safety of the Company's products.
ABSENCE OF DIVIDENDS
The Company has never paid any cash dividends on its Common Stock. In
accordance with a bank loan agreement, the Company is prohibited from paying
cash dividends without prior bank approval. The Company currently anticipates
that it will retain all available funds for use in its business and does not
expect to pay any cash dividends in the foreseeable future.
18
<PAGE>
PART II - OTHER INFORMATION
Item 2. Changes in Securities
The Company reincorporated in Delaware through the merger of Dura
Pharmaceuticals, Inc., a California corporation, with and into a
wholly-owned Delaware subsidiary of Dura Pharmaceuticals, Inc. In
connection with this change, the outstanding shares of the Company's
no par value common stock were automatically converted into and
exchanged for an equal number of shares of common stock, $.001 par
value per share, of the Delaware entity.
Item 4. Submission of Matters to a Vote of Security Holders
On May 28, 1997, the Company's Annual Meeting of Shareholders was
held in La Jolla, California for the following purposes:
(a) The following four (4) directors were elected to serve two-year terms
to expire at the 1999 Annual Meeting of Shareholders:
FOR AGAINST WITHHELD
--- ------- --------
Herbert J. Conrad 39,587,506 0 527,186
Gordon V. Ramseier 38,609,406 0 1,505,286
Charles G. Smith 39,609,847 0 504,845
Walter F. Spath 38,582,192 0 1,532,500
The following directors, who were elected during the May 29, 1996
annual Meeting of Shareholders, are currently serving terms that will
expire in 1998.
James C. Blair
Joseph C. Cook
Cam L. Garner
David F. Hale
David S. Kabakoff
(b) The shareholders approved 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. The total number of votes cast for, against and
withheld was 25,112,678, 12,477,807 and 31,803, respectively.
(c) The shareholder approved amendments to the Company's 1992 Stock
Option Plan to increase the authorized number shares of Common Stoack
available for issuance under such Plan by 1,600,000 shares to a total
of 7,607,360, and to make certain other amendments. The total number
of votes cast for, against and withheld was 26,727,560, 13,227,514
and 56,585, respectively.
(d) The shareholders ratified the appointment of Deloitte & Touche LLP
as the Company's independent public accountants for the year ending
December 31, 1997. The total number of votes cast for, against and
withheld was 40,035,309, 60,303 and 19,080, respectively.
19
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit
Number
------
2.1 Agreement and Plan of Merger of Dura Pharmaceuticals,
Inc. (a Delaware corporation) and Dura Pharmaceuticals,
Inc. (a California corporation)
3.1 Bylaws
3.2 Certificate of Incorporation
10.1 Business Loan Agreement dated April 14, 1997 between the
Company and Bank of America National Trust and Savings
Association
+ 10.2 Syntex Asset Purchase Agreement dated March 27, 1997
between the Company and Syntex (USA), Inc.
+ 10.3 SPIL Asset Purchase Agreement dated March 27, 1997
between the Compamy and Syntex Pharmaceuticals
International Limited
10.4 1992 Stock Option Plan, as amended
11 Statements re Computations of Net Income Per Share
27 Financial Data Schedule
+ Incorporated by reference to the Company's Current Report on
Form 8-K dated May 7, 1997 and filed on May 22, 1997.
(b) Reports on Form 8-K
On May 22, 1997 the Company filed a Current Report on Form
8-K dated May 7, 1997 providing the required dislcosures
regarding its acquisition of Nasarel-R- and Nasalide-R- products
from Syntex (USA), Inc. and other members of the Roche Group.
20
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
DURA PHARMACEUTICALS, INC.
DATE: JULY 15, 1997 /S/ JAMES W.NEWMAN
- -------------------- -------------------
(JAMES W. NEWMAN)
Senior Vice President, Finance &
Administration and Chief Financial Officer
(Principal Financial and Accounting Officer)
21
<PAGE>
EXHIBIT INDEX
TO
FORM 10-Q
DURA PHARMACEUTICALS, INC.
Exhibit No. Description
- ----------- -----------
2.1 Agreement and Plan of Merger of Dura Pharmaceuticals,
Inc. (a Delaware corporation) and Dura Pharmaceuticals,
Inc. (a California corporation)
3.1 Bylaws
3.2 Certificate of Incorporation
10.1 Business Loan Agreement dated April 14, 1997 between
the Company and Bank fo America National Trust and
Savings Association
+ 10.2 Syntex Asset Purchase Agreement dated March 27, 1997
between the Company and Syntex (USA), Inc.
+ 10.3 SPIL Asset Purchase Agreement dated March 27, 1997
between the Compamy and Syntex Pharmaceuticals
International Limited
10.4 1992 Stock Option Plan, as amended
11 Statements re Computations of Net Income Per Share
27 Financial Data Schedule
+ Incorporated by reference to the Company's Current Report on Form 8-K dated
May 7, 1997 and filed on May 22, 1997.
22
<PAGE>
EXHIBIT 2.1
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 July 1, 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, 43,848,063 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 the 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.
A-2
<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
Restated 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. No fractional share interests of the Surviving Corporation Common
Stock shall be issued but shall, instead, be rounded up to the nearest whole
number.
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 status of authorized but unissued
shares.
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<PAGE>
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.
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<PAGE>
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 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: /s/ Cam L. Garner
-----------------------------------------
Cam L. Garner
Chairman, President and Chief Executive Officer
ATTEST:
/s/ Mitchell R. Woodbury
- -----------------------------------
Mitchell R. Woodbury
Senior Vice President,
General Counsel and Secretary
DURA PHARMACEUTICALS, INC.,
a California corporation
By: /s/ Cam L. Garner
-----------------------------------------------
Cam L. Garner
Chairman, President and Chief Executive Officer
ATTEST:
/s/ Mitchell R. Woodbury
- ----------------------------------
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 3.1
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
<PAGE>
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 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
<PAGE>
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.
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.
<PAGE>
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 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:
<PAGE>
(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
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.
<PAGE>
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, 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.
<PAGE>
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 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.
<PAGE>
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.
<PAGE>
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 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,
<PAGE>
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 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.
<PAGE>
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 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.
<PAGE>
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.
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.
<PAGE>
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.
(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
<PAGE>
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 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
<PAGE>
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 manner he or she reasonably
believed to be in the interest of the participants and beneficiaries of an
<PAGE>
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.
<PAGE>
Section 4. FISCAL YEAR. The fiscal year of the corporation shall be fixed
by resolution of the Board of Directors.
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.
<PAGE>
EXHIBIT 3.2
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.
<PAGE>
(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 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.
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<PAGE>
(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.
(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.
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<PAGE>
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.
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.
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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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IN WITNESS WHEREOF, this Certificate of Incorporation has been signed this
27th day of May, 1997 by the undersigned who affirms that the statements made
herein are true and correct.
/s/ ROSS L. BURNINGHAM
-------------------------------------
Ross L. Burningham, Sole Incorporator
[SIGNATURE PAGE TO CERTIFICATE OF
INCORPORATION OF DURA PHARMACEUTICALS, INC.]
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Bank of America Business Loan Agreement
[LOGO] National Trust and Savings Association
This Agreement dated as of April 14, 1997, is between Bank of America National
Trust and Savings Association (the "Bank") and Dura Pharmaceuticals, Inc. (the
"Borrower").
1. LINE OF CREDIT AMOUNT AND TERMS
1.1 Line of Credit Amount.
(a) During the availability period described below, the Bank will provide a
line of credit to the Borrower. The amount of the line of credit (the
"Commitment") is Fifty Million Dollars ($50,000,000).
(b) This is a revolving line of credit with a within line facility for
letters of credit. During the availability period, the Borrower may
repay principal amounts and reborrow them.
(c) Each advance must be for at least Twenty-Five Thousand Dollars ($25,000),
or for the amount of the remaining available line of credit, if less.
(d) The Borrower agrees not to permit the outstanding principal balance of
the line of credit plus the outstanding amounts of any letters of credit,
including amounts drawn on letters of credit and not yet reimbursed, to
exceed the Commitment.
1.2 Availability Period. The line of credit is available between the date of
this Agreement and May 1, 1999 (the "Expiration Date") unless the Borrower
is in default.
1.3 Interest Rate.
(a) Unless the Borrower elects an optional interest rate as described below,
the interest rate is the Bank's Reference Rate.
(b) The Reference Rate is the rate of interest publicly announced from time
to time by the Bank in San Francisco, California, as its Reference
Rate. The Reference Rate is set by the Bank based on various factors,
including the Bank's costs and desired return, general economic
conditions and other factors, and is used as a reference point for
pricing some loans. The Bank may price loans to its customers at,
above, or below the Reference Rate. Any change in the Reference Rate
shall take effect at the opening of business on the day specified in the
public announcement of a change in the Bank's Reference Rate.
<PAGE>
1.4 Repayment Terms.
(a) The Borrower will pay interest on May 1, 1997, and then monthly
thereafter until payment in full of any principal outstanding under this
line of credit.
(b) The Borrower will repay in full all principal and any unpaid interest or
other charges outstanding under this line of credit no later than the
Expiration Date.
(c) Any amount bearing interest at an optional interest rate (as described
below) may be repaid at the end of the applicable interest period, which
shall be no later than the Expiration Date.
1.5 Optional Interest Rates. Instead of the interest rate based on the
Bank's Reference Rate, the Borrower may elect to have all or portions
of the line of credit (during the availability period) bear interest at
the rate(s) described below during an interest period agreed to by the
Bank and the Borrower. Each interest rate is a rate per year.
Interest will be paid on the last day of each interest period, and, if
the interest period is longer than a month, then on the first day each
month during the interest period. At the end of any interest period,
the interest rate will revert to the rate based on the Reference Rate,
unless the Borrower has designated another optional interest rate for
the portion.
1.6 Offshore Rate. The Borrower may elect to have all or portions of the
principal balance of the line of credit bear interest at the Offshore
Rate plus 1.50 percentage points.
Designation of an Offshore Rate portion is subject to the following
requirements:
(a) The interest period during which the Offshore Rate will be in effect will
be one year or less. The last day of the interest period will be
determined by the Bank using the practices of the offshore dollar
inter-bank market.
(b) Each Offshore Rate portion will be for an amount not less than Five
Hundred Thousand Dollars ($500,000) for interest periods of 30 days
or longer. For shorter maturities, each Offshore Rate portion will be
for an amount which, when multiplied by the number of days in the
applicable interest period, is not less than fifteen million
(15,000,000) dollar-days.
(c) The "Offshore Rate" means the interest rate determined by the following
formula, rounded upward to the nearest 1/100 of one percent. (All
amounts in the calculation will be determined by the Bank as of the
first day of the interest period.)
Offshore Rate = GRAND CAYMAN RATE
-----------------
(1.0 - Reserve Percentage)
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Where,
(i) "Grand Cayman Rate" means the interest rate (rounded upward to the
nearest 1/16th of one percent) at which the Bank's Grand Cayman
Branch, Grand Cayman, British West Indies, would offer U.S. dollar
deposits for the applicable interest period to other major banks in
the offshore dollar inter-bank markets.
(ii) "Reserve Percentage" means the total of the maximum reserve
percentages for determining the reserves to be maintained by member
banks of the Federal Reserve System for Eurocurrency Liabilities,
as defined in the Federal Reserve Board Regulation D, rounded
upward to the nearest 1/100 of one percent. The percentage will
be expressed as a decimal, and will include, but not be limited to,
marginal, emergency, supplemental, special, and other reserve
percentages.
(d) The Borrower may not elect an Offshore Rate with respect to any portion
of the principal balance of the line of credit which is scheduled to
be repaid before the last day of the applicable interest period.
(e) Any portion of the principal balance of the line of credit already
bearing interest at the Offshore Rate will not be converted to a
different rate during its interest period.
(f) Each prepayment of an Offshore Rate portion, whether voluntary, by
reason of acceleration or otherwise, will be accompanied by the
amount of accrued interest on the amount prepaid, and a prepayment fee
equal to the amount (if any) by which
(i) the additional interest which would have been payable on the
amount prepaid had it not been paid until the last day of the
interest period, exceeds
(ii) the interest which would have been recoverable by the Bank by
placing the amount prepaid on deposit in the offshore dollar market
for a period starting on the date on which it was prepaid and
ending on the last day of the interest period for such portion.
(g) The Bank will have no obligation to accept an election for an Offshore
Rate portion if any of the following described events has occurred and
is continuing:
(i) Dollar deposits in the principal amount, and for periods equal to
the interest period, of an Offshore Rate portion are not available
in the offshore dollar inter-bank markets; or
(ii) the Offshore Rate does not accurately reflect the cost of an
Offshore Rate portion.
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1.7 Letters of Credit. This line of credit may be used for financing:
(i) commercial letters of credit with a maximum maturity of 365 days but
not to extend beyond the Expiration Date. Each commercial letter of
credit will require drafts payable at sight.
(ii) standby letters of credit with a maximum maturity of 365 days but
not to extend beyond the Expiration Date.
(iii) The amount of letters of credit outstanding at any one time,
(including amounts drawn on letters of credit and not yet
reimbursed), may not exceed Ten Million Dollars ($10,000,000).
The Borrower agrees:
(a) any sum drawn under a letter of credit may, at the option of the Bank,
be added to the principal amount outstanding under this Agreement. The
amount will bear interest and be due as described elsewhere in this
Agreement.
(b) if there is a default under this Agreement, to immediately prepay and
make the Bank whole for any outstanding letters of credit.
(c) the issuance of any letter of credit and any amendment to a letter of
credit is subject to the Bank's written approval and must be in form and
content satisfactory to the Bank and in favor of a beneficiary acceptable
to the Bank.
(d) to sign the Bank's form Application and Agreement for Commercial Letter
of Credit or Application and Agreement for Standby Letter of Credit.
(e) to pay any issuance and/or other fees that the Bank notifies the Borrower
will be charged for issuing and processing letters of credit for the
Borrower.
(f) to allow the Bank to automatically charge its checking account for
applicable fees, discounts, and other charges.
2. FEES AND EXPENSES
2.1 Unused Commitment Fee. The Borrower agrees to pay a fee on any
difference between the Commitment and the amount of credit it actually
uses (including the undrawn and the drawn but unreimbursed amounts of
letters of credit), determined by the weighted average loan balance
maintained during the specified period. The fee will be calculated at
0.125% per year, pro rated for any portion of a year. This fee will be
due 10 days from the Bank's billing date for each calendar quarter,
commencing with the quarter ending June 30, 1997.
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<PAGE>
2.2 Expenses.
(a) The Borrower agrees to immediately repay the Bank for expenses that
include, but are not limited to, filing, recording and search fees,
and documentation fees.
(b) The Borrower agrees to reimburse the Bank for any expenses it incurs in
the preparation of this Agreement and any agreement or instrument
required by this Agreement. Expenses include, but are not limited to,
reasonable attorneys' fees, including any allocated costs of the
Bank's in-house counsel.
3. DISBURSEMENTS, PAYMENTS AND COSTS
3.1 Requests for Credit. Each request for an extension of credit will be
made in writing in a manner acceptable to the Bank, or by another means
acceptable to the Bank.
3.2 Disbursements and Payments. Each disbursement by the Bank and each
payment by the Borrower will be:
(a) made at the Bank's branch (or other location) selected by the Bank from
time to time;
(b) made for the account of the Bank's branch selected by the Bank from time
to time;
(c) made in immediately available funds, or such other type of funds
selected by the Bank;
(d) evidenced by records kept by the Bank. In addition, the Bank may, at
its discretion, require the Borrower to sign one or more promissory
notes.
3.3 Telephone Authorization.
(a) The Bank may honor telephone instructions for advances or repayments or
for the designation of optional interest rates given by any one of
the individuals authorized to sign loan agreements on behalf of the
Borrower, or any other individual designated by any one of such
authorized signers.
(b) Advances will be deposited in and repayments will be withdrawn from the
Borrower's account number 1450707440, or such other of the
Borrower's accounts with the Bank as designated in writing by the
Borrower.
(c) The Borrower indemnifies and excuses the Bank (including its officers,
employees, and agents) from all liability, loss, and costs in
connection with any act resulting from telephone instructions it
reasonably believes are made by any individual authorized by the
Borrower to give such instructions. This indemnity and excuse will
survive this Agreement.
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<PAGE>
3.4 Direct Debit (Pre-Billing).
(a) The Borrower agrees that the Bank will debit the Borrower's deposit
account number 14507-07440, or such other of the Borrower's accounts
with the Bank as designated in writing by the Borrower (the "Designated
Account") on the date each payment of interest and any fees from the
Borrower becomes due (the "Due Date"). If the Due Date is not a banking
day, the Designated Account will be debited on the next banking day.
(b) Approximately 10 days prior to each Due Date, the Bank will mail to the
Borrower a statement of the amounts that will be due on that Due
Date (the "Billed Amount"). The calculation will be made on the
assumption that no new extensions of credit or payments will be made
between the date of the billing statement and the Due Date, and that
there will be no changes in the applicable interest rate.
(c) The Bank will debit the Designated Account for the Billed Amount,
regardless of the actual amount due on that date (the "Accrued
Amount").
If the Billed Amount debited to the Designated Account differs from the
Accrued Amount, the discrepancy will be treated as follows:
(i) If the Billed Amount is less than the Accrued Amount, the Billed
Amount for the following Due Date will be increased by the
amount of the discrepancy. The Borrower will not be in default by
reason of any such discrepancy.
(ii) If the Billed Amount is more than the Accrued Amount, the Billed
Amount for the following Due Date will be decreased by the amount
of the discrepancy.
Regardless of any such discrepancy, interest will continue to accrue
based on the actual amount of principal outstanding without
compounding. The Bank will not pay the Borrower interest on any
overpayment.
(d) The Borrower will maintain sufficient funds in the Designated Account to
cover each debit. If there are insufficient funds in the Designated
Account on the date the Bank enters any debit authorized by this
Agreement, the debit will be reversed.
3.5 Banking Days. Unless otherwise provided in this Agreement, a banking
day is a day other than a Saturday or a Sunday on which the Bank is open
for business in California. For amounts bearing interest at an offshore
rate (if any), a banking day is a day other than a Saturday or a Sunday
on which the Bank is open for business in California and dealing in
offshore dollars. All payments and disbursements which would be due on
a day which is not a banking day will be due on the next banking day.
All payments received on a day which is not a banking day will be
applied to the credit on the next banking day.
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<PAGE>
3.6 Taxes. The Borrower will not deduct any taxes from any payments it
makes to the Bank. If any government authority imposes any taxes on any
payments made by the Borrower, the Borrower will pay the taxes and will also
pay to the Bank, at the time interest is paid, any additional amount which
the Bank specifies as necessary to preserve the after-tax yield the Bank
would have received if such taxes had not been imposed. Upon request by the
Bank, the Borrower will confirm that it has paid the taxes by giving the Bank
official tax receipts (or notarized copies) within 30 days after the due
date. However, the Borrower will not pay the Bank's net income taxes.
3.7 Additional Costs. The Borrower will pay the Bank, on demand, for the
Bank's costs or losses arising from any statute or regulation, or any request
or requirement of a regulatory agency which is applicable to all national
banks or a class of all national banks. The costs and losses will be
allocated to the loan in a manner determined by the Bank, using any
reasonable method. The costs include the following:
(a) any reserve or deposit requirements; and
(b) any capital requirements relating to the Bank's assets and commitments
for credit.
3.8 Interest Calculation. Except as otherwise stated in this Agreement, all
interest and fees, if any, will be computed on the basis of a 360-day year
and the actual number of days elapsed. This results in more interest or a
higher fee than if a 365-day year is used.
3.9 Interest on Late Payments. At the Bank's sole option in each instance,
any amount not paid when due under this Agreement (including interest) shall
bear interest from the due date at the Bank's Reference Rate plus 2.00
percentage points. This may result in compounding of interest.
3.10 Default Rate. Upon the occurrence and during the continuation of any
default under this Agreement, advances under this Agreement will at the
option of the Bank bear interest at a rate per annum which is 2.00 percentage
points higher than the rate of interest otherwise provided under this
Agreement. This will not constitute a waiver of any default.
4. CONDITIONS
The Bank must receive the following items, in form and content acceptable to
the Bank, before it is required to extend any credit to the Borrower under
this Agreement:
4.1 Authorizations. Evidence that the execution, delivery and performance
by the Borrower (and any guarantor) of this Agreement and any instrument or
agreement required under this Agreement have been duly authorized.
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<PAGE>
4.2 Good Standing. Certificates of good standing for the Borrower from its
state of incorporation and from any other state in which the Borrower is
required to qualify to conduct its business.
4.3 Silicon Valley Bank Termination. Evidence that the Borrower's credit
facility with Silicon Valley Bank has been terminated and that any and all
security interests and liens securing such facilities have been fully
released.
4.4 Other Items. Any other items that the Bank reasonably requires.
5. REPRESENTATIONS AND WARRANTIES
When the Borrower signs this Agreement, and until the Bank is repaid in full,
the Borrower makes the following representations and warranties. Each
request for an extension of credit constitutes a renewed representation.
5.1 Organization of Borrower. The Borrower is a corporation duly formed and
existing under the laws of the state where organized.
5.2 Authorization. This Agreement, and any instrument or agreement required
hereunder, are within the Borrower's powers, have been duly authorized, and
do not conflict with any of its organizational papers.
5.3 Enforceable Agreement. This Agreement is a legal, valid and binding
agreement of the Borrower, enforceable against the Borrower in accordance
with its terms, and any instrument or agreement required hereunder, when
executed and delivered, will be similarly legal, valid, binding and
enforceable.
5.4 Good Standing. In each state in which the Borrower does business, it is
properly licensed, in good standing, and, where required, in compliance with
fictitious name statutes.
5.5 No Conflicts. This Agreement does not conflict with any law, agreement,
or obligation by which the Borrower is bound.
5.6 Financial Information. All financial and other information that has
been or will be supplied to the Bank, including the Borrower's financial
statement dated as December 31, 1996, is:
(a) sufficiently complete to give the Bank accurate knowledge of the
Borrower's (and any guarantor's) financial condition.
(b) in form and content required by the Bank.
(c) in compliance with all government regulations that apply.
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Since the date of the financial statement specified above, there has been no
material adverse change in the assets or the financial condition of the
Borrower (or any guarantor).
5.7 Lawsuits. There is no lawsuit, tax claim or other dispute pending or
threatened against the Borrower, which, if lost, would impair the Borrower's
financial condition or ability to repay the loan, except as have been
disclosed in writing to the Bank.
5.8 Permits, Franchises. The Borrower possesses all permits, memberships,
franchises, contracts and licenses required and all trademark rights, trade
name rights, patent rights and fictitious name rights necessary to enable it
to conduct the business in which it is now engaged.
5.9 Other Obligations. The Borrower is not in default on any obligation for
borrowed money, any purchase money obligation or any other material lease,
commitment, contract, instrument or obligation.
5.10 Income Tax Returns. The Borrower has no knowledge of any pending
assessments or adjustments of its income tax for any year.
5.11 No Event of Default. There is no event which is, or with notice or
lapse of time or both would be, a default under this Agreement.
5.12 ERISA Plans.
(a) The Borrower has fulfilled its obligations, if any, under the minimum
funding standards of ERISA and the Code with respect to each Plan and is
in compliance in all material respects with the presently applicable
provisions of ERISA and the Code, and has not incurred any liability with
respect to any Plan under Title IV of ERISA.
(b) No reportable event has occurred under Section 4043(b) of ERISA for
which the PBGC requires 30 day notice.
(c) No action by the Borrower to terminate or withdraw from any Plan has
been taken and no notice of intent to terminate a Plan has been filed
under Section 4041 of ERISA.
(d) No proceeding has been commenced with respect to a Plan under Section
4042 of ERISA, and no event has occurred or condition exists which might
constitute grounds for the commencement of such a proceeding.
(e) The following terms have the meanings indicated for purposes of this
Agreement:
(i) "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
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(ii) "ERISA" means the Employee Retirement Income Act of 1974, as
amended from time to time.
(iii) "PBGC" means the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA.
(iv) "Plan" means any employee pension benefit plan maintained or
contributed to by the Borrower and insured by the Pension Benefit
Guaranty Corporation under Title IV of ERISA.
5.13 Location of Borrower. The Borrower's place of business (or, if the
Borrower has more than one place of business, its chief executive office) is
located at the address listed under the Borrower's signature on this
Agreement.
6. COVENANTS
The Borrower agrees, so long as credit is available under this Agreement and
until the Bank is repaid in full:
6.1 Use of Proceeds. To use the proceeds of the credit only for funding
acquisitions of product lines or companies and for general corporate purposes.
6.2 Financial Information. To provide the following financial information
and statements and such additional information as requested by the Bank from
time to time:
(a) Within 90 days of the Borrower's fiscal year end, the Borrower's annual
financial statements. These financial statements must be audited by a
Certified Public Accountant ("CPA") acceptable to the Bank. The
statements shall be prepared on a consolidated basis.
(b) Within 45 days of the period's end, the Borrower's quarterly financial
statements including the fourth quarter. These financial statements are
to include year-to-date financial reporting and may be Borrower prepared.
The statements shall be prepared on a consolidated and consolidating
basis by division including without limitation the Healthscript division,
the HealthCo division, and any other division of the Borrower.
(c) Copies of the Borrower's Form 10-K Annual Report and Form 10-Q Quarterly
Report within 10 days after the date of filing with the Securities and
Exchange Commission.
(d) Within the periods provided in (a) and (b) above, a compliance certificate
of the Borrower signed by the Borrower's Chief Financial Officer or Vice
President-Finance setting forth (i) the information and computations (in
sufficient detail) to establish that the Borrower is in compliance with
all financial covenants at the end of the period covered by the financial
statements then being furnished, (ii) whether there exists as of the date
of such financial
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statements and whether there exists as of the date of the certificate,
any default under this Agreement and, if such a default exists, specifying
the nature thereof and the action the Borrower is taking and proposes to
take with respect to such default, and (iii) the Borrower's representation
and warranty as of the date of the certificate that there are no
Significant Subsidiaries except those that have executed and delivered to
the Bank a guaranty as required under Paragraph 6.6 of this Agreement.
(e) Within 60 days of the Borrower's fiscal year end, the Borrower's
projections by product line (balance sheet, income statement, statement of
cash flows, and assumptions) for the forthcoming year.
(f) Upon the request of the Bank, copies of the Borrower's federal tax
return with all supporting schedules.
6.3 Tangible Net Worth. To maintain on a consolidated basis Tangible Net
Worth equal to at least the greater of:
(a) Two Hundred Million Dollars ($200,000,000) or
(b) the difference between:
(i) The sum of:
(A) Two Hundred Fifty Million Dollars ($250,000,000); plus
(B) the sum of 50% of net income after income taxes (without
subtracting losses) earned in each quarterly accounting
period commencing after December 31, 1996; plus
(C) the net proceeds from any equity securities issued after the
date of this Agreement (including shares issued upon the
exercise of stock options); plus
(D) any increase in stockholders' equity resulting from the
conversion of debt securities to equity securities after
the date of this Agreement; and
(ii) The sum of (without duplication):
(A) Cash and noncash charges for in-process technology purchased
from Spiros Development Corporation (the "Spiros Charges") up
to a maximum of Twenty Million Dollars ($20,000,000); plus
(B) The amount of purchases of intangible assets up to a maximum of
Fifty Million Dollars ($50,000,000).
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"Tangible Net Worth" means the gross book value of the Borrower's assets
(excluding license agreements, product rights, goodwill, patents, trademarks,
trade names, organization expense, treasury stock, unamortized debt discount
and expense, capitalized or deferred research and development costs, deferred
marketing expenses, deferred receivables, and other like intangibles, and
monies due from affiliates, officers, directors, employees, or shareholders
of the Borrower) less total liabilities, including but not limited to accrued
and deferred income taxes, and any reserves against assets.
6.4 Adjusted Funded Debt to Adjusted EBITDA. To maintain a ratio of funded
debt, including all interest bearing obligations but excluding obligations
owing to Procter & Gamble Pharmaceuticals, Inc. for the Entex Products up to
a maximum of Twenty Million Dollars ($20,000,000), TO the sum of EBITDA plus
the Spiros Charges up to a maximum of Twenty Million Dollars ($20,000,000) of
not greater than the ratio indicated for each period specified below:
PERIOD RATIO
------ -----
From and including the date of this Agreement
to and including August 31, 1997 2.00 to 1.00
From and including September 1, 1997
and thereafter 1.75 to 1.00
For purposes of this Agreement, "EBITDA" means earnings before interest
income and taxes, plus interest expense, plus depreciation and amortization.
EBITDA will be calculated at the end of each fiscal quarter, using the
results of that quarter and each of the 3 immediately preceding quarters.
6.5 Minimum EBIT. To maintain on a consolidated basis a sum of (i) net
income before taxes and interest expense plus (ii) the Spiros Charges up to a
maximum of Twenty Million Dollars ($20,000,000) at least Zero Dollars ($0)
for each quarterly accounting period.
6.6 Additional Guaranties. If at any time after the date of this Agreement
a subsidiary of the Borrower or any guarantor becomes a Significant
Subsidiary, to cause such Significant Subsidiary to execute and deliver to
the Bank, as soon as reasonably practicable but not later than thirty (30)
days after the Bank's request therefor, a continuing guaranty in the
principal amount of at least Fifty Million Dollars ($50,000,000) and
otherwise in form and substance acceptable to the Bank, together with
satisfactory evidence of such Significant Subsidiary's authority to execute
and deliver such guaranty. For purposes of this Agreement, "Significant
Subsidiary" means a corporation (i) that is wholly-owned by the Borrower or
any guarantor and (ii) that owns ten percent (10%) or more of the Borrower's
total consolidated assets or ten percent (10%) or more of the Borrower's
total consolidated sales for any fiscal quarter.
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6.7 Other Debts. Not to have outstanding or incur any direct or contingent
debts (other than those to the Bank), or become liable for the debts of
others without the Bank's written consent. This does not prohibit:
(a) Acquiring goods, supplies, or merchandise on normal trade credit.
(b) Endorsing negotiable instruments received in the usual course of
business.
(c) Obtaining surety bonds in the usual course of business.
(d) Debts in existence on the date of this Agreement disclosed in writing
to the Bank.
(e) Additional debts for the acquisition of fixed or capital assets which
do not exceed a total principal amount of Five Million Dollars
($5,000,000) in any single fiscal year.
6.8 Other Liens. Not to create, assume, or allow any security interest or
lien (including judicial liens) on property the Borrower now or later owns,
except:
(a) Deeds of trust and security agreements in favor of the Bank.
(b) Liens for taxes not yet due.
(c) Liens outstanding on the date of this Agreement disclosed in writing to
the Bank.
(d) Additional purchase money security interests in personal property
acquired after the date of this Agreement if the total principal amount
of debts secured by such liens does not exceed Five Million Dollars
($5,000,000) in any single fiscal year.
6.9 Capital Expenditures. Not to spend more than Thirty Million Dollars
($30,000,000) during 1997 fiscal year and Fifteen Million Dollars
($15,000,000) during 1998 fiscal year to acquire fixed or capital assets.
6.10 Leases. Not to permit the aggregate payments due in any fiscal year
under all leases (including capital and operating leases for real or personal
property) to exceed Two Million Dollars ($2,000,000).
6.11 Dividends. Not to declare or pay any dividends on any of its shares
except dividends payable in capital stock of the Borrower, and not to
purchase, redeem or otherwise acquire for value any of its shares, or create
any sinking fund in relation thereto.
6.12 Loans to Affiliated Companies. Not to make any loans, advances or
other extensions of credit to any of the Borrower's affiliated companies in
excess of an aggregate of Ten Million Dollars ($10,000,000).
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6.13 Notices to Bank. To promptly notify the Bank in writing of:
(a) any lawsuit over Two Million Dollars ($2,000,000) against the Borrower
(or any guarantor).
(b) any substantial dispute between the Borrower (or any guarantor) and any
government authority.
(c) any failure to comply with this Agreement.
(d) any material adverse change in the Borrower's (or any guarantor's)
financial condition or operations.
(e) any change in the Borrower's name, legal structure, place of business,
or chief executive office if the Borrower has more than one place of
business.
6.14 Books and Records. To maintain adequate books and records.
6.15 Audits. To allow the Bank and its agents to inspect the Borrower's
properties and examine, audit and make copies of books and records at any
reasonable time. If any of the Borrower's properties, books or records are
in the possession of a third party, the Borrower authorizes that third party
to permit the Bank or its agents to have access to perform inspections or
audits and to respond to the Bank's requests for information concerning such
properties, books and records.
6.16 Compliance with Laws. To comply with the laws (including any
fictitious name statute), regulations, and orders of any government body with
authority over the Borrower's business.
6.17 Preservation of Rights. To maintain and preserve all rights,
privileges, and franchises the Borrower now has.
6.18 Maintenance of Properties. To make any repairs, renewals, or
replacements to keep the Borrower's properties in good working condition.
6.19 Cooperation. To take any action requested by the Bank to carry out the
intent of this Agreement.
6.20 General Business Insurance. To maintain insurance as is usual for the
business it is in.
6.21 Additional Negative Covenants. Not to, without the Bank's written
consent:
(a) engage in any business activities substantially different from the
present business of the Borrower or any of its subsidiaries.
(b) liquidate or dissolve the Borrower's business.
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<PAGE>
(c) enter into any consolidation, merger, pool, joint venture, syndicate,
or other combination; provided, however, that the Borrower may enter into
any joint venture if the amount of the Borrower's capital contribution
thereto, when added to the total, cumulative amount of capital
contributions to other joint ventures entered into by the Borrower after
the date of this Agreement, would not exceed Ten Million Dollars
($10,000,000).
(d) lease, or dispose of all or a substantial part of the Borrower's
business or the Borrower's assets except in the ordinary course of the
Borrower's business.
(e) acquire a business through the purchase of its stock.
(f) sell or otherwise dispose of any assets for less than fair market
value, or enter into any sale and leaseback agreement covering any of
its fixed or capital assets.
(g) cancel or terminate those existing licensing or co-branding agreements
that generated revenues in excess of ten percent 10% of the Borrower's
consolidated total revenues for the immediately preceding four (4)
quarters.
6.22 ERISA Plans. To give prompt written notice to the Bank of:
(a) The occurrence of any reportable event under Section 4043(b) of ERISA
for which the PBGC requires 30 day notice.
(b) Any action by the Borrower to terminate or withdraw from a Plan or the
filing of any notice of intent to terminate under Section 4041 of ERISA.
(c) Any notice of noncompliance made with respect to a Plan under Section
4041(b) of ERISA.
(d) The commencement of any proceeding with respect to a Plan under Section
4042 of ERISA.
7. HAZARDOUS WASTE INDEMNIFICATION
The Borrower will indemnify and hold harmless the Bank from any loss or
liability directly or indirectly arising out of the use, generation,
manufacture, production, storage, release, threatened release, discharge,
disposal or presence of a hazardous substance. This indemnity will apply
whether the hazardous substance is on, under or about the Borrower's property
or operations or property leased to the Borrower. The indemnity includes but
is not limited to attorneys' fees (including the reasonable estimate of the
allocated cost of in-house counsel and staff). The indemnity extends to the
Bank, its parent, subsidiaries and all of their directors, officers,
employees, agents, successors, attorneys and assigns. "Hazardous substances"
means any substance, material or waste that is or becomes designated or
regulated as "toxic," "hazardous,"
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<PAGE>
"pollutant," or "contaminant" or a similar designation or regulation under
any federal, state or local law (whether under common law, statute,
regulation or otherwise) or judicial or administrative interpretation of
such, including without limitation petroleum or natural gas. This indemnity
will survive repayment of the Borrower's obligations to the Bank.
8. DEFAULT
If any of the following events occur, the Bank may do one or more of the
following: declare the Borrower in default, stop making any additional credit
available to the Borrower, and require the Borrower to repay its entire debt
immediately and without prior notice. If an event of default occurs under the
paragraph entitled "Bankruptcy," below, with respect to the Borrower, then
the entire debt outstanding under this Agreement will automatically be due
immediately.
8.1 Failure to Pay. The Borrower fails to make a payment under this
Agreement when due.
8.2 False Information. The Borrower has given the Bank false or misleading
information or representations.
8.3 Bankruptcy. The Borrower (or any guarantor) files a bankruptcy
petition, a bankruptcy petition is filed against the Borrower (or any
guarantor), or the Borrower (or any guarantor) makes a general assignment for
the benefit of creditors. The default will be deemed cured if any bankruptcy
petition filed against the Borrower (or any guarantor) is dismissed within a
period of 60 days after the filing; provided, however, that the Bank will not
be obligated to extend any additional credit to the Borrower during that
period.
8.4 Receivers. A receiver or similar official is appointed for the
Borrower's (or any guarantor's) business, or the business is terminated.
8.5 Judgments. One or more judgments or arbitration awards are entered
against the Borrower (or any guarantor) on a claim or claims not fully
covered by insurance (excluding reasonable deductibles) and remain
undischarged, unvacated, unbonded, or unstayed for a period of 30 days or in
any event later than 5 days prior to any proposed sale under any such
judgment or award, or the Borrower (or any guarantor) enters into any
settlement agreements with respect to any litigation or arbitration in the
aggregate amount One Million Dollars ($1,000,000) or more on a claim or
claims not fully cover by insurance (excluding reasonable deductibles).
8.6 Government Action. Any government authority takes action that the Bank
believes materially adversely affects the Borrower's (or any guarantor's)
financial condition or ability to repay.
8.7 Material Adverse Change. A material adverse change occurs in the
Borrower's (or any guarantor's) financial condition, properties or prospects,
or ability to repay the loan.
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<PAGE>
8.8 Cross-default. Any default occurs under any agreement in connection
with any credit the Borrower (or any guarantor) has obtained from anyone else
or which the Borrower (or any guarantor) has guaranteed in the amount of One
Hundred Thousand Dollars ($100,000) or more in the aggregate if the default
consists of failing to make a payment when due or gives the other lender the
right to accelerate the obligation.
8.9 Default Under Related Documents. Any guaranty, security agreement, or
other document required by this Agreement is violated or no longer in effect.
8.10 Other Bank Agreements. The Borrower (or any guarantor) fails to meet
the conditions of, or fails to perform any obligation under any other
agreement the Borrower (or any guarantor) has with the Bank or any affiliate
of the Bank.
8.11 ERISA Plans. The occurrence of any one or more of the following events
with respect to the Borrower, provided such event or events could reasonably
be expected, in the judgment of the Bank, to subject the Borrower to any tax,
penalty or liability (or any combination of the foregoing) which, in the
aggregate, could have a material adverse effect on the financial condition of
the Borrower with respect to a Plan:
(a) A reportable event shall occur with respect to a Plan which is, in the
reasonable judgment of the Bank likely to result in the termination of
such Plan for purposes of Title IV of ERISA.
(b) Any Plan termination (or commencement of proceedings to terminate a
Plan) or the Borrower's full or partial withdrawal from a Plan.
8.12 Other Breach Under Agreement. The Borrower fails to meet the
conditions of, or fails to perform any obligation under, any term of this
Agreement not specifically referred to in this Article. If, in the Bank's
opinion, the breach is capable of being remedied, the breach will not be
considered an event of default under this Agreement for a period of thirty
(30) days after the date on which the Bank gives written notice of the breach
to the Borrower; provided, however, that the Bank will not be obligated to
extend any additional credit to the Borrower during that period.
9. ENFORCING THIS AGREEMENT; MISCELLANEOUS
9.1 GAAP. Except as otherwise stated in this Agreement, all financial
information provided to the Bank and all financial covenants will be made
under generally accepted accounting principles, consistently applied.
9.2 California Law. This Agreement is governed by California law.
9.3 Successors and Assigns. This Agreement is binding on the Borrower's
and the Bank's successors and assignees. The Borrower agrees that it may not
assign this Agreement without the Bank's prior consent. Subject to the
Borrower's prior written consent in each case, the Bank
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<PAGE>
may sell participations in or assign this loan, and may exchange financial
information about the Borrower with actual or potential participants or
assignees. If a participation is sold or the loan is assigned, the purchaser
will have the right of set-off against the Borrower.
9.4 Arbitration.
(a) This paragraph concerns the resolution of any controversies or claims
between the Borrower and the Bank, including but not limited to those
that arise from:
(i) This Agreement (including any renewals, extensions or
modifications of this Agreement);
(ii) Any document, agreement or procedure related to or delivered in
connection with this Agreement;
(iii) Any violation of this Agreement; or
(iv) Any claims for damages resulting from any business conducted
between the Borrower and the Bank, including claims for injury to
persons, property or business interests (torts).
(b) At the request of the Borrower or the Bank, any such controversies or
claims will be settled by arbitration in accordance with the United
States Arbitration Act. The United States Arbitration Act will apply
even though this Agreement provides that it is governed by California
law.
(c) Arbitration proceedings will be administered by the American
Arbitration Association and will be subject to its commercial rules of
arbitration.
(d) For purposes of the application of the statute of limitations, the
filing of an arbitration pursuant to this paragraph is the equivalent of
the filing of a lawsuit, and any claim or controversy which may be
arbitrated under this paragraph is subject to any applicable statute of
limitations. The arbitrators will have the authority to decide whether
any such claim or controversy is barred by the statute of limitations
and, if so, to dismiss the arbitration on that basis.
(e) If there is a dispute as to whether an issue is arbitrable, the
arbitrators will have the authority to resolve any such dispute.
(f) The decision that results from an arbitration proceeding may be
submitted to any authorized court of law to be confirmed and enforced.
(g) The procedure described above will not apply if the controversy or
claim, at the time of the proposed submission to arbitration, arises from
or relates to an obligation to the Bank
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<PAGE>
secured by real property located in California. In this case, both the
Borrower and the Bank must consent to submission of the claim or
controversy to arbitration. If both parties do not consent to
arbitration, the controversy or claim will be settled as follows:
(i) The Borrower and the Bank will designate a referee (or a panel of
referees) selected under the auspices of the American Arbitration
Association in the same manner as arbitrators are selected in
Association-sponsored proceedings;
(ii) The designated referee (or the panel of referees) will be
appointed by a court as provided in California Code of Civil
Procedure Section 638 and the following related sections;
(iii) The referee (or the presiding referee of the panel) will be an
active attorney or a retired judge; and
(iv) The award that results from the decision of the referee (or the
panel) will be entered as a judgment in the court that appointed
the referee, in accordance with the provisions of California Code
of Civil Procedure Sections 644 and 645.
(h) This provision does not limit the right of the Borrower or the Bank to:
(i) exercise self-help remedies such as setoff;
(ii) foreclose against or sell any real or personal property
collateral; or
(iii) act in a court of law, before, during or after the arbitration
proceeding to obtain:
(A) an interim remedy; and/or
(B) additional or supplementary remedies.
(i) The pursuit of or a successful action for interim, additional or
supplementary remedies, or the filing of a court action, does not
constitute a waiver of the right of the Borrower or the Bank, including
the suing party, to submit the controversy or claim to arbitration if
the other party contests the lawsuit. However, if the controversy or
claim arises from or relates to an obligation to the Bank which is
secured by real property located in California at the time of the
proposed submission to arbitration, this right is limited according to
the provision above requiring the consent of both the Borrower and the
Bank to seek resolution through arbitration.
(j) If the Bank forecloses against any real property securing this Agreement,
the Bank has the option to exercise the power of sale under the deed of
trust or mortgage, or to proceed by judicial foreclosure.
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<PAGE>
9.5 Severability; Waivers. If any part of this Agreement is not
enforceable, the rest of the Agreement may be enforced. The Bank retains all
rights, even if it makes a loan after default. If the Bank waives a default,
it may enforce a later default. Any consent or waiver under this Agreement
must be in writing.
9.6 Administration Costs. The Borrower shall pay the Bank for all
reasonable costs incurred by the Bank in connection with administering this
Agreement.
9.7 Attorneys' Fees. The Borrower shall reimburse the Bank for any
reasonable costs and attorneys' fees incurred by the Bank in connection with
the enforcement or preservation of any rights or remedies under this
Agreement and any other documents executed in connection with this Agreement,
and including any amendment, waiver, "workout" or restructuring under this
Agreement. In the event of a lawsuit or arbitration proceeding, the
prevailing party is entitled to recover costs and reasonable attorneys' fees
incurred in connection with the lawsuit or arbitration proceeding, as
determined by the court or arbitrator. As used in this paragraph,
"attorneys' fees" includes the allocated costs of in-house counsel.
9.8 One Agreement. This Agreement and any related security or other
agreements required by this Agreement, collectively:
(a) represent the sum of the understandings and agreements between the Bank
and the Borrower concerning this credit; and
(b) replace any prior oral or written agreements between the Bank and the
Borrower concerning this credit; and
(c) are intended by the Bank and the Borrower as the final, complete and
exclusive statement of the terms agreed to by them.
In the event of any conflict between this Agreement and any other agreements
required by this Agreement, this Agreement will prevail.
9.9 Notices. All notices required under this Agreement shall be personally
delivered or sent by first class mail, postage prepaid, to the addresses on
the signature page of this Agreement, or to such other addresses as the Bank
and the Borrower may specify from time to time in writing.
9.10 Headings. Article and paragraph headings are for reference only and
shall not affect the interpretation or meaning of any provisions of this
Agreement.
9.11 Counterparts. This Agreement may be executed in as many counterparts
as necessary or convenient, and by the different parties on separate
counterparts each of which, when so executed, shall be deemed an original but
all such counterparts shall constitute but one and the same agreement.
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This Agreement is executed as of the date stated at the top of the first page.
[LOGO]
Bank of America
National Trust and Savings Association Dura Pharmaceuticals, Inc.
X /s/ SUSAN J. PEPPING X /s/ JAMES W. NEWMAN
---------------------------------- -------------------------------
By: Susan J. Pepping By: Jim Newman
Title: Vice President Title: Sr. Vice President,
Finance and Administration
Address where notices to the Bank Address where notices to the
are to be sent: Borrower are to be sent:
San Diego RCBO #1450 5880 Pacific Center Boulevard
450 B Street, Suite 100 San Diego, California 92121-4204
San Diego, California 92101
<PAGE>
EXHIBIT 10.4
DURA PHARMACEUTICALS, INC.
1992 STOCK OPTION PLAN
EFFECTIVE DECEMBER 9, 1992; AS AMENDED JUNE 2, 1994; AS
AMENDED MAY 25, 1995; AS AMENDED MAY 29, 1996
AS AMENDED JULY 1, 1996; AS AMENDED FEBRUARY 19, 1997
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
A. IMPLEMENTATION. This 1992 Stock Option Plan ("PLAN") is implemented
as of December 9, 1992 ("EFFECTIVE DATE"), to enable Dura Pharmaceuticals, Inc.
("COMPANY") to grant options to the following eligible individuals ("ELIGIBLE
INDIVIDUALS") in order to attract them and to retain their services: (a) key
employees (including officers and directors) of the Company or its subsidiaries
or any parent corporation who are primarily responsible for the management,
growth and financial success of the Company or its subsidiaries, (b) non-
employee members of the Board of Directors ("BOARD") of the Company or any of
its subsidiaries, and (c) consultants and independent contractors who perform
valuable services for the Company or its subsidiaries.
B. SUCCESSOR PLAN. This Plan is a successor to the Company Stock Option
Plan that was adopted by the Board in 1983 ("1983 PLAN"). No further option
grants (including, but not limited to automatic option grants) will be made
under the 1983 Plan on and after the Effective Date of this Plan. All options
outstanding under the 1983 Plan on the Effective Date are hereby incorporated
into this Plan and will be treated as outstanding options under this Plan. Each
outstanding option so incorporated will continue to be governed solely by the
express terms and conditions of the instruments evidencing such grant. No
provision of this Plan will be deemed to affect or otherwise modify the rights
or obligations of the holders of such incorporated options with respect to their
acquisition of shares of the Company's Common Stock under the terms of the
incorporated options.
II. ADMINISTRATION OF THE PLAN
A. COMMITTEE. The Plan will be administered by the Board of Directors or
by a committee or committees appointed by the Board, and consisting of two or
more members of the Board. The Board may delegate the responsibility for
administration of the Plan with respect to designated classes of optionees to
different committees, subject to such limitations as the Board deems
appropriate. With respect to any matter, the term "COMMITTEE," when used in
this Plan, will refer to the committee that has been delegated authority with
respect to such matter. Members of a committee will serve for such term as the
Board may determine, and will be subject to removal by the Board at any time.
B. SECTION 16(b) COMMITTEE. Notwithstanding any other provision of this
Agreement, each grant of an option or other transaction between the Company and
any Section 16 Insider shall be valid and enforceable only if approved by the
Board of Directors or by a committee composed exclusively of two or more Non-
Employee Directors. For this purpose, a "Section 16 Insider" shall mean an
officer or director of the Corporation subject to the short-swing profit
liabilities of Section 16 of the 1934 Act, and a Non-Employee Director shall
have the meaning set forth in Rule 16b-3(b)(3).
<PAGE>
C. AUTHORITY. Any Committee will have full authority to administer the
Plan within the scope of its delegated responsibilities, including authority to
interpret and construe any relevant provision of the Plan, to adopt such rules
and regulations as it may deem necessary, and to determine the terms of grants
made under the Plan (which need not be identical). Decisions of a Committee
made within the discretion delegated to it by the Board will be final and
binding on all persons.
III. STOCK SUBJECT TO THE PLAN
A. NUMBER OF SHARES. Shares of the Company's Common Stock available for
issuance under the Plan shall be drawn from either the Company's authorized but
unissued shares of Common Stock or from reacquired shares of Common Stock,
including shares repurchased by the Company on the open market. The maximum
number of shares of Common Stock that may be issued over the term of the Plan
shall not exceed 7,607,360 shares, subject to adjustment from time to time in
accordance with the provisions of this Section. This authorized share reserve
is comprised of (i) the number of shares remaining available for issuance under
the 1983 Plan as of the Effective Date, including the shares subject to the
outstanding options incorporated into this Plan and any other shares that would
have been available for future option grant under the 1983 Plan, plus (ii) an
additional 416,040 shares of Common Stock, plus (iii) an additional increase of
750,000 shares of Common Stock, plus (iv) an additional increase of 1,000,000
shares of Common Stock, plus (v) an additional increase of 1,500,000 shares of
Common Stock, plus (vi) an additional increase of 1,600,000 shares of Common
Stock. Accordingly, to the extent one or more outstanding options under the
1983 Plan that have been incorporated into this Plan are subsequently exercised,
the number of shares issued with respect to each such option will reduce, on a
share-for-share basis, the number of shares available for issuance under this
Plan.
B. EXPIRED OPTIONS. Should an outstanding option under this Plan
(including any outstanding option under the 1983 Plan incorporated into this
Plan) expire or terminate for any reason prior to exercise in full (including
any option cancelled in accordance with the cancellation-regrant provisions of
this Plan), the shares subject to the portion of the option not so exercised
will be available for subsequent option grant under this Plan. Shares subject
to any option or portion thereof cancelled in accordance with the stock
appreciation (or limited stock appreciation) rights provisions of this Plan will
NOT be available for subsequent option grant under the Plan.
C. ADJUSTMENTS. If any change is made to the Common Stock issuable under
the Plan (including Common Stock issuable under an Automatic Option Grant) by
reason of any stock split, stock dividend, recapitalization, combination of
shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without receipt of consideration, then appropriate adjustments
will be made to (i) the number and/or class of shares issuable under the Plan,
(ii) the number and/or class of shares and price per share in effect under each
outstanding option under the Plan, and (iii) the number and/or class of shares
and price per share in effect under each outstanding option incorporated into
this Plan from the 1983 Plan. The purpose of these adjustments will be to
preclude the enlargement or dilution of rights and benefits under the options.
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<PAGE>
ARTICLE TWO
STANDARD OPTION PROVISIONS
I. TERMS AND CONDITIONS OF OPTIONS
A. COMMITTEE DISCRETION.
(1) Except as provided under the Automatic Option Grant provisions of
this Plan, the Committee will have full authority to determine which Eligible
Individuals are to receive option grants under the Plan, the number of shares to
be governed by each such grant, whether the option is to be an incentive stock
option ("INCENTIVE OPTION") that satisfies the requirements of Section 422 of
the Internal Revenue Code or a non-qualified option not intended to satisfy such
requirements ("NON-QUALIFIED OPTION"), the time or times at which each such
option is to become exercisable, and the maximum term for which the option is to
remain outstanding.
(2) Notwithstanding any other provision of this Plan, no individual
shall be granted options to acquire more than 400,000 shares in any fiscal year
or 1,500,000 shares over the lifetime of the Plan.
B. TERM. No option granted under the Plan will be exercisable after the
expiration of 10 years from the date the option was granted.
C. PRICE. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than 100% percent of the Fair Market Value
per share of Common Stock on the option grant date, provided that the Plan
Administrator may fix the exercise price at less than 100% if the optionee, at
the time of the option grant, shall have made a payment to the Company
(including payment made by means of an agreed salary reduction) equal to the
excess of the Fair Market Value of the Common Stock on the option grant date
over such exercise price.
D. EXERCISE AND PAYMENT. After any option granted under the Plan becomes
exercisable, it may be exercised by notice to the Company at any time prior to
the termination of such option. The option price will be payable in full in
cash or check made payable to the Company; provided, however, that the Committee
may, either at the time the option is granted or at the time it is exercised and
subject to such limitations as it may determine, authorize payment of all or a
portion of the option price in one or more of the following alternative forms:
(1) a promissory note authorized pursuant to Section IV of this
Article; or
(2) full payment in shares of Common Stock valued as of the exercise
date and held for the requisite period to avoid a charge to the Company's
earnings; or
(3) full payment through a sale and remittance procedure under which
the option holder delivers a properly executed exercise notice together with
irrevocable instructions to a broker to promptly deliver to the Company the
amount of sale proceeds to pay the option prices.
For purposes of Subparagraphs (1) and (3) immediately above, the Exercise Date
shall be the date on which written notice of the exercise of the option is
delivered to the Company. In all other cases, the Exercise Date will be the
date on which written notice and actual payment is received by the Company.
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<PAGE>
The sale and remittance procedure authorized for the exercise of
outstanding options under this Plan shall be available for all options granted
under this Plan on or after the Effective Date and for all non-qualified options
outstanding under the 1983 Plan and incorporated into this Plan. The Plan
Administrator may also allow such procedure to be utilized in connection with
one or more disqualifying dispositions of Incentive Option shares effected after
the Effective Date, whether such Incentive Options were granted under this Plan
or the 1983 Stock Option Plan.
E. SHAREHOLDER RIGHTS. An option holder will have no shareholder rights
with respect to any shares covered by an option (including an Automatic Option
Grant) prior to the Exercise Date of the option, as defined in the immediately
preceding Paragraph and in the Automatic Option Grant provisions of Section II
of Article Three of this Plan.
F. SEPARATION FROM SERVICE. The Committee will determine whether options
will continue to be exercisable, and the terms of such exercise, on and after
the date that an optionee ceases to be employed by, or to provide services to,
the Company or its subsidiaries PROVIDED, however, that in no event will an
option be exercisable after the specified expiration date of the option term.
The date of termination of an optionee's employment or services will be
determined by the Committee, which determination will be final.
G. INCENTIVE OPTIONS. Options granted under the Plan that are intended
to be Incentive Options will be subject to the following additional terms:
(1) DOLLAR LIMITATION. The aggregate fair market value (determined
as of the respective date or dates of grant) of the Common Stock for which one
or more options granted to any Employee after December 31, 1986 under this Plan
(or any other option plan of the Company or its parent or subsidiary
corporations) may for the first time become exercisable as incentive stock
options under the Federal tax laws during any one calendar year shall not exceed
the sum of $100,000. To the extent the Employee holds two or more such options
which become exercisable for the first time in the same calendar year, the
foregoing limitation on the exercisability of such options as incentive stock
options under the Federal tax laws shall be applied on the basis of the order in
which such options are granted.
(2) 10% SHAREHOLDER. If any employee to whom an Incentive Option is
to be granted pursuant to the provisions of the Plan is, on the date of grant,
the owner of stock (determined with application of the ownership attribution
rules of Section 424(d) of the Internal Revenue Code) possessing more than 10%
of the total combined voting power of all classes of stock of his or her
employer corporation or of its parent or subsidiary corporation ("10%
SHAREHOLDER"), then the following special provisions will apply to the option
granted to such individual:
(i) The option price per share of the stock subject to such
Incentive Option will not be less than 110% of the Fair Market Value of the
option shares on the date of grant; and
(ii) The option will not have a term in excess of 5 years from
the date of grant.
(3) PARENT AND SUBSIDIARY. For purposes of this Section, "PARENT
CORPORATION" and "SUBSIDIARY CORPORATION" will have the meaning attributed to
those terms, as they are used in Section 422(b) of the Internal Revenue Code.
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<PAGE>
(4) EMPLOYEES. Incentive Options may only be granted to employees of
the Company or its subsidiaries.
H. FAIR MARKET VALUE. For all purposes under this Plan (including, but
not limited to Automatic Option Grants) the fair market value per share of
Common Stock on any relevant date under the Plan ("FAIR MARKET VALUE") will be
determined as follows:
(1) If the Common Stock is not at the time listed or admitted to
trading on any national stock exchange but is traded in the over-the-counter
market, the fair market value will be the mean between the highest bid and
lowest asked prices (or, if such information is available, the closing selling
price) per share of Common Stock on the date in question in the over-the-counter
market, as such prices are reported by the National Association of Securities
Dealers through its NASDAQ system or any successor system. If there are no
reported bid and asked prices (or closing selling price) for the Common Stock on
the date in question, then the mean between the highest bid price and lowest
asked price (or the closing selling price) on the last preceding date for which
such quotations exist will be determinative of fair market value.
(2) If the Common Stock is at the time listed or admitted to trading
on any national stock exchange, then the fair market value will be the closing
selling price per share of Common Stock on the date in question on the stock
exchange determined by the Committee to be the primary market for the Common
Stock, as such price is officially quoted in the composite tape of transactions
on such exchange. If there is no reported sale of Common Stock on such exchange
on the date in question, then the fair market value will be the closing selling
price on the exchange on the last preceding date for which such quotation
exists.
(3) If the Common Stock is at the time neither listed nor admitted to
trading on any stock exchange nor traded in the over-the-counter market, then
the fair market value will be determined by the Committee after taking into
account such factors as the Committee shall deem appropriate.
I. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or by the laws of descent
and distribution following the Optionee's death. However, a Non-Qualified
Option may be assigned in whole or in part during the Optionee's lifetime. The
assigned portion may only be exercised by the person or persons who acquire a
proprietary interest in the option pursuant to the assignment. The terms
applicable to the assigned portion shall be the same as those in effect for the
option immediately prior to such assignment and shall be set forth in such
documents issued to the assignee as the Plan Administrator may deem appropriate.
II. STOCK APPRECIATION RIGHTS
If, and only if the Committee, in its discretion, elects to implement an
option surrender program under the Plan, one or more option holders may, upon
such terms as the Committee may establish at the time of the option grant or at
any time thereafter, be granted the right to surrender all or part of an
unexercised option in exchange for a distribution equal in amount to the
difference between (i) the Fair Market Value (at date of surrender) of the
shares for which the surrendered option or portion thereof is at the time
exercisable and (ii) the aggregate option price payable for such shares. The
distribution to which an option holder becomes entitled under this
-5-
<PAGE>
Section may be made in shares of Common Stock, valued at Fair Market Value at
the date of surrender, in cash, or partly in shares and partly in cash, as
the Committee, in its sole discretion, deems appropriate. The option
surrender provisions of this Section will not apply to options granted
pursuant to the Automatic Option Grant provisions of this Plan.
III. CORPORATE TRANSACTION/CHANGE OF CONTROL/HOSTILE TAKEOVER
A. CORPORATE TRANSACTION. In the event of any of the following
transactions ("CORPORATE TRANSACTION"):
(1) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of which is to
change the state of the Company's incorporation,
(2) the sale, transfer or other disposition of all or substantially
all of the assets of the Company in liquidation or dissolution of the Company,
(3) any reverse merger in which the Company is the surviving entity
but in which fifty percent (50%) or more of the Company's outstanding voting
stock is transferred to holders different from those who held such securities
immediately prior to such merger, or
(4) an acquisition by any person or related group of persons (other
than the Company or a person that directly or indirectly controls, is controlled
by or is under common control with, the Company) of ownership of more than fifty
percent (50%) of the Company's outstanding Common Stock, pursuant to a tender or
exchange offer,
the exercisability of each option at the time outstanding under this Article Two
shall automatically accelerate so that each such option shall, immediately prior
to the specified effective date for the Corporate Transaction, become fully
exercisable with respect to the total number of shares of Common Stock at the
time subject to such option and may be exercised for all or any portion of such
shares. Upon the consummation of the Corporate Transaction, all outstanding
options under this Article Two shall terminate and cease to be outstanding.
B. HOSTILE TAKEOVER. One or more officers of the Company subject to the
short-swing profit restrictions of the Federal securities laws may, in the
Committee's sole discretion, be granted, in tandem with their outstanding
options, limited stock appreciation rights as described below. In addition all
Automatic Option Grants under this Plan will be made in tandem with limited
stock appreciation rights as described below.
(1) Upon the occurrence of a Hostile Takeover, each outstanding
option with such a limited stock appreciation right in effect for at least
six (6) months will automatically be cancelled in return for a cash
distribution from the Company in an amount equal to the excess of (i) the
Takeover Price (defined below) of the shares of Common Stock at the time
subject to the cancelled option (whether or not the option is otherwise at
the time exercisable for such shares) over (ii) the aggregate exercise price
payable for such shares. The cash distribution payable upon such cancellation
shall be made within five (5) days following the consummation of the Hostile
Takeover. Neither the approval of the Committee nor the consent of the Board
shall be required in connection with such option cancellation and cash
distribution.
(2) For purposes of the limited stock appreciation rights described
above, the following definitions shall be in effect:
-6-
<PAGE>
(i) A Hostile Takeover shall be deemed to occur upon the
acquisition by any person or related group of persons (other than the Company or
a person that directly or indirectly controls, is controlled by, or is under
common control with, the Company) of ownership of more than 50% of the Company's
outstanding Common Stock (excluding the Common Stock holdings of officers and
directors of the Company who participate in this Plan) pursuant to a tender or
exchange offer which the Board does not recommend the Company's shareholders
accept.
(ii) The Takeover Price per share shall be deemed to be equal to
the GREATER of (a) the Fair Market Value per share on the date of cancellation,
or (b) the highest reported price per share paid in effecting the Hostile
Takeover. However, if the cancelled option is an Incentive Option, the Takeover
Price shall not exceed the clause (a) price per share.
C. COMPANY RIGHTS. The grant of options (including Automatic Option
Grants) under this Plan shall in no way affect the right of the Company to
adjust, reclassify, reorganize or otherwise change its capital or business
structure or to merge, consolidate, dissolve, liquidate or sell or transfer all
or any part of its business or assets.
IV. LOANS OR GUARANTEE OF LOANS
The Committee may assist any optionee (including any officer) in the
exercise of one or more outstanding options under this Article by (a)
authorizing the extension of a loan to such optionee from the Company, (b)
permitting the optionee to pay the option price for the purchased Common
Stock in installments over a period of years or (c) authorizing a guarantee
by the Company of a third-party loan to the optionee. The terms of any loan,
installment method of payment or guarantee (including the interest rate and
terms of repayment) will be established by the Committee in its sole
discretion. Loans, installment payments and guarantees may be granted without
security or collateral (other than to optionees who are consultants or
independent contractors, in which event the loan must be adequately secured
by collateral other than the purchased shares), but the maximum credit
available to the optionee shall not exceed the SUM of (i) the aggregate
option price (less par value) of the purchased shares plus (ii) any federal
and state income and employment tax liability incurred by the optionee in
connection with the exercise of the option. Automatic Option Grants will not
be subject to these loan and loan guarantee provisions.
V. CANCELLATION AND REGRANT OF OPTIONS
The Committee shall have the authority to effect, at any time and from time
to time, with the consent of the affected optionees, the cancellation of any or
all outstanding options under this Article (including outstanding options under
the 1983 Plan incorporated into this Plan) and to grant in substitution new
options under the Plan covering the same or different numbers of shares of
Common Stock but having an option price per share not less than 100% of the fair
market value of the Common Stock on the new grant date. Automatic Option Grants
will not be subject to these cancellation and regrant provisions.
VI. REPURCHASE RIGHTS
The Committee may in its discretion determine that it shall be a term and
condition of one or more options exercised under the Plan that the Company (or
its assigns) shall have the right, exercisable upon the optionee's separation
from service with the Company and its subsidiaries, to repurchase any or all of
the shares of Common Stock previously acquired by the optionee upon the exercise
of such option. Any such repurchase right shall be exercisable upon such terms
and conditions (including the establishment of the appropriate vesting schedule
and
-7-
<PAGE>
other provisions for the expiration of such right in one or more
installments) as the Committee may specify in the instrument evidencing such
right. The Committee shall also have full power and authority to provide for
the automatic termination of these repurchase rights, in whole or in part,
and thereby accelerate the vesting of any or all of the purchased shares.
ARTICLE THREE
AUTOMATIC OPTION GRANT PROGRAM
I. GRANTS
A. AUTOMATIC OPTION GRANTS. Non-employee members of the Board will
automatically be granted Non-Qualified Options to purchase the number of shares
of Common Stock set forth below (subject to adjustment under Section III(C) of
Article One of this Plan) on the dates and pursuant to the terms set forth below
("AUTOMATIC OPTION GRANTS").
B. CONTINUING DIRECTORS. On the date of each Annual Shareholders Meeting
of the Company held after the Effective Date of this Plan, each continuing non-
employee member of the Board will receive an Automatic Option Grant to purchase
8,000 shares of Common Stock; provided, however, that an individual who has not
served as a non-employee member of the Board for the immediately preceding 180
days will not receive such a grant.
C. NEW DIRECTORS. Each individual person who is newly elected or
appointed as a non-employee member of the Board on or after the Effective Date
of this Plan will receive, on the effective date of such election or
appointment, an Automatic Option Grant to purchase 30,000 shares of Common
Stock.
II. TERMS
The terms applicable to each Automatic Option Grant will be as follows:
A. PRICE. The option price per share will be equal to 100% of the Fair
Market Value of a share of Common Stock on the date of grant.
B. OPTION TERM. Each Automatic Option Grant will have a maximum term of
10 years measured from the automatic grant date.
C. EXERCISABILITY. Each Automatic Option Grant will become exercisable
for all Automatic Option Grant shares one (1) year after the automatic grant
date, provided the optionee continues to serve as a Board member throughout that
one (1)-year period.
D. PAYMENT. Upon exercise of the option, the option price for the
purchased shares will become payable immediately in one or more of the following
alternative forms: cash, shares of Common Stock held for the requisite period
to avoid a charge to the Company's reported earnings and valued at Fair Market
Value on the Exercise Date (as defined below), or pursuant to a sale and
remittance procedure under which the option holder delivers a properly executed
exercise notice together with irrevocable instructions to a broker to promptly
deliver to the Company the amount of sale proceeds to pay the option price. For
these purposes, the Exercise Date shall be the date on which written notice of
the exercise of the option is delivered to the Company. Except to the extent
the sale and remittance procedure specified above is utilized for the exercise
of the option, payment of the exercise price for the purchased shares must
accompany the notice.
-8-
<PAGE>
E. EFFECT OF TERMINATION OF BOARD MEMBERSHIP.
(1) Should the optionee cease to be a Board member for any reason
(other than death) while holding one or more Automatic Option Grants, then the
optionee will have 6 months following the date of such cessation of Board
membership in which to exercise each such option for any or all of the shares of
Common Stock for which the option is exercisable at the time Board membership
ceases; provided however, that in no event may such an option be exercised after
the expiration of its 10-year term.
(2) Should the optionee die while holding one or more Automatic
Option Grants, then each such option may subsequently be exercised, for any or
all of the shares of Common Stock for which the option is exercisable at the
time of the optionee's death, by the personal representative of the optionee's
estate or by the person or persons to whom the option is transferred pursuant to
the optionee's Will or in accordance with the laws of descent and distribution.
Any such exercise must, however, occur before the earlier of (i) the expiration
of the option's 10-year term, or (ii) 12 months after the date of the
optionee's death.
F. ACCELERATION. Automatic Option Grants will be subject to acceleration
and termination in the event of a Corporate Transaction as described in Article
Two, Section III.A. of this Plan.
G. HOSTILE TAKEOVER. Automatic Option Grants will be granted in tandem
with limited stock appreciation rights, as described in the Hostile Takeover
provisions contained in Article Two, Section III.B. of this Plan.
ARTICLE FOUR
MISCELLANEOUS
I. AMENDMENT OF THE PLAN
A. GENERAL RULES. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects whatsoever.
However, no such amendment or modification shall, without the consent of the
option holders, adversely affect rights and obligations with respect to options
at the time outstanding under the Plan. In addition, certain amendments may be
made conditional on first having obtained stockholder approval if required by
the Board or pursuant to any applicable laws or regulations.
B. AUTOMATIC OPTION GRANTS. Amendment of the Automatic Option Grant
provisions of this Plan is subject to the requirements outlined above. In
addition, the Automatic Option Grant provisions of this Plan may not be amended
more than once every 6 months, other than to comport with changes in the
Internal Revenue Code or rules thereunder.
C. AMENDMENT OF OPTIONS. The Committee shall have full power and
authority to modify or waive any or all of the terms, conditions or restrictions
applicable to any outstanding option, to the extent not inconsistent with the
Plan; provided, however, that no such modification or waiver shall (1) without
the consent of the option holder, adversely affect the holder's rights
thereunder or (2) affect any outstanding option granted pursuant to the
Automatic Option Grant provisions of this Plan except to the extent necessary to
conform to any amendment to this Plan.
-9-
<PAGE>
II. TAX WITHHOLDING
A. OBLIGATION. The Company's obligation to deliver shares or cash upon
the exercise of stock options or stock appreciation rights granted under the
Plan is subject to the satisfaction of all applicable Federal, State and local
income and employment tax withholding requirements.
B. STOCK WITHHOLDING. The Plan Administrator may, in its discretion and
upon such terms and conditions as it may deem appropriate (including the
applicable safe-harbor provisions of SEC Rule 16b-3) provide any or all holders
of outstanding option grants under the Plan with the election to have the
Company withhold, from the shares of Common Stock otherwise issuable upon the
exercise of such options, one or more of such shares with an aggregate fair
market value equal to the designated percentage (any multiple of 5% specified by
the optionee) of the Federal and State income taxes ("Taxes") incurred in
connection with the acquisition of such shares. In lieu of such direct
withholding, one or more optionees may also be granted the right to deliver
shares of Common Stock to the Company in satisfaction of such Taxes. The
withheld or delivered shares shall be valued at the Fair Market Value on the
applicable determination date for such Taxes or such other date required by the
applicable safe-harbor provisions of SEC Rule 16b-3.
III. EFFECTIVE DATE AND TERM OF PLAN
A. IMPLEMENTATION. This Plan, as successor to the Company's 1983 Stock
Option Plan, shall become effective as of the Effective Date, and no further
option grants shall be made under the 1983 Plan on or after the Effective Date
of this Plan. If shareholder approval of the 1,600,000-share increase is not
obtained by February 19, 1998, then each option granted under this Plan subject
to this share increase shall terminate without ever becoming exercisable for the
option shares and all shares issued hereunder shall be repurchased by the
Corporation at the purchase price paid, together with interest (at the
applicable Short Term Federal Rate). Subject to the foregoing limitations,
options may be granted under this Plan at any time from and after the Effective
Date of the Plan and before the date fixed herein for termination of the Plan.
B. TERMINATION. Unless sooner terminated due to a Corporate Transaction
or a Change in Control, the Plan will terminate upon the EARLIER of (i) October
8, 2003, or (ii) the date on which all shares available for issuance under the
Plan have been issued or cancelled pursuant to exercise, surrender or cash-out
of options. If the date of termination is determined under clause (i) above,
then options outstanding on such date shall thereafter continue to have force
and effect in accordance with the provisions of the instruments evidencing those
options.
C. ADDITIONAL SHARES. Options to purchase shares of Common Stock may be
granted under the Plan which are in excess of the number of shares then
available for issuance under the Plan, provided any excess shares actually
issued are held in escrow until shareholder approval is obtained for a
sufficient increase in the number of shares available for issuance under the
Plan. If such shareholder approval is not obtained within twelve (12) months
after the date the first such excess option grants are made, then (I) any
unexercised excess options shall terminate and cease to be exercisable and (II)
the Corporation shall promptly refund the purchase price paid for any excess
shares actually issued under the Plan and held in escrow, together with interest
(at the applicable Short Term Federal Rate) for the period the shares were held
in escrow.
III. USE OF PROCEEDS
Any cash proceeds received by the Company from the sale of shares pursuant
to options granted under the Plan shall be used for general corporate purposes.
-10-
<PAGE>
IV. REGULATORY APPROVALS
The implementation of the Plan, the granting of any option under the Plan,
and the issuance of stock upon the exercise or surrender of any such option
shall be subject to the procurement by the Company of all approvals and permits
required by regulatory authorities having jurisdiction over the Plan, the
options granted under it and the stock issued pursuant to it.
V. NO EMPLOYMENT/SERVICE RIGHTS
Neither the establishment of this Plan, nor any action taken under the
terms of this Plan, nor any provision of this Plan shall be construed so as to
grant any individual the right to remain in the employ or service of the Company
(or any parent or subsidiary corporation) for any period of specific duration,
and the Company (or any parent or subsidiary corporation retaining the services
of such individual) may terminate such individual's employment or service at any
time and for any reason, with or without cause.
<PAGE>
EXHIBIT 11
DURA PHARMACEUTICALS, INC.
STATEMENTS RE COMPUTATIONS OF NET INCOME PER SHARE
IN THOUSANDS, EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ --------------------
1996 1997 1996 1997
------------------ --------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net Income ................................... $ 4,609 $ 9,282 $ 8,665 $ 18,069
------- -------- -------- --------
------- -------- -------- --------
Weighted Average Number of Common and Common
Equivalent Shares:
Common stock ............................... 33,819 43,672 32,598 43,511
Stock options .............................. 1,933 1,118 1,955 1,147
Warrants ................................... 2,927 2,537 2,724 2,627
------- -------- -------- --------
Total ..................................... 38,679 47,327 37,277 47,285
------- -------- -------- --------
------- -------- -------- --------
Net Income per Share ......................... $ 0.12 $ 0.20 $ 0.23 $ 0.38
------- -------- -------- --------
------- -------- -------- --------
FULLY DILUTED NET INCOME PER SHARE:
Net Income ................................... $ 4,609 $ 9,282 $ 8,665 $ 18,069
------- -------- -------- --------
------- -------- -------- --------
Weighted Average Number of Common and Common
Equivalent Shares Assuming Issuance of All
Dilutive Contingent Shares:
Common stock ............................... 33,819 43,672 32,598 43,511
Stock options .............................. 1,934 1,174 2,064 1,172
Warrants ................................... 2,928 2,640 3,007 2,683
------- -------- -------- --------
Total ..................................... 38,681 47,486 37,669 47,366
------- -------- -------- --------
------- -------- -------- --------
Net Income per Share ......................... $ 0.12 $ 0.20 $ 0.23 $ 0.38
------- -------- -------- --------
------- -------- -------- --------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1997, AND THE RELATED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND THE NOTES THERETO, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 41,008
<SECURITIES> 145,186
<RECEIVABLES> 22,975
<ALLOWANCES> 0
<INVENTORY> 13,792
<CURRENT-ASSETS> 222,961
<PP&E> 44,000
<DEPRECIATION> 4,044
<TOTAL-ASSETS> 535,536
<CURRENT-LIABILITIES> 57,017
<BONDS> 0
0
0
<COMMON> 531,377
<OTHER-SE> (62,659)
<TOTAL-LIABILITY-AND-EQUITY> 535,536
<SALES> 0
<TOTAL-REVENUES> 84,523
<CGS> 15,946
<TOTAL-COSTS> 45,105
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 29,573
<INCOME-TAX> 11,504
<INCOME-CONTINUING> 18,069
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,069
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0.38
</TABLE>
