<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 16, 1997
REGISTRATION NO. 333-37673/37673-01
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
AMENDMENT NO. 4
TO FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SPIROS DEVELOPMENT CORPORATION II, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 5122
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>
7475 LUSK BOULEVARD, SAN DIEGO, CALIFORNIA 92121 (619) 457-2553
(Address and telephone number, including area code, of registrant's principal
executive offices)
------------------------------
AMENDMENT NO. 4
TO FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
DURA PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 5122 95-3645543
(State or other jurisdiction (Primary Standard Industrial (I.R.S.Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>
7475 LUSK BOULEVARD, SAN DIEGO, CALIFORNIA 92121 (619) 457-2553
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
CAM L. GARNER DAVID S. KABAKOFF
Chairman, President and Chief Chairman, President and Chief
Executive Officer Executive Officer
DURA PHARMACEUTICALS, INC. SPIROS DEVELOPMENT CORPORATION II,
INC.
7475 Lusk Boulevard c/o Dura Pharmaceuticals, Inc.
San Diego, California 92121 7475 Lusk Boulevard
(619) 457-2553 San Diego, California 92121
(619) 457-2553
(Name, address, including zip code, (Name, address, including zip code,
and telephone and telephone
number, including area code, of agent number, including area code, of agent
for service) for service)
------------------------------
COPIES TO:
FAYE H. RUSSELL, ESQ. MARK KESSEL, ESQ.
BROBECK, PHLEGER & HARRISON LLP SHEARMAN & STERLING
550 West "C" Street, Suite 1300 599 Lexington Avenue
San Diego, California 92101 New York, New York 10022
(619) 234-1966 (212) 848-4000
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
------------------------------
* If the securities being registered on this form are being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering: / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
------------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A)
MAY DETERMINE.
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* SOLELY WITH RESPECT TO THE FORM S-3.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED DECEMBER 16, 1997
PROSPECTUS
[LOGO]
4,687,500 UNITS
[LOGO]
SPIROS DEVELOPMENT CORPORATION II, INC.
DURA PHARMACEUTICALS, INC.
EACH UNIT CONSISTING OF
ONE SHARE OF CALLABLE COMMON STOCK, PAR VALUE $.001 PER SHARE,
OF SPIROS DEVELOPMENT CORPORATION II, INC. AND
ONE WARRANT TO PURCHASE ONE-FOURTH OF ONE SHARE OF COMMON STOCK,
PAR VALUE $.001 PER SHARE, OF DURA PHARMACEUTICALS, INC.
-------------------
The Callable Common Stock, par value $.001 per share (the "Spiros Corp. II
Common Stock"), of Spiros Development Corporation II, Inc. ("Spiros Corp. II")
and the Warrants (the "Warrants") to purchase one-fourth of one share of Common
Stock, par value $.001 per share (the "Dura Common Stock"), of Dura
Pharmaceuticals, Inc. ("Dura") which comprise the units (the "Units") will trade
only as units (and not separately) through December 31, 1999 or such earlier
date as the Purchase Option (as defined below) is exercised or expires
unexercised. Of the 4,687,500 Units offered hereby, 3,750,000 Units are being
offered initially in the United States and Canada by the U.S. Underwriters (the
"U.S. Offering") and 937,500 Units are being offered in a concurrent offering
outside the United States and Canada by the International Underwriters (the
"International Offering" and, together with the U.S. Offering, the "Offerings").
The initial public offering price and the underwriting discount per Unit will be
identical for both Offerings. See "Underwriting." It is currently estimated that
the public offering price will be between $15.00 and $17.00 per Unit.
Application has been made to have the Units listed for quotation on the Nasdaq
National Market under the symbol "SDCO." The Warrants are exercisable at any
time from January 1, 2000 through December 31, 2002. The exercise price of the
Warrants is $ per share of Dura Common Stock (currently anticipated to
be 125% of the closing price of Dura Common Stock on the date of the
Prospectus). See "Description of the Warrants." On December 15, 1997 the last
reported sales price of a share of Dura Common Stock on the Nasdaq National
Market was $44 3/4.
Immediately prior to the consummation of the Offerings, Dura will contribute
$75 million in cash to Spiros Corp. II. See "Prospectus Summary--The
Contribution."
Elan International Services, Ltd., a wholly owned subsidiary of Elan
Corporation, plc and a stockholder of Dura, has expressed an interest in
acquiring up to $15 million of the Units in the Offerings.
Prior to the Offerings, there has been no public market for the Units.
Spiros Corp. II will receive all of the net proceeds of the Offerings. Spiros
Corp. II will, pursuant to the terms of a development agreement, pay to Dura
substantially all of the net proceeds of the Offerings in research, clinical
development, product development and commercialization costs. See "Use of
Proceeds."
Beginning on the closing date of the Offerings and ending on the earlier of
(i) December 31, 2002 or (ii) the 90th day after Spiros Corp. II provides Dura
with quarterly financial statements of Spiros Corp. II showing cash or cash
equivalents of less than $5 million (which period may be extended by Dura under
certain circumstances but in no event beyond December 31, 2002), Dura will have
an option to purchase all (but not less than all) of the shares of Spiros Corp.
II Common Stock at a substantial premium over the offering price. The option
price may be paid in cash, shares of Dura Common Stock or any combination of the
foregoing, at Dura's sole discretion. The holders of Spiros Corp. II Common
Stock will be entitled to one vote per share; in a winding-up or liquidation of
Spiros Corp. II, the assets available for distribution shall be distributed pro
rata among the holders of shares of Spiros Corp. II Common Stock. See "The
Agreements and the Purchase Options--Stock Purchase Option."
At the request of Dura and Spiros Corp. II, the U.S. Underwriters have
reserved up to 552,200 Units for sale at the initial public offering price to
directors, officers, employees and business associates.
SEE "RISK FACTORS" BEGINNING ON PAGE 17 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN CONSIDERATIONS RELATED TO AN INVESTMENT IN THE UNITS.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) SPIROS CORP. II(2)
<S> <C> <C> <C>
Per Unit.............................................. $ $ $
Total(3).............................................. $ $ $
</TABLE>
(1) Spiros Corp. II and Dura have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933,
as amended. See "Underwriting."
(2) Before deducting expenses, estimated at $1,000,000, substantially all of
which will be paid by the Underwriters. See "Underwriting."
(3) Spiros Corp. II and Dura have granted the U.S. Underwriters and the
International Underwriters options, exercisable within 30 days after the
date hereof, to purchase up to an additional 562,500 and 140,625 Units,
respectively, on the same terms as set forth above solely to cover
over-allotments, if any. If the option is exercised in full, the total Price
to Public, Underwriting Discount, and Proceeds to Spiros Corp. II will be
$ , $ and $ , respectively. See "Underwriting."
------------------------
The Units are offered by the several Underwriters, subject to prior sale,
when, as and if issued to and accepted by the Underwriters, and subject to the
approval of certain legal matters by counsel for the Underwriters and certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
delivery of the Units will be made in New York, New York on or about ,
1997.
------------------------
MERRILL LYNCH & CO. DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
-------------------
The date of this Prospectus is , 1997.
<PAGE>
SPIROS-TM- PULMONARY DRY POWDER DRUG DELIVERY SYSTEM
[PHOTO OF INDIVIDUAL USING SPIROS-TM-]
Spiros-TM- is a proprietary dry powder delivery system under development
that is designed to aerosolize pharmaceuticals in dry powder formulations for
propellant-free delivery to the lungs.
Spiros-TM- features:
-- Inspiratory Flow Rate Independence
-- Minimum Need for Patient Coordination
-- Absence of Chlorofluorocarbon Propellants
-- Patient Convenience
Product candidates based on Spiros-TM- are in various stages of research or
development and have not been cleared by the United States Food and Drug
Administration for commercial sale. There can be no assurance that products will
be successfully developed or approved by regulatory authorities for commercial
sale.
[PHOTO OF SPIROS-TM- MODELS]
The Spiros cassette system, the first to be developed, was used in
clinical trials to support the Albuterol Spiros NDA submission,
and is currently in use in clinical trials with beclomethasone.
The Spiros blisterdisk system is being developed for use with
drugs sensitive to moisture or light.
CERTAIN PERSONS PARTICIPATING IN THE UNIT OFFERINGS MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF ANY OF
THE UNITS, THE SPIROS CORP. II COMMON STOCK, THE DURA COMMON STOCK OR THE
WARRANTS. SPECIFICALLY, THE REPRESENTATIVES OF THE UNDERWRITERS MAY OVER-ALLOT
IN CONNECTION WITH THE UNIT OFFERINGS, MAY BID FOR AND PURCHASE UNITS IN THE
OPEN MARKET AND MAY IMPOSE PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
2
<PAGE>
AVAILABLE INFORMATION
Dura is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports and other information with the Securities
and Exchange Commission (the "Commission"). Such reports and other information
can be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, as well
as at the Commission's regional offices at 7 World Trade Center, 13th Floor, New
York, New York 10048; and at Citicorp Center, 500 West Madison Street, Room
1400, Chicago, Illinois 60661-2511. Copies of such material can also be obtained
at prescribed rates at the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. In addition, the Commission
maintains a World Wide Web site on the Internet at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. Dura Common
Stock is traded on the Nasdaq National Market and other information concerning
Dura can be inspected at the offices of Nasdaq Operations, 1745 K Street, N.W.,
Washington, D.C. 20006.
Dura and Spiros Corp. II have filed with the Commission a registration
statement on Forms S-1/S-3 (together with all amendments and exhibits thereto,
the "Registration Statement") under the Securities Act of 1933, as amended, with
respect to the securities offered by this Prospectus. This Prospectus does not
contain all of the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to Dura, Spiros Corp. II and
the securities offered hereby, reference is made to the Registration Statement,
which may be obtained from the Public Reference Section of the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549, upon payment of the fees prescribed
by the Commission.
Upon completion of the Offerings, Spiros Corp. II is expected to be subject
to the information and reporting requirements of the Exchange Act and in
accordance therewith to file reports and other information with the Commission.
Holders of Spiros Corp. II Common Stock will receive annual reports containing
financial information including the report of independent accountants as to the
financial statements of Spiros Corp. II.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by Dura (File No. 0-19809) with the Commission
are hereby incorporated by reference in this Prospectus: (1) the Annual Report
of Dura on Form 10-K for the fiscal year ended December 31, 1996; (2) the
Quarterly Report of Dura on Form 10-Q for the quarter ended March 31, 1997; (3)
the Quarterly Report of Dura on Form 10-Q for the quarter ended June 30, 1997;
(4) the Quarterly Report of Dura on Form 10-Q for the quarter ended September
30, 1997; (5) the Proxy Statement of Dura dated April 16, 1997 in connection
with the Annual Meeting of Stockholders held on May 28, 1997; (6) the Current
Report of Dura on Form 8-K filed on May 22, 1997; (7) the Current Report of Dura
on Form 8-K filed on October 10, 1997, as amended on October 21, 1997 and
November 26, 1997; (8) the Current Report of Dura on Form 8-K filed on October
24, 1997; (9) the Current Report of Dura on Form 8-K filed on December 1, 1997;
and (10) the description of Dura's Common Stock contained in its Registration
Statement on Form 8-A filed on July 22, 1997.
All reports and other documents subsequently filed by Dura pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of the Offerings shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of filing
of such reports and documents. Any statement incorporated herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent that
a statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
Dura will provide without charge to each person to whom this Prospectus is
delivered, upon written or oral request of such person, a copy of any or all of
the foregoing documents incorporated herein by reference (other than exhibits to
such documents, unless such exhibits are specifically incorporated by reference
into any such document). Requests for such documents should be submitted in
writing to Mitchell R. Woodbury, Senior Vice President and General Counsel, at
Dura Pharmaceuticals, Inc., 7475 Lusk Boulevard, San Diego, California 92121 or
by telephone at (619) 457-2553.
Spiros Corp. II is a Delaware company incorporated on September 23, 1997 and
has conducted no business to date. Spiros Corp. II's principal executive office
is located at 7475 Lusk Boulevard, San Diego, California 92121, and its
telephone number is (619) 457-2553.
3
<PAGE>
PROSPECTUS SUMMARY
THE INFORMATION SET FORTH BELOW SHOULD BE READ IN CONJUNCTION WITH, AND IS
QUALIFIED IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION, INCLUDING "RISK
FACTORS" AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS OR INCORPORATED BY REFERENCE HEREIN. EXCEPT AS
OTHERWISE NOTED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION. UNLESS THE CONTEXT OTHERWISE REQUIRES, THE
TERM "DURA" REFERS TO "DURA PHARMACEUTICALS, INC." AND ITS SUBSIDIARIES. THIS
PROSPECTUS MAY CONTAIN, IN ADDITION TO HISTORICAL INFORMATION, FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISK AND UNCERTAINTIES. ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS
THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE DISCUSSED UNDER
"RISK FACTORS," AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS OR IN
THE DOCUMENTS INCORPORATED BY REFERENCE.
DURA
Dura Pharmaceuticals, Inc. ("Dura") is a specialty respiratory
pharmaceutical and pulmonary drug delivery company. Dura is engaged in
developing and marketing prescription pharmaceutical products for the treatment
of asthma, hay fever, chronic obstructive pulmonary disease ("COPD"), the common
cold and related respiratory ailments, and is developing a pulmonary drug
delivery system. Dura has strategically focused on the U.S. respiratory market
because of its size and growth opportunities. The estimated size of the target
market for antihistamines, asthma/rhinitis therapies, cough/cold preparations
and anti-infectives in 1996 was approximately $9.5 billion. The size and
fragmented nature of the market and the identifiable base of physician
prescribers allow Dura to achieve significant market penetration with a
specialized sales force. Dura currently markets 31 prescription products. Dura
also has a separate mail service pharmacy, Health Script Pharmacy Services, Inc.
("Health Script"), which dispenses respiratory pharmaceuticals.
Dura employs a dual marketing strategy utilizing its focused field sales
force of over 300 people and dedicated managed care sales and marketing and
national account groups that cover managed care organizations and retail
pharmacy chains. Dura's field sales force targets a physician base that includes
approximately 80,000 U.S. allergists, ear, nose, and throat specialists
("ENTs"), pulmonologists and a selected subset of pediatricians and generalist
physicians, who Dura believes collectively write a significant portion of
respiratory pharmaceutical prescriptions. Dura believes that its field sales
force calls on approximately one-half of the target physician base. Dura's
managed care sales and marketing group concentrates on sales to large regional
and national managed care organizations. Dura expects to continue expanding both
the field sales force and the managed care sales and marketing group as
warranted by market opportunities.
This marketing strategy has allowed Dura to leverage its distribution
capabilities by acquiring the rights to market additional prescription
pharmaceutical products through acquisition, in-license or co-promotion
arrangements. Since 1992, Dura has acquired 19 products targeted at the U.S.
respiratory market. In September 1996, Dura acquired from Eli Lilly and Company
("Lilly") exclusive U.S. marketing rights to the antibiotics Keftab-Registered
Trademark- and Ceclor-Registered Trademark- CD. Dura began marketing Keftab in
September 1996, and launched Ceclor CD in October 1996. In May 1997, Dura
acquired from Syntex (USA) Inc. and other members of the Roche Group
(collectively, "Syntex") the exclusive U.S. rights to the intranasal steroid
products Nasarel-Registered Trademark- and Nasalide-Registered Trademark-.
Another key component of Dura's strategy is to develop the Spiros-TM-
pulmonary drug delivery system ("Spiros"). Spiros is being designed to
aerosolize pharmaceuticals in dry powder formulations for delivery to the lungs
while providing certain advantages over other currently-used methods of
pulmonary drug delivery. Dura has a three-level development program for Spiros
which entails (i) developing, on behalf of Spiros Development Corporation II,
Inc. ("Spiros Corp. II"), certain drug compounds for use in Spiros, including in
the near-term albuterol, beclomethasone and ipratropium, three of the
pharmaceutical agents most frequently prescribed to treat respiratory
conditions, (ii) licensing Spiros primarily to pharmaceutical
4
<PAGE>
companies, generally for use with certain of their proprietary respiratory
products, and (iii) developing Spiros, generally in collaboration with third
parties, for the systemic delivery of compounds, including certain proteins and
peptides, through the lungs for respiratory and non-respiratory indications as
an alternative to current invasive delivery techniques.
Spiros Development Corporation ("Spiros Corp.") is a separate company formed
in December 1995 to fund the development of Spiros for use with certain asthma
drugs. Spiros Corp. has used substantially all of the $28 million in financing
it raised and a $13 million contribution it received from Dura to finance the
development of Spiros and certain compounds for use in Spiros. On or prior to
the closing of the Offerings, Dura will purchase all of the common stock of
Spiros Corp. for an aggregate purchase price estimated to be $45.7 million,
payable in cash, shares of Dura Common Stock, or any combination thereof, at
Dura's sole discretion (the "Spiros Corp. Purchase"). The Spiros Corp. Purchase
will result in a one-time charge in the period in which the Spiros Corp.
Purchase is closed, relating to the acquisition of in-process research, that
will approximate the purchase price.
Prior to the formation of Spiros Corp., Dura Delivery Systems, Inc. ("DDSI")
was organized as a separate entity responsible for Spiros development. DDSI
spent approximately $23 million for the development of Spiros before being
acquired by Dura in December 1995.
Dura was incorporated under the laws of California in 1981 and
reincorporated in Delaware in 1997. Dura's principal executive offices are
located at 7475 Lusk Boulevard, San Diego, California 92121. Its telephone
number is (619) 457-2553.
SPIROS CORP. II
Spiros Corp. II was formed in September 1997 to continue to fund the
development of Spiros and to conduct formulation work, clinical trials and
commercialization for four leading asthma drugs (albuterol, beclomethasone,
ipratropium and budesonide) and certain combinations and alternative
formulations thereof for use in Spiros. Spiros Corp. II may also expend funds on
enhancements to the existing Spiros technology, initial development of a next
generation inhaler system and the acquisition of capital equipment (the "Other
Expenditures") to be used in the manufacture of the Spiros Products (as defined
below). Finally, Spiros Corp. II plans to use a portion of its funding to
conduct technical evaluation projects designed to identify additional
respiratory drug candidates for further development in Spiros. There can be no
assurance that the pharmaceutical products currently in development by Spiros
Corp. II or that any products that may be developed in the future will be
approved by the United States Food and Drug Administration ("FDA"). In addition,
there can be no assurance that FDA review or other actions will not involve
delays that could adversely affect the time to market and the sale of the
products.
Dura believes that the research and development work performed to date by
Spiros Corp. and DDSI and the research and development work it has undertaken on
Spiros, directly and through collaborators, have yielded results which justify
further research and development. However, a substantial amount of additional
research and development effort is required to further develop the Spiros
technology through to its potential commercialization. Management of Dura
determined to undertake such research and development through Spiros Corp. II
because such opportunities involve significantly different risk/reward profiles,
with Spiros Corp. II's performing primarily research and development of new
technology as compared to Dura's manufacturing and marketing of developed
specialty respiratory pharmaceuticals. See "Business of Spiros Corp.
II--Background."
Spiros has been designed to aerosolize pharmaceuticals in dry powder
formulations for delivery to the lungs while providing certain advantages over
other currently-used methods of pulmonary drug delivery, including inspiratory
flow rate independence, minimum need for patient coordination, reduced side
effects, improved patient convenience and lack of chlorofluorocarbon
propellants.
Asthma is a complex physiological disorder characterized by airway
hyperactivity to a variety of stimuli such as dust, pollen, stress or physical
exercise, resulting in airway obstruction that is partially or
5
<PAGE>
temporarily reversible. The number of people with asthma has grown steadily in
recent years and is now believed to be over 200 million worldwide. COPD is a
complex condition comprising a combination of chronic bronchitis, emphysema and
airway obstruction. The worldwide combined market for therapeutic drugs to treat
asthma and COPD was approximately $7.5 billion in 1996. The primary categories
of therapeutic drugs used in the treatment of asthma and COPD include
bronchodilators and anti-inflammatories. Bronchodilators dilate the airways and
include beta agonists (such as albuterol and bitolterol), xanthines (such as
theophylline) and anticholinergics (such as ipratropium). Anti-inflammatories
reduce inflammation and include steroids (such as beclomethasone, budesonide,
flunisolide and triamcinolone).
Inhaled therapeutic drugs have been shown to be effective in treating or
preventing the symptoms of asthma, COPD, and other lung diseases. When treating
respiratory diseases, inhalation delivery puts the drug directly into the lung
for topical treatment. If administered in capsule, tablet or liquid form, rather
than through inhalation, the patient must take sufficient drug to achieve a
systemic therapeutic blood level to benefit the lungs. In many instances, this
may cause serious side effects by impacting other organs. Because inhaled
therapy delivers the drug directly into the lung, it provides comparable
efficacy with less risk of systemic side effects at greatly reduced dosages.
Inhalation delivery also yields a fast onset of action, hastening the time for
patient relief.
Spiros Corp. II has no employees other than its three executive officers who
are full-time employees, officers and/or directors of Dura. Spiros Corp. II does
not intend to perform any research, marketing, manufacturing or other activities
on its own behalf, as it will pay Dura to perform all such activities pursuant
to the terms of the Development Agreement (as defined below) and the
Manufacturing and Marketing Agreement (as defined below). Substantially all of
the net proceeds of the Offerings and the Contribution (as defined below),
together with interest earned thereon (the "Available Funds"), will be used for
payments to Dura for clinical and other services under the Development Agreement
in connection with the development of the following compounds using Spiros (the
"Spiros Products") and the Other Expenditures:
ALBUTEROL. Albuterol, a beta agonist, provides rapid symptomatic relief of
reversible bronchospasm. When administered by inhalation, it produces
significant bronchodilation promptly and its effects are demonstrable for a
number of hours. Albuterol is the most widely accepted asthma medication in the
world. The leading branded metered dose inhaler ("MDI") albuterol products are
Proventil-Registered Trademark-, sold by Schering-Plough Corporation
("Schering-Plough"), and Ventolin-Registered Trademark-, sold by Glaxo Wellcome,
Inc. ("Glaxo"). In 1996, U.S. sales of albuterol were approximately $700 million
as measured by average wholesale prices.
In March 1997, patient dosing was completed in long-term and short-term
pivotal clinical trials. In November 1997, Dura announced, on behalf of Spiros
Corp., that it had submitted a New Drug Application ("NDA") with the FDA for
albuterol in the Spiros cassette system. The NDA includes the results of
clinical trials that were designed to demonstrate comparability of the Spiros
delivery system to a leading branded albuterol MDI product. Three pivotal
studies in addition to a number of dose finding and performance verification
studies were conducted for the submission. An open label study of albuterol in
the Spiros cassette system is currently in progress. Interim results of this
study were provided to the FDA in the NDA and results of the full study must be
submitted to and reviewed by the FDA prior to product approval. Dura is planning
market launch of albuterol in the Spiros cassette system in late 1998 or early
1999, pending FDA approval. There can be no assurance of receipt of FDA approval
in a timely manner, if at all.
BECLOMETHASONE. Beclomethasone is a steroid used to treat the inflammatory
component of asthma and certain symptoms of COPD. Systemic side effects
resulting from the inhalation of beclomethasone are less than those that occur
with steroids taken in capsule, tablet or liquid form. Beclomethasone was first
launched in MDI form as Vanceril-Registered Trademark- by Schering-Plough and
later as Beclovent-Registered Trademark- by Glaxo. In 1996, U.S. sales of
beclomethasone were approximately $205 million as measured by average wholesale
prices.
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In the first quarter of 1997, Dura, on behalf of Spiros Corp., completed
dose ranging studies of a one dosage strength of beclomethasone in the Spiros
cassette system under an Investigational New Drug ("IND") application, and
preparations for Phase III pivotal clinical trials to demonstrate safety and
efficacy have been initiated.
IPRATROPIUM. Ipratropium is an anticholinergic bronchodilator. Ipratropium
is most commonly prescribed for the long term management of COPD (including
chronic bronchitis and emphysema) and for treatment of asthmatic patients who
are poorly controlled by, or who experience troublesome side effects from,
beta-agonists such as albuterol. Ipratropium acts at a site that is different
from the site where beta-agonists act and thus affords an alternative approach
to the treatment of airway obstruction. Ipratropium in MDI form is marketed as
Atrovent-Registered Trademark- by Boehringer Ingelheim International GmbH
("Boehringer Ingelheim"). In 1996, U.S. sales of ipratropium were approximately
$200 million as measured by average wholesale prices.
Dura, on behalf of Spiros Corp., has conducted initial preclinical
formulation studies using ipratropium to demonstrate that delivery via Spiros is
feasible. In 1998, Spiros Corp. II plans to begin product development for a
formulation of ipratropium to be delivered using Spiros.
ALBUTEROL-IPRATROPIUM COMBINATION. Albuterol and ipratropium are frequently
prescribed in combination for patients with COPD or asthma. Boehringer Ingelheim
has marketed an albuterol-ipratropium combination product, Combivent-Registered
Trademark-, outside of the U.S. for a number of years. Combivent was approved
for marketing in the U.S. in early 1997, and has recently been launched in MDI
form by Boehringer Ingelheim in the U.S.
Based on the substantial work performed with albuterol and the feasibility
study conducted with ipratropium, Spiros Corp. II believes that developing an
albuterol-ipratropium formulation for delivery using Spiros will be feasible,
and it intends to commence the development of this formulation in 1998.
BUDESONIDE. Budesonide is a new generation steroid used to treat the
inflammatory component of asthma. Budesonide has been marketed in several dosage
forms outside of the U.S., but to date, has only been available in the U.S. in
nasal spray form. However, in June 1997, the FDA approved for marketing in the
U.S. a dry powder formulation of budesonide for delivery through Astra
Pharmaceutical's Pulmicort-Registered Trademark-Turbuhaler-Registered
Trademark-. In 1996, worldwide sales of budesonide were estimated to be greater
than $600 million as measured by average wholesale prices.
In 1998, Spiros Corp. II expects to begin formulation of budesonide for
delivery through Spiros.
DESIGNATED COMPOUNDS. The Board of Directors of Spiros Corp. II has the
right, with the consent of Dura, to select additional compounds for the
treatment of respiratory diseases, including asthma, allergy, cystic fibrosis or
respiratory infection (the "Designated Compounds") for delivery using Spiros.
See "The Agreements and the Purchase Options--Technology License Agreement."
In the event that Spiros Corp. II obtains the rights to any Designated
Compounds, Spiros Corp. II will conduct technical evaluations of the applicable
compounds as candidates for delivery through Spiros. Technical evaluations will
generally include patent evaluation, establishment of analytical methods,
micronization of drug substance, preliminary formulation development,
preliminary aerosol characterization, preliminary stability evaluation and
animal bioavailability, efficacy and toxicology evaluation. Technical
evaluations may also include initial safety and efficacy studies in humans.
In the event that additional funds become available to Spiros Corp. II,
whether through the exercise of the Albuterol Option (as defined below) or the
Product Option (as defined below), such funds will become part of the Available
Funds, and a portion of such funds may be used for additional development of a
next generation inhaler system and certain other enhancements to the existing
Spiros technology and to fund the acquisition of capital equipment to be used to
manufacture the Spiros Products.
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RISK FACTORS
An investment in the Units involves certain risks associated with the
Offerings, the business of Dura and Spiros Corp. II and the industry in which
they compete. See "Risk Factors."
THE OFFERINGS
Of the 4,687,500 Units to be sold in the Offerings, 3,750,000 shares are
initially being offered in the United States and Canada by the U.S. Underwriters
and 937,500 shares are initially being offered outside the United States and
Canada by the International Underwriters.
<TABLE>
<S> <C>
Units Offered.................................................................... 4,687,500
Number of Shares of Spiros Corp. II Common Stock Offered
and to be Outstanding after the Offerings................................ 4,687,500
Warrants to Purchase Dura Common Stock Offered (1,171,875 shares of Dura Common
Stock will be issuable upon exercise of Warrants)............................ 4,687,500
Proposed Nasdaq National Market Symbol for Unit.................................. SDCO
</TABLE>
TRADING INFORMATION
Application has been made to have the Units listed for quotation on the
Nasdaq National Market. The Spiros Corp. II Common Stock and the Warrants
comprising the Units will trade only as units through December 31, 1999 or such
earlier date as the Purchase Option (as defined below) is exercised or expires
unexercised (the "Separation Date"). See "Description of the Warrants." It is
expected that the Spiros Corp. II Common Stock and the Warrants will be eligible
for quotation after the Separation Date on the Nasdaq National Market. There can
be no assurance that there will be an active trading market for the Units or
that, after the Separation Date, there will be active trading markets for the
Spiros Corp. II Common Stock or the Warrants. The Dura Common Stock is quoted on
the Nasdaq National Market.
THE WARRANTS
Each Unit includes a Warrant to purchase one-fourth of one share of Dura
Common Stock. The Warrants will be exercisable from January 1, 2000 through
December 31, 2002 (the "Warrant Expiration Date") at an exercise price of $
per share of Dura Common Stock (currently anticipated to be 125% of the closing
price of Dura Common Stock on the date of the Prospectus) (the "Warrant Exercise
Price"). The Warrants will trade separately from the Spiros Corp. II Common
Stock beginning on the Separation Date. In the event that Dura exercises the
Purchase Option, holders of Spiros Corp. II Common Stock will retain their
Warrants, unless sold or otherwise transferred by those holders. See
"Description of the Warrants."
THE CONTRIBUTION
Prior to the consummation of the Offerings, Dura will contribute $75 million
in cash to Spiros Corp. II (the "Contribution") in order to increase the funds
available for Spiros Corp. II to undertake research, clinical development,
product development, including regulatory approval, and commercialization of the
Spiros Products under the Development Agreement. Dura will incur a one-time
charge to earnings in the amount of the Contribution in the period in which the
Contribution is made.
STOCK PURCHASE OPTION
Dura, as the holder of all of the issued and outstanding special shares, par
value $1.00 per share, of Spiros Corp. II (the "Special Shares"), will have the
right to purchase all, but not less than all, of the Spiros Corp. II Common
Stock outstanding at the time such right is exercised (the "Purchase Option").
The Purchase Option will be exercisable by notice (the "Exercise Notice") given
at any time beginning on the
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<PAGE>
closing date of the Offerings and ending on the earlier of (i) December 31, 2002
or (ii) the 90th day after the date Spiros Corp. II provides Dura (as such
holder) with quarterly financial statements of Spiros Corp. II showing cash or
cash equivalents of less than $5 million (the "Financial Notice"), although,
following the receipt of the Financial Notice, Dura may elect to extend such
period by providing additional funding for the continued development of the
Spiros Products (but in no event beyond December 31, 2002). If the Purchase
Option is exercised, the purchase price calculated on a per share basis (the
"Purchase Option Exercise Price"), assuming an offering price of $16.00 per
Unit, will be as follows:
<TABLE>
<CAPTION>
IF THE SPIROS CORP. II COMMON STOCK IS ACQUIRED PURCHASE OPTION
PURSUANT TO THE PURCHASE OPTION: EXERCISE PRICE
- ----------------------------------------------------------------------------- ---------------
<S> <C>
Before January 1, 2000....................................................... $ 24.01
On or after January 1, 2000 and on or before March 31, 2000.................. 25.26
On or after April 1, 2000 and on or before June 30, 2000..................... 26.57
On or after July 1, 2000 and on or before September 30, 2000................. 27.96
On or after October 1, 2000 and on or before December 31, 2000............... 29.41
On or after January 1, 2001 and on or before March 31, 2001.................. 31.10
On or after April 1, 2001 and on or before June 30, 2001..................... 32.88
On or after July 1, 2001 and on or before September 30, 2001................. 34.77
On or after October 1, 2001 and on or before December 31, 2001............... 36.76
On or after January 1, 2002 and on or before March 31, 2002.................. 38.87
On or after April 1, 2002 and on or before June 30, 2002..................... 41.10
On or after July 1, 2002 and on or before September 30, 2002................. 43.46
On or after October 1, 2002 and on or before December 31, 2002............... 45.95
</TABLE>
The Purchase Option Exercise Price per share of Spiros Corp. II Common Stock
will increase or decrease if the offering price per Unit is more or less than
$16.00 per Unit such that the same rate of return set forth above is maintained
for each of the periods presented.
The Purchase Option Exercise Price will be determined by Dura and Spiros
Corp. II, giving consideration to the compound annual rate of return, as
required by potential investors, to be achieved upon any exercise of the
Purchase Option, the implied returns to investors purchasing securities with a
similar structure historically and the comparability of the Offerings to those
prior offerings, the value of the Warrants, the nature of Spiros Products, the
agreements between Dura and Spiros Corp. II, and such other factors as Dura and
Spiros Corp. II deem appropriate and advice given by the Underwriters.
The Purchase Option Exercise Price may be paid in cash or shares of Dura
Common Stock, or any combination of the foregoing, at Dura's sole discretion.
Any such shares of Dura Common Stock will be valued based upon the average of
the closing price for Dura Common Stock on the Nasdaq National Market for ten
trading days immediately preceding the date of the Exercise Notice. See "The
Agreements and Purchase Options--Stock Purchase Option."
Dura owns all of the issued and outstanding Special Shares, which grants
Dura the Purchase Option and confers certain voting and other rights, including
the right to elect two of the five directors of Spiros Corp. II. Under Spiros
Corp. II's Amended and Restated Certificate of Incorporation, Spiros Corp. II
will be prohibited, until the expiration of the Purchase Option, from taking or
permitting certain actions inconsistent with Dura's rights under the Purchase
Option. For example, until the expiration of the Purchase Option, Spiros Corp.
II will not be able to, among other things, without the consent of Dura, pay any
dividends, issue additional shares of capital stock, have outstanding borrowings
in excess of an aggregate of $1 million, or merge, liquidate or sell all or
substantially all of its assets or alter the Purchase Option. See "Spiros Corp.
II Capital Stock."
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<PAGE>
TECHNOLOGY LICENSE AGREEMENT
Dura, Spiros Corp. and Spiros Corp. II will enter into an agreement (the
"Technology Agreement"), under which Dura and Spiros Corp. will grant Spiros
Corp. II an exclusive, worldwide, perpetual, royalty-bearing license to use
technology owned or controlled by Dura or Spiros Corp. as of the date of the
closing of the Offerings relating to Spiros and any technology acquired
following the closing of the Offerings relating to Spiros, which such parties
have the right to sublicense, (the "Core Technology") in research, development
and commercialization (except with respect to beclomethasone in Japan, Hong
Kong, Singapore, the Republic of China (Taiwan), the Republic of Korea and the
People's Republic of China (collectively, "Asia")) of the Spiros Products,
including rights to patents, patent applications and other intellectual property
rights necessary or useful to the development of the Spiros Products.
In consideration for these license rights granted to Spiros Corp. II by Dura
and Spiros Corp., Spiros Corp. II will pay Dura and Spiros Corp. a technology
access fee equal to the greater of (a) 5% of the Net Sales (as defined below) of
each Spiros Product or (b) $2 million for all Spiros Products in any calendar
year beginning in 1998. Spiros Corp. II's obligation will terminate, on a
country-by-country basis, (a) within 10 years from the first sale of such Spiros
Product in those countries where no patents covering such product are issued and
(b) in those countries where patents covering the Spiros Products are issued,
upon the expiration of the last-to-expire patent covering such Spiros Product in
such country.
In addition, Spiros Corp. II will grant Dura (a) a worldwide, exclusive,
royalty-free license to use the Core Technology and any technology developed or
acquired on behalf of Spiros Corp. II by Dura (the "Program Technology") to
develop the Spiros Products pursuant to the terms of the Development Agreement;
(b) a worldwide, exclusive, royalty-bearing license to use the Program
Technology to sell Spiros Products worldwide pursuant to the terms of the
Manufacturing and Marketing Agreement; (c) upon Dura's exercise of the Albuterol
Option (as defined below), a worldwide, exclusive, royalty-free, irrevocable,
perpetual license to the Program Technology to develop, manufacture and
commercialize the Albuterol Product (as defined below); (d) upon Dura's exercise
of the Product Option (as defined below), a worldwide, exclusive, royalty-free,
irrevocable, perpetual license to the Program Technology to develop, manufacture
and commercialize the Spiros Product for which the Product Option is exercised;
and (e) a worldwide, exclusive, royalty-free, irrevocable, perpetual license to
the Program Technology, including technology relating to enhancements to
existing Spiros technology or any next generation inhaler system, to develop,
manufacture and commercialize products other than the Spiros Products, including
products that compete with the Spiros Products.
Under the Technology Agreement, Dura must use commercially reasonable
efforts to secure the rights of third parties in technology that is necessary or
useful to the development of the Spiros Products. Spiros Corp. II will have no
obligation to accept any grant of such rights or to assume any obligation
without its prior written consent. If Spiros Corp. II desires to obtain any such
rights, Dura and Spiros Corp. II agree to negotiate in good faith regarding the
allocation of any royalty, license fee or other payments payable to the third
party and the assumption of any obligations applicable to such license.
Prior to the expiration of the Purchase Option, Spiros Corp. II cannot
without Dura's prior written consent (a) license, sublicense, encumber or
otherwise transfer any rights in the Program Technology; (b) make, use or sell
any of the Program Technology; or (c) authorize, cause or assist in any way any
other person to do any of the foregoing. Following the expiration or termination
of the Purchase Option, the foregoing limitations will cease to be applicable
and Spiros Corp. II will have the right to license, sublicense, encumber or
otherwise transfer the Program Technology for use with any Spiros Products that
have not been acquired by Dura through the exercise of either the Albuterol
Option or the Product Option.
The Technology Agreement will remain in full force and effect indefinitely,
unless terminated by (a) mutual agreement of the parties or (b) Dura's exercise
of the Purchase Option.
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<PAGE>
Either Dura or Spiros Corp. II may terminate the Technology Agreement prior
to its expiration if the other party (a) breaches any material obligation under
the Technology Agreement or the Development Agreement, which breach continues
for a period of 60 days after written notice thereof, (b) enters into any
voluntary proceeding in bankruptcy, reorganization or an arrangement for the
benefit of its creditors, or its Board of Directors or stockholders authorize
such action or (c) fails to dismiss any such proceeding within 60 days after the
same is involuntarily commenced. If Spiros Corp. II terminates the Technology
Agreement, Spiros Corp. II's license to use the Program Technology will continue
(except with respect to any Spiros Products that have been previously acquired
by Dura through the exercise of the Albuterol Option or the Product Option), and
Spiros Corp. II will be free to enter into arrangements with third parties to
research, develop and commercialize the Spiros Products. If Dura terminates the
Technology Agreement, (a) Spiros Corp. II's license to use the Core Technology
under the Technology Agreement will terminate, (b) all of Spiros Corp. II's
rights to the Program Technology will revert to Dura, and (c) all rights to
develop, use and sell the Spiros Products will revert to Dura. Dura and Spiros
Corp. II will use reasonable efforts for a period of 120 days after the
Technology Agreement is terminated by Dura to reach agreement on royalties and
other compensation to be paid by Dura to Spiros Corp. II solely with respect to
the Spiros Products and the Program Technology and, in the absence of such
agreement, the matter will be submitted to binding arbitration. There can be no
assurance that, upon termination of the Technology Agreement by Spiros Corp. II,
that it will be able to make alternative arrangements for the research,
development and commercialization of some or all of the Spiros Products. See
"The Agreements and the Purchase Options--Technology License Agreement."
ALBUTEROL AND PRODUCT OPTION AGREEMENT
Dura and Spiros Corp. II will enter into an agreement (the "Albuterol and
Product Option Agreement") pursuant to which Dura will obtain options to acquire
(a) the Albuterol Program Assets (as defined below) (the "Albuterol Option") and
(b) the Spiros Product Program Assets (as defined below) (the "Product Option").
The Albuterol Program Assets include (a) the product developed by Dura
pursuant to the Development Agreement with albuterol in the Spiros cassette
system (the "Albuterol Product"), (b) albuterol as formulated for use in the
Albuterol Product, (c) a perpetual, sublicensable, non-exclusive, royalty-free
license to the technology owned by Dura or developed or acquired by Dura during
the term of the Development Agreement applicable to the Albuterol Product for
use solely with the Albuterol Product, and (d) all applications and documents
filed with the FDA or a foreign regulatory authority to obtain regulatory
approval to commence commercial sale or use of the Albuterol Product. The
Albuterol Option is exercisable commencing on the date of the closing of the
Offerings and ending on the earlier of (i) 360 days after receipt of FDA
approval to market the Albuterol Product or (ii) the date Dura ceases to
manufacture or market the Albuterol Product in accordance with the terms of the
Manufacturing and Marketing Agreement.
Upon exercise of the Albuterol Option, Dura will make a single payment to
Spiros Corp. II in cash equal to (a) the aggregate Purchase Option Exercise
Price, assuming acquisition of all shares of Spiros Corp. II Common Stock issued
pursuant to the Offerings four years following closing of the Offerings,
multiplied by (b) a fraction, the numerator of which will equal the development
and commercialization costs and expenses incurred by Spiros Corp. II in
connection with the development and commercialization of the Albuterol Product
and the denominator of which will equal the Available Funds (excluding the
proceeds, if any, from the exercise of the Albuterol Option or the Product
Option) set forth in the proposed budget contained herein. See "Use of
Proceeds."
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<PAGE>
The Spiros Product Program Assets include (a) a single Spiros Product (other
than the Albuterol Product) for which Dura elects to exercise the Product Option
(the "Option Product"), (b) the compound to be delivered by the Option Product,
as formulated for use specifically in the Option Product, (c) a perpetual,
sublicensable, non-exclusive, royalty-free license to the technology owned by
Dura or developed or acquired by Dura during the term of the Development
Agreement applicable to the Option Product for use solely with the Option
Product, and (d) all applications and documents filed with the FDA or a foreign
regulatory authority to obtain regulatory approval to commence commercial sale
or use of the Option Product. The Product Option is exercisable with respect to
each Spiros Product commencing on the date of the closing of the Offerings and
ending 90 days after receipt of FDA approval to market such Spiros Product;
provided, however, that the Product Option may only be exercised with respect to
a single Spiros Product.
Upon exercise of the Product Option, Dura will make a single payment to
Spiros Corp. II in cash equal to 110% of (a) the aggregate Purchase Option
Exercise Price, assuming acquisition of all shares of Spiros Corp. II Common
Stock issued pursuant to the Offerings four years following closing of the
Offerings, multiplied by (b) a fraction, the numerator of which will equal the
development and commercialization costs and expenses incurred by Spiros Corp. II
in connection with the development of the Option Product and the denominator of
which will equal the Available Funds (excluding the proceeds, if any, from the
exercise of the Albuterol Option or the Product Option) set forth in the
proposed budget contained herein. See "Use of Proceeds."
Any payments received by Spiros Corp. II with respect to the exercise of the
Albuterol Option and the Product Option will become part of the Available Funds.
The Albuterol and Product Option Agreement will automatically terminate in
the event that Spiros Corp. II terminates the Technology Agreement, the
Development Agreement or the Manufacturing and Marketing Agreement, consistent
with the terms of those agreements.
DEVELOPMENT AGREEMENT
Dura and Spiros Corp. II will enter into an agreement (the "Development
Agreement") under which Dura will agree to use commercially reasonable efforts
to develop the Program Technology for the purpose of identifying and developing
the Spiros Products and to make the Other Expenditures (the "Development"). Dura
will furnish all labor, supervision, services, supplies, and materials necessary
to perform the Development.
Dura also agrees to use commercially reasonable efforts to obtain the rights
to, and to sublicense to, Spiros Corp. II, any patent or technology license held
by a third party that Dura reasonably determines to be necessary or useful to
enable Dura to conduct the Development. Dura will act as Spiros Corp. II's
exclusive agent for the filing and prosecuting of all regulatory applications
and permits required to obtain FDA approval in Dura's name and any other
necessary regulatory approvals for the Spiros Products. In the event that the
Purchase Option expires unexercised, Dura will use its reasonable efforts to
cause all applications and documents filed with the FDA or a foreign regulatory
authority to obtain regulatory approvals for the Spiros Products, with respect
to which Dura has not acquired exclusive rights, to be assigned to Spiros Corp.
II.
Dura will conduct the Development in accordance with an annual workplan and
budget. At the closing, Dura will provide Spiros Corp. II with a workplan and
budget covering the period from the closing date through December 31, 1998.
Thereafter, Dura and Spiros Corp. II will prepare annual workplans and budgets.
The annual workplans and budgets are subject to approval and acceptance by
Spiros Corp. II's Board of Directors. Dura must report any significant
deviations from an annual workplan and budget in a timely manner. Further,
reimbursement for expenditures from Spiros Corp. II may not exceed in any
calendar year 120% of the amount allocated in the applicable annual workplan and
budget, unless otherwise approved by Spiros Corp. II.
Payments to Dura under the Development Agreement for Dura's work in
performing the Development will be made for the full amount of all Development
Costs (as defined in the Development Agreement) incurred by Dura in performing
these activities, up to the maximum amount of the funds available to Spiros
Corp. II, which includes substantially all of the Available Funds. Development
Costs will include development expenses (including salaries, benefits, supplies
and facilities and overhead allocations) that are billed at a rate of fully
burdened cost plus 25%, provided, however, that services
12
<PAGE>
provided by third parties will be billed at a rate of cost plus 20%. Development
Costs will include costs, estimated to be approximately $4 million, for the
Development conducted by Dura from October 10, 1997 through the date of the
closing of the Offerings.
If Spiros Corp. II or Dura determine that the development of a particular
Spiros Product should be discontinued because continued development is not
feasible or is uneconomic, or that the development should be expanded to include
one or more Designated Compounds, then Spiros Corp. II and Dura will use
reasonable efforts to agree on the nature of the Development and the identity of
any other compound on which unexpended Available Funds will be spent.
Under the Development Agreement, the manufacture and sale of the Spiros
Products for the sole purpose of conducting clinical trials necessary to obtain
FDA approval or any other required regulatory approval will be charged to Spiros
Corp. II as Development Costs. Dura will remit to Spiros Corp. II any revenue
received by it from the sale of such Spiros Products prior to receipt of FDA
approval to market.
MANUFACTURING AND MARKETING AGREEMENT
Dura and Spiros Corp. II will enter into an agreement (the "Manufacturing
and Marketing Agreement") under which Spiros Corp. II will grant to Dura an
exclusive, worldwide license to manufacture and market the Spiros Products. Dura
will pay Spiros Corp. II on a quarterly basis a royalty of 7% of the Net Sales
of each Spiros Product beginning upon receipt of FDA approval to market such
product; provided, however, that prior to the expiration of the Albuterol
Option, no royalty payment will be made with respect to Net Sales of the
Albuterol Product.
Under the Manufacturing and Marketing Agreement, Dura will agree to use
diligent efforts to commence sales of each Spiros Product promptly upon
receiving FDA approval for such product. Dura will be responsible for
maintaining competent, qualified sales personnel, and will agree not to make any
representations inconsistent with the approved labeling of each Spiros Product.
"Net Sales" for purposes of the Manufacturing and Marketing Agreement and
the Technology Agreement will be defined as the gross amount invoiced for sales
of the Spiros Products by Dura or its sublicensees, if any, to third parties
less (i) discounts actually allowed, (ii) credits for claims, allowances,
retroactive price reductions or returned Spiros Products, (iii) prepaid freight
charges incurred in transporting Spiros Products to customers, (iv) sales taxes
and other governmental charges actually paid in connection with the sales (but
excluding what is commonly known as income taxes) and (v) any royalty
obligations under the 1993 Royalty Agreement (as defined below). See "Business
of Spiros Corp. II-- Patents." Net Sales will not include sales between or among
Dura, its affiliates and its sublicensees unless such sales are for end use
rather than for purposes of resale.
The Manufacturing and Marketing Agreement will terminate (a) upon the
exercise or termination of the Purchase Option or (b) by mutual agreement of the
parties at any time. In the event Dura exercises the Albuterol Option or the
Product Option, the Manufacturing and Marketing Agreement will terminate with
respect to the Albuterol Product or the Option Product, as the case may be, but
will otherwise continue in full force and effect.
SERVICES AGREEMENT
Spiros Corp. II will enter into an agreement with Dura (the "Services
Agreement") under which Dura will provide certain management and administrative
services to Spiros Corp. II at the rate of $100,000 per calendar quarter for
services to be performed internally by Dura and for services performed by third
parties for Dura on Spiros Corp. II's behalf. In addition, Spiros Corp. II will
reimburse Dura for all costs and expenses, net of amounts reimbursed by the
underwriters, incurred by Dura in connection with the Offerings, (currently
estimated to be approximately $100,000). The Services Agreement terminates on
the earlier of (i) the exercise of the Purchase Option or (ii) 12 months after
expiration of the Purchase Option.
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UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
Certain United States federal income tax consequences may be applicable to
the purchase of Units, the sale of Warrants and Spiros Corp. II Common Stock and
the expiration unexercised of the Purchase Option. Such tax consequences are
important and include the recognition by Spiros Corp. II stockholders of taxable
income upon the sale of the Units, the Warrants, the Spiros Corp. II Common
Stock or Dura Common Stock or upon the expiration unexercised of the Purchase
Option. The recognition by Spiros Corp. II stockholders of income on expiration
of the Purchase Option will be required notwithstanding the fact that no cash or
other property will be received at such time. See "United States Federal Income
Tax Consequences."
Additionally, certain United States federal income tax consequences may be
applicable to the receipt of dividends, if any, or the sale of Warrants, the
Spiros Corp. II Common Stock or the Dura Common Stock by Non-U.S. Holders (as
defined). See "United States Taxation of Non-U.S. Persons."
USE OF PROCEEDS
The net proceeds from the Offerings, assuming an offering price of $16.00
per Unit, are expected to be approximately $69.7 million ($80.1 million if the
Underwriters' over-allotment option is exercised in full), all of which will be
received by Spiros Corp. II. Spiros Corp. II expects to use substantially all of
the net proceeds of the Offerings, the Contribution and interest to be earned
thereon, less $1 million to be used as working capital, to engage Dura to
undertake research, clinical development, product development, including
regulatory approval, and commercialization of the Spiros Products under the
Development Agreement, including to make the Other Expenditures. Spiros Corp. II
expects that during the term of the Development Agreement, unless Dura exercises
the Albuterol Option or the Product Option, it will have very limited sources of
revenue other than the net proceeds of the Offerings, the Contribution and the
interest earned thereon. Any funds received by Spiros Corp. II as a result of
Dura's exercise of the Albuterol Option or the Product Option will become part
of the Available Funds and are intended to be paid to Dura pursuant to the
Development Agreement. See "Use of Proceeds."
14
<PAGE>
SPIROS CORP. II SUMMARY FINANCIAL INFORMATION
Spiros Corp. II was formed in September 1997 to continue the development of
Spiros with four leading asthma drugs. Spiros Corp. II has not yet commenced
operations. Assuming completion of the Offerings, Spiros Corp. II anticipates
that it will use the net proceeds and the $75 million from the Contribution to
undertake research, clinical development, product development and
commercialization of the Spiros Products pursuant to the Development Agreement.
It is anticipated that Spiros Corp. II's only source of revenue will be
interest income on the unused portion of the Contribution and net proceeds of
the Offerings. As a result, Spiros Corp. II will likely incur substantial
recurring losses.
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
<S> <C>
BALANCE SHEET DATA:
Cash........................................................................... $ 1,000
Total assets................................................................... 1,000
Shareholder's equity........................................................... 1,000
</TABLE>
DURA SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- ---------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:(1)
Sales........................................ $ 9,561 $ 15,816 $ 22,199 $ 39,308 $ 79,563 $ 45,900 $ 105,437
Contract revenues............................ -- 2,297 10,481 12,194 24,556 17,407 22,430
--------- --------- --------- --------- --------- --------- ----------
Total revenues............................. 9,561 18,113 32,680 51,502 104,119 63,307 127,867
Operating income (loss)(2)................... (7,016) (8,240) 1,456 (37,252) 21,647 12,173 36,849
Net income (loss)(2)......................... (6,769) (8,173) 1,936 (35,778) 24,328 14,471 29,395
Net income (loss) per share(2)............... (0.47) (0.55) 0.10 (1.53) 0.60 0.37 0.62
Weighted average number of common and common
equivalent shares.......................... 14,506 14,988 19,860 23,440 40,479 38,890 47,392
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments................................. $ 240,345 $ 454,710
Working capital................................................................... 219,864 457,276
Total assets...................................................................... 504,670 821,105
Long-term obligations (excluding current portion)................................. 6,670 294,535
Shareholders' equity.............................................................. 443,577 482,297
</TABLE>
- ------------------------------
(1) Dura Summary Consolidated Financial Information includes Health Script
subsequent to its acquisition on March 22, 1995, the Rondec-Registered
Trademark- product line subsequent to its acquisition on June 30, 1995, the
Entex-Registered Trademark- product line subsequent to its acquisition on
July 3, 1996, the Ceclor CD and Keftab products subsequent to their
acquisition on September 5, 1996, and the Nasarel and Nasalide products
subsequent to their acquisition on May 7, 1997.
(2) In 1993 and 1995, Dura incurred charges for purchase options and acquired
in-process technology totaling $2.3 million and $43.8 million, respectively.
If these charges were excluded, Dura would have reported a net loss of $5.9
million, or $0.39 per share, for 1993 and net income of $8.0 million, or
$0.28 per share, in 1995.
15
<PAGE>
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following summary unaudited pro forma consolidated financial data
illustrates the effects of the Spiros Corp. Purchase under the purchase method
of accounting as if the Spiros Corp. Purchase had occurred as of September 30,
1997 for the balance sheet data and as of January 1, 1996 for the statement of
operations data.
The summary unaudited pro forma combined financial data is not necessarily
indicative of the results of operations which may have occurred if the Spiros
Corp. Purchase had been consummated on the dates indicated and should not be
construed as representative of any future results.
The Spiros Corp. Purchase adjustments to contract and total revenues relate
to the elimination of intercompany revenue from Spiros Corp. These adjustments
are substantially offset by a reduction in operating expenses relating to
intercompany development expenses. The adjustment to net income relates
primarily to a reduction in the pro forma consolidated provision for income
taxes resulting from the recognition of the income tax benefit on Spiros Corp.'s
pre-tax loss, which was not recorded on a stand-alone basis.
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
SPIROS CORP.
PURCHASE PRO FORMA
DURA SPIROS CORP. ADJUSTMENTS CONSOLIDATED
--------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Sales........................................................ $ 79,563 $ -- $ -- $ 79,563
Contract revenue............................................. 24,556 200 (19,138) 5,618
--------- ------------ ------------ ------------
Total revenues............................................. 104,119 200 (19,138) 85,181
Operating income (loss)...................................... 21,647 (20,640) 1,702 2,709
Net income (loss)............................................ 24,328 (18,854) 8,562 14,036
Net income per share......................................... 0.60 0.34
Weighted average number of common and common equivalent
shares..................................................... 40,479 41,495
NINE MONTHS ENDED SEPTEMBER 30, 1997
Sales........................................................ $ 105,437 $ -- $ -- $ 105,437
Contract revenue............................................. 22,430 -- (18,331) 4,099
--------- ------------ ------------ ------------
Total revenues............................................. 127,867 -- (18,331) 109,536
Operating income (loss)...................................... 36,849 (19,732) 1,401 18,518
Net income (loss)............................................ 29,395 (19,044) 8,458 18,809
Net income per share......................................... 0.62 0.39
Weighted average number of common and common equivalent
shares..................................................... 47,392 48,408
</TABLE>
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET DATA
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
---------------------------------------------------------------------
PRO FORMA
PRO FORMA CONSOLIDATED
DURA SPIROS CORP. ADJUSTMENTS CONSOLIDATED AS ADJUSTED(1)
--------- ------------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents and short-term
investments................................ $ 454,710 $ 4,851 $ -- $ 459,561 $ 384,561
Working capital............................. 457,276 2,518 -- 459,794 384,794
Total assets................................ 821,105 4,851 (2,325) 823,631 748,631
Long-term obligations (excluding current
portion)................................... 294,535 -- -- 294,535 294,535
Shareholders' equity........................ 482,297 2,518 -- 484,815 409,815
</TABLE>
- ------------------------------
(1) Pro Forma Consolidated As Adjusted amounts give effect to the Contribution.
No adjustment has been made to reflect the Offerings as it will result in an
increase to additional paid-in capital in an amount equal to the value of
the Warrants as determined at the time of their issuance, offset by an
increase to the warrant subscriptions receivable contra equity account.
16
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE UNITS OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. IN
ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS OR INCORPORATED
HEREIN BY REFERENCE, PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE
FOLLOWING RISK FACTORS BEFORE PURCHASING THE UNITS OFFERED HEREBY.
CONFLICTS OF INTEREST
COMMON MANAGEMENT. The Technology Agreement, the Development Agreement, the
Manufacturing and Marketing Agreement and the Albuterol and Product Option
Agreement (collectively, the "Major Agreements") were approved by Dura, as
controlling stockholder of Spiros Corp. II, which, in such capacity, may have
influenced the Board of Directors of Spiros Corp. II to enter into such
agreements. Two of the five authorized members of the Board of Directors of
Spiros Corp. II are persons who are directors and/or officers of Dura or its
affiliates.
LACK OF ARM'S-LENGTH NEGOTIATION. The Development Agreement and the
Manufacturing and Marketing Agreement were not negotiated on an arm's-length
basis and Dura and Spiros Corp. II did not retain separate counsel in connection
therewith. In particular, the Board of Directors of Spiros Corp. II may have
been influenced by Dura, as the controlling stockholder of Spiros Corp. II, in
entering into the Development Agreement and the Manufacturing and Marketing
Agreement. Dura is the contractor under the Development Agreement and will
perform or participate in all development and other activities thereunder.
Additionally, Dura will be primarily responsible for the marketing and
manufacture of Spiros Products under the Manufacturing and Marketing Agreement.
Spiros Corp. II will be responsible for and will pay the development costs that
are incurred by Dura under the Development Agreement and the marketing and
manufacturing costs incurred by Dura under the Manufacturing and Marketing
Agreement. Dura will determine unilaterally certain activities to be undertaken
under the Development Agreement and in all events Dura will have substantial
influence over all activities and procedures (including the timing and
priorities thereof) to be undertaken under the Development Agreement and the
Manufacturing and Marketing Agreement. Dura has no obligation to complete any
development or other activity after all funds of Spiros Corp. II have been
expended. Dura's own projects and other third party projects may compete for
time and resources with projects undertaken pursuant to the Development
Agreement and the Manufacturing and Marketing Agreement and the resources that
Dura expends under such agreements may therefore be limited.
THE ALBUTEROL OPTION AND THE PRODUCT OPTION. If Dura exercises the
Albuterol Option for the Albuterol Product or the Product Option for any other
Spiros Product, it will have sole discretion to control the commercialization of
such product, including discretion to allocate its marketing resources among
that product and other Dura products.
THE PURCHASE OPTION EXERCISE PRICE. The Purchase Option Exercise Price was
determined by Spiros Corp. II and Dura giving consideration to the Spiros
Products, the agreements between Spiros Corp. II and Dura, such other factors as
Spiros Corp. II and Dura deemed appropriate, and other advice given by the
Underwriters. Therefore, such price was not determined on an arm's-length basis.
BUSINESS RISKS RELATING TO SPIROS CORP. II
NO ASSURANCE OF SUCCESSFUL DEVELOPMENT OF THE SPIROS PRODUCTS. Spiros Corp.
II has agreed with Dura that Dura will conduct work on the Spiros Products in
accordance with the Development Agreement for the purpose of research, clinical
development, product development, including regulatory approval, and
commercialization of the Spiros Products. Dura's historical performance has no
relationship to Spiros Corp. II's potential product development and is not
indicative of the future performance of Spiros Corp. II. While certain research
and development on the Spiros Products being transferred to Spiros Corp. II by
Dura has been conducted, additional clinical studies and product development are
still to be
17
<PAGE>
undertaken. There can be no assurance that Spiros Corp. II or Dura will be able
to complete the development, gain regulatory approval and successfully
commercialize any of the Spiros Products or that the Spiros Products can be
introduced in a timely manner. The successful development of any of the Spiros
Products will require demonstration through human clinical studies that such
Spiros Products are both safe and efficacious. See "Business of Spiros Corp.
II."
NO ASSURANCE OF EXERCISE OF DURA'S OPTIONS. Dura is not obligated to
exercise the Purchase Option, the Albuterol Option or the Product Option, and it
will exercise such options only if, in the opinion of Dura's Board of Directors,
it is in Dura's best interest to do so. Even if the Spiros Products are
developed and approved, if Dura does not exercise the Purchase Option, the
Albuterol Option or the Product Option, Spiros Corp. II will be required to find
alternative ways to commercially market or exploit the Spiros Products and there
can be no assurance that Spiros Corp. II will be able to do so. If, in the event
Dura fails to exercise the Purchase Option, the Albuterol Option and the Product
Option and Spiros Corp. II determines to market the Spiros Products itself,
Spiros Corp. II will require substantial additional funds. There can be no
assurance that such funds will be available on attractive terms, if at all.
Similarly, if Spiros Corp. II determines to license the Spiros Products to third
parties, such arrangements, if available, may be on terms less favorable to
Spiros Corp. II than the terms of Spiros Corp. II's arrangements with Dura. See
"The Agreements and the Purchase Options--Stock Purchase Option" and "The
Agreements and the Purchase Options--Albuterol and Product Option Agreement."
NO ASSURANCE OF SUFFICIENT FUNDS. Although Spiros Corp. II believes that
the Available Funds will be sufficient to enable it to advance three Spiros
Products through the FDA approval stage, there can be no assurance that this
will be the case. Until the expiration of the Purchase Option, Spiros Corp. II
is significantly restricted from raising additional funds without Dura's consent
and there can be no assurance that Spiros Corp. II will have sufficient funds to
successfully develop any Spiros Products. While Dura may, at its sole option,
provide funds for further development of the Spiros Products, it is not
obligated to do so. If the Purchase Option is not exercised, Spiros Corp. II
would have to raise substantial funding while hiring, or otherwise obtaining
access to research, and management personnel.
NO ASSURANCE THAT THE PURCHASE OPTION WILL BE REPRESENTATIVE OF THE VALUE OF
SPIROS CORP. II. The Purchase Option Exercise Price is set forth in the Spiros
Corp. II Amended and Restated Certificate of Incorporation as of the date of the
closing of the Offerings and therefore may not be representative of the value of
the Spiros Corp. II Common Stock at the time of the exercise of the Purchase
Option.
DEPENDENCE ON DURA. Substantially all of the Available Funds will be paid
by Spiros Corp. II to Dura under the Development Agreement. Payments under the
Development Agreement will be made for the full amount of all of Dura's research
and development expenses, general and administrative expenses, capital equipment
costs and all other costs and expenses incurred by Dura in performing the
activities described in "The Agreements and the Purchase Options--Development
Agreement," up to the maximum amount of the funds available to Spiros Corp. II,
which include substantially all of the Available Funds. Development Costs will
include development expenses (including salaries, benefits, supplies, and
facilities and overhead allocations) that are billed at a rate of fully burdened
cost plus 25%; provided, however, that services provided by third parties will
be billed at a rate of cost plus 20%. Development Costs also include costs,
estimated to be approximately $4 million, for the Development conducted by Dura
from October 10, 1997 through the date of the closing of the Offerings. In
addition, Dura will be primarily responsible for the marketing and manufacturing
of the Spiros Products, if any are commercialized prior to the expiration of the
Purchase Option. Spiros Corp. II is not expected to have its own research,
development, clinical, licensing, administration, manufacturing or marketing
employees or facilities and thus will be entirely dependent on Dura in these
areas. Subject to their respective obligations under the Development Agreement,
consistent with commercially reasonable practices, Dura will have sole
discretion to determine the allocation of its research, development, clinical,
licensing, administration, manufacturing and marketing employees and facilities.
Although Dura believes that its personnel and facilities currently are or, in
the
18
<PAGE>
future, will be adequate for the performance of its duties under the Development
Agreement and the Manufacturing and Marketing Agreement, Dura's proprietary and
collaborative development, licensing, manufacturing and marketing projects may
compete for time and resources with projects undertaken by Spiros Corp. II
pursuant to the Development Agreement and the Manufacturing and Marketing
Agreement, thereby delaying development, manufacture and marketing of the Spiros
Products. Any material adverse change in the business or financial condition of
Dura would have a material adverse effect upon Spiros Corp. II. See "The
Agreements and the Purchase Options--Development Agreement."
POTENTIAL COMPETITION FROM DURA. Dura is engaged in ongoing licensing and
development of new products. While Dura has licensed the rights to develop,
manufacture and commercialize the Spiros Products in connection with the Core
Technology to Spiros Corp. II, Dura is not prohibited from developing other
products using Spiros, including those that may compete with the Spiros
Products, or from in-licensing or acquiring products that may compete with the
Spiros Products. Dura's activities may, in some circumstances, lead to the
development, in-licensing or acquisition of products that compete with the
Spiros Products being developed by Spiros Corp II. It is possible that Dura's
rights with respect to such competitive products could reduce Dura's incentive
to exercise the Albuterol Option, the Product Option or the Purchase Option. See
"Business of Dura."
NO MANUFACTURING OR MARKETING CAPABILITY. Spiros Corp. II has no
manufacturing or marketing capability. Spiros Corp. II is obligated to only
utilize Dura's manufacturing facilities for manufacturing in the U.S. during the
term of the Manufacturing and Marketing Agreement. Dura has the right under the
Manufacturing and Marketing Agreement to use contract manufacturers and
currently plans to rely on third parties to manufacture certain components of
Spiros. There can be no assurance that Dura's facilities or those of its
contract manufacturers will be satisfactory for the needs of Spiros Corp. II. In
addition, Dura or its contract manufacturers, as the case may be, may require
additional FDA approval prior to commencing manufacturing of Spiros Products.
There can be no assurance that the Spiros Products can be manufactured, whether
by Dura or a contract manufacturer, on a commercial scale for commercially
reasonable cost or on a timely basis. In addition, Spiros Corp. II has no
experience in sales, marketing or distribution. Under the Manufacturing and
Marketing Agreement, Dura has been granted exclusive worldwide marketing rights
to the Spiros Products. There can be no assurance that Dura's sales and
marketing force will be able to establish commercially successful sales and
distribution capabilities for the Spiros Products. See "The Agreements and the
Purchase Options--Manufacturing and Marketing Agreement."
ABSENCE OF OPERATING HISTORY; NO ASSURANCE OF PROFITABILITY; LACK OF
DIVIDENDS. Spiros Corp. II was recently formed and has no operating history
upon which investors may base an evaluation of its likely financial performance.
Spiros Corp. II anticipates that substantially all of the Available Funds may be
expended prior to the earliest receipt of any significant revenues by Spiros
Corp. II, resulting in significant losses. Further, even if the Spiros Products
are developed in accordance with the Development Agreement and marketed pursuant
to the Manufacturing and Marketing Agreement, there can be no assurance that
they can be marketed profitably. Even if such Spiros Products are commercialized
profitably, the initial losses incurred by Spiros Corp. II may never be
recovered. Spiros Corp. II is prevented from paying dividends on the Spiros
Corp. II Common Stock without the approval of Dura, and accordingly, does not
expect to pay any dividends. See "Spiros Corp. II Capital Stock" and "The
Agreements and the Purchase Options--Stock Purchase Option."
ABILITY OF SPECIAL STOCKHOLDER TO LIMIT CERTAIN SPIROS CORP. II
ACTIVITIES. Pursuant to the Amended and Restated Certificate of Incorporation
of Spiros Corp. II, until the expiration of the Purchase Option, no resolution
or act of Spiros Corp. II to authorize or permit any of the following will be
effective without the prior written approval of the holders of a majority of the
outstanding Special Shares: (i) the allotment or issue of shares or other
securities of Spiros Corp. II or the creation of any right to such allotment or
issue; (ii) the reduction of Spiros Corp. II's authorized share capital; (iii)
outstanding borrowings by Spiros Corp.
19
<PAGE>
II in excess of $1 million; (iv) the sale or other disposition of, or the
creation of any lien or liens on, the whole or a part of Spiros Corp. II's
business or assets; (vi) the consolidation of Spiros Corp. II; and (vii) any
alteration of the Purchase Option. Accordingly, Dura as the holder of a majority
of the outstanding Special Shares, could preclude the holders of a majority of
the outstanding Spiros Corp. II Common Stock and the Board of Directors of
Spiros Corp. II from taking any of the foregoing actions during such period.
Dura, as holder of all of the outstanding Special Shares, may transfer or sell
all, but not less than all, of such shares. As a result, an unrelated third
party may acquire rights associated with the Special Shares, including the
rights discussed in this section and the right to exercise the Albuterol Option,
the Product Option and the Purchase Option. There can be no assurance that any
transferee of the Special Shares will have the same financial resources or
development, manufacturing or marketing capabilities as Dura, which may have a
material adverse effect on the likelihood of the exercise of the Albuterol
Option, the Product Option or the Purchase Option. See "Spiros Corp. II Capital
Stock."
POTENTIAL LOSS OF TECHNOLOGY BY SPIROS CORP. II. Under the Development
Agreement, Spiros Corp. II is obligated to make payments to Dura equal in the
aggregate to substantially all of the Available Funds. If Spiros Corp. II does
not use such Available Funds as provided in the Development Agreement or
otherwise breaches any of its material obligations under the Major Agreements,
Dura may have the right to terminate the Technology Agreement, the Development
Agreement and the Manufacturing and Marketing Agreement, and thereby reacquire
rights to all technology licensed to Spiros Corp. II thereunder, including
improvements made to such technology using funds provided by Spiros Corp. II. In
the event of such a termination by Dura, it is unlikely that Dura would exercise
the Albuterol Option, the Product Option or the Purchase Option. See "The
Agreements and the Purchase Options."
ACCELERATION OF PURCHASE OPTION. If Spiros Corp. II terminates all Major
Agreements due to a material breach of any of the Major Agreements by Dura, the
Purchase Option automatically accelerates. The Purchase Option also terminates
in the event of certain voluntary or involuntary bankruptcy events affecting
Dura or an uncured material breach by Dura under any of its material loan
agreements. There can be no assurance that, at that time, the development of the
Spiros Products will have progressed to a point where Dura will have sufficient
information to determine whether to exercise the Purchase Option. As a result,
Dura may determine not to exercise the Purchase Option. There can be no
assurance that, upon termination of the Development Agreement by Spiros Corp. II
as described above, alternative arrangements for the development of some or all
of the Spiros Products could be made or that such development of the Spiros
Products by Spiros Corp. II would be successful. See "The Agreements and the
Purchase Options."
BUSINESS RISKS RELATED TO SPIROS CORP. II AND DURA
NO ASSURANCE OF MARKET FOR UNITS, WARRANTS OR SPIROS CORP. II COMMON
STOCK. The Warrants and the Spiros Corp. II Common Stock that constitute the
Units will be transferable only as Units until the Separation Date. No assurance
can be given that an active trading market for the Units will develop. After the
Separation Date, the Warrants and the Spiros Corp. II Common Stock will be
separately transferable. There can be no assurance that factors related to Dura
or otherwise will not depress the value of the Warrants, or that factors related
to Spiros Corp. II or otherwise will not depress the value of the Spiros Corp.
II Common Stock, in either case reducing the liquidity of an investment in the
Units. After the Separation Date, there can be no assurance that there will be
an active trading market for the Warrants or the Spiros Corp. II Common Stock.
Prior to the Separation Date, application will be made to list the Spiros Corp.
II Common Stock and the Warrants for trading on the Nasdaq National Market.
UNCERTAINTY REGARDING PATENTS AND PROPRIETARY TECHNOLOGY; UNPREDICTABILITY
OF PATENT PROTECTION--SPIROS CORP. II. Spiros Corp. II's success will depend,
in part, on its ability to obtain patents, protect trade secrets and other
proprietary information and operate without infringing upon the proprietary
rights of others both in the U.S. and abroad. There can be no assurance that
patent applications for a Spiros
20
<PAGE>
Product will be approved, that Spiros Corp. II will develop any Spiros Product
to the point that it is patentable, that any issued patents for a Spiros Product
will provide Spiros Corp. II with adequate protection or will not be challenged
by others, or that the patents of others will not impair the ability of Spiros
Corp. II to do business. Furthermore, there can be no assurance that others will
not independently develop similar products, duplicate any unpatented Spiros
Products or design around any patented Spiros Products in development or
marketed by Spiros Corp. II.
Spiros Corp. II will rely on secrecy to protect technology where patent
protection is not believed to be appropriate or obtainable. There can be no
assurance that any confidentiality agreement entered into by Dura with third
parties will not be breached, that Spiros Corp. II will have adequate remedies
for any breach, that others will not independently develop substantially
equivalent proprietary information or that third parties will not otherwise gain
access to proprietary information concerning the Spiros Products or Program
Technology.
Spiros Corp. II may be required to obtain licenses to patents or other
proprietary rights of others. No assurance can be given that any licenses
required under any such patents or proprietary rights would be made available on
terms acceptable to Spiros Corp. II, if at all. If Spiros Corp. II does not
obtain such licenses, it could encounter delays in Spiros Product market
introductions or could find that the development, manufacture or sale of the
Spiros Products requiring such licenses could be foreclosed. Moreover, Spiros
Corp. II could incur substantial costs and diversion of management time in
defending itself in any suits brought against it claiming infringement of the
patent rights of others or in asserting Spiros Corp. II's patent rights.
Spiros Corp. II is aware of foreign patents granted to third parties in the
United Kingdom that claim proprietary rights in areas that may overlap with
certain Spiros technology. In the event that Spiros Corp. II determines to
market any Spiros Product in the United Kingdom and further determines that such
activity would infringe upon such third party patents, Spiros Corp. II may need
to either design around these patents, obtain licenses to such patents, or avoid
marketing products in the United Kingdom and other areas in Europe in which
these patents provide protection. There can be no assurance that patents or
patent applications do not exist or will not exist in the future that may
materially affect Spiros Corp. II's ability to make, use or sell any current or
future products. See "Business of Spiros Corp. II--Patents."
UNCERTAINTY REGARDING PATENTS AND PROPRIETARY; UNPREDICTABILITY OF PATENT
PROTECTION--DURA. Dura'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 Dura are covered by patents. Dura 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 Dura, they will be enforceable or
will provide substantial protection from competition or be of commercial benefit
to Dura or that Dura 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 or 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 Dura will also depend upon avoiding the
infringement of patents issued to competitors and upon maintaining the
technology licenses upon which certain of Dura's current products are, or any
future products under development might be, based. Litigation, which could
result in substantial cost to Dura, may be necessary to enforce Dura's patent
and license rights or to determine the scope and validity of proprietary rights
of third parties. If any of Dura's products are found to infringe upon patents
or other rights owned by third parties, Dura 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 Dura on
commercially reasonable terms, if at all. If Dura does not obtain such licenses,
it could encounter delays in marketing affected products while it attempts to
design around such patents or it
21
<PAGE>
could find that the development, manufacture or sale of products requiring such
licenses is not possible. Dura 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. See "Business of Dura--Patents and Proprietary Rights."
GOVERNMENT REGULATION; NO ASSURANCE OF FDA APPROVAL. Development, testing,
manufacturing and marketing of pharmaceutical products including drug delivery
systems 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. Such
regulatory review includes the determination of manufacturing capability and
product performance. Marketing of drug delivery systems also requires FDA
approval, which can be costly and time consuming to obtain. A separate
regulatory approval will need to be obtained for each Spiros drug delivery
system.
Dura expects to submit an abbreviated NDA called a 505(b)(2) application for
the use of albuterol and other drugs with the Spiros system. No assurances can
be given that all of Dura's drugs identified for development with Spiros will be
suitable for, or approved under, abbreviated application procedures. Certain
abbreviated application procedures have been the subject of petitions filed by
brand name manufacturers which seek changes in the FDA's approval process for
such abbreviated applications. These requested changes include, among other
things, disallowance of the use by an applicant of an abbreviated application
with data considered proprietary by the original manufacturer that was submitted
to the FDA as part of an original NDA. Dura is unable to predict at this time
whether the FDA will make any changes to its abbreviated application procedures
as a result of such petitions or the effect that such changes or challenges may
have on Dura.
There can be no assurance that the pharmaceutical products currently in
development by Spiros Corp. II or Dura, or those products acquired or
in-licensed by either company, will be approved by the FDA. In addition, there
can be no assurance that all necessary approvals will be granted for future
products or that FDA review or actions will not involve delays caused by the
FDA's request for additional information or testing that could adversely affect
the time to market and sale of the products. For both currently marketed
products of Dura and future products of Dura and Spiros Corp. II, 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.
Dura, on behalf of Spiros Corp. II, filed an NDA for the Albuterol Product
in November 1997. The FDA may determine to reject Dura's NDA at any time within
60 days of submission based on a determination that the NDA is incomplete or
that additional information is required prior to consideration of the NDA. Prior
to the FDA's approval of the Albuterol Product, Dura will be required to
complete an ongoing open label study with respect to the Albuterol Product.
Since completion of the pivotal trials, Dura has made, and is proposing to make,
a number of additional modifications to the Spiros system, some of which address
problems encountered with the mechanical features of the Spiros delivery system
during the pivotal trials. These changes are intended to improve the
reliability, performance, manufacturability, and customer acceptance of the
mechanical features of the Spiros delivery system. Dura expects that it will be
required to complete testing and validation pursuant to cGMP requirements of the
Spiros system as modified for commercial distribution, which could be costly and
time-consuming. There can be no assurance that the FDA will not require Dura to
undertake further laboratory testing, field testing and/or clinical studies in
order to insure the safety and effectiveness of the Albuterol Product intended
to be commercialized by Dura and to insure that it can be reliably manfactured.
If a proposed change is deemed to be a major modification by the FDA, Dura could
be required to repeat one or more of the clinical studies. Moreover, because of
the time necessary to validate the changes to the Spiros system, there can be
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no assurance that Dura will be prepared for any FDA preapproval inspection of
Dura's manufacturing facilities in a timely manner. If Dura is required to
undertake additional laboratory testing and/or clinical studies or to postpone
the preapproval inspection, or if Dura fails to complete the open label study in
a timely manner, Dura could receive a non-approval letter and, in any event,
there could be a substantial delay in completion of the approval process. FDA
approval to market the Albuterol Product could take several months to several
years, or approval may ultimately be denied.
The FDA is required to conduct biennial inspections of drug manufacturing
establishments. Since the NDA submission for the Albuterol Product is Dura's
first for a Spiros Product, the FDA will inspect Dura's manufacturing facility
as part of the review process. Dura may also be subject to State of California
inspection. There can be no assurance that Dura will be able to satisfy such
inspections in a timely manner, if at all.
In addition, changes in regulations could have a material adverse effect on
Dura. 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
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. This Policy Guide requires that products
covered by paragraph B not be similar or related to any drug included in the
DESI program, or have a different formulation or conditions for use than
products marketed before November 13, 1984. If a final determination is made
that a particular drug required an approved NDA, such approval will be required
for marketing to continue. If such a determination is made, the FDA might impose
various requirements; for example, it might require that the current product be
the subject of an approved NDA, that the product be reformulated and an NDA
approval be obtained, that the product must be sold on an over-the-counter basis
rather than as a prescription drug or that the products must be removed from the
market. Dura believes that nine of its prescription pharmaceutical products may
be covered by paragraph B of the Policy Guide and is aware that one of its
products may be considered to be similar or related to a DESI drug. Also, Dura
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 Dura's pharmaceutical products or
whether either Dura or Spiros Corp. II 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 business of Dura or Spiros Corp.
II. Dura's Health Script is subject to regulation by state regulatory
authorities, principally state boards of pharmacy. In addition, Dura's 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. See "Business of Dura--Government
Regulation."
ATTRACTION AND RETENTION OF KEY PERSONNEL. Spiros Corp. II will be highly
dependent on the principal members of Dura's scientific and management staff,
the loss of whose services might impede the achievement of development
objectives. Dura is also highly dependent on the principal members of its
scientific and management staff. No Dura employee, other than Mr. Garner and Mr.
Kabakoff, is currently employed under an employment contract. Each of Mr. Garner
and Mr. Kabakoff is employed under a letter agreement which is automatically
extended for successive one-year periods. Pursuant to these respective letter
agreements each of Mr. Garner and Mr. Kabakoff is entitled to six months of base
salary if their employment is terminated without cause (nine months in the event
their employment is terminated in connection with a change in control of Dura).
Recruiting and retaining management and operational personnel and qualified
scientific personnel to perform research and development work, whether for
Spiros Corp. II's or Dura's internal projects, will also be critical to Spiros
Corp. II's and Dura's success.
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Although Dura believes it will be successful in attracting and retaining skilled
and experienced management, operational and scientific personnel, there can be
no assurance that Dura will be able to attract and retain such personnel on
acceptable terms given the competition among numerous pharmaceutical companies,
universities and research institutions for such personnel. See "Business of
Dura--Human Resources."
COMPETITION. Many companies, including large pharmaceutical firms with
financial and marketing resources and development capabilities substantially
greater than those of Dura and Spiros Corp. II, are engaged in developing,
marketing and selling products that compete with those offered or planned to be
offered by Dura and Spiros Corp. II. 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 or Spiros Corp.
II's current or future products. The industry is characterized by rapid
technological change, and competitors may develop their products more rapidly
than Dura or Spiros Corp. II. Competitors may also be able to complete the
regulatory process sooner, and therefore, may begin to market their products in
advance of Dura's or Spiros Corp. II's products. Dura and Spiros Corp. II
believe 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.
There are at least 25 other companies in the U.S. that 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.,
only individual dose DPIs currently are marketed, including the Rotohaler-TM-
(developed and marketed by Glaxo) and the Spinhaler-Registered Trademark-
(developed and marketed by Fisons Limited). The Turbuhaler-Registered Trademark-
(developed and marketed by Astra Pharmaceuticals), a multiple dose DPI, is the
leading DPI in worldwide sales. In June 1997, the FDA approved the first
Turbuhaler product, the Pulmicort Turbuhaler, for marketing in the U.S. See
"Business of Dura--Competition" and "Business of Spiros Corp. II--Competition."
THIRD-PARTY REIMBURSEMENT; PRICING PRESSURES. Dura's and Spiros Corp. II'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 Dura or Spiros
Corp. II to achieve market acceptance of products or to maintain price levels
sufficient to realize an appropriate return on the investment in product
acquisition, in-licensing and development. The market for Dura's and Spiros
Corp. II'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 Dura or
Spiros Corp. II products will be included on the formulary list of managed care
organizations or that downward pricing pressure in the industry generally will
not negatively impact the operations of Dura or Spiros Corp. II.
LIMITED MANUFACTURING EXPERIENCE AND RELIANCE ON THIRD PARTIES. Dura's
principal manufacturing facility 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 1998. Dura's
manufacturing facility must be registered with and licensed by various
regulatory authorities and must comply with current Good Manufacturing Practice
("cGMP") requirements prescribed by the FDA and the State of California. Dura is
currently expanding its facilities to provide additional manufacturing
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capabilities. Dura will need to significantly scale up its current manufacturing
operations and comply with cGMPs and other regulations prescribed by various
regulatory agencies in the U.S. and other countries to achieve the prescribed
quality and required levels of production of such products to obtain marketing
approval. Spiros Corp. II is completely reliant on Dura for all of its
manufacturing needs. 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 ability of
Dura and Spiros Corp. II to manufacture products in connection with Spiros. Dura
intends to utilize third parties to produce components of and assemble the
Spiros aerosol generator. Such third parties have only produced limited
quantities of components and assembled generators and will be required to
significantly scale up their activities. There can be no assurance that such
third parties will be successful in completing these activities in a timely
manner or can meet cGMP requirements. Any failure or delay in the scale up of
aerosol generator manufacturing would have a material adverse effect on the
ability of Dura and Spiros Corp. II to manufacture Spiros Products. See
"Business of Dura--Manufacturing."
PRODUCT LIABILITY AND INSURANCE. Dura's and Spiros Corp. II's respective
businesses will expose them to potential product liability risks which are
inherent in the testing, manufacturing and marketing of respiratory drugs and
drug delivery systems. Dura currently has limited product liability insurance;
however, there can be no assurance that Dura will be able to maintain such
insurance, that such insurance can be maintained on acceptable terms or that
insurance will provide adequate coverage against potential liabilities. Spiros
Corp. II does not maintain any product liability insurance and there can be no
assurance Spiros Corp. II will be able to obtain adequate product liability
insurance on reasonable terms, or at all, or that such insurance, if obtained,
can be maintained on acceptable terms or that insurance will provide adequate
coverage against potential liabilities.
BUSINESS RISKS RELATING TO DURA
REDUCTION IN GROSS MARGINS. There is no proprietary protection for most of
the products sold by Dura and substitutes for such products are sold by other
pharmaceutical companies. Dura expects average selling prices for many of its
products to decline over time due to competitive and reimbursement pressures.
While Dura will seek to mitigate the effect of this decline in average selling
prices, there can be no assurance that Dura will be successful in these efforts.
See "Business of Dura--Competition."
DEPENDENCE ON ACQUISITION OF RIGHTS TO PHARMACEUTICAL PRODUCTS. Dura's
strategy for growth is dependent, in part, upon acquiring, in-licensing and
co-promoting pharmaceuticals targeted primarily at allergists, ENTs,
pulmonologists and a selected subset of pediatricians and generalist physicians.
Other companies, including those with substantially greater resources, are
competing with Dura for the rights to such products. There can be no assurance
that Dura will be able to acquire, in-license or co-promote additional
pharmaceuticals on acceptable terms, if at all. The failure to acquire,
in-license, co-promote, develop or market commercially successful
pharmaceuticals would have a material adverse effect on Dura. Furthermore, there
can be no assurance that Dura, 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. See "Business of
Dura--Strategy" and "Business of Dura--Strategic Alliances."
RISKS ASSOCIATED WITH RECENT ACQUISITIONS OF PRODUCTS. In September 1996,
Dura 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, Dura 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 Dura to meet demand and could have a
material adverse impact on Dura.
Dura 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 Dura 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 Dura's business, financial
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condition and results of operations. See "Business of Dura--Dura's Current
Products" and "Business of Dura--Sales and Marketing."
Dura has transferred a substantial portion of its recently acquired product
rights to foreign subsidiaries. Risks inherent in having assets in foreign
subsidiaries include those relating to political and economic instability and
the burden of complying with a wide variety of complex foreign laws and
treaties.
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 Dura. Further consolidation or financial difficulties could also
cause customers to reduce their inventory levels, or otherwise reduce purchases
of Dura's products which could result in a material adverse effect on Dura's
business, financial condition or results of operations.
Dura's principal customers are wholesale drug distributors and major drug
store chains. For the first nine months of 1997, three wholesale customers
individually accounted for 11% (McKesson Corporation), 11% (Cardinal Health,
Inc.) and 10% (AmeriSource Corporation) of sales. For 1996, three wholesale
customers individually accounted for 17% (McKesson Corporation), 14% (Bergen
Brunswig Corporation) and 13% (Cardinal Health, Inc.) 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
Dura'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 Dura's results of operations in the
past. While the growth and productivity of Dura's sales force and the
introduction by Dura of new products have historically mitigated the impact of
seasonality on Dura's results of operations, recent product acquisitions by
Dura, especially Keftab and Ceclor CD, which are used to treat respiratory
infections, are likely to increase the impact of seasonality on Dura's results
of operations. No assurances can be given that Dura's results of operations will
not be materially adversely affected by the seasonality of product sales.
DEPENDENCE ON THIRD PARTIES. Dura'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 Dura 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
Dura's competitors. Dura 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 Dura's products is subject to cGMP regulations prescribed by the
FDA. Dura relies on a single manufacturer for each of its products. In the event
that Dura 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
Dura 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 Dura 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. Dura'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 Dura's ability to develop and deliver products
on a timely and competitive basis. See "Business of Dura-- Manufacturing."
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MANAGING GROWTH OF BUSINESS. Dura has experienced significant growth as
total revenues increased 58% in fiscal 1995, 102% in fiscal 1996, and 102% for
the first nine 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, Dura executed an agreement relating
to the acquisition of the rights to the Nasarel and Nasalide products. During
fiscal 1996, Dura executed agreements relating to the acquisition of the rights
to the Entex, Ceclor CD and Keftab products. During fiscal 1995, Dura executed
three agreements relating to the acquisition, in-licensing and co-promotion of
products and acquired Health Script. Due to Dura's emphasis on acquiring and
in-licensing respiratory pharmaceutical products, Dura 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. Dura's ability to achieve and maintain profitability is
based on management's ability to manage its changing business effectively. See
"--Attraction and Retention of Key Personnel" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Dura."
UNCERTAINTY OF PROFITABILITY; NEED FOR ADDITIONAL FUNDS. Dura has
experienced significant operating losses in the past, and, at September 30,
1997, Dura's accumulated deficit was $49.6 million. Although Dura achieved
profitability on an annual basis in 1996 and in the first nine months of 1997,
there can be no assurance that revenue growth or profitability will continue on
an annual or quarterly basis in the future. In addition, the Spiros Corp.
Purchase and the Contribution will result in significant, non-recurring charges
to earnings in the period such transactions are completed. The acquisition and
in-licensing of products, the expansion of Dura's sales force in response to
acquisition and in-licensing of products, the maintenance of Dura's existing
sales force, the upgrade and expansion of its facilities, continued pricing
pressure, the exercise of the Purchase Option, the Albuterol Option or the
Product Option, if Dura decides to do so, 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, Dura may need to raise additional funds for these
purposes. Dura 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 Dura. Insufficient funds may
require Dura to delay, scale back or suspend some or all of its product
acquisition and in-licensing programs, the upgrade and expansion of its
facilities, or the potential exercise of the Purchase Option, the Albuterol
Option and/or the Product Option. Dura 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 12 months following
the date of this Prospectus. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Dura."
ABILITY TO SERVICE INDEBTEDNESS. In the third quarter of 1997, Dura issued
$287.5 million principal amount of 3 1/2% Convertible Subordinated Notes due
2002 (the "Notes"). There can be no assurance that Dura will have the necessary
funds available to pay the interest on the principal of the Notes or that the
Notes will be able to be refinanced. Any inability to service the obligations in
respect to the Notes could have a material adverse effect on Dura, the market
value of the Units, the Warrants and the Dura Common Stock.
EFFECT OF EXERCISE OF THE PURCHASE OPTION, THE ALBUTEROL OPTION AND THE
PRODUCT OPTION; DILUTION. If Dura exercises the Purchase Option, it will be
required to make a substantial cash payment or to issue shares of Dura Common
Stock, or both. A payment in cash would reduce Dura's capital resources. A
payment in shares of Dura Common Stock would result in a decrease in the
percentage ownership of Dura's stockholders at that time. The exercise of the
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 Purchase Option prior to its expiration, Dura's rights in and to
Spiros Corp. II with respect to certain compounds will terminate.
As part of Dura's contractual relationship with Spiros Corp. II, Dura
received the Albuterol Option to purchase certain rights to the Albuterol
Product and the Product Option to purchase certain rights to one
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additional Spiros Product. If Dura exercises the Albuterol Option or the Product
Option, it will be required to make a significant cash payment which could have
an adverse effect on its capital resources. Dura may not have sufficient capital
resources to exercise the Albuterol Option or the Product Option, which may
result in Dura's loss of valuable rights.
PRODUCT LIABILITY AND RECALL. Dura 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 Dura 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. Dura currently has product
liability insurance; however, there can be no assurance that the level or
breadth of any insurance coverage will be sufficient to fully cover potential
claims. There can be no assurance that adequate insurance coverage will be
available in the future at acceptable costs, if at all, or that a product
liability claim or recall would not materially and adversely affect the business
or financial condition of Dura.
TERMINATION OF MERGER AGREEMENT WITH SCANDIPHARM, INC. On December 1, 1997,
Dura announced it had terminated its merger agreement with Scandipharm, Inc.
("Scandipharm"). Dura has been advised by counsel for Scandipharm that
Scandipharm does not believe Dura has the right to terminate such merger
agreement and that Scandipharm reserves all rights under such agreement. The
merger agreement does not provide for any specific remedies or liquidated
damages. Dura believes that any claims brought by Scandipharm arising from the
merger agreement would be without merit; however, no assurance can be given that
any damages awarded based upon such claims would not materially and adversely
affect Dura's business or financial condition. See "Business of Dura--Overview."
CHANGE IN CONTROL. Certain provisions of Dura'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 Dura in the event of a
change in control may have the effect of delaying, deferring or preventing a
change in control of Dura, thereby possibly depriving stockholders of receiving
a premium for their shares of the Dura Common Stock. In addition, upon a Change
in Control (as defined), Dura will be required to offer to purchase for cash all
of the outstanding Notes at a purchase price of 100% of the principal amount
thereof, plus accrued but unpaid interest through the Change in Control Purchase
Date (as defined). The Change in Control purchase features of the Notes may in
certain circumstances have an anti-takeover effect. If a Change in Control were
to occur, there can be no assurance that Dura would have sufficient funds to pay
the Change in Control Purchase Price (as defined) for all Notes tendered by the
holders thereof and to repay other indebtedness that may become due as a result
of any Change in Control.
EFFECT OF ISSUANCE OF EQUITY SECURITIES. The potential issuance of Dura's
equity securities in connection with the Offerings and the Spiros Corp. Purchase
will result in a substantial dilution in the percentage ownership of Dura's
stockholders in Dura at the time of issuance and could negatively affect the
market price of Dura Common Stock.
VOLATILITY OF DURA STOCK PRICE. The market prices for securities of
emerging companies, including Dura, have historically been highly volatile.
Future announcements concerning Dura or its competitors may have a significant
impact on the market price of the Dura 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 Dura's products.
ABSENCE OF DIVIDENDS. Dura has never paid any cash dividends on the Dura
Common Stock. In accordance with a bank loan agreement, Dura is prohibited from
paying cash dividends without prior bank approval. Dura 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.
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FORWARD LOOKING STATEMENTS MAY NOT PROVE ACCURATE
This Prospectus contains forward-looking statements. Discussions containing
such forward-looking statements may be found in the material set forth under
"Prospectus Summary," "Use of Proceeds," "Business of Spiros Corp. II,"
"Business of Dura," and "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Dura," as well as within the Prospectus
generally and within documents incorporated by reference into this Prospectus.
In addition, when used in this Prospectus, the words "believes," "anticipates,"
"expects" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to a number of risks and uncertainties.
Actual results in the future could differ materially from those described in the
forward-looking statements as a result of the risk factors set forth herein and
the matters set forth in the Prospectus generally.
TAX RISKS
There are tax risks associated with the purchase of the Units, principally
relating to (i) the valuation of the Warrants (which will be used to determine
the tax basis of the Warrants and the Spiros Corp. II Common Stock after the
Separation Date), and (ii) the possibility that the United States Internal
Revenue Service ("IRS") could assert that the substance of the various
transactions is different from the form of such transactions. Certain United
States federal income tax consequences may be applicable to the purchase of the
Units, Warrants and Spiros Corp. II Common Stock and the exercise or expiration
of the Purchase Option. Such tax consequences are important and include the
recognition by Spiros Corp. II stockholders of taxable income upon the exercise
or expiration unexercised of the Purchase Option. The recognition by Spiros
Corp. II stockholders of income on expiration of the Purchase Option will be
required notwithstanding the fact that no cash or other property will be
received at such time.
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USE OF PROCEEDS
The net proceeds from the Offerings, assuming an offering price of $16.00
per Unit, are expected to be approximately $69.7 million ($80.1 million if the
Underwriters' over-allotment option is exercised in full), all of which will be
received by Spiros Corp. II. Spiros Corp. II expects to use substantially all of
the net proceeds of the Offerings, the Contribution and interest to be earned
thereon, less $1 million to be used as working capital, to engage Dura to
undertake research, clinical development, product development, including
regulatory approval, and commercialization of the Spiros Products under the
Development Agreement, and to make the Other Expenditures. Spiros Corp. II
expects that during the term of the Development Agreement, unless Dura exercises
the Albuterol Option or the Product Option, it will have very limited sources of
revenue other than the net proceeds of the Offerings, the Contribution and the
interest earned thereon. Any funds received by Spiros Corp. II as a result of
Dura's exercise of the Albuterol Option or the Product Option will become part
of the Available Funds and are intended to be paid to Dura pursuant to the
Development Agreement. See "The Agreements and the Purchase Options--
Development Agreement." Pending expenditure of such funds, the net proceeds of
the Offerings will be invested in short-term interest-bearing or other debt
securities. Dura's obligation to perform development work under the Development
Agreement will terminate at such time as Spiros Corp. II has cash or cash
equivalents of less than $5 million, which is projected by Spiros Corp. II to
occur on or about February 28, 2001. Upon receipt of notice from Spiros Corp.
II, Dura may elect to provide additional funding for the development of the
Spiros Products (but in no event beyond December 31, 2002). See "The Agreements
and Purchase Options--Stock Purchase Option" and "--Development Agreement."
The following table sets forth a proposed budget that provides estimates of
Spiros Corp. II's cash flow through April 2001, assuming the net proceeds of the
Offerings and the Contribution together with interest thereon total $154.7
million. The proposed budget assumes no exercise of the Underwriters' over-
allotment option and does not take into account any cash received upon the
exercise of the Albuterol Option or the Product Option. Because of the
long-range nature of the development plans, there can be no assurance that funds
will be expended as set forth below and Spiros Corp. II and Dura reserve the
right to reallocate funds as they deem appropriate. Neither Spiros Corp. II's
nor Dura's independent auditors, nor any independent accountants or financial
advisors, have compiled, examined or performed any procedures with respect to
the budget contained herein, nor have they expressed any opinion or any form of
assurance on such information and assume no responsibility for, and disclaim any
association with, the information. See "Risk Factors" for a discussion of
various factors that could materially affect the operations of Spiros Corp. II.
PROPOSED BUDGET
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(3 MONTHS) (4 MONTHS)
1997(2) 1998 1999 2000 2001 TOTAL
----------- --------- --------- --------- ------------- ---------
<CAPTION>
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Beginning cash balance... $ -- $ 139.7 $ 86.5 $ 36.1 $ 9.3 $ --
Dura Contribution........ 75.0 -- -- -- -- 75.0
Net proceeds of the
Offerings.............. 69.7 -- -- -- -- 69.7
Interest income(1)....... -- 5.6 3.0 1.1 0.3 10.0
----------- --------- --------- --------- ----- ---------
Total................ $ 144.7 $ 145.3 $ 89.5 $ 37.2 $ 9.6 $ 154.7
----------- --------- --------- --------- ----- ---------
----------- --------- --------- --------- ----- ---------
Payments
Albuterol.............. 3.4 27.3 -- -- -- 30.7
Beclomethasone......... 1.6 9.1 6.0 0.3 -- 17.0
Budesonide............. -- 4.6 15.2 11.1 5.2 36.1
Ipratropium............ -- 9.5 16.1 6.0 -- 31.6
Albuterol-Ipratropium... -- 6.5 11.2 7.1 3.0 27.8
Other Expenditures....... -- 1.4 4.5 3.0 -- 8.9
General and
administrative
expenses............... -- 0.4 0.4 0.4 0.4 1.6
----------- --------- --------- --------- ----- ---------
Total................ $ 5.0 $ 58.8 $ 53.4 $ 27.9 $ 8.6 $ 153.7
----------- --------- --------- --------- ----- ---------
----------- --------- --------- --------- ----- ---------
Ending cash balance...... $ 139.7 $ 86.5 $ 36.1 $ 9.3 $ 1.0 $ 1.0
----------- --------- --------- --------- ----- ---------
----------- --------- --------- --------- ----- ---------
</TABLE>
- ------------------------------
(1) Assumes an interest rate of 5%.
(2) Expenditures in the year ended December 31, 1997 include approximately $4
million to repay Dura for estimated costs and expenses to be incurred by
Dura on behalf of Spiros Corp. II between October 10, 1997 and the closing
of the Offerings.
30
<PAGE>
PRICE RANGE OF DURA COMMON STOCK AND DIVIDEND POLICIES
Dura Common Stock is traded in the over-the-counter market and prices are
quoted on the Nasdaq National Market under the symbol "DURA." The following
table sets forth the intraday high and low prices for the Dura Common Stock for
the periods indicated, as reported on the Nasdaq National Market, as adjusted
for the 2-for-1 stock split in the form of a 100% stock dividend, effective July
1, 1996.
<TABLE>
<CAPTION>
HIGH LOW
--------- -------
<S> <C> <C>
1995:
1st Quarter................................................................ $ 7 1/2 $ 5 3/4
2nd Quarter................................................................ 9 7/8 6 1/2
3rd Quarter................................................................ 17 1/2 9 1/8
4th Quarter................................................................ 17 3/4 13 1/4
1996:
1st Quarter................................................................ $27 1/4 $16 3/8
2nd Quarter................................................................ 34 11/16 22
3rd Quarter................................................................ 40 1/2 19 3/4
4th Quarter................................................................ 47 7/8 29 1/2
1997:
1st Quarter................................................................ $47 1/8 $31 3/4
2nd Quarter................................................................ 44 22 3/4
3rd Quarter................................................................ 45 1/2 32 3/8
4th Quarter (through December 15).......................................... 53 42 3/8
</TABLE>
On December 15, 1997, the last reported sale price of the Dura Common Stock
on the Nasdaq National Market was $44 3/4 per share. As of September 30, 1997,
there were approximately 360 holders of record of Dura Common Stock.
In addition, at September 30, 1997, warrants to purchase a total of
3,856,014 shares of Dura Common Stock were outstanding. The number of holders of
record was 22.
Dura has never paid any cash dividends on the Dura Common Stock. In
accordance with a bank loan agreement, Dura is prohibited from paying cash
dividends without prior bank approval. Dura 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.
It is not expected that Spiros Corp. II will pay any dividends to
stockholders for the foreseeable future. The Amended and Restated Certificate of
Incorporation of Spiros Corp. II provides that until the Purchase Option is
exercised or terminates unexercised, Spiros Corp. II is not permitted to pay
dividends to holders of Spiros Corp. II Common Stock without the approval of
holders of a majority of the Special Shares.
31
<PAGE>
DURA CAPITALIZATION
The following table sets forth the capitalization of the Dura at September
30, 1997 on an actual basis and on a "pro forma as adjusted" basis, assuming
consummation of the Spiros Corp. Purchase for an aggregate purchase price of
$45.7 million, paid by Dura through the issuance of 936,614 shares of Dura
Common Stock, and the Contribution. The Spiros Corp. Purchase will result in a
one-time charge to Dura's earnings in the period in which the purchase is closed
relating to the acquisition of in-process research. The charge will approximate
the purchase price. The Contribution will result in a one-time charge of $75
million to Dura's earnings in the period in which it occurs.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
--------------------------
PRO FORMA
ACTUAL AS ADJUSTED(2)
---------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash, cash equivalents and short-term investments..................................... $ 454,710 $ 384,561
---------- --------------
---------- --------------
Current portion of long-term obligations.............................................. $ 2,948 $ 2,948
---------- --------------
---------- --------------
Long-term obligations (excluding current portion of long-term obligations)............ $ 7,035 $ 7,035
Convertible subordinated notes........................................................ 287,500 287,500
---------- --------------
294,535 294,535
---------- --------------
Shareholders' equity:
Preferred stock; 5,000,000 shares authorized; no shares issued or outstanding....... -- --
Common stock; 100,000,000 shares authorized; 43,890,806 shares outstanding actual;
44,827,420 outstanding pro forma as adjusted(1)................................... 44 45
Additional paid-in capital.......................................................... 533,003 578,709
Accumulated deficit................................................................. (49,597) (169,134)
Unrealized gain on investments...................................................... 195 195
Warrant subscriptions receivable.................................................... (1,348) --
---------- --------------
Total shareholders' equity........................................................ 482,297 409,815
---------- --------------
Total capitalization.............................................................. $ 776,832 $ 704,350
---------- --------------
---------- --------------
</TABLE>
- ------------------------
(1) Excludes (a) 3,371,141 shares of Dura Common Stock issuable upon the
exercise of options outstanding at September 30, 1997 under the Dura's stock
option plan, (b) 1,436,033 shares of Dura Common Stock available for future
grants under such plan and (c) 3,856,014 shares of Dura Common Stock
issuable upon exercise of warrants outstanding at September 30, 1997. Also
excludes 5,677,891 shares of Dura Common Stock issuable upon conversion of
the Notes. See "Description of Dura Capital Stock."
(2) Pro Forma As Adjusted amounts reflect the Spiros Corp. Purchase and the
Contribution as if those transactions occurred on September 30, 1997. No
adjustment has been made to give effect to the Offerings. The Offerings will
result in an increase to additional paid-in capital in an amount equal to
the value of the Warrants as determined at the time of their issuance, and
an offsetting increase to the warrant subscriptions receivable contra equity
account.
32
<PAGE>
SPIROS CORP. II CAPITALIZATION
The following table sets forth the capitalization of Spiros Corp. II as of
September 30, 1997 and as adjusted to reflect the issuance of the Units and the
Contribution.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------
<S> <C> <C>
AS
ACTUAL ADJUSTED(2)(3)
--------- -------------
(DOLLARS IN THOUSANDS)
Callable common stock, par value $.001 per share; no shares authorized, issued and
outstanding actual; 6,500,000 shares authorized, 4,687,500 shares issued and
outstanding as adjusted................................................................ $ -- $ 5
Common stock, par value $1.00 per share; 1,000 shares authorized; 1,000 shares issued and
outstanding actual and as adjusted(1).................................................. 1 1
Additional paid-in capital............................................................... -- 144,645
--------- -------------
Total capitalization................................................................... $ 1 $ 144,651
--------- -------------
--------- -------------
</TABLE>
- ------------------------
(1) Held by Dura and to be renamed Special Common Stock immediately prior to the
closing of the Offerings.
(2) Does not include the effect of amounts payable by Spiros Corp. II to Dura
under the Development Agreement for research and development costs relating
to the Spiros Products and the Core Technology incurred by Dura from October
10, 1997 through the date of the closing of the Offerings (currently
estimated to be $4 million).
(3) Adjusted to give effect to (a) the assumed issue of 4,687,500 Units for
proceeds of $75 million, assuming an offering price of $16.00 per Unit, net
of underwriting discounts and commissions and estimated expenses of the
Offerings aggregating $5.4 million, and (b) the Contribution.
33
<PAGE>
BUSINESS OF SPIROS CORP. II
BACKGROUND
Spiros Corp. is a separate company formed in December 1995 to fund the
development of Spiros with certain asthma drugs. Spiros Corp. has used
substantially all of the $28 million in financing that it raised and a $13
million contribution from Dura to finance the development of Spiros and certain
compounds for use in Spiros. On or prior to the closing of the Offerings, Dura
will purchase all of the common stock of Spiros Corp. for an aggregate purchase
price estimated to be $45.7 million, payable in cash, shares of Dura Common
Stock or any combination thereof, at Dura's sole discretion. Prior to the
formation of Spiros Corp., DDSI was organized as a separate entity responsible
for Spiros development. DDSI spent approximately $23 million for the development
of Spiros before being acquired by Dura in December 1995.
Spiros Corp. II was formed in September 1997 to continue to fund the
development of Spiros and to conduct formulation work, clinical trials, and
commercialization for four leading asthma drugs (albuterol, beclomethasone,
ipratropium and budesonide) and certain combinations and alternative
formulations thereof for use in Spiros. Spiros Corp. II may also expend funds on
enhancements to the existing Spiros technology, initial development of a next
generation inhaler system and the acquisition of capital equipment to be used in
the manufacture of the Spiros Products. Finally, Spiros Corp. II plans to use a
portion of its funding to conduct technical evaluation projects designed to
identify additional respiratory drug candidates for further development in
Spiros.
Spiros Corp. II is the exclusive licensee of Dura to employ the Spiros
technology to make, use, sell and import the Spiros Products throughout the
world (except with respect to beclomethasone in certain areas of Asia). Dura
will be primarily responsible for the marketing and manufacturing of the Spiros
Products, to the extent any such products are commercialized prior to the
expiration of the Purchase Option. Spiros Corp. II is not expected to have its
own research, development, clinical, licensing, administration, manufacturing or
marketing employees or facilities and thus will be entirely dependent on Dura in
these areas.
Through acquisition of complementary products and businesses and through
internal research and development collaborations, Dura seeks to expand its
product line with proprietary specialty respiratory pharmaceutical products.
Dura believes that the research and development work performed to date by Spiros
Corp. and DDSI and the research and development work it has undertaken on
Spiros, directly and through collaborators, have yielded results which justify
further research and development. However, a substantial amount of additional
research and development effort is required to further develop the Spiros
technology through to its potential commercialization. Management of Dura
determined to undertake such research and development through Spiros Corp. II
because such opportunities involve significantly different risk/reward profiles
as compared to Dura's established specialty pharmaceutical business. Dura
believes that the arrangements with Spiros Corp. II will significantly benefit
Dura and its stockholders by: (i) separating the risks associated with
researching, developing and commercializing products based on the Spiros
technology from those associated with Dura's established business; (ii)
obtaining for Dura the exclusive right to commercialize worldwide any
successfully developed Spiros Product, assuming Dura's exercise of the Albuterol
Option, the Product Option or the Purchase Option, thereby making it possible
for Dura to capture a potentially greater return on the products developed by
Spiros Corp. II than would otherwise be possible from products developed for
commercialization in conjunction with or by third parties; and (iii) allowing
Dura's near-term financial results to continue to reflect principally its
established business, by providing Dura with research and development revenues
from Spiros Corp. II to reimburse Dura for research and development costs
incurred by Dura.
ASTHMA AND COPD MARKET
Asthma is a complex physiological disorder characterized by airway
hyperactivity to a variety of stimuli such as dust, pollen, stress or physical
exercise, resulting in airway obstruction that is partially or
34
<PAGE>
temporarily reversible. The number of people with asthma has grown steadily in
recent years and is now believed to be over 200 million worldwide. COPD is a
complex condition comprising a combination of chronic bronchitis, emphysema and
airway obstruction. The worldwide combined market for therapeutic drugs to treat
asthma and COPD was approximately $7.5 billion in 1996. The primary categories
of therapeutic drugs used in the treatment of asthma and COPD include
bronchodilators and anti-inflammatories. Bronchodilators dilate the airways and
include beta agonists (such as albuterol and bitolterol), xanthines (such as
theophylline) and anticholinergics (such as ipratropium). Anti-inflammatories
reduce inflammation and include steroids (such as beclomethasone, budesonide,
flunisolide and triamcinolone).
PULMONARY DRUG DELIVERY SYSTEMS
Inhaled therapeutic drugs have been shown to be effective in treating or
preventing the symptoms of asthma, COPD and other respiratory diseases. When
treating respiratory diseases, inhalation delivery puts the drug directly into
the lung for topical treatment. If administered in capsule, tablet or liquid
form, rather than through inhalation, the patient must take sufficient drug to
achieve a systemic therapeutic blood level to benefit the lungs. In many
instances, this may cause serious side effects by impacting other organs.
Because inhaled therapy delivers the drug directly into the lung, it provides
comparable efficacy with less risk of systemic side effects at greatly reduced
dosages. Inhalation delivery also yields a fast onset of action, hastening the
time for patient relief.
TRADITIONAL INHALATION DELIVERY DEVICES
Traditional delivery systems used for administering inhaled drugs include
the following:
JET NEBULIZERS
Jet nebulizers aerosolize a liquid solution of medicine, either
ultrasonically or with compressed air, creating a fine mist that patients inhale
slowly over several minutes. Jet nebulizers are larger than other inhalation
delivery systems and because of their size, are primarily used to deliver
aerosol to hospitalized patients, patients with acute asthma exacerbation in a
clinic or emergency room environment, and patients unable to coordinate the use
of other inhalation delivery technology.
METERED DOSE INHALERS
MDIs are the most popular inhalation delivery system due to their relative
convenience and portability. MDIs consist of a suspension or solution of drug
filled into a canister which is sealed with a metering valve and pressurized
using a propellant, most commonly a chlorofluorocarbon ("CFC"). Because MDIs
contain an internal energy source, the CFCs, the operation is relatively flow
rate independent, and the dose exiting the MDI is relatively consistent.
However, it is estimated that only 10 to 20 percent of the dose from an MDI
actually deposits in the lung. The variation in lung deposition is in large part
reflected by the inability of most patients to coordinate actuation of the
system with inhalation.
DRY POWDER INHALERS
DPIs represent a significant advancement in the development of inhalation
delivery systems. Dry powder inhalers are relatively convenient and portable,
and are CFC-free. DPIs are breath actuated, so they eliminate the need for
hand-lung coordination associated with MDIs. Although DPIs overcome the need for
coordination of actuation and inspiration, currently marketed DPIs require high
inspiratory flow rates and the ultimate dose delivered to the patient is
dependent on inspiratory flow rate. This high inspiratory flow rate is difficult
to achieve for pediatrics, geriatrics and patients in acute respiratory
distress.
35
<PAGE>
SPIROS
Spiros is a proprietary pulmonary drug delivery system that is designed to
aerosolize pharmaceuticals in dry powder formulations for delivery to the lungs
while providing certain advantages over traditional pulmonary delivery systems.
Spiros Corp. II believes new inhalation systems will gradually replace MDIs as
the leading pulmonary delivery systems, due primarily to the phasing out of CFCs
and coordination problems associated with many MDIs. Many companies are studying
alternative propellants, such as hydrofluorocarbons ("HFAs"), for use in MDIs,
and the first albuterol MDI using an HFA propellant has obtained FDA approval
and is being marketed by Schering-Plough. However, Spiros Corp. II believes that
any product utilizing alternative propellants will still suffer from many of the
limitations of currently marketed MDIs, including the need for patients to
coordinate breathing with actuation of the drug delivery system. There are
currently two general classes of DPIs in commercial use worldwide, individual
and multiple dose systems, and both are breath powered and inspiratory flow rate
dependent. In the U.S., only individual dose DPIs are currently marketed.
Turbuhaler, a multiple dose DPI, is the leading DPI in worldwide sales and was
approved by the FDA for marketing in the U.S. in June 1997.
POTENTIAL ADVANTAGES OF SPIROS. Spiros Corp. II believes Spiros may have
certain advantages over other currently used methods of pulmonary drug delivery
including:
INSPIRATORY FLOW RATE INDEPENDENCE. Spiros is designed to deliver a
relatively consistent drug dose to the lungs over a wide range of
inspiratory flow rates, which can vary depending on a patient's health,
effort or physical abilities. Tests of Spiros on human subjects have shown a
relatively consistent and significant level of drug deposition throughout
the clinically relevant inspiratory range. Existing DPIs can vary
significantly in their level of drug deposition depending on the patient's
inspiratory flow rate and can deliver significantly less drug at the lower
flow rates typically associated with asthma attacks.
MINIMUM NEED FOR PATIENT COORDINATION. Spiros is breath-actuated and
does not require the user to coordinate inhalation and actuation of the drug
delivery system. MDIs generally require the user to coordinate their
breathing with actuation of the MDI. Studies indicate that a significant
percentage of patients, particularly young children and the elderly, do not
use MDIs correctly. Spiros is designed to solve these coordination problems
by delivering the drug to patient's lungs as they inhale.
REDUCED SIDE EFFECTS. Spiros is designed to efficiently deliver drugs
to the lungs, thereby reducing drug deposition to the mouth and throat which
could reduce the possibility of unwanted side effects of certain
pharmaceutical agents, such as coughing and local irritation. With MDIs, a
significant portion of the dose is delivered to the mouth and throat and is
swallowed.
PATIENT CONVENIENCE. Spiros is designed to be convenient for patients,
with features such as breath actuation (Spiros is triggered by inhalation),
portability (light weight and small size), quick delivery time, simple
operation, dose delivery feedback and multi-dose capability. Spiros also
allows the patient to see the actual number of doses remaining in a cassette
or blister pack and an LED light provides a warning of the need to replace
Spiros prior to the end of its useful life.
FREE OF CHLOROFLUOROCARBON PROPELLANTS. CFC propellants have ozone
destructive characteristics and are subject to worldwide regulations aimed
at eliminating their usage within the decade. Spiros does not use CFCs while
most MDIs, currently the most popular form of aerosol drug delivery, use
CFCs. Virtually all of the world's industrial nations, under the auspices of
the United Nations Environmental Program, have pledged to cease use of CFCs
by the year 2000. Continued use of CFCs in medical products has been
permitted under annual exemptions. As a result of the planned phase out of
CFCs, Spiros Corp. II believes that DPIs will become a leading method for
pulmonary drug delivery.
36
<PAGE>
CORE SPIROS TECHNOLOGY
The core technology contained in Spiros which gives rise to the flow rate
independent delivery is an aerosol generator that uses electromechanical energy
to disperse dry powder to form an aerosol for inhalation. The main components of
the aerosol generator include the impeller, the motor, the breath actuated
switch, and the dosing chamber. When the switch is activated, the electric
circuit is completed and the impeller rotates. The action of the impeller on the
dry powder formulation supplies the energy to disperse the drug and provide a
zero-velocity cloud of aerosolized drug for inhalation. The cloud of aerosolized
drug is suspended in the dosing chamber and is delivered to the lungs only as
the patient inhales.
Two separate Spiros systems are currently under development, both utilizing
the same core technology with distinct powder storage systems ("PSS"). Because
of the physical and chemical requirements of the specific drugs deliverable by
Spiros, as well as the varying needs of the patients and marketplace, Spiros
Corp. II believes that its cassette and blisterdisk systems will provide
flexibility for delivery of many different types of drugs.
CASSETTE SYSTEM
The cassette system was the first Spiros system developed and has been
utilized in all clinical testing of Spiros conducted to date. The PSS in this
system is a 30-dose plastic cassette packed in a foil pouch. In order to take a
dose using the cassette system, the patient first opens the lid of the Spiros
generator to load the cassette. When the lid is closed the cassette rotates to
deliver a dose of drug into the dosing chamber. The dosing chamber contains the
impeller. When the patient inhales through the mouthpiece, the impeller is
automatically activated. The action of the impeller on the powder in the chamber
generates the aerosol which the patient inhales. The patient then closes the
lid. When the 30-dose cassette is empty, the patient opens the lid and presses
an ejection button on the bottom of the system to remove an empty cassette and
load a new cassette.
The Spiros cassette system has been produced in clinical trial quantities
and is being used in ongoing clinical trials of albuterol and beclomethasone.
Dura is currently working with outside vendors on Spiros Corp. II's behalf to
produce the necessary tooling for commercial scale production.
BLISTERDISK SYSTEM
Once a cassette is removed from the foil package it is no longer protected
from fluctuations in the relative humidity. Although some drugs and powder
formulations are sufficiently stable using the cassette system, many other dry
powders are sensitive to relative humidity. In those cases, exposure to moisture
causes agglomeration of the powder which can no longer be readily aerosolized to
the required aerodynamic diameter. The blisterdisk system is being developed for
drugs that require a barrier against moisture or light. This system utilizes
powder-filled sealed foil blisters which prevent moisture build-up into the
powder. The blisterdisk system has been designed to contain 16 doses per
blisterdisk and is believed to be sufficiently flexible to accommodate a wide
variety of drugs. In order to take a dose using the blisterdisk system, the
patient will open the mouthpiece cover, push a button to open the blister and
inhale through the mouthpiece to actuate the impeller and aerosolize the dose.
As the patient closes the mouthpiece cover, the next blister is advanced to the
dosing position.
The Spiros blisterdisk system design has evolved to the prototype stage and
units that are suitable for laboratory testing have been produced. Further
refinements in the design of this system aimed at producing units suitable for
clinical trials are in progress.
37
<PAGE>
SPIROS PRODUCTS IN DEVELOPMENT
Spiros Corp. II has selected five compounds to develop for delivery through
Spiros: a beta-agonist (albuterol), two steroids (beclomethasone and
budesonide), an anticholinergic (ipratropium) and a combination of a
beta-agonist and an anticholinergic (albuterol-ipratropium). There can be no
assurance that the pharmaceutical products currently in development by Spiros
Corp. II or that any products that may be developed in the future will be
approved by the FDA. In addition, there can be no assurance that FDA review or
other actions will not involve delays that could adversely affect the time to
market and the sale of the products.
ALBUTEROL
Albuterol, a beta-agonist, provides rapid symptomatic relief of reversible
bronchospasm. When administered by inhalation, it produces significant
bronchodilation promptly and its effects are demonstrable for a number of hours.
Albuterol is the most widely accepted asthma medication in the world. The
leading branded MDI products are Proventil, sold by Schering-Plough, and
Ventolin, sold by Glaxo. In 1996, U.S. sales of albuterol were approximately
$700 million as measured by average wholesale prices.
In 1994, an IND application was filed with the FDA to begin clinical testing
of an albuterol dry powder formulation with the Spiros cassette system. In April
1996, dosing of subjects in a clinical trial focusing on dose selection using a
formulation of powdered albuterol with Spiros was completed. In March 1997,
patient dosing was completed in long-term and short-term pivotal clinical
trials. In November 1997, Dura announced, on behalf of Spiros Corp., that it had
submitted an NDA with the FDA for albuterol in the Spiros cassette system. The
NDA includes the results of clinical trials that were designed to demonstrate
comparability of the Spiros delivery system to a leading branded albuterol MDI
product. Three pivotal studies in addition to a number of dose finding and
performance verification studies were conducted for the submission.
An open label study of albuterol in the Spiros cassette system is currently
in progress. Interim results of this study were provided to the FDA in the NDA
and results of the full study must be submitted to and reviewed by the FDA prior
to product approval. Dura is planning market launch of albuterol in the Spiros
cassette system in late 1998 or early 1999, pending FDA approval. There can be
no assurance of receipt of FDA approval in a timely manner, if at all.
BECLOMETHASONE
Beclomethasone is a steroid used to treat the inflammatory component of
asthma and certain symptoms of COPD. Systemic side effects resulting from the
inhalation of beclomethasone are less than those that occur with steroids taken
in capsule, tablet or liquid form. Beclomethasone was first launched in MDI form
as Vanceril by Schering-Plough and later as Beclovent by Glaxo. In 1996, U.S.
sales of beclomethasone were approximately $205 million as measured by average
wholesale prices.
In the first quarter of 1997, Dura completed, on behalf of Spiros Corp.,
dose ranging studies of a one dosage strength of beclomethasone in the Spiros
cassette system under an IND, and preparations for Phase III pivotal clinical
trials to demonstrate safety and efficacy have been initiated.
IPRATROPIUM
Ipratropium is an anticholinergic bronchodilator. Ipratropium is most
commonly prescribed for the long term management of COPD (including chronic
bronchitis and emphysema) and for the treatment of asthmatic patients who are
poorly controlled by, or who experience troublesome side effects from, beta-
agonists such as albuterol. Ipratropium acts at a site that is different from
the site where beta-agonists act and thus affords an alternative approach to the
treatment of airway obstruction. Ipratropium in MDI form
38
<PAGE>
is marketed as Atrovent by Boehringer Ingelheim. In 1996, U.S. sales of
ipratropium were approximately $200 million as measured by average wholesale
prices.
Dura, on behalf of Spiros Corp., has conducted initial preclinical
formulation studies using ipratropium in order to demonstrate that delivery via
Spiros is feasible. Spiros Corp. II currently anticipates that ipratropium will
be the first compound formulated for delivery through the Spiros blisterdisk
system. In 1998, Spiros Corp. II plans to begin product development for a
formulation of ipratropium to be delivered using Spiros.
ALBUTEROL-IPRATROPIUM COMBINATION
Albuterol and ipratropium are frequently prescribed in combination for
patients with COPD or asthma. Boehringer Ingelheim has marketed an
albuterol-ipratropium combination product, Combivent, outside of the U.S. for a
number of years. Combivent was approved for marketing in the U.S. in early 1997
and has recently been launched in MDI form by Boehringer Ingelheim.
Based on the substantial work performed with albuterol and the feasibility
study conducted with ipratropium, Spiros Corp. II believes that developing an
albuterol-ipratropium formulation for delivery using Spiros will be feasible and
intends to commence the development of this formulation in 1998.
BUDESONIDE
Budesonide is a new generation steroid used to treat the inflammatory
component of asthma. Budesonide has been marketed in several dosage forms
outside of the U.S., but to date, has only been available in the U.S. in nasal
spray form. However, in June 1997, the FDA approved for marketing in the U.S. a
dry powder formulation of budesonide for delivery through Astra Pharmaceutical's
Pulmicort Turbuhaler. In 1996, worldwide sales of budesonide were estimated to
be greater than $600 million as measured by average wholesale prices.
In 1998, Spiros Corp. II expects to begin formulation of budesonide for
delivery through Spiros.
OTHER PRODUCT DEVELOPMENT EFFORTS
The Board of Directors of Spiros Corp. II has the right, with the consent of
Dura, to select additional Designated Compounds for the treatment of respiratory
diseases, including asthma, allergy, cystic fibrosis or respiratory infection
for delivery using Spiros. See "The Agreement and the Purchase Options--
Technology License Agreement."
In the event that Spiros Corp. II obtains the rights to any Designated
Compounds, Spiros Corp. II will conduct technical evaluations of the applicable
compounds as candidates for delivery through Spiros. Technical evaluations will
generally include patent evaluation, establishment of analytical methods,
micronization of drug substance, preliminary formulation development,
preliminary aerosol characterization, preliminary stability evaluation and
animal bioavailability, efficacy and toxicology evaluation. Technical
evaluations may also include initial safety and efficacy studies in humans.
In the event that additional funds become available to Spiros Corp. II,
whether through the exercise of the Albuterol Option or the Product Option, such
funds will become part of the Available Funds, and a portion of such funds may
be used for additional development of a next generation inhaler system and
certain other enhancements to the existing Spiros technology and to fund the
acquisition of capital equipment to be used to manufacture the Spiros Products.
39
<PAGE>
SALES AND MARKETING
Spiros Corp. II will rely entirely on Dura under the Manufacturing and
Marketing Agreement for its sales and marketing efforts. Under the Manufacturing
and Marketing Agreement, Dura will submit an annual marketing plan to be
approved by Spiros Corp. II. See "Business of Dura--Sales and Marketing."
SPIROS CORP. II BUDGET
The following is a preliminary budget of anticipated expenditures by Spiros
Corp. II for research, clinical development, product development and
commercialization. Due to the late stage in the development of certain of the
Spiros Products, most of the funds are expected to be expended for clinical
trials, product development and initial commercialization. If the Underwriters'
over-allotment option is exercised, amounts to be spent under the Development
Agreement will be increased. Substantial additional funding will still be
required for the development of certain Spiros Products and for the
commercialization of the Spiros Products. Due to the long-range nature of the
development plans, Spiros Corp. II, in consultation with Dura, reserves the
right to reallocate funds as it deems appropriate. See "Use of Proceeds."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
(3 MONTHS) (4 MONTHS)
1997 1998 1999 2000 2001 TOTAL
------------- --------- --------- --------- ----------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Products
Albuterol....................................... $ 3.4 $ 27.3 $ -- $ -- $ -- $ 30.7
Beclomethasone.................................. 1.6 9.1 6.0 0.3 -- 17.0
Budesonide...................................... -- 4.6 15.2 11.1 5.2 36.1
Ipratropium..................................... -- 9.5 16.1 6.0 -- 31.6
Albuterol-Ipratropium........................... -- 6.5 11.2 7.1 3.0 27.8
Other Expenditures................................ -- 1.4 4.5 3.0 -- 8.9
General and administrative expenses............... -- 0.4 0.4 0.4 0.4 1.6
--- --------- --------- --------- ----- ---------
Total............................................. $ 5.0 $ 58.8 $ 53.4 $ 27.9 $ 8.6 $ 153.7
--- --------- --------- --------- ----- ---------
--- --------- --------- --------- ----- ---------
</TABLE>
COMPETITION
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 DPIs currently in commercial use
worldwide. In the U.S., only individual dose DPIs currently are marketed,
including the Rotohaler (developed and marketed by Glaxo) and the Spinhaler
(developed and marketed by Fisons Limited). The Turbuhaler (developed and
marketed by Astra Pharmaceuticals), a multiple dose DPI, is the leading DPI in
worldwide sales. In June 1997, the FDA approved the first Turbuhaler product,
the Pulmicort Turbuhaler, for marketing a dry powder formulation of budesonide
in the U.S.
Many of these companies, including large pharmaceutical firms with financial
and marketing resources and development capabilities substantially greater than
those of Spiros Corp. II and Dura, are engaged in developing, marketing and
selling products that compete with the proposed products of Spiros Corp. II. In
addition, Dura may develop or acquire products which may compete with Spiros
Products. Further, other products now in use or under development by others may
be more effective than Spiros Corp. II's current or future products. The
industry is characterized by rapid technological change, and competitors may
develop their products more rapidly than Dura and Spiros Corp. II. Competitors
may also be able to complete the regulatory process sooner, and therefore, may
begin to market their products in advance of Dura's and Spiros Corp. II's
products. Dura and Spiros Corp. II believe that competition among both
prescription pharmaceuticals and pulmonary delivery systems will be based on,
among other things, product efficacy, safety, reliability, availability and
price.
40
<PAGE>
GOVERNMENT REGULATION
For a discussion of governmental regulations applicable to Spiros Corp. II,
see "Business of Dura-- Government Regulation."
MANUFACTURING
A substantial amount of the work under the Development Agreement and the
Manufacturing and Marketing Agreement will be conducted at Dura's facilities.
See "Business of Dura--Manufacturing" and "Business of Dura--Facilities." Dura
believes that its available facilities are sufficient to satisfy its obligations
for performance under the Development Agreement and the Manufacturing and
Marketing Agreement. However, the same facilities may be used by Dura for work
performed on its own account and in the performance of third party contracts.
PATENTS
Dura presently holds five U.S. patents and four U.S. patent applications
relating to the Spiros technology to be further developed by Spiros Corp. II.
The issued patents include a patent with claims covering the use in Spiros of an
impeller to create an aerosol cloud of a drug intended for inhalation, which
expires in 2011. Dura has also filed certain continuations in part and foreign
patent applications relating to Spiros. All of the above patents and patent
applications, relating to the Spiros technology, together with their respective
continuations in part and foreign patent applications, have been licensed to
Spiros Corp. II pursuant to the Technology Agreement. Until the expiration or
termination of the Purchase Option, Dura is required to file patent
applications, at Spiros Corp. II's expense, with respect to inventions included
in the Program Technology. Dura will be the owner and Spiros Corp. II will be
the exclusive licensee for use with the Spiros Products of any patents included
in the Program Technology. See "Risk Factors--Business Risks Related to Spiros
Corp. II and Dura--Uncertainty Regarding Patents and Proprietary Technology;
Unpredictability of Patent Protection," and "The Agreements and the Purchase
Options--Technology Agreement."
Spiros Corp. II and Dura consider the protection of discoveries in
connection with their development activities important to their respective
businesses. Spiros Corp. II and Dura intend to seek patent protection in the
U.S. and selected foreign countries where deemed appropriate. There can be no
assurance that issued patents or subsequent patents, if issued, will adequately
protect Spiros Corp. II or Dura or that such patents will provide protection
against infringement claims by competitors. Dura has also filed certain foreign
patent applications relating to Spiros technology. There can be no assurance
that additional patents, U.S. or foreign, will be obtained covering the Spiros
Products or Dura products or that, if issued or licensed, the patents covering
such products will provide substantial protection or be of commercial benefit.
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.
Both Spiros Corp. II and Dura also rely upon trade secrets, unpatented
proprietary know-how and continuing technological innovation to develop their
respective competitive positions. Dura enters into confidentiality agreements
with certain of its employees pursuant to which such employees agree to assign
to Dura any inventions relating to Dura's business made by them while in Dura's
employ. There can be no assurance, however, that others may not acquire or
independently develop similar technology or, if patents are not issued with
respect to products arising from research, that Spiros Corp. II or Dura will be
able to maintain information pertinent to such research as proprietary
technology or trade secrets.
In connection with one of the patents described above, in 1993, Dura entered
into an agreement (the "1993 Royalty Agreement") with the principal inventor
thereof which, among other things, provides compensation to the inventor over
the life of the patent which is linked to annual sales of products related
41
<PAGE>
to such patent. Such compensation amounts to approximately $1 million of the
first $50 million of annual sales of such products, and $1 million of the next
$100 million of annual sales, with a maximum aggregate compensation of $6
million.
EXECUTIVE OFFICERS AND DIRECTORS
The following table provides information concerning the current officers and
directors of Spiros Corp. II. The current officers and directors of Spiros Corp.
II are also officers, directors and/or employees of Dura. Subsequent to the
consummation of the Offerings, it is anticipated that the current directors
will, pursuant to delegated authority from the existing stockholder, appoint
independent directors such that independent directors will constitute a majority
of the board. As the holder of the Special Shares, Dura has the right to elect
two directors (the "Special Directors"). The Special Directors represent the
interest of the holder of Special Shares. All other directors (the "Common
Directors") represent the interests of the other stockholders and in the future
will be elected by the holders of Spiros Corp. II Common Stock. Spiros Corp. II
has no employees other than its three executive officers who are full-time
employees, officers and/or directors of Dura.
<TABLE>
<CAPTION>
NAME POSITION WITH SPIROS CORP. II AGE ON SEPTEMBER 30, 1997
- ------------------------------------------ ------------------------------------------- -----------------------------
<S> <C> <C>
David S. Kabakoff......................... Chairman, President and 49
Chief Executive Officer
Cam L. Garner............................. Director 49
Erle T. Mast.............................. Vice President, Chief Financial Officer 35
Mitchell R. Woodbury...................... Secretary 55
</TABLE>
David S. Kabakoff has served as the Chairman and President and Chief
Executive Officer of Spiros Corp. II since its formation in September 1997. Dr.
Kabakoff also has served as a director and Executive Vice President of Dura and
as President and Chief Executive Officer and a director of Spiros Corp. since
1996. From 1989 to 1996, Dr. Kabakoff was employed by Corvas International,
Inc., a biopharmaceutical company, and served in a number of capacities during
that time period, including Chief Executive Officer, President, Chief Operating
Officer and Chairman of the Board. From 1983 to 1989, Dr. Kabakoff was employed
by Hybritech, most recently as Senior Vice President of Research and
Development-Diagnostics. Dr. Kabakoff received a Ph.D. in Organic Chemistry from
Yale University and a B.A. in Chemistry from Case Western Reserve University.
Cam L. Garner has served as a director of Spiros Corp. II since its
formation in September 1997. Mr. Garner also has served as the President and
Chief Executive Officer of Dura since 1990 and was named Chairman of Dura's
Board of Directors in 1995. Prior to joining Dura, Mr. Garner served as
President of Syntro Corporation, a biotechnology company, from 1987 to 1989. Mr.
Garner currently serves as a director of the following companies: Safeskin
Corporation, CardioDynamics International Corporation and Trega Biosciences,
Inc. ("Trega"). Mr. Garner received an MBA from Baldwin-Wallace College and a
B.S. in Biology from Virginia Wesleyan College.
Erle T. Mast has served as Vice President and Chief Financial Officer of
Spiros Corp. II since September 1997. Mr. Mast also has served as Vice
President, Finance of Dura since February 1997. From 1984 through 1997, Mr. Mast
served in various positions at Deloitte & Touche LLP, an accounting and
consulting firm, most recently as a partner where Mr. Mast specialized in
providing accounting, auditing and business consulting services to companies in
various industries, including the healthcare and life science industries. Mr.
Mast received a B.A. in Business Administration from California State University
at Bakersfield.
Mitchell R. Woodbury has served as Secretary of Spiros Corp. II since
September 1997. Mr. Woodbury also served as Vice President, General Counsel and
Secretary of Dura from June 1994 until
42
<PAGE>
January 1997, and since January 1997 has served as Senior Vice President,
General Counsel and Secretary of Dura. Prior to joining Dura, Mr. Woodbury
served as Vice President, General Counsel and Secretary at Advance Tissue
Sciences, Inc., a biomedical company. From October 1981 until June 1992, Mr.
Woodbury served as Senior Vice President, General Counsel of Intermark, Inc., a
publicly held operating/holding company. He was elected Vice President and
Corporate Counsel of Intermark in 1980 and had served as Corporate Secretary
since 1981. Mr. Woodbury received his J.D. from the University of San Diego
School of Law and a B.A. in Business Administration from San Diego State
University.
Shortly after the completion of the Offerings, Spiros Corp. II intends to
appoint three additional directors to its Board of Directors so that a majority
of the members will be persons unaffiliated with Dura.
1997 STOCK OPTION PLAN
Spiros Corp. II's 1997 Stock Plan (the "Plan") was adopted by the board of
directors of Spiros Corp. II on October 17, 1997 and approved by the stockholder
of Spiros Corp. II on October 17, 1997. The Plan will become effective on the
date the Spiros Corp. II Common Stock is registered under Section 12 of the
Exchange Act in connection with this Offerings.
A reserve of 700,000 shares of Spiros Corp. II Common Stock has been
authorized initially for issuance pursuant to stock option grants made from time
to time under the Plan. The number of shares of Spiros Corp. II Common Stock
authorized for issuance pursuant to stock option grants made under the Plan
shall automatically increase on February 15 of each calendar year during the
term of the Plan, beginning with the 1998 calendar year, by that number of
shares necessary to cause the total number of shares authorized under the Plan
to be equal to 15% of the then outstanding shares of Spiros Corp. II Common
Stock. In no event, however, may any one participant in the Plan receive stock
option grants for more than 200,000 shares of Spiros Corp. II Common Stock per
calendar year.
Under the Plan, eligible individuals in Spiros Corp. II's employ or service
(including officers, non-employee board members and consultants) may, at the
discretion of the Plan Administrator, be granted options to purchase shares of
Spiros Corp. II Common Stock at an exercise price not less than 100% of their
fair market value on the grant date. The Plan will be administered by the
Compensation Committee of the board of directors, and the Compensation Committee
in its capacity as Plan Administrator will have complete discretion to determine
which eligible individuals are to receive option grants under the Plan, the time
or times when such option grants are to be made, the number of shares subject to
each such grant, the status of any granted option as either an incentive stock
option or a non-statutory stock option under the Federal tax laws, the vesting
schedule to be in effect for the option grant and the maximum term for which any
granted option is to remain outstanding. However, administration of the Plan
with respect to individuals who are not subject to the short-swing liability
provisions of Section 16 of the Exchange Act may be delegated to a secondary
committee of one or more board members appointed by the board of directors.
It is anticipated that the options to be granted under the Plan will
generally become exercisable upon the optionee's completion of five years of
employ or service (including as an officer, non-employee board member or
consultant) with Spiros Corp. II. However, if Dura exercises the Purchase
Option, then all options outstanding under the Plan at that time will
immediately vest and become exercisable for all the option shares. No option
grant will have a term in excess of 10 years and options will be subject to
earlier termination following the optionee's cessation of service with Spiros
Corp. II.
The exercise price for the shares of Spiros Corp. II Common Stock subject to
option grants made under the Plan may be paid in cash or in shares of Spiros
Corp. II Common Stock valued at fair market value on the exercise date. The
option may also be exercised through a same-day sale program without any cash
outlay by the optionee. The Plan Administrator may also permit one or more
holders of non-statutory stock options to satisfy the withholding tax liability
incurred in connection with the exercise of those
43
<PAGE>
options by having Spiros Corp. II withhold a portion of the purchased shares
with a market value equal to such liability.
The Plan Administrator will have the authority to effect the cancellation of
outstanding options under the Plan in return for the grant of new options for
the same or different number of option shares with an exercise price per share
based upon the fair market value of the Spiros Corp. II Common Stock on the new
grant date.
In the event that Spiros Corp. II is acquired by merger or asset sale, each
outstanding option under the Plan will automatically accelerate in full and
become immediately exercisable for all the shares of Spiros Corp. II Common
Stock at the time subject to that option, unless the option is to be assumed by
the successor corporation or replaced with a cash incentive program preserving
the built-in gain in such option. The Plan Administrator will have complete
discretion to grant one or more options under the Plan which will become
immediately exercisable for all the option shares in the event those options are
assumed in the acquisition and the optionee's service with Spiros Corp. II or
the acquiring entity terminates within a designated period following such
acquisition. The Plan Administrator will also have the authority to grant
options which will immediately vest upon an acquisition of Spiros Corp. II,
whether or not those options are assumed by the successor corporation. Finally,
the Plan Administrator will have the discretionary authority to structure one or
more option grants so that those options will immediately vest in connection
with a change in control of Spiros Corp. II (whether by successful tender offer
for more than 50% of the outstanding voting stock or a change in the majority of
the board of directors by reason of one or more contested elections for board
membership), with such vesting to occur either at the time of such change in
control or upon the subsequent termination of the individual's service within a
designated period following such change in control.
The board of directors may amend or modify the Plan at any time, subject to
any required stockholder approval. The Plan will terminate on the earliest of
(i) October 31, 2007, (ii) the date on which all shares available for issuance
under the Plan have been issued as fully-vested shares or (iii) the termination
of all outstanding options in connection with certain changes in control or
ownership of Spiros Corp. II.
44
<PAGE>
BUSINESS OF DURA
OVERVIEW
Dura is a specialty respiratory pharmaceutical and pulmonary drug delivery
company. Dura is engaged in developing and marketing prescription pharmaceutical
products for the treatment of asthma, hay fever, COPD, the common cold and
related respiratory ailments, and is developing a pulmonary drug delivery
system. Dura has strategically focused on the U.S. respiratory market because of
its size and growth opportunities. The estimated size of the target market for
antihistamines, asthma/rhinitis therapies, cough/ cold preparations and
anti-infectives in 1996 was approximately $9.5 billion. The size and fragmented
nature of the market and the identifiable base of physician prescribers allow
Dura to achieve significant market penetration with a specialized sales force.
Dura currently markets 31 prescription products. Dura also has a separate mail
service pharmacy, Health Script, which dispenses respiratory pharmaceuticals.
Dura employs a dual marketing strategy utilizing its focused field sales
force of over 300 people and a dedicated managed care sales and marketing and
national account groups that covers managed care organizations and retail
pharmacy chains. Dura's field sales force targets a physician base that includes
approximately 80,000 U.S. allergists, ENTs, pulmonologists and a selected subset
of pediatricians and generalist physicians, who Dura believes collectively write
a significant portion of respiratory pharmaceutical prescriptions. Dura believes
that its field sales force calls on approximately one-half of the target
physician base. Dura's managed care sales and marketing group concentrates on
sales to large regional and national managed care organizations. Dura expects to
continue expanding both the field sales force and the managed care sales and
marketing group as warranted by market opportunities.
This marketing strategy has allowed Dura to leverage its distribution
capabilities by acquiring the rights to market additional prescription
pharmaceutical products through acquisition, in-license or co-promotion
arrangements. Since 1992, Dura has acquired 19 products targeted at the U.S.
respiratory market. In September 1996, Dura acquired from Lilly exclusive U.S.
marketing rights to the antibiotics Keftab and Ceclor CD. Dura began marketing
Keftab in September 1996 and launched Ceclor CD in October 1996. In May 1997,
Dura acquired from Syntex the exclusive U.S. rights to the intranasal steroid
products Nasarel and Nasalide.
Another key component of Dura's strategy is to develop Spiros. Spiros is
being designed to aerosolize pharmaceuticals in dry powder formulations for
delivery to the lungs while providing certain advantages over other
currently-used methods of pulmonary drug delivery. Dura has a three-level
development program for Spiros which entails (i) developing, on behalf of Spiros
Corp. II, certain drug compounds for use in Spiros, including in the near-term
albuterol, beclomethasone and ipratropium, three of the pharmaceutical agents
most frequently prescribed to treat respiratory conditions, (ii) licensing
Spiros primarily to pharmaceutical companies, generally for use with certain of
their proprietary respiratory products, and (iii) developing Spiros, generally
in collaboration with third parties, for the systemic delivery of compounds,
including certain proteins and peptides, through the lungs for respiratory and
non-respiratory indications as an alternative to current invasive delivery
techniques.
On October 21, 1997, Dura announced that it had signed a definitive merger
agreement with Scandipharm, Inc. ("Scandipharm"). On December 1, 1997, Dura
announced it had terminated the merger agreement. Dura has been advised by
counsel for Scandipharm that Scandipharm does not believe Dura has the right to
terminate the merger agreement and that Scandipharm reserves all rights under
such agreement. The merger agreement does not provide for any specific remedies
or liquidated damages. Dura believes that any claims brought by Scandipharm
arising from the merger agreement would be without merit; however, no assurance
can be given that any damages awarded based upon such claims would not
materially and adversely affect Dura's business or financial condition.
Scandipharm is an Alabama-based distributor of pharmaceutical products for the
treatment of cystic fibrosis, a fatal genetic disease affecting approximately
30,000 children and young adults.
45
<PAGE>
U.S. RESPIRATORY MARKET
Dura divides the U.S. respiratory market into three primary segments: (i)
respiratory infection, (ii) allergy, cough and cold and (iii) asthma and COPD.
RESPIRATORY INFECTION. Respiratory infections are generally caused by a
variety of bacteria and can affect either the upper respiratory tract (nasal
cavity, sinuses and throat) or the lower respiratory tract (lungs). The
resulting diagnoses include sinusitis, tonsillitis and bronchitis. These
infections are treated with antibiotics, which kill the bacteria causing the
symptoms. There are a variety of classes of antibiotics that treat specific
ranges, or spectrums, of bacteria. Classes used to treat respiratory infection
include cephalosporins, broad spectrum macrolides and quinolones. The market for
these classes is very large, totaling $4.6 billion in 1996 for the oral solid
forms alone. The cephalosporin class accounts for approximately $1.3 billion of
this total.
ALLERGY, COUGH AND COLD. While the causes of allergies (which can be
seasonal or perennial) and cough and colds differ, nasal congestion and sneezing
are common symptoms of these diseases. The U.S. combined market for therapeutic
drugs to treat allergies, coughs and colds was over $2.1 billion in 1996.
Antihistamines and antihistamine/decongestant combinations are the most widely
used forms of therapy for allergies and represent the largest portion of the
allergy, cough and cold market in the U.S. An additional form of therapy for
allergies includes intranasal steroids, such as Nasarel and Nasalide, which are
increasingly being prescribed for allergic rhinitis. Cough and cold preparations
represent the next largest portion of the allergy, cough and cold market and
include decongestant and decongestant/ expectorant combinations, cough
suppressants and antihistamine combinations and expectorants.
ASTHMA AND COPD. Asthma is a complex physiological disorder characterized
by airway hyperactivity to a variety of stimuli such as dust, pollen, stress or
physical exercise, resulting in airway obstruction that is partially or
temporarily reversible. The U.S. asthma population has grown steadily in recent
years. COPD is a complex condition comprising a combination of chronic
bronchitis, emphysema and airway obstruction. The disease affects males more
often than females and is exacerbated by smoking and other insults to the lung.
Incidence is as high as 20% of the adult male population, though only a minority
are clinically disabled. The U.S. combined market for therapeutic drugs to treat
asthma and COPD was approximately $2.8 billion in 1996.
STRATEGY
Dura's objective is to be a leading supplier of respiratory pharmaceuticals
and pulmonary drug delivery systems. Dura attempts to achieve this objective
through the implementation of the following strategies:
--FOCUSING MARKETING EFFORTS ON RESPIRATORY PHYSICIAN SPECIALISTS. Dura
employs a dual marketing strategy utilizing its focused field sales force
and a dedicated managed care sales and marketing group. Dura's field sales
force targets a physician base that includes approximately 80,000 U.S.
allergists, ENTs, pulmonologists and a selected subset of pediatricians and
generalist physicians, who Dura believes collectively write a significant
portion of respiratory pharmaceutical prescriptions. Dura believes that its
field sales force calls on approximately one-half of the target physician
base. Dura's managed care sales and marketing group concentrates on sales to
large regional and national managed care organizations. Dura expects to
continue expanding both the field sales force and the managed care sales and
marketing group as warranted by market opportunities.
--ACQUIRING, IN-LICENSING OR CO-PROMOTING RESPIRATORY PRESCRIPTION
PHARMACEUTICALS. Dura seeks to acquire, in-license or co-promote
respiratory prescription pharmaceuticals or companies developing and/or
marketing such pharmaceuticals. Dura is particularly focused on respiratory
drugs that are under-promoted by large pharmaceutical companies. Dura
believes that the pharmaceutical industry is undergoing a restructuring that
may create greater opportunities for Dura. For example, many large
46
<PAGE>
pharmaceutical companies are consolidating and merging and/or redirecting
their sales forces, which may lead to the underpromotion of certain products
deemed too small for large sales forces and create significant acquisition,
in-licensing and co-promotion opportunities. Additionally, consolidation
within the sector may make small product lines less desirable to large
pharmaceutical companies. Dura is actively pursuing the acquisition of
rights to products and/or companies, which may require the use of
substantial capital resources.
--DEVELOPING SPIROS. Dura has a three-level development program for Spiros
which entails (i) developing, on behalf of Spiros Corp. II, certain drug
applications for use in Spiros, including in the near term albuterol,
beclomethasone and ipratropium, three of the most frequently prescribed
pharmaceutical agents to treat respiratory conditions, (ii) licensing Spiros
primarily to pharmaceutical companies, including Mitsubishi Chemical
Corporation ("Mitsubishi"), Fujisawa Pharmaceutical Co., Ltd. ("Fujisawa")
and Trega, generally for use with certain of their proprietary respiratory
products, and (iii) developing Spiros, generally in collaboration with third
parties, for the systemic delivery of compounds, including certain proteins
and peptides, through the lungs for respiratory and non-respiratory
indications as an alternative to current invasive delivery techniques.
DURA'S CURRENT PRODUCTS
Dura currently markets 31 prescription products, including 25 that are
off-patent, in the following therapeutic categories: respiratory infection (five
products); allergy, cough and cold (24 products); and asthma and COPD (two
products). The following is a list of Dura's principal prescription
pharmaceuticals:
<TABLE>
<CAPTION>
RIGHTS
OBTAINED FROM OR
PRODUCTS DEVELOPED BY
- -------------------------------------------------------------------- ------------------------
<S> <C>
Respiratory Infection
Ceclor CD Tablets (anhydrous cefaclor)............................ Lilly
Keftab (cephalexin hydrochloride)................................. Lilly
Allergy, Cough and Cold
Nasarel (flunisolide) Nasal Solution.............................. Syntex
Nasalide (flunisolide) Nasal Solution............................. Syntex
ENTEX Products.................................................... P&G
DURA-VENT-Registered Trademark- Products.......................... Dura
RONDEC Products................................................... Abbott, Dura
Asthma and COPD
TORNALATE-Registered Trademark- Products.......................... Sanofi-Winthrop, Inc.
</TABLE>
In September 1996, Dura acquired the exclusive U.S. rights to the
cephalosporin antibiotics Keftab and Ceclor CD from Lilly. The U.S. antibiotic
market was $4.6 billion in 1996, of which $1.3 billion was accounted for by
cephalosporin antibiotics. Dura believes that this acquisition complements its
existing strategy because approximately 60% of antibiotics are prescribed for
respiratory infections. Keftab is an antibiotic indicated for respiratory tract,
skin and soft tissue infections. Ceclor CD is a twice-a-day dosage form of
cefaclor typically taken for seven days. Ceclor, Lilly's currently marketed
cefaclor, is normally taken three times a day for 10 days. Dura believes these
product acquisitions further its strategy of acquiring prescription
pharmaceuticals which are marketed by its sales force to its targeted
physicians.
In May 1997, Dura acquired from Syntex the exclusive U.S. rights to the
intranasal steroid products Nasarel and Nasalide. The U.S. market for intranasal
steroids for the treatment of perennial and allergic rhinitis was approximately
$700 million in 1996, and has averaged 24% growth over the last two years. Dura
believes that this acquisition complements its strategy because the products fit
within Dura's respiratory focus while adding a new respiratory category, nasal
steroids, to its product portfolio. In addition, Dura believes that it will be
able to further leverage its field sales force by offering these new
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products acquired from Lilly and Syntex to high-prescribing physicians during
sales calls. A portion of the revenues from these products is being utilized to
fund the expansion of Dura's existing field sales force.
Keftab and Ceclor CD and the two Tornalate products are the subject of
approved NDAs. Dura also markets Capastat-Registered Trademark- Sulfate and
Seromycin-Registered Trademark- which are also the subject of approved NDAs.
Crolom-TM- is the subject of an approved Abbreviated New Drug Application
("ANDA"). The remaining products are branded pharmaceuticals which are not the
subject of NDAs or ANDAs.
Of Dura's 31 prescription products, 24 are owned and promoted by Dura, six
are marketed under licensing agreements with Lilly and Sanofi-Winthrop, Inc.,
and one is co-promoted with Bausch & Lomb Pharmaceuticals, Inc.
STRATEGIC ALLIANCES
MITSUBISHI CHEMICAL CORPORATION. In October 1994, Dura, DDSI and Mitsubishi
entered into a license and supply agreement, under which Mitsubishi was granted
the exclusive right to use and sell Spiros together with a dry powder
formulation of an asthma compound in Japan, Hong Kong, Singapore, the Republic
of China (Taiwan), the Republic of Korea and the People's Republic of China
(collectively the "Territory"). DDSI's rights under the agreement were assigned
to Spiros Corp. Dura and Spiros Corp. have agreed to develop a dry powder
formulation of such compound for Mitsubishi and will manufacture and supply to
Mitsubishi its requirements for both Spiros and such compound. Mitsubishi will
be responsible for conducting all clinical and other work needed to obtain
regulatory approvals of Spiros and such compound in the Territory. In connection
with the license and supply agreement, Mitsubishi is obligated to make milestone
and other payments to Dura and/or Spiros Corp. in certain circumstances.
FUJISAWA PHARMACEUTICAL CO., LTD. In April 1995, Dura entered into a
collaborative development agreement with Fujisawa covering the use of Spiros to
deliver one of Fujisawa's new chemical entity asthma compounds. The agreement
was an extension of previous feasibility work completed by Dura. Pursuant to the
agreement, Dura will provide dry powder formulation assistance, manufacturing
process development and clinical trial supplies to Fujisawa through the
completion of clinical trials in Japan or June 30, 1998, whichever occurs first.
Dura received an up-front payment and is to receive additional milestone
payments and reimbursement of costs from Fujisawa. Fujisawa can terminate the
agreement upon 30 days' notice to Dura. If Fujisawa's clinical trials are
successful, the parties have agreed to negotiate additional agreements, which
could include license and supply agreements.
TREGA BIOSCIENCES, INC. In February 1996, Dura entered into a research and
development agreement with Trega to develop inhalation formulations of new
compounds discovered and developed by Trega. In addition, Dura will provide to
Trega, for a four-year period, contract services for Trega's drug development
programs using Dura's development capabilities and proprietary formulation and
delivery technology. Dura will receive a percentage of proceeds received by
Trega with respect to jointly developed compounds, and will receive contract
revenues from Trega for services provided. Concurrently, Dura made a $5 million
equity investment in Trega, which was subsequently converted into 775,193 shares
of Trega common stock.
In addition, Dura has executed agreements with a number of international
pharmaceutical companies to conduct feasibility studies on formulations of
certain compounds for use with Spiros, including small molecules and proteins
and peptides, for treatment of respiratory and non-respiratory diseases.
SALES AND MARKETING
FIELD SALES FORCE. Dura's specialized sales and marketing organization
targets a physician base that includes approximately 80,000 U.S. allergists,
ENTs, pulmonologists, and a selected subset of pediatricians and generalist
physicians who treat a large number of allergy and asthma patients. Dura
believes this relatively small group of physicians writes a significant portion
of respiratory pharmaceutical prescriptions.
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This concentration allows for effective market penetration by a specialized
sales and marketing organization.
As of September 30, 1997, Dura had 277 pharmaceutical sales representatives
nationwide, supervised by 20 district managers, six area recruiter-trainers and
two regional directors. Dura believes its focused sales force currently calls on
approximately one-half of its target physician base. Dura intends to continue
expansion of its field sales force as warranted by market opportunities,
including the potential commercialization of the Spiros Products.
Dura believes that the personal relationships of Dura's sales
representatives with their physician customers are essential to Dura's business.
Dura's sales representatives differentiate themselves from the competition by
focusing primarily on respiratory infections, allergy, cough and cold, and
asthma and COPD, and by promoting pharmaceuticals used by respiratory
specialists in treating patients. With a relatively small target audience,
promotional spending by Dura on advertising and direct mail is generally
inexpensive and efficient. Dura regularly participates in local, regional and
national medical meetings of the key specialty groups. Dura believes that it has
established a national awareness of the Dura name within the U.S. respiratory
market.
MANAGED CARE SALES AND MARKETING AND NATIONAL ACCOUNTS GROUPS. To implement
Dura's marketing strategy, Dura established dedicated managed care sales and
marketing and national accounts groups, which concentrates on sales to large
regional and national managed care organizations. These organizations include
health maintenance organizations ("HMOs"), preferred provider organizations
("PPOs"), large drug merchandising chains, nursing home providers and mail order
pharmacies. A primary goal of the managed care sales and marketing group is to
place Dura's products on approved formulary lists of HMOs and PPOs.
HEALTH SCRIPT
In March 1995, Dura acquired Health Script, located in Denver, Colorado.
Health Script is a mail service pharmacy which dispenses respiratory
pharmaceuticals. Mail order services are particularly well-suited for
respiratory patients who are long-term, chronic users of certain pharmaceuticals
and to whom the convenience and cost efficiency of mail order is appealing.
Health Script was formed in 1990 to supply value-priced respiratory
pharmaceutical products to patients through the mail. Health Script currently
dispenses to its approximately 30,000 patients nationwide over 100 respiratory
products manufactured by third parties. Health Script is focused on working with
home healthcare providers and patients to coordinate respiratory medication
services and patients' management programs. Health Script markets its services
through specialty field sales representatives and telemarketing. The existing
patient base is maintained by telephone contact with patients to monitor
compliance with their doctors' prescriptions.
COMPETITION
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 DPIs currently in commercial use
worldwide. In the U.S., only individual dose DPIs currently are marketed,
including the Rotohaler (developed and marketed by Glaxo) and the Spinhaler
(developed and marketed by Fisons Limited). The Turbuhaler (developed and
marketed by Astra Pharmaceuticals), a multiple dose DPI, is the leading DPI in
worldwide sales. In June 1997, the FDA approved the first Turbuhaler product,
the Pulmicort Turbuhaler, for marketing a dry powder formulation of budesonide
in the U.S.
Many of these 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 Dura. The selling prices of such
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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.
CLINICAL, DEVELOPMENT AND REGULATORY
Dura's clinical, development and regulatory expenses relate primarily to
product development and regulatory compliance activities. Clinical, development
and regulatory expenses were $9,354,000, $8,408,000, and $18,540,000 for the
years ended December 31, 1994, 1995 and 1996, respectively, and $12,122,000 and
$18,160,000 for the nine-month periods ended September 30, 1996 and 1997,
respectively. The clinical, development and regulatory expenses associated with
Spiros development, for which Dura recorded contract revenues from DDSI and
Spiros Corp., were $8,260,000, $6,428,000, and $15,932,000 for the years ended
December 31, 1994, 1995, and 1996, respectively, and $10,634,000 and $14,872,000
for the nine-month periods ended September 30, 1996 and 1997, respectively.
PATENTS AND PROPRIETARY RIGHTS
Tornalate Inhalation Solution and Tornalate MDI are covered by patents filed
by Sanofi-Winthrop, Inc. which expire in the near-term. The Keftab, Ceclor CD,
Nasarel and Nasalide products or processes to make such products are covered by
patents which expire between 2003 and 2007. Dura's other pharmaceutical products
are not protected by patents. Additionally, see "Business of Spiros Corp.
II--Patents and Proprietary Rights."
GOVERNMENT REGULATION
The manufacturing and marketing of Dura's products are subject to regulation
by Federal and state government authorities, including the FDA, the
Environmental Protection Agency and the Occupational Safety and Health
Administration, in the U.S. and other countries. In the U.S., pharmaceuticals
and drug delivery systems, including Spiros, are also subject to rigorous FDA
regulation and may be subject to regulation by other jurisdictions, including
the State of California. The Federal Food, Drug, and Cosmetic Act and the Public
Health Service Act govern the testing, manufacture, safety, efficacy, labeling,
storage, record keeping, approval, advertising and promotion of Dura's products.
Product development and approval within this regulatory framework takes a number
of years and involves the expenditure of substantial resources.
To obtain FDA approval for each of the Spiros Products, Dura is required to
conduct each of the following steps and possibly others: (i) preclinical testing
(laboratory and possibly animal tests), (ii) the submission to the FDA of an IND
application, which must become effective before human clinical trials may
commence, (iii) adequate and well-controlled human clinical trials to establish
safety and efficacy, (iv) the submission of an NDA to the FDA for marketing
approval, and (v) FDA approval of the NDA prior to any commercial sale or
shipment. The NDA must include, in addition to a compilation of preclinical and
clinical data, complete information about product performance and manufacturing
facilities and processes. Prior to completion of the NDA review process, the FDA
may conduct an inspection of the facility, manufacturing procedures, operating
systems and personnel qualifications. In addition to obtaining FDA approval for
each product, each domestic drug and/or device manufacturing facility must be
registered with and approved by the FDA. Domestic manufacturing facilities are
subject to biennial inspections by the FDA and inspections by other
jurisdictions and must comply with cGMPs for both drugs and devices. To supply
products for use in the U.S., foreign manufacturing establishments must comply
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with cGMP and other requirements and are subject to periodic inspection by the
FDA or by regulatory authorities in such countries under reciprocal agreements
with the FDA.
Preclinical testing includes laboratory evaluation of product chemistry and
animal studies, if appropriate, to assess the safety and efficacy of the product
and its formulation. The results of the preclinical tests are submitted to the
FDA as part of an IND application, and unless the FDA objects, the IND
application will become effective 30 days following its receipt by the FDA, thus
allowing the product to be tested in humans.
Clinical trials involve the administration of the pharmaceutical product to
healthy volunteers or to patients identified as having the condition for which
the pharmaceutical agent is being tested. The pharmaceutical product is
administered under the supervision of a qualified principal investigator.
Clinical trials are conducted in accordance with Good Clinical Practice and
protocols previously submitted to the FDA (as part of the IND application) that
detail the objectives of the study, the parameters used to monitor safety and
the efficacy criteria evaluated. Each clinical study is conducted under the
auspices of an independent Institutional Review Board ("IRB") at the institution
at which the study is conducted. The IRB considers, among other things, the
design of the study, ethical factors, the safety of the human subjects and the
possible liability risk for the institution.
Clinical trials for new products are typically conducted in three sequential
phases that may overlap. In Phase I, the initial introduction of the
pharmaceutical into healthy human volunteers, the emphasis is on testing for
safety (adverse effects), dosage tolerance, metabolism, distribution, excretion
and clinical pharmacology. Phase II involves studies in a limited patient
population to determine the initial efficacy of the pharmaceutical for specific
targeted indications, to determine dosage tolerance and optimal dosage and to
identify possible adverse side effect and safety risks. Once a compound is found
to be effective and to have an acceptable safety profile in Phase II
evaluations, Phase III trials are undertaken to more fully evaluate clinical
outcomes. The FDA reviews both the clinical plans and the results of the trials
and may require the study to be discontinued at any time if there are
significant safety issues.
The results of the preclinical and clinical trials for pharmaceutical drug
products such as those currently marketed by Dura or being developed by Dura are
submitted to the FDA in the form of an NDA for marketing approval. FDA approval
can take several months to several years, or approval may be denied. The
approval process can be affected by a number of factors, including the severity
of the side effects, the availability of alternative treatments and the risks
and benefits demonstrated in clinical trials. Additional animal studies or
clinical trials may be requested during the FDA review process and may delay
marketing approval. After FDA approval for the initial indication, further
clinical trials are necessary to gain approval for the use of the product for
any additional indications. The FDA may also require post-marketing testing and
surveillance to monitor for adverse effects, which can involve significant
additional expense.
Although the FDA has considerable discretion to decide what requirements
must be met prior to approval, Dura believes, based upon the FDA's historical
practice with respect to drug inhalers, that the FDA is likely to regulate each
combination of Spiros with a compound as a discrete pharmaceutical or drug
product requiring separate approval as a new drug. Dura believes that the
approval process for each drug/delivery combination now under development may be
shorter than the full NDA process described above because the safety and
efficacy of the compounds have already been established in currently marketed
formulations and delivery mechanisms.
The Drug Price Competition and Patent Restoration Term Act of 1984, known as
the Waxman-Hatch Act, established abbreviated application procedures for
obtaining FDA approval for many brand name drugs that are off-patent and whose
marketing exclusivity has expired. Approval to manufacture these drugs is
obtained by filing abbreviated drug applications. As a substitute for conducting
full-scale preclinical and clinical studies required of the brand name drug, the
FDA requires data establishing that
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the drug formulation which is the subject of an abbreviation application is
either bioequivalent or has the same therapeutic effect as the previously
approved drug, among other requirements.
The type of abbreviated application that Dura intends to file is a section
505(b)(2) application, which is a reference to the statutory provision of the
Waxman-Hatch Act that applies to the type of abbreviated application being
submitted. Section 505(b)(2) applicants are required to certify to the FDA that
any patent which has been listed with the FDA as covering the brand name drug
product is invalid and will not be infringed by the sale of the applicant's
product. The patent holder may challenge a notice of noninfringement or
invalidity by filing a suit for patent infringement, which would prevent FDA
approval until the suit is resolved or until at least 30 months had elapsed.
Should any entity commence a lawsuit with respect to any alleged patent
infringement by Dura, uncertainties inherent in patent litigation make the
outcome of such litigation difficult to predict.
By their very nature, section 505(b)(2) applications rely at least to some
extent on the preclinical and clinical studies of the approved, innovator or
brand name drug to demonstrate that Dura's product is safe and effective for its
intended use. In the past, innovator drug manufacturers have challenged, by way
of petitions to the FDA, the use of a section 505(b)(2) application of data from
an innovator's approved NDA that is considered propriety by the original
manufacturer and was submitted to the FDA as part of an original new drug
application. Thus far, none of these petitions or other challenges to the
section 505(b)(2) application procedure have been successful. No assurances
exist that the 505(b)(2) application procedure that Dura plans to utilize will
not result in similar challenges to Dura's products and such challenges, if they
occur, may have a significant adverse effect on Dura's ability to obtain
approvals under such abbreviated procedures.
For both currently marketed and future products, failure to comply with
applicable regulatory requirements after obtaining regulatory approval 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 Dura.
Since completion of the pivotal trials, Dura has made, and is proposing to
make, a number of additional modifications to the Spiros system, some of which
address problems encountered with the mechanical features of the Spiros delivery
system during the pivotal trials. These changes are intended to improve the
reliability, performance, manufacturability, and customer acceptance of the
mechanical features of the Spiros delivery system. Dura expects that it will be
required to complete testing and validation pursuant to cGMP requirements of the
Spiros system as modified for commercial distribution, which could be costly and
time-consuming. There can be no assurance that the FDA will not require Dura to
undertake further laboratory testing, field testing and/or clinical studies in
order to insure the safety and effectiveness of the Albuterol Product intended
to be commercialized by Dura and to insure that it can be reliably manufactured.
If a proposed change is deemed to be a major modification by the FDA, Dura could
be required to repeat one or more of the clinical studies. Moreover, because of
the time necessary to validate the changes to the Spiros system, there can be no
assurance that Dura will be prepared for any FDA preapproval inspection of
Dura's manufacturing facilities in a timely manner. If Dura is required to
undertake additional laboratory testing and/or clinical studies or to postpone
the preapproval inspection, or if Dura fails to complete the open label study in
a timely manner, Dura could receive a non-approvable letter and, in any event,
there could be a substantial delay in completion of the approval process.
The Federal Food, Drug, and Cosmetic Act requires that any "new drug" must
be approved pursuant to an NDA. The term "new drug" is defined as any drug which
is not generally recognized among qualified experts as safe and effective for
its labeled intended uses. Certain exemptions from this definition exist for
products marketed without change since prior to 1938 (the date of enactment of
the Federal Food, Drug, and Cosmetic Act) or, with respect to the need to show
effectiveness, for drug products marketed prior to October 10, 1962 (the date of
enactment of the "Drug Amendments of 1962"). Dura presently markets 21 drug
products for which the FDA has not yet made a determination as to their status
as new drugs under
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the Federal Food, Drug, and Cosmetic Act. The FDA is continuing an evaluation of
the effectiveness of all products containing ingredients marketed prior to 1962
that are not the subject of an approved NDA as part of its DESI program and will
determine which are new drugs requiring approval through an NDA for marketing.
The existence of currently-marketed prescription pharmaceuticals that contain
one or more active ingredients first introduced in the marketplace before 1962
and that are marketed based on their manufacturers' belief that such products
are not subject to the new drug provisions of the Act is recognized in paragraph
B of the Food and Drug Administration's Compliance Policy Guide, 440.100. This
Policy Guide indicates that the FDA will implement procedures to determine
whether the new drug provisions are or are not applicable to these products. The
Policy Guide requires that products covered by paragraph B not be similar or
related to any drug included in the DESI program, or have a different
formulation or conditions for use than products marketed before November 13,
1984. If a product is not covered by paragraph B, the FDA could make a
determination as to whether or not the new drug provisions are applicable to it
without first implementing the procedures called for by the Policy Guide. Dura
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. These products
could be subject at any time to an FDA determination that an NDA is required. If
a final determination is made that a particular drug requires an approved NDA,
such approval will be required for marketing to continue. If such a
determination is made, the FDA might impose various requirements: for example,
it might require that the current product be the subject of an approved NDA,
that the product be reformulated and NDA approval obtained, that the product
must be sold on an over-the-counter basis rather than as a prescription drug, or
that the product must be removed from the market. There can be no assurance as
to which of these courses the FDA will require or whether Dura will be able to
obtain any approvals which the FDA may deem necessary. If any of these actions
are taken by the FDA, such actions could have a material adverse effect on
Dura's business.
In April 1996, the export provisions of the Federal Food, Drug, and Cosmetic
Act were relaxed to permit the export of unapproved drugs to a foreign country,
provided the product complies with the laws of that country and has valid
marketing authorization in at least one of a list of designated "Tier 1"
countries. Once a product is exported to a qualified foreign country, Dura will
be subject to the applicable foreign regulatory requirements governing human
clinical trials and marketing approval in that country. The requirements
relating to the conduct of clinical trials, product licensing, pricing and
reimbursement vary widely from country to country and there can be no assurance
that Dura or any of its collaborators will be able to meet and fulfill the
statutory requirements in a particular country.
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.
MANUFACTURING
Dura's principal manufacturing facility is located near its headquarters in
San Diego, California. 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 1998. Dura's manufacturing facility must be registered with and licensed
by various regulatory authorities and must comply with cGMP requirements
prescribed by the FDA and the State of California. Dura is currently expanding
its facilities to provide additional manufacturing capabilities. Dura will need
to significantly scale up its current manufacturing operations from clinical
supply scale to commercial scale and comply with cGMPs and other regulations
prescribed by various regulatory agencies in the U.S. and other countries to
achieve the prescribed quality and required levels of production of such
products and to obtain marketing approval. The initial scale-up of Dura's
manufacturing operations and completion of the
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regulatory compliance review process are scheduled to be completed during the
first half of 1998. Dura expects that the cost to complete these tasks will not
exceed $3 million. Spiros Corp. II is completely reliant on Dura for all of its
manufacturing needs. 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 ability of
Dura and Spiros Corp. II to manufacture products in connection with Spiros.
Dura 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. Dura's current
dependence upon others for the manufacture of its products may adversely affect
the future profit margin, if any, on the sale of those products and Dura's
ability to develop and deliver products on a timely and competitive basis.
FACILITIES
Dura owns and occupies a new 77,000 square foot headquarters facility in San
Diego, California, on a parcel of land that it purchased in 1996. In addition,
Dura owns two buildings that are situated on another parcel of land near its
headquarters. One building, consisting of approximately 31,000 square feet, is
currently vacant. The second building, consisting of approximately 49,000 square
feet, contains Dura's manufacturing facility that will be used to formulate,
mill, blend and fill drugs to be used with Spiros, laboratory and research
facilities and warehouse space. Dura also occupies an additional 34,000 square
feet of office and laboratory space pursuant to a short-term lease. Dura expects
to commence construction of a 125,000 square foot facility beginning in late
1997 adjacent to the new 77,000 square foot facility, to be used initially for
research and development purposes.
Dura also leases approximately 16,660 square feet of space in Denver,
Colorado which houses the operations of Health Script's mail service pharmacy.
The lease term expires in January 2001 with one five-year renewal option.
HUMAN RESOURCES
Dura employed 611 employees (of which 600 are full-time) as of September 30,
1997, consisting of 347 people in sales and marketing (of which 315 constitute
the field sales force and the managed care group), 60 in administration and
finance, 79 in clinical, regulatory and research and development, 34 in
operations and 91 at Health Script. None of Dura's employees are represented by
a labor union and Dura believes it maintains positive relations with both field
and corporate personnel.
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DURA SELECTED CONSOLIDATED FINANCIAL DATA
The statement of operations data set forth below for each of the three years
in the period ended December 31, 1996, and the balance sheet data at December
31, 1996, are derived from, and are qualified by reference to, Dura audited
financial statements incorporated by reference in this Prospectus and should be
read in conjunction with those financial statements and notes thereto. The
statement of operations data for the fiscal years ended December 31, 1992 and
1993 are derived from audited financial statements of Dura not included or
incorporated by reference herein. The management of Dura believes that the
unaudited information at September 30, 1997, and for the nine-month periods
ended September 30, 1996 and 1997, contains all adjustments, consisting of only
normal recurring accruals, necessary for a fair presentation of the financial
position at such date and the results of operations for such periods. Operating
results for the nine-month period ended September 30, 1997, are not necessarily
indicative of results to be expected for the fiscal year ending December 31,
1997 or any other interim period. The information set forth below should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations of Dura," included elsewhere in this Prospectus and
Dura's financial statements and related notes incorporated by reference in this
Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
YEAR ENDED DECEMBER 31,
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:(1)
Revenues:
Sales...................................... $ 9,561 $ 15,816 $ 22,199 $ 39,308 79,563 $ 45,900 $ 105,437
Contract................................... -- 2,297 10,481 12,194 24,556 17,407 22,430
--------- --------- --------- --------- --------- --------- ---------
Total revenues............................... 9,561 18,113 32,680 51,502 104,119 63,307 127,867
--------- --------- --------- --------- --------- --------- ---------
Operating costs and expenses:
Cost of sales.............................. 2,700 3,782 3,894 10,618 21,301 12,553 23,373
Clinical, development and regulatory....... 1,354 2,819 9,354 8,408 18,540 12,121 18,160
Selling, general and administrative........ 12,523 17,437 17,976 25,955 42,631 26,460 49,485
Other charges(2)........................... -- 2,315 -- 43,773 -- -- --
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss)...................... (7,016) (8,240) 1,456 (37,252) 21,647 12,173 36,849
Other income-net............................. 247 67 514 1,880 6,220 4,060 8,903
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes............ (6,769) (8,173) 1,970 (35,372) 27,867 16,233 45,752
Provision for income taxes................... -- -- 34 406 3,539 1,762 16,357
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)(2)......................... $ (6,769) $ (8,173) $ 1,936 $ (35,778) $ 24,328 $ 14,471 $ 29,395
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) per share(2)............... $ (0.47) $ (0.55) $ 0.10 $ (1.53) $ 0.60 $ 0.37 $ 0.62
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Weighted average number of common and common
equivalent shares.......................... 14,506 14,988 19,860 23,440 40,479 38,890 47,392
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------- -------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments................................... $ 240,345 $ 454,710
Working capital..................................................................... 219,864 457,276
Total assets........................................................................ 504,670 821,105
Long-term obligations (excluding current portion)................................... 6,670 294,535
Shareholders' equity(3)............................................................. 443,577 482,297
</TABLE>
- ------------------------
(1) Dura's selected financial data include Health Script subsequent to its
acquisition on March 22, 1995, the Rondec product line subsequent to its
acquisition on June 30, 1995, the Entex product line subsequent to its
acquisition on July 3, 1996, the Ceclor CD and Keftab products subsequent
to their acquisition on September 5, 1996, and the Nasarel and Nasalide
products subsequent to their acquisition on May 7, 1997.
(2) The 1993 charge of $2.3 million represents the charge for the option to
acquire all of the outstanding stock of DDSI. The 1995 charge of $43.8
million represents the $30.8 million charge for acquired in-process
technology associated with the DDSI acquisition and the $13.0 million charge
for the contribution to Spiros Corp. If these charges were excluded, Dura
would have reported a net loss of $5.9 million, or $0.39 per share, for 1993
and net income of $8.0 million, or $0.28 per share, for 1995.
(3) No cash dividends were declared or paid during the periods presented.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF SPIROS CORP. II
Spiros Corp. II was formed in September 1997 and has not yet commenced
operations. Assuming completion of the Offerings, Spiros Corp. II expects to
receive approximately $75 million from the Contribution and approximately $69.7
million in net proceeds, assuming an offering price of $16.00 per Unit, from the
Offerings ($80.1 million if the Underwriters' over-allotment option is exercised
in full). Spiros Corp. II anticipates that it will use the Contribution and
substantially all of such net proceeds to undertake research, clinical
development, product development and commercialization of the Spiros Products.
See "Use of Proceeds."
Dura will conduct the Development in accordance with an annual workplan and
budget which is subject to approval and acceptance by Spiros Corp. II's Board of
Directors. Dura must report any significant deviations from an annual workplan
and budget in a timely manner. Further, reimbursement for expenditures from
Spiros Corp. II may not exceed in any calendar year 120% of the amount allocated
in the applicable workplan and budget, unless otherwise approved by Spiros Corp.
II.
Payments to Dura under the Development Agreement for Dura's work in
performing the Development will be made for the full amount of the Development
Costs, which consists of all of Dura's research and development expenses,
general and administrative expenses, capital equipment costs and all other costs
and expenses incurred by Dura in performing the activities described in "The
Agreements and the Purchase Options--Development Agreement," up to the maximum
amount of the funds available to Spiros Corp. II, which include substantially
all of the Available Funds. Development Costs will include development expenses
(including salaries, benefits, supplies, and facilities and overhead
allocations) that are billed at a rate of fully burdened cost plus 25%;
provided, however, that services provided by third parties will be billed at a
rate of cost plus 20%. Development Costs also include costs, estimated to be
approximately $4 million, for the Development conducted by Dura from October 10,
1997 through the date of the closing of the Offerings. Spiros Corp. II will also
pay $100,000 per quarter to Dura for management and administrative services
provided pursuant to the Services Agreement.
A proposed budget providing estimates of Spiros Corp. II's cash flow through
April 2001, assuming the net proceeds of the Offerings and the Contribution
together with interest thereon total $154.7 million, is set forth under "Use of
Proceeds."
Until the expiration of the Purchase Option, no resolution or act of Spiros
Corp. II to authorize or permit any of the following will be effective without
the prior written approval of the holders of a majority of the outstanding
Special Shares: (i) the allotment or issue of shares or other securities of
Spiros Corp. II or the creation of any right to such an allotment or issue; (ii)
the reduction of Spiros Corp. II's authorized share capital; (iii) outstanding
borrowings by Spiros Corp. II over an aggregate of $1 million; (iv) the sale or
other disposition of or the creation of any lien or liens on the whole or a
material part of Spiros Corp. II's business or assets; (v) the declaration or
payment of dividends or the making of any other distributions to stockholders;
(vi) any merger, liquidation or sale of all or substantially all of the assets
of Spiros Corp. II; and (vii) any alteration of the Purchase Option. See "The
Agreements and the Purchase Options--Stock Purchase Option." Thus Dura, as the
holder of a majority of the outstanding Special Shares, could preclude the
holders of a majority of the shares of Spiros Corp. II Common Stock and the
Board of Directors of Spiros Corp. II from taking any of the foregoing actions
during such period. In addition, any resolution to wind up the affairs of or
liquidate Spiros Corp. II will confer upon the holders of the Special Shares a
right to vote and such Special Shares will carry a number of votes equal to the
total number of votes carried by the Spiros Corp. II Common Stock at the time
outstanding.
Spiros Corp. II intends to invest its excess cash in short-term
interest-bearing or other debt securities with strong credit ratings. Spiros
Corp. II intends to establish guidelines with respect to the diversification and
maturities in order to maintain safety and liquidity.
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It is anticipated that Spiros Corp. II's only source of revenue will be
interest income on the unused portion of the Contribution and the net proceeds
from the Offerings. As a result, Spiros Corp. II will incur substantial
recurring losses.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF DURA
The following comments should be read in conjunction with Dura's
Consolidated Financial Statements and Notes incorporated herein by reference.
See "Risk Factors" for trends and uncertainties known to Dura that could cause
reported financial information not to be necessarily indicative of future
results, including discussion of the effects of seasonality on Dura.
RECENT DEVELOPMENTS
During the second half of 1996 and the first half of 1997, Dura made
significant acquisitions of product rights and licenses. In July 1996, Dura
acquired the worldwide rights to the Entex products, consisting of four
prescription upper respiratory drugs. In September 1996, Dura acquired the U.S.
marketing rights to the patented antibiotics Ceclor CD and Keftab. In May 1997,
Dura acquired the U.S. rights to the intranasal steroid products Nasarel and
Nasalide. The acquisition of these products has had a material impact on Dura's
financial position and results of operations.
In the third quarter of 1997, Dura issued $287.5 million principal amount of
its 3 1/2% Notes due July 15, 2002 with interest payable semiannually January 15
and July 15. Proceeds from the offering of the Notes are expected to be used for
general corporate purposes, including (i) to acquire, in-license, co-promote,
develop and commercialize pharmaceuticals targeted at Dura's physician base or
in areas related or otherwise complementary to Dura's existing business; (ii) to
fund product develop programs, including Spiros products; and (iii) for working
capital and facilities expansion. To date, no proceeds from the Notes have been
used. The Notes are convertible, at the option of the holder, into shares of
Dura's Common Stock at any time prior to maturity or redemption at a conversion
price of $50.635 per share, subject to adjustment under certain conditions. The
Notes are unsecured and subordinated to all existing and future senior
indebtedness of Dura. The Notes can be redeemed by Dura from time to time, in
whole or in part, at specified redemption prices after July 15, 2000.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996
Total revenues for the nine months ended September 30, 1997 were $127.9
million, an increase of $64.6 million as compared to the same period in 1996.
Net income for the nine months ended September 30, 1997 was $29.4 million, an
increase of $14.9 million, or $0.25 per share, over the same period in 1996. The
principal factors causing these increases are discussed below.
Pharmaceutical sales for the nine months ended September 30, 1997 were
$105.4 million, an increase of 130% over the same period in 1996. This increase
is due primarily to the acquisition of the Entex products, Ceclor CD, Keftab,
Nasarel and Nasalide, which resulted in an increase in pharmaceutical sales of
$52.9 million, and the expansion of Dura's sales force.
Gross profit for the nine months ended September 30, 1997 was $82.1 million,
an increase of $48.7 million as compared to the same period in 1996. Gross
profit as a percentage of sales for the nine month period ended September 30,
1997 was 78%, as compared to 73% for the same period in 1996. This increase is
due primarily to higher average gross margins earned on sales of the Entex
products, Ceclor CD, Keftab, Nasarel and Nasalide as compared to the average
gross margins earned on Dura's other products.
Contract revenues for the nine months ended September 30, 1997 were $22.4
million, an increase of $5.0 million, or 29%, as compared to the same period in
1996. Dura, under agreements with several
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companies, conducts feasibility testing and development work on various
compounds for use with Spiros. Contract revenues from Spiros-related development
and feasibility agreements for the nine months ended September 30, 1997 were
$21.2 million, including $18.3 million from Spiros Corp., as compared to $14.4
million, including $12.8 million from Spiros Corp., for the same period in 1996.
Dura also earns contract revenues under various agreements for the co-promotion
of pharmaceutical products. Contract revenues from such agreements were $1.2
million for the nine months ended September 30, 1997 compared to $3.0 million
for the same period in 1996.
Clinical, development and regulatory expenses for the nine months ended
September 30, 1997 were $18.2 million, an increase of $6.0 million over the same
period in 1996. The increase reflects additional expenses incurred by Dura under
feasibility and development agreements covering the use of various compounds
with Spiros.
Selling, general and administrative expenses for the nine months ended
September 30, 1997 were $49.5 million, an increase of $23.0 million as compared
to the same period in 1996, but decreased as a percentage of total revenues to
39% as compared to 42% for the same period in 1996. The dollar increase is
primarily due to increased costs incurred to support Dura's sales and contract
revenue growth, including a $9.4 million increase in selling expenses primarily
associated with the expansion of Dura's sales force, higher marketing costs
relating to the newly-acquired products (increase of $3.8 million), and
amortization of newly-acquired product rights (increase of $4.2 million). The
decrease as a percentage of revenues reflects the growth of pharmaceutical sales
due to new product acquisitions and the growth of contract revenues.
Other income--net for the nine months ended September 30, 1997 was $8.9
million, an increase of $4.8 million as compared to the same period in 1996.
This increase is due to a $6.8 million increase in interest income due primarily
to higher balances of cash and short-term investments resulting from public
stock offerings completed in May and November 1996 and the Notes offering
completed in July 1997, as well as cash generated from operations. Interest
expense for the nine months ended September 30, 1997 increased by $1.9 million
over the same period in 1996 due to interest accrued on the Notes.
Dura's effective tax rate was 36% for the nine month period ended September
30, 1997 compared to 11% 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 and, as such, the related
benefit from their utilization has been credited directly to shareholders'
equity.
Dura records interim provisions for income taxes based on the estimated
effective combined tax rate to be applicable for the fiscal year. This estimate
is reevaluated by management each quarter based on forecasts of income before
income taxes for the year as well as anticipated modifications to statutory
federal and state tax rates. During the three months ended September 30, 1997,
Dura reduced its estimate of the combined effective tax rate expected to be
applicable for fiscal 1997 from 39% to 36%.
FISCAL YEAR 1996 ("1996") COMPARED TO FISCAL YEAR 1995 ("1995")
Total revenues in 1996 increased $52.6 million, up 102%, as compared to
1995. Net income for 1996 was $24.3 million as compared with a net loss of $35.8
million for 1995, a change of $60.1 million or $2.13 per share. The 1995 net
loss of $35.8 million was due to charges totalling $43.8 million relating to
Dura's Spiros development program, consisting of a $30.8 million noncash charge
for in-process technology acquired in connection with Dura's acquisition of DDSI
and a $13.0 million purchase option charge resulting from the cash contribution
to Spiros Corp..
Pharmaceutical sales in 1996 increased by $40.3 million, or 102%, as
compared to 1995 due primarily to sales of products acquired in 1996, which
resulted in an increase in pharmaceutical sales of $30.7 million, as well as a
$6.4 million increase in sales at Health Script, acquired in March 1995.
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Gross profit for 1996 increased by $29.6 million, or 103%, as compared to
1995 due to the increase in pharmaceutical sales. Gross profit as a percentage
of sales remained steady at 73%.
Contract revenues in 1996 increased by $12.4 million, or 101%, as compared
to 1995. Dura, under agreements with several companies, conducts feasibility
testing and development work on various compounds for use with Spiros. In
addition, Dura receives royalties primarily from the co-promotion of
pharmaceutical products. Contract revenues from Spiros-related development and
feasibility agreements generated $21.2 million in 1996, including $19.1 million
from Spiros Corp., compared to $9.5 million, including $8.0 million from DDSI,
in 1995. Contract revenues from royalties were $3.4 million in 1996 as compared
to $2.6 million for 1995.
Clinical, development and regulatory expenses for 1996 increased by $10.1
million to $18.5 million as compared to 1995. The increase reflects expenses
incurred by Dura under feasibility and development agreements covering the use
of various compounds with Spiros.
Selling, general and administrative expenses in 1996 increased $16.7 million
to $42.6 million as compared to 1995, and decreased as a percent of total
revenues to 41% in 1996 from 50% in 1995. The dollar increase results primarily
from marketing and amortization costs related to newly acquired products
(increase of $4.9 million and $3.7 million, respectively) as well as higher
costs at Health Script (increase of $2.6 million) to support its increased
sales. The decrease as a percentage of revenues reflects increased productivity
of the sales force, the growth of pharmaceutical sales due to product
acquisitions, and the growth of contract revenues.
Other income-net (primarily interest income) for 1996 increased $4.3 million
to $6.2 million as compared to 1995. The increase is due to an increase in
interest income of $4.1 million from cash generated from the August 1995 and May
and November 1996 public stock offerings as well as cash generated from
operations.
Dura recorded an income tax provision of $3.5 million for 1996 as compared
to $406,000 for 1995. The increased provision is due to the increase in income
before income taxes in 1996. The 1996 provision reflects the expected combined
federal and state tax rate of approximately 40% largely offset by the benefit
from the utilization of net operating loss carryforwards.
FISCAL YEAR 1995 ("1995") COMPARED TO FISCAL YEAR 1994 ("1994")
Total revenues in 1995 increased $18.8 million, or 58%, over 1994. However,
Dura incurred a net loss in 1995 of $35.8 million, or $1.53 per share, due to
charges totaling $43.8 million related to Dura's Spiros development program. The
charges consisted of a $30.8 million non-cash charge for in-process technology
acquired in connection with Dura's acquisition of DDSI and a $13.0 million
purchase option charge resulting from the cash contribution to Spiros Corp.. If
the charges were excluded, Dura would have reported net income in 1995 of $8.0
million or $0.28 per share.
Pharmaceutical sales in 1995 increased by $17.1 million, or 77%, over 1994
due primarily to the $15.3 million in sales generated by Health Script, 1995
product acquisitions and internally-developed products that were launched in the
second half of 1994. The remaining increase was generated by the pre-existing
product line for which sales growth was impacted by the relatively weak
cough/cold season experienced across the country in the first quarter of 1995.
Gross profit for 1995 increased by $10.4 million, or 57%, as compared to
1994. Gross profit as a percentage of sales decreased to 73% in 1995 from 82% in
1994 due primarily to the lower margins generated on sales by Health Script in
addition to the impact of contract pricing to managed care organizations.
Contract revenues in 1995 increased by $1.7 million as compared to 1994. In
1995 and 1994, Dura recorded contract revenues of $1.6 million and $400,000,
respectively, relating to an agreement with Drug
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Royalty Corporation USA Inc. ("DRC") under which Dura received funding through
December 1995 to expand its sales force. In addition, Dura conducts development
work under contracts with several companies and receives royalties. The
development contracts relate to the testing and development of various compounds
for use with Spiros and generated revenues in 1995 and 1994 of $9.5 million and
$9.9 million, respectively, including $8.0 million and $9.2 million from DDSI.
Dura recorded royalties under the co-promotion arrangement with Bausch & Lomb
Pharmaceuticals, Inc. ("Bausch & Lomb") of $813,000 in 1995.
Clinical, development and regulatory expenses in 1995 decreased by $946,000,
or 10%, from 1994. Under an agreement with DDSI, Dura managed the development of
DDSI products and incurred development expenses on behalf of DDSI in 1995 and
1994 of $6.4 million and $8.3 million, respectively, for which it received
contract revenues. The decrease in DDSI development expenses resulted primarily
from the shift from use of outside contractors to Dura employed personnel and
resources. This decrease was partially offset by increased expenses associated
with work being performed under development contracts, for which Dura recorded
contract revenues of $1.0 million in 1995, and by costs associated with the
internal development of respiratory pharmaceutical products.
Selling, general and administrative expenses in 1995 increased by $8.0
million over 1994 and decreased as a percentage of revenues from 55% in 1994 to
50% in 1995. The dollar increase results primarily from the operating costs of
Health Script, acquired in March 1995, and increased sales and contracting
levels. The decrease as a percentage of revenues reflects an increase in the
productivity of the sales force, the growth of pharmaceutical sales due to
product acquisitions and the growth of contract revenues.
Other income-net (primarily interest income) in 1995 increased by $1.4
million as compared to 1994. The increase resulted primarily from interest
income on cash balances generated by the November 1994 and August 1995 stock
offerings which was partially offset by interest expense resulting from
obligations incurred in connection with 1995 acquisitions.
Dura recorded income tax provisions of $406,000 and $34,000 in 1995 and
1994, respectively. The provisions reflect the expected combined federal and
state tax rate of 40% offset by the benefit from utilization of net operating
loss carryforwards, which are generally limited to 90% of taxable income.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and short-term investments increased by $214.4
million to $454.7 million at September 30, 1997 from $240.3 million at December
31, 1996. The increase resulted primarily from the net proceeds of the offering
of the Notes as well as from cash generated from operations, partially offset by
the acquisition of the intranasal steroid products Nasarel and Nasalide for $70
million in May 1997 and capital expenditures of $18.8 million. Working capital
increased by $237.4 million to $457.3 million at September 30, 1997 from $219.9
million at December 31, 1996.
At September 30, 1997, Dura had an aggregate of $297.7 million in long-term
obligations, of which $2.9 million is to be paid during the next 12 months. As
of September 30, 1997, additional future contingent obligations totaling $97.9
million relating to product acquisitions are due through 2004.
In April 1997, Dura 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
September 30, 1997, no borrowings were outstanding under this loan.
Dura provides development and management services to Spiros Corp. pursuant
to various agreements for the development of Spiros for use with certain
respiratory drugs. Dura records contract revenues from Spiros Corp. equal to
amounts due for such services, less a pro rata amount allocated to warrant
subscriptions receivable. On October 10, 1997, Dura announced its intention to
exercise, prior to the completion of the Offerings and subject to providing
formal notice of exercise, its option to acquire all of
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the callable common stock of Spiros Corp. for an aggregate purchase price
estimated to be $45.7 million, payable in cash, shares of Dura Common Stock, or
any combination thereof.
Dura anticipates that its existing capital resources, together with cash
expected to be generated from operations and available bank borrowings, should
be sufficient to finance the transactions discussed above and its operations
through at least the next 12 months. Significant additional resources, however,
may be required in connection with product or company acquisitions or
in-licensing opportunities. At present, Dura 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.
Assuming the completion of the Offerings and the Spiros Corp. Purchase, Dura
expects to incur charges to earnings for the amount of the Contribution and for
purchased in-process technology, in an amount approximating the Spiros Corp.
Purchase price, that will be recorded in the periods in which these transactions
are consummated. Dura will also record warrant subscriptions receivable and a
corresponding increase to additional paid-in capital reflecting the estimated
fair value of the Warrants issued pursuant to the Offerings. Thereafter, cash
received from Spiros Corp. II pursuant to the Development Agreement will be
pro-rated between contract revenue and the warrant subscriptions receivable.
On October 21, 1997, Dura announced that it had signed a definitive merger
agreement with Scandipharm, Inc. ("Scandipharm"). On December 1, 1997, Dura
announced it had terminated the merger agreement. Dura has been advised by
counsel for Scandipharm that Scandipharm does not believe Dura has the right to
terminate the merger agreement and that Scandipharm reserves all rights under
such agreement. The merger agreement does not provide for any specific remedies
or liquidated damages. Dura believes that any claims brought by Scandipharm
arising from the merger agreement would be without merit; however, no assurance
can be given that any damages awarded based upon such claims would not
materially and adversely affect Dura's business or financial condition.
Scandipharm is an Alabama-based distributor of pharmaceutical products for the
treatment of cystic fibrosis, a fatal genetic disease affecting approximately
30,000 children and young adults.
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DESCRIPTION OF THE WARRANTS
Each Unit includes a Warrant to purchase one-fourth of one share of Dura
Common Stock. The Warrants will be issued pursuant to a Warrant Agreement (the
"Warrant Agreement") to be entered into between Dura and ChaseMellon Shareholder
Services, as warrant agent (the "Warrant Agent") on the closing date of the
Offerings. Except as described below, the Warrants will be exercisable from the
Separation Date until December 31, 2002 (the "Warrant Expiration Date"), at an
exercise price equal to $ per share of Dura Common Stock (the "Exercise
Price")(currently anticipated to be 125% of the closing price of Dura Common
Stock on the date of the Prospectus), subject to certain adjustments, as
described below. Warrants not exercised on or prior to the Warrant Expiration
Date will become void and all rights in respect thereof will cease as of such
time. The Warrants will trade only with shares of Spiros Corp. II Common Stock
as Units until the Separation Date. On and after the Separation Date the
Warrants will trade separately from the Spiros Corp. II Common Stock.
In the event of (i) certain reorganizations of Dura or reclassifications of
Dura Common Stock, (ii) certain mergers, consolidations or other business
combinations of Dura with any person, other than a merger or consolidation with
a subsidiary of Dura in which Dura is the surviving entity, (iii) a sale, lease,
transfer or conveyance by Dura of all or substantially all of its property or
assets or (iv) the announcement or commencement of a tender or exchange offer
for securities of Dura pursuant to which the acquiror would beneficially own
securities of Dura representing 50% or more of the aggregate voting power of
Dura (each an "Acceleration Event"), the Separation Date will be accelerated to
the date of such event and the Warrants will become immediately exercisable.
The Warrant Agreement provides that the Exercise Price and the number of
shares of Dura Common Stock issuable upon exercise of each Warrant will be
adjusted in the event of any stock split, stock combination, rights offering,
stock dividend or certain other special dividends with respect to Dura Common
Stock. The Warrant Agreement further provides that in case of any capital
reorganization of Dura, any reclassification of Dura Common Stock, any
consolidation or merger or any other business combination of Dura with or into
another corporation or any sale, lease or transfer to any person of all or
substantially all of the assets of Dura, the holder of each outstanding Warrant
will have the right, upon subsequent exercise of the Warrant, to receive the
kind and amount of shares of stock, other securities or property receivable upon
the capital reorganization, reclassification, consolidation, merger, sale, lease
or transfer that would have been received by such holder upon the exercise of
the Warrant had such Warrant been exercised immediately prior to that event, and
the Exercise Price will be appropriately adjusted.
Fractional shares of Dura Common Stock will not be issued upon exercise of
the Warrants. In lieu thereof, a cash adjustment based on the last sale price of
the Dura Common Stock as reported on the Nasdaq National Market (or as reported
on a national securities exchange, if applicable) on the date of the exercise
will be made. The Warrants do not confer upon the holder thereof any voting,
preemptive or other rights as a stockholder of Dura.
Warrants may be exercised following the Separation Date and through the
Warrant Expiration Date by the surrender to the Warrant Agent of a duly executed
certificate evidencing the Warrants accompanied by payment in full by a
certified or official bank check, payable to the order of Dura, for the Exercise
Price multiplied by the number of shares of Dura Common Stock to be acquired
pursuant to such exercise.
Certificates evidencing the Warrants will be a legend substantially as
follows:
"Until December 31, 1999 or such earlier date as the Purchase Option is
exercised or expires unexercised (the "Separation Date"), the Warrants
represented by this Certificate may be traded, exchanged or otherwise
transferred only together with the Common Stock of Spiros Corp. II issued
herewith. The holder hereof may, but need not, submit this Certificate for
the removal of this legend after the Separation Date."
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DURA CAPITAL STOCK
The authorized capital stock of Dura consists of 100,000,000 shares of
Common Stock and 5,000,000 shares of Preferred Stock, par value $.001 per share
("Preferred Stock").
COMMON STOCK
At September 30, 1997, there were 43,890,806 shares of Dura Common Stock
outstanding and held of record by approximately 360 stockholders. The holders of
Dura Common Stock are entitled to one vote for each share held of record on all
matters submitted to a vote of the stockholders. 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 Dura Common Stock are entitled
to receive, when and as declared by the Board of Directors of Dura, out of any
assets of Dura legally available therefor, such dividends as may be declared
from time to time by the Board of Directors of Dura. See "Price Range of Dura
Common Stock and Dividend Policies." In the event of liquidation, dissolution or
winding up of Dura, holders of Dura Common Stock are entitled to share ratably
in all assets remaining after payment of liabilities and the liquidation
preference of any outstanding Preferred Stock of Dura. Holders of Dura Common
Stock have no preemptive rights and no right to convert their Dura Common Stock
into any other securities. All outstanding shares of Dura Common Stock are fully
paid and nonassessable.
PREFERRED STOCK
The Board of Directors of Dura has the authority to issue Preferred Stock in
one or more series and to fix the rights, priorities, preferences,
qualifications, limitations and restrictions, including the dividend rates,
conversion rights, voting rights, terms of redemption, terms of sinking funds,
liquidation preferences and the number of shares constituting any series of the
designation of such series, without any further vote or action by the
stockholders, which could decrease the amount of earnings and assets available
for distribution to holders of Dura Common Stock or adversely affect the rights
and powers, including voting rights, of the holders of Dura Common Stock. The
issuance of Preferred Stock by Dura may have the effect of delaying, deferring
or preventing a change in control of Dura without further action by the
stockholders, may discourage bids for Dura Common Stock at a premium over the
market price of Dura Common Stock and may adversely affect the market price of
and the voting and other rights of the holders of Dura Common Stock. At present,
Dura has no plans to issue any Preferred Stock.
WARRANTS TO PURCHASE COMMON STOCK
At September 30, 1997, there were outstanding warrants (other than the
Series W Warrants and the Series S Warrants, described below) to purchase an
aggregate of 3,000 shares of Dura Common Stock at $.25 per share; 1,014 shares
at $2.44 per share; 600,000 shares at $4.38 per share; and 200,000 shares at
$6.48 per share. Such warrants expire on April 2, 1999, September 27, 1998,
April 17, 2001, and September 21, 1999, respectively. Each such warrant contains
provisions for the adjustment of the exercise price and the aggregate number of
shares issuable upon exercise of the warrant under certain circumstances,
including stock dividends, stock splits, reorganization, reclassifications or
consolidations. The holders of certain of the warrants are entitled to certain
registration rights with respect to Dura Common Stock issued or issuable upon
exercise thereof. Dura has registered the resale of 204,014 shares of Dura
Common Stock issuable upon exercise of the warrants on a "shelf registration
statement" on Form S-3 filed with the Commission. See "--Registration Rights."
Also outstanding at September 30, 1997 were Series W Warrants to purchase an
aggregate of 812,000 shares of Dura Common Stock at $2.38 per share and Series S
Warrants to purchase an aggregate of 2,240,000 shares of Dura Common Stock at an
exercise price of $19.47 per share, subject to adjustment as defined in the
warrants (collectively, the Series W Warrants and the Series S Warrants are
referred to herein as the "Dura Warrants"). The Series W Warrants are currently
exercisable through September 27, 2000. The Series S Warrants will be
exercisable after December 29, 1997 or sooner under certain circumstances (the
"Series S Exercise Date"), through December 29, 2000. The Dura Warrants contain
provisions for the adjustment of the exercise price and the aggregate number of
shares of Dura Common
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Stock issuable upon exercise of the Warrants under certain circumstances,
including stock splits, stock combinations, rights offerings, stock dividends or
certain special dividends with respect to the Dura Common Stock. In addition,
the exercise price and the number of shares issuable upon exercise of the Series
W Warrants and the Series S Warrants will be appropriately adjusted, with
respect to the Series W Warrants, in the event of the issuance of Dura Common
Stock at a per share price less than the exercise price of the Series W
Warrants, and, with respect to the Series S Warrants, in the event of the
issuance of Dura Common Stock below "fair market value" (as defined in the
Series S Warrants). Dura has registered the resale of shares of Dura Common
Stock issuable upon exercise of the Series W Warrants on a "shelf registration
statement" on Form S-3 filed with the Commission. Dura is obligated to register
the shares of Dura Common Stock issuable upon exercise of the Series S Warrants,
and in certain circumstances, the Series W Warrants, upon demand or with the
registration of its other securities. See "--Registration Rights."
NOTES CONVERTIBLE INTO COMMON STOCK
In the third quarter of 1997, Dura issued $287.5 million of principal amount
of its 3 1/2% Notes due 2002. The Notes are convertible, at the option of the
holder, into shares of Dura's Common Stock at any time prior to maturity or
redemption at a conversion price of $50.635 per share, subject to adjustment
under certain conditions. Interest is payable semi-annually, commencing on
January 15, 1998. The Notes can be redeemed by Dura from time to time, in whole
or in part, at specified redemption prices after July 15, 2000.
REGISTRATION RIGHTS
Pursuant to an Investors' Rights Agreement dated as of September 27, 1993
(the "1993 Registration Rights Agreement"), Dura has registered on a shelf
registration statement on Form S-3 the resale of the 812,000 shares of Dura
Common Stock (the "Series W Shares") issuable upon exercise of all of the
currently outstanding Series W Warrants. Dura is further obligated to file a
registration statement with respect to the resale of the Series W Warrants and
the Series W Shares within 30 days after a registration statement on Form S-3
becomes available for use by Dura with respect to the registration of the resale
of the Series W Warrants. Moreover, if, prior to the earlier of (i) September
27, 1996 (or, in the case of any holder who cannot resell his Series W Warrants
under Rule 144(k), September 27, 1998) or (ii) the effective date of a
registration statement on Form S-3 with respect to the resale of the Series W
Warrants, Dura registers any of its securities, the holders of the Series W
Warrants will have the right to include their Series W Warrants in such
registration.
Pursuant to the Registration Rights Agreement dated as of April 17, 1994,
the holder of 914,024 outstanding shares of Dura Common Stock (and 600,000
shares of Dura Common Stock issuable upon exercise of an outstanding warrant) is
entitled to notice of registration of any of the Dura's securities under the
Securities Act and is entitled to include its registrable securities in such
registration. In addition, such holder is entitled to request registration of at
least 51% of its registrable securities on Form S-3 (or other successor form)
under the Securities Act. All registration expenses in connection with Dura
registrations will be borne by Dura, and all registration expenses in connection
with the holder's requested registration on Form S-3 will be borne by the
holder, up to a maximum of $100,000. All selling expenses will be borne by the
holder. Dura is required to indemnify the holder and the underwriters for such
holder, if any, under certain circumstances. Registration rights may be
transferred only to a transferee of registrable securities who, after such
transfer, holds 200,000 shares of Dura registrable securities. The registration
rights granted under this agreement terminate on April 17, 1999 (or, with
respect to registration on Form S-3, if earlier, the date on which the holder is
able to sell all registrable securities under Rule 144(k)).
Pursuant to an Investors' Rights Agreement dated as of December 29, 1995
(the "1995 Registration Rights Agreement"), Dura is obligated to use its best
efforts to file a registration statement on Form S-3 with respect to the resale
of the shares of Dura Common Stock issuable upon exercise of the Series S
Warrants (the "Series S Shares") on or before December 29, 1997. In addition, if
at any time after
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December 29, 1997, Dura registers its securities, the holders of the Series S
Warrants will have the right to include the resale of the Series S Shares in
such registration.
Pursuant to the 1993 Registration Rights Agreement and the 1995 Registration
Rights Agreement, Dura is required to bear all the registration expenses. Dura
is required to indemnify the holders and the underwriters for such holders, if
any, under certain circumstances. Dura's respective obligations to register the
Series W Warrants and the Series S Shares will each terminate in certain
circumstances.
POSSIBLE ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS
CERTIFICATE OF INCORPORATION AND BYLAWS
Dura's Certificate of Incorporation authorizes its Board of Directors
("Board") to establish one or more series of undesignated Preferred Stock, the
terms of which can be determined by the Board at the time of issuance. See
"--Preferred Stock." The Certificate of Incorporation also provides that all
stockholder actions must be effected at a duly called meeting of stockholders
and not by a consent in writing. Dura's Bylaws provide that Dura's Board will be
classified into two classes of directors serving staggered two-year terms, with
one class of directors to be elected at each annual meeting of stockholders. In
addition, Dura's Bylaws do not permit stockholders to call a special meeting of
stockholders; only Dura's Chief Executive Officer or the Chairman of the Board,
or the President or Secretary at the written request of a majority of the Board,
are permitted to call a special meeting of stockholders. The Bylaws also require
that stockholders give advance notice to Dura's secretary of any nominations for
director or other business to be brought by stockholders at any stockholders'
meeting and require a majority vote of members of Dura's Board or stockholders
to amend Bylaw provisions. These provisions of the Dura Certificate of
Incorporation and Bylaws could discourage potential acquisition proposals and
could delay or prevent a change in control. Such provisions may also have the
effect of preventing changes in Dura's management.
DELAWARE TAKEOVER STATUTE
Dura is subject to Section 203 of the Delaware General Corporation Law
("Section 203") which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder (defined as any person or entity that is the beneficial owner of at
least 15% of a corporation's voting stock) for a period of three years following
the time that such stockholder became an interested stockholder, unless: (i)
prior to such time, the board of directors of the corporation approved either
the business combination or the transaction that resulted in the stockholder's
becoming an interested stockholder; (ii) upon consummation of the transaction
that resulted in the stockholder's becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding, for purposes of
determining the number of shares outstanding, those shares owned (x) by persons
who are directors and also officers and (y) by employee stock plans in which
employee participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange offer;
or (iii) at or subsequent to such time, the business combination is approved by
the board and authorized at an annual or special meeting of stockholders, and
not by written consent, by the affirmative vote of at least two-thirds of the
outstanding voting stock that is not owned by the interested stockholder.
Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, lease, exchange, mortgage, transfer, pledge or other disposition involving
the interested stockholder and 10% or more of the assets of the corporation;
(iii) subject to certain exceptions, any transaction which results in the
issuance or transfer by the corporation of any stock of the corporation to the
interested stockholder; (iv) any transaction involving the corporation that has
the effect of increasing the proportionate share of the stock of any class or
series of the corporation beneficially owned by the interested stockholder; or
(v) the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or through
the corporation.
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SPIROS CORP. II CAPITAL STOCK
The authorized capital stock of Spiros Corp. II will consist of 6,500,000
shares of Common Stock, par value $0.001 per share, and 1,000 Special Shares,
par value $1.00 per share. It is not expected that Spiros Corp. II will pay any
dividends for the foreseeable future.
COMMON STOCK
GENERAL. Upon completion of the Offerings all of the outstanding shares of
Spiros Corp. II Common Stock will be duly authorized, fully paid and validly
issued. See "The Agreement and the Purchase Options--Stock Purchase Option."
Holder of Spiros Corp. II Common Stock are entitled to receive such dividends as
may be recommended by the Board of Directors and approved by the holders of a
majority of the Special Shares. It is expected that Spiros Corp. II will not pay
dividends on the Spiros Corp. II Common Stock. In a winding-up or liquidation of
Spiros Corp. II, the assets available for distribution shall be distributed pro
rata among the holders of shares of Spiros Corp. II Common Stock . Shares of
Spiros Corp. II Common Stock have no conversion or redemption rights. Prior to
the Offerings, no shares of Spiros Corp. II Common Stock were outstanding.
VOTING RIGHTS. The Amended and Restated Certificate of Incorporation of
Spiros Corp. II provides that the holders of Spiros Corp. II Common Stock are
entitled to one vote per share, either in person or by proxy, at stockholder
meetings. Two or more stockholders present in person or by proxy holding not
less than one third of the issued and outstanding Spiros Corp. II Common Stock
constitute a quorum at such meetings. A majority of votes cast is required for
most items of business placed before a general meeting of stockholders. The
consent of the holder of Special Shares is required for certain actions. See
"Risk Factors--Business Risks Related to Spiros Corp. II--Limitation on Certain
Spiros Corp. II Activities" and "--Special Shares." Stockholders do not have
cumulative voting rights for the election of directors, which means that the
holders of a majority of the shares elect all of the directors, except for those
directors elected by the Special Shares.
SPECIAL SHARES. There are currently issued 1,000 shares of Spiros Corp. II
common stock, all of which are held by Dura. Immediately prior to the closing of
the Offerings, the authorized and outstanding shares of Spiros Corp. II common
stock will be renamed Special Shares. Following the issuance of the Spiros Corp.
II Common Stock, the Special Shares do not confer on the holders thereof the
right to vote at any meeting of Spiros Corp. II stockholders except as referred
to in the next paragraph and except that holders of a majority of Special Shares
are entitled to elect two directors. Nor do these shares have the right to any
profits of Spiros Corp. II. In the event of the winding up of Spiros Corp. II,
the Spiros Corp. II Common Stock shall have a priority over the Special Shares
with respect to return of capital, and the Special Shares shall not otherwise be
entitled to participate in any way in the profits or assets of Spiros Corp. II.
Spiros Corp. II does not presently intend to issue any additional Special
Shares.
Until the expiration of the Purchase Option, no resolution or act of Spiros
Corp. II to authorize or permit any of the following will be effective without
the prior written approval of the holders of a majority of the outstanding
Special Shares: (i) the allotment or issue of shares or other securities of
Spiros Corp. II or the creation of any right to such an allotment or issue; (ii)
the reduction of Spiros Corp. II's authorized share capital; (iii) outstanding
borrowings by Spiros Corp. II over an aggregate of $1 million; (iv) the sale or
other disposition of or the creation of any lien or liens on the whole or a
material part of Spiros Corp. II's business or assets; (v) the declaration or
payment of dividends or the making of any other distributions to stockholders;
(vi) any merger, liquidation or sale of all or substantially all of its assets
of Spiros Corp. II; and (vii) any alteration of the Purchase Option. See "The
Agreements and the Purchase Options--Stock Purchase Option."
Thus Dura, as the holder of a majority of the outstanding Special Shares,
could preclude the holders of a majority of the majority of the shares of Spiros
Corp. II Common Stock and the Board of Directors of Spiros Corp. II from taking
any of the foregoing actions during such period. Dura, as holder of all of the
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outstanding Special Shares, may transfer or sell all, but not less than all, of
such shares. As a result, an unrelated third party may acquire rights associated
with the Special Shares, including the rights discussed in this section. In
addition, there can be no assurance that any transferee of the Special Shares
will have the same financial resources or development, manufacturing or
marketing capabilities as Dura, which may have a material adverse effect on the
likelihood of the exercise of the Albuterol Option, the Product Option or the
Purchase Option. In addition, any resolution to wind up the affairs of or
liquidate Spiros Corp. II will confer upon the holders of the Special Shares a
right to vote and such Special Shares will carry a number of votes equal to the
total number of votes carried by the Spiros Corp. II Common Stock at the time
outstanding.
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THE AGREEMENTS AND THE PURCHASE OPTIONS
The following is a summary of certain provisions of the Stock Purchase
Option, the Technology Agreement, the Albuterol and Product Option Agreement,
the Development Agreement, the Manufacturing and Marketing Agreement and the
Services Agreement. The summary is qualified in its entirety by reference to the
full text of such agreements, copies of which may be obtained upon request to
Dura.
STOCK PURCHASE OPTION
Dura, as the holder of all of the issued and outstanding Special Shares will
have the right, as set forth in Spiros Corp. II's Amended and Restated
Certificate of Incorporation, to purchase all, but not less than all, of the
Spiros Corp. II Common Stock outstanding at the time such right is exercised.
The Purchase Option will be exercisable upon the Exercise Notice given at any
time beginning on the closing date of the Offerings and ending on the earlier of
(i) December 31, 2002 or (ii) the 90th day after the date Spiros Corp. II
provides Dura (as such holder) with the Financial Notice, although following the
receipt of the Financial Notice Dura may, at its election, extend such period by
providing additional funding for the continued development of Spiros Products
(but in no event beyond December 31, 2002). If the Purchase Option is exercised,
the Purchase Option Exercise Price, calculated on a per share basis, assuming an
offering price of $16.00 per Unit, will be as follows:
<TABLE>
<CAPTION>
IF THE SPIROS CORP. II COMMON STOCK IS ACQUIRED PURCHASE OPTION
PURSUANT TO THE PURCHASE OPTION: EXERCISE PRICE
- ----------------------------------------------------------------------------- ---------------
<S> <C>
Before January 1, 2000....................................................... $ 24.01
On or after January 1, 2000 and on or before March 31, 2000.................. 25.26
On or after April 1, 2000 and on or before June 30, 2000..................... 26.57
On or after July 1, 2000 and on or before September 30, 2000................. 27.96
On or after October 1, 2000 and on or before December 31, 2000............... 29.41
On or after January 1, 2001 and on or before March 31, 2001.................. 31.10
On or after April 1, 2001 and on or before June 30, 2001..................... 32.88
On or after July 1, 2001 and on or before September 30, 2001................. 34.77
On or after October 1, 2001 and on or before December 31, 2001............... 36.76
On or after January 1, 2002 and on or before March 31, 2002.................. 38.87
On or after April 1, 2002 and on or before June 30, 2002..................... 41.10
On or after July 1, 2002 and on or before September 30, 2002................. 43.46
On or after October 1, 2002 and on or before December 31, 2002............... 45.95
</TABLE>
The Purchase Option Exercise Price per share of Spiros Corp. II Common Stock
will increase or decrease if the offering price per Unit is more or less than
$16.00 per Unit such that the same rate of return set forth above is maintained
for each of the periods presented.
The Purchase Option Exercise Price will be determined by Dura and Spiros
Corp. II, giving consideration to the compound annual rate of return, as
required by potential investors, to be achieved upon any exercise of the
Purchase Option, the implied returns to investors purchasing securities with a
similar structure historically and the comparability of the Offerings to those
prior offerings, the value of the Warrants, the nature of Spiros Products, the
agreements between Dura and Spiros Corp. II, and such other factors as Dura and
Spiros Corp. II deem appropriate and advice given by the Underwriters.
The Purchase Option Exercise Price may be paid in cash or shares of Dura
Common Stock, or any combination of the foregoing, at Dura's sole discretion.
Any such shares of Dura Common Stock will be valued based upon the average of
the closing price for Dura Common Stock on the Nasdaq National Market for ten
trading days immediately preceding the date of the Exercise Notice. In the event
the Purchase Option were transferred, the payment by the subsequent holder of
the majority of the Special Shares could be made in cash or, if such holder or
its parent is a company whose common equity securities are listed on a national
securities exchange or admitted to unlisted trading privileges or listed on the
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Nasdaq National Market, in the sole discretion of such holder, in shares of such
listed common equity security.
Dura owns all of the issued and outstanding Special Shares, which grants
Dura the Purchase Option and confers certain voting and other rights, including
the right to elect two of the five directors of Spiros Corp. II. Under its
Amended and Restated Certificate of Incorporation, Spiros Corp. II will be
prohibited, until the expiration of the Purchase Option, from taking or
permitting certain actions inconsistent with Dura's rights under the Purchase
Option. For example, until the expiration of the Purchase Option, Spiros Corp.
II will not be able to, among other things, without the consent of Dura, pay any
dividends, issue additional shares of capital stock, have outstanding borrowings
in excess of an aggregate of $1 million, or merge, liquidate or sell all or
substantially all of its assets or alter the Purchase Option. At present, Dura
has no intention of transferring such Special Shares. See "Spiros Corp. II
Capital Stock."
TECHNOLOGY LICENSE AGREEMENT
Dura, Spiros Corp. and Spiros Corp. II will enter into the Technology
Agreement, under which Dura and Spiros Corp. will grant Spiros Corp. II an
exclusive, worldwide, perpetual, royalty-bearing license to use the Core
Technology in research, development and commercialization (except with respect
to beclomethasone in Asia) of the Spiros Products, including rights to patents,
patent applications and other intellectual property rights.
In consideration for these license rights granted to Spiros Corp. II by Dura
and Spiros Corp., Spiros Corp. II will pay Dura and Spiros Corp. a technology
access fee equal to the greater of (a) 5% of the Net Sales of each Spiros
Product or (b) $2 million for all Spiros Products in any calendar year beginning
in 1998. Spiros Corp. II's obligation will terminate, on a country-by-country
basis, (a) within 10 years from the first sale of such Spiros Product in those
countries where no patents covering such product are issued and (b) in those
countries where patents covering the Spiros Products are issued, upon the
expiration of the last-to-expire patent covering such Spiros Product in such
country.
In addition, Spiros Corp. II will grant Dura (a) a worldwide, exclusive,
royalty-free license to use the Core Technology and the Program Technology to
develop the Spiros Products pursuant to the terms of the Development Agreement;
(b) a worldwide, exclusive, royalty-bearing license to use the Program
Technology to sell Spiros Products worldwide pursuant to the terms of the
Manufacturing and Marketing Agreement; (c) upon Dura's exercise of the Albuterol
Option, a worldwide, exclusive, royalty-free, irrevocable, perpetual license to
the Program Technology to develop, manufacture and commercialize the Albuterol
Product; (d) upon Dura's exercise of the Product Option, a worldwide, exclusive,
royalty-free, irrevocable, perpetual license to the Program Technology to
develop, manufacture and commercialize sell the Spiros Product for which the
Product Option is exercised; and (e) a worldwide, exclusive, royalty-free,
irrevocable, perpetual license to the Program Technology, including technology
relating to enhancements to the existing Spiros technology or any next
generation inhaler system, to develop, manufacture and commercialize products
other than the Spiros Products, including products that compete with the Spiros
Products.
Under the Technology Agreement, Dura must use commercially reasonable
efforts to secure the rights of third parties in technology that is necessary or
useful to the development of the Spiros Products. Spiros Corp. II will have no
obligation to accept any grant of such rights or to assume any obligation
without its prior written consent. If Spiros Corp. II desires to obtain any such
rights, Dura and Spiros Corp. II agree to negotiate in good faith regarding the
allocation of any royalty, license fee or other payments payable to the third
party and the assumption of any obligations applicable to such license.
Until the expiration of the Purchase Option, Dura will direct and cause, at
Spiros Corp. II's expense, appropriate patent applications to be prepared,
prosecuted and maintained with respect to patents licensed to Spiros Corp. II
and with respect to any technology developed or acquired on behalf of Spiros
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Corp. II by Dura. Upon the termination unexercised of the Purchase Option, all
patents and patent applications developed or acquired on behalf of Spiros Corp.
II will be assigned to Spiros Corp. II.
Pursuant to the terms of the Technology Agreement, if Spiros Corp. II or
Dura receives notice of alleged infringement of any patent, it shall notify the
other party of such infringement and all amounts recovered in any action to
enforce patent rights shall be retained by the parties in proportion to the
respective portion of expenses borne by the parties in enforcing such action.
Spiros Corp. II has agreed to indemnify Dura against certain third party
claims, including patent infringement claims, relating to the Spiros Corp. II's
use of the Program Technology or breach of the Technology Agreement, Development
Agreement or Manufacturing and Marketing Agreement. Dura has agreed to indemnify
Spiros Corp. II against certain third party claims, including patent
infringement claims, relating to Dura's use of the Program Technology,
performance of the Development or breach of the Technology Agreement,
Development Agreement or Manufacturing and Marketing Agreement.
Prior to the expiration of the Purchase Option, Spiros Corp. II cannot
without Dura's prior written consent (a) license, sublicense, encumber or
otherwise transfer any rights in the Program Technology; (b) make, use or sell
any of the Program Technology; or (c) authorize, cause or assist in any way any
other person to do any of the foregoing. Following the expiration or termination
of the Purchase Option, the foregoing limitations will cease to be applicable
and Spiros Corp. II will have the right to license, sublicense, encumber or
otherwise transfer the Program Technology for use with any Spiros Products that
have not been acquired by Dura through the exercise of either the Albuterol
Option or the Product Option. Dura may assign its rights and delegate its
obligations under the Technology Agreement only to an affiliate of Dura, certain
successors of Dura or certain persons that acquired substantially all of the
assets of Dura.
The Technology Agreement will remain in full force and effect indefinitely,
unless terminated by (a) mutual agreement of the parties or (b) Dura's exercise
of the Purchase Option.
Either Dura or Spiros Corp. II may terminate the Technology Agreement prior
to its expiration if the other party (a) breaches any material obligation under
the Technology Agreement or the Development Agreement, which breach continues
for a period of 60 days after written notice thereof, (b) enters into any
voluntary proceeding in bankruptcy, reorganization or an arrangement for the
benefit of its creditors, or its Board of Directors or stockholders authorize
such action or (c) fails to dismiss any such proceeding within 60 days after the
same is involuntarily commenced. If Spiros Corp. II terminates the Technology
Agreement, Spiros Corp. II's license to use the Program Technology will continue
(except with respect to any Spiros Products that have been previously acquired
by Dura through exercise of the Albuterol Option or the Product Option), and
Spiros Corp. II will be free to enter into arrangements with third parties to
research, develop and commercialize the Spiros Products. If Dura terminates the
Technology Agreement, (a) Spiros Corp. II's license to use the Core Technology
under the Technology Agreement will terminate, (b) all of Spiros Corp. II's
rights to the Program Technology will revert to Dura, and (c) all rights to
develop, use and sell the Spiros Products will revert to Dura. Dura and Spiros
Corp. II will use reasonable efforts for a period of 120 days after the
Technology Agreement is terminated by Dura to reach agreement on royalties and
other compensation to be paid by Dura to Spiros Corp. II solely with respect to
the Spiros Products and the Program Technology and, in the absence of such
agreement, the matter will be submitted to binding arbitration. There can be no
assurance that, upon termination of the Technology Agreement by Spiros Corp. II,
that it will be able to make alternative arrangements for the research,
development and commercialization of some or all of the Spiros Products.
ALBUTEROL AND PRODUCT OPTION AGREEMENT
Dura and Spiros Corp. II will enter into the Albuterol and Product Option
Agreement pursuant to which Dura will obtain (a) the Albuterol Program Assets
and (b) the Spiros Product Program Assets.
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The Albuterol Program Assets include (a) the Albuterol Product, (b)
albuterol as formulated for use in the Albuterol Product, (c) a perpetual,
sublicensable, non-exclusive, royalty-free license to the technology owned by
Dura or developed or acquired by Dura during the term of the Development
Agreement applicable to the Albuterol Product for use solely with the Albuterol
Product, and (d) all applications and documents filed with the FDA or a foreign
regulatory authority to obtain regulatory approval to commence commercial sale
or use of the Albuterol Product. The Albuterol Option is exercisable commencing
on the date of the closing of the Offerings and ending on the earlier of (i) 360
days after receipt of FDA approval to market the Albuterol Product or (ii) the
date Dura ceases to manufacture or market the Albuterol Product in accordance
with the terms of the Manufacturing and Marketing Agreement.
Upon exercise of the Albuterol Option, Dura will make a single payment to
Spiros Corp. II in cash equal to (a) the aggregate Purchase Option Exercise
Price, assuming acquisition of all shares of Spiros Corp. II Common Stock issued
pursuant to the Offerings four years following closing of the Offerings,
multiplied by (b) a fraction, the numerator of which will equal the development
and commercialization costs and expenses incurred by Spiros Corp. II in
connection with the development and commercialization of the Albuterol Product
and the denominator of which will equal the Available Funds (excluding the
proceeds, if any, from the exercise of the Albuterol Option or the Product
Option) set forth in the proposed budget contained herein. See "Use of
Proceeds."
The Spiros Product Program Assets include (a) the Option Product, (b) the
compound to be delivered by the Option Product, as formulated for use
specifically in the Option Product, (c) a perpetual, sublicensable,
non-exclusive, royalty-free license to the technology owned by Dura or developed
or acquired by Dura during the term of the Development Agreement applicable to
the Option Product for use solely with the Option Product, and (d) all
applications and documents filed with the FDA or a foreign regulatory authority
to obtain regulatory approval to commence commercial sale or use of the Option
Product. The Product Option is exercisable with respect to each Spiros Product
commencing on the date of the closing of the Offerings and ending 90 days after
receipt of FDA approval to market such Spiros Product; provided, however, that
the Product Option may only be exercised with respect to a single Spiros
Product.
Upon exercise of the Product Option, Dura will make a single payment to
Spiros Corp. II in cash equal to 110% of (a) the aggregate Purchase Option
Exercise Price, assuming acquisition of all shares of Spiros Corp. II Common
Stock issued pursuant to the Offerings four years following closing of the
Offerings, multiplied by (b) a fraction, the numerator of which will equal the
development and commercialization costs and expenses incurred by Spiros Corp. II
in connection with the development of the Option Product and the denominator of
which will equal the Available Funds (excluding the proceeds, if any, from the
exercise of the Albuterol Option or the Product Option) set forth in the
proposed budget contained herein. See "Use of Proceeds."
Any payments received by Spiros Corp. II with respect to the exercise of the
Albuterol Option and the Product Option will become part of the Available Funds.
The Albuterol and Product Option Agreement will automatically terminate in
the event that Spiros Corp. II terminates the Technology Agreement, the
Development Agreement or the Manufacturing and Marketing Agreement, consistent
with the terms of those agreements. Additionally, the Albuterol and Product
Option Agreement will terminate on the date the Purchase Option terminates,
whether by exercise or otherwise.
DEVELOPMENT AGREEMENT
Dura and Spiros Corp. II will enter into the Development Agreement under
which Dura will agree to use commercially reasonable efforts to develop the
Program Technology for the purpose of the Development and to make the Other
Expenditures. Dura will furnish all labor, supervision, services, supplies, and
materials necessary to perform the Development.
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Dura also agrees to use commercially reasonable efforts to obtain the rights
to, and to sublicense to Spiros Corp. II, any patent or technology license held
by a third party that Dura reasonably determines to be necessary or useful to
enable Dura to conduct the Development. Dura will act as Spiros Corp. II's
exclusive agent for the filing and prosecuting of all regulatory applications
and permits required to obtain FDA approval in Dura's name and any other
necessary regulatory approvals for the Spiros Products. In the event that the
Purchase Option expires unexercised, Dura will use its reasonable efforts to
cause all applications and documents filed with the FDA or a foreign regulatory
authority to obtain regulatory approvals for the Spiros Products, with respect
to which Dura has not acquired exclusive rights, to be assigned to Spiros Corp.
II.
Dura will conduct the Development in accordance with an annual workplan and
budget. At the closing, Dura will provide Spiros Corp. II with a workplan and
budget covering the period from the closing date through December 31, 1998.
Thereafter, Dura and Spiros Corp. II will prepare annual workplans and budgets.
The annual workplans and budgets are subject to approval and acceptance by
Spiros Corp. II's Board of Directors. Dura must report any significant
deviations from an annual workplan and budget in a timely manner. Further,
reimbursement for expenditures from Spiros Corp. II may not exceed in any
calendar year 120% of the amount allocated in the applicable annual workplan and
budget, unless otherwise approved by Spiros Corp. II.
During the term of the Development Agreement, each of Dura and Spiros Corp.
II will provide the other with quarterly reports with respect to all payments
due and all credits taken for such quarter, including, in the case of Dura, a
statement of the Development Costs incurred during such quarter and a summary of
work performed for Spiros Corp. II. Additionally, each of Spiros Corp. II and
Dura is required to maintain and make available for inspection by an independent
public accountant selected by the requesting party, once in each calendar year
and upon reasonable notice and during regular business hours, such records of
the other party as may be necessary to verify the accuracy of reports and
payments made in respect of the Development Agreement.
Payments to Dura under the Development Agreement for Dura's work in
performing the Development will be made for the full amount of all of Dura's
research and development expenses, general and administrative expenses, capital
equipment costs and all other costs and expenses (the "Development Costs")
incurred by Dura in performing the activities described above, up to the maximum
amount of the funds available to Spiros Corp. II, which include substantially
all of the Available Funds. Development Costs will include development expenses
(including salaries, benefits, supplies, and facilities and overhead
allocations) that are billed at a rate of fully burdened cost plus 25%;
provided, however, that services provided by third parties will be billed at a
rate of cost plus 20%. This pricing structure is considered by Dura to be
consistent with contractual relationships it has had with other third parties.
Development Costs also include costs, estimated to be approximately $4 million,
for the Development conducted by Dura from October 10, 1997 through the date of
the closing of the Offerings.
If Spiros Corp. II or Dura determines that the development of a particular
Spiros Product should be discontinued because continued development is not
feasible or is uneconomic, or that the development should be expanded to include
one or more Designated Compounds, then Spiros Corp. II and Dura will use
reasonable efforts to agree on the nature of the Development and the identity of
any other compound on which unexpended Available Funds will be spent.
Under the Development Agreement, the manufacture and sale of Spiros Products
for the sole purpose of conducting clinical trials necessary to obtain FDA
approval or any other required regulatory approval will be charged to Spiros
Corp. II as Development Costs. Dura will remit to Spiros Corp. II any revenue
received by it from the sale of such Spiros Products prior to receipt of FDA
approval to market.
Either Dura or Spiros Corp. II may terminate the Development Agreement prior
to its expiration if the other party (a) breaches any material obligation under
the Technology Agreement or the Development Agreement, which breach continues
for a period of 60 days after written notice thereof, (b) enters into any
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voluntary proceeding in bankruptcy, reorganization or an arrangement for the
benefit of its creditors, or its Board of Directors or stockholders authorize
such action or (c) fails to dismiss any such proceeding within 60 days after the
same is involuntarily commenced.
Dura's obligation to perform development work under the Development
Agreement will terminate at such time as Spiros Corp. II has cash or cash
equivalents of less than $5 million, which is projected by Spiros Corp. II to
occur on or about February 28, 2001. Upon receipt of notice from Spiros Corp.
II, Dura may elect to provide additional funding for the development of the
Spiros Products.
Dura may assign its rights and delegate its obligations under the
Development Agreement only to an affiliate of Dura, certain successors of Dura
or certain persons that acquired substantially all of the assets of Dura. Spiros
Corp. II may not assign its rights or delegate its obligations under the
Development Agreement.
MANUFACTURING AND MARKETING AGREEMENT
Dura and Spiros Corp. II will enter into the Manufacturing and Marketing
Agreement under which Spiros Corp. II will grant to Dura an exclusive, worldwide
license to manufacture and market the Spiros Products. Dura will pay Spiros
Corp. II on a quarterly basis a royalty of 7% of the Net Sales of each Spiros
Product beginning upon receipt of FDA approval to market such product; provided,
however, that prior to the expiration of the Albuterol Option, no royalty
payment will be made with respect to Net Sales of the Albuterol Product.
Under the Manufacturing and Marketing Agreement, Dura will agree to use
diligent efforts to commence sales of each Spiros Product promptly upon
receiving FDA approval for such product. Dura will be responsible for
maintaining competent, qualified sales personnel, and will agree not to make any
representations inconsistent with the approved labeling of each Spiros Product.
"Net Sales" for purposes of the Manufacturing and Marketing Agreement and
the Technology Agreement will be defined as the gross amount invoiced for sales
of the Spiros Products by Dura or its sublicensees, if any, to third parties
less (i) discounts actually allowed, (ii) credits for claims, allowances,
retroactive price reductions or returned Spiros Products, (iii) prepaid freight
charges incurred in transporting Spiros Products to customers, (iv) sales taxes
and other governmental charges actually paid in connection with the sales (but
excluding what is commonly known as income taxes) and (v) any royalty
obligations under the 1993 Royalty Agreement. See "Business of Spiros Corp.
II--Patents." Net Sales will not include sales between or among Dura, its
affiliates and its sublicensees unless such sales are for end use rather than
for purposes of resale.
The Manufacturing and Marketing Agreement will terminate (a) upon the
exercise or termination of the Purchase Option or (b) by mutual agreement of the
parties at any time. In the event Dura exercises the Albuterol Option or the
Product Option, the Manufacturing and Marketing Agreement will terminate with
respect to the Albuterol Product or the Option Product, as the case may be, but
will otherwise continue in full force and effect.
SERVICES AGREEMENT
Spiros Corp. II will enter into the Services Agreement with Dura under which
Dura will provide certain management and administrative services to Spiros Corp.
II at the rate of $100,000 per calendar quarter for services to be performed
internally by Dura and for services performed by third parties for Dura on
Spiros Corp. II's behalf. In addition, Spiros Corp. II will reimburse Dura for
all costs and expenses, net of amounts reimbursed by the Underwriters, incurred
by Dura in connection with the Offerings (currently estimated to be
approximately $100,000). The Services Agreement terminates on the earlier of (i)
the exercise of the Purchase Option or (ii) 12 months after expiration of the
Purchase Option.
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UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Brobeck, Phleger & Harrison LLP, counsel for Dura and
Spiros Corp. II ("Counsel"), the following summary accurately sets forth under
currently applicable law all the material U.S. federal income tax consequences
of the purchase, ownership and disposition of the Units, the Spiros Corp. II
Common Stock, the Warrants and the Dura Common Stock (the "Securities") to U.S.
Holders. The following discussion is based on the Internal Revenue Code of 1986,
as amended (the "Code"), judicial decisions, administrative pronouncements, and
existing and proposed regulations issued by the U.S. Department of the Treasury
as now in effect. Each prospective investor should understand that future
legislative, administrative and judicial changes could modify the tax
consequences described below, possibly with retroactive effect.
As used herein, the term U.S. Holder means a beneficial holder of Securities
that (i) owns the Securities as capital assets and (ii) is a U.S. citizen or
resident, a U.S. corporation, an estate the income of which is subject to U.S.
federal income taxation regardless of its source, or a trust that meets the
following two tests: (A) a U.S. court is able to exercise primary supervision
over the administration of the trust, and (B) one or more U.S. fiduciaries have
the authority to control all substantial decisions of the trust.
This summary is necessarily general and may not apply to U.S. Holders who
are subject to special treatment under U.S. tax law (including, but not limited
to, insurance companies, tax-exempt organizations, U.S. expatriates, financial
institutions, broker-dealers, and persons whose functional currency is not the
U.S. dollar). The discussion is also not applicable to foreign entities or
individuals who are not U.S. Holders. In addition, this summary is based on the
assumption that the investment in the Units and the transactions related thereto
will be characterized for federal income tax purposes in a manner consistent
with the form of such transactions under the governing documents. While counsel
believes that such characterizations should be given to the transactions, there
can be no assurance that the IRS will not assert that a different
characterization should obtain.
EACH U.S. HOLDER IS URGED TO CONSULT HIS, HER OR ITS OWN TAX ADVISOR WITH
RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO HIM, HER OR IT OF THE PURCHASE,
OWNERSHIP AND DISPOSITION OF THE SECURITIES, INCLUDING THE TAX CONSEQUENCES
UNDER STATE, LOCAL, AND FOREIGN TAX LAWS, ESTATE TAX LAWS AND PROPOSED CHANGES
IN APPLICABLE LAWS.
TAXATION OF UNITS
In accordance with the governing documents, immediately upon the purchase of
the Units, Dura will acquire an option to acquire the Spiros Corp. II Common
Stock pursuant to the Purchase Option as well as the right to purchase assets
from Spiros Corp. II under the Albuterol Option and the Product Option. At the
same time, Dura will contribute the Contribution together with the proceeds from
the sale of the Warrants to Spiros Corp. II (the "Dura Contribution"). Under
these circumstances, it is likely that, for U.S. federal income tax purposes,
the Dura Contribution will be treated as having been made in consideration for
the grant of the Purchase Option, the Albuterol Option and the Product Option.
In such event, each U.S. Holder of Units should be treated as receiving a
substantial portion of the Dura Contribution in return for the grant to Dura of
the Purchase Option (the "Stock Option Consideration") even though the Stock
Option Consideration is in fact being transferred directly to Spiros Corp. II.
In such case, each U.S. Holder of Units would be treated as having paid the
amount of the Stock Option Consideration to Spiros Corp. II as part of their
cost of acquiring the Spiros Corp. II Common Stock. Neither the deemed receipt
of the Stock Option Consideration nor the deemed transfer of the Stock Option
Considerations to Spiros Corp. II will subject U.S. Holders to current taxation.
See discussion below with regard to the treatment of the Stock Option
Consideration on the sale of the Units or the Spiros Corp. II Common Stock or on
lapse of the Purchase Option.
Upon the sale of a Unit, a U.S. Holder will recognize capital gain or loss
measured by the difference between the amount realized and the U.S. Holder's tax
basis in the Unit. For this purpose, the U.S. Holder's aggregate tax basis in a
Unit will include the amount paid for the Unit plus any Stock Option
Consideration the U.S. Holder is deemed to have received in respect of the grant
of the Purchase Option.
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The amount realized on the sale of the Units will be the price at which the
Units were sold plus the Stock Option Consideration deemed to have been
received. The inclusion of the Stock Option Consideration in the basis of the
Units will offset the inclusion of such amount in the amount realized upon sale.
Therefore, a U.S. Holder who sells Units will not recognize either gain or loss
solely as a result of the deemed receipt of the Stock Option Consideration or
the inclusion of the Stock Option Consideration in the amount realized upon
sale. The holding period for each Unit will begin on the acquisition date of
such Unit. In the case of an individual U.S. Holder, any such capital gain will
be taxable at various preferential rates, if the holding period for the Units is
more than one year, depending on the actual holding period of the Units at the
time of sale. Any capital loss will be long-term if the holding period for the
Unit is more than one year. To the extent that gain realized upon the sale of a
Unit is attributable to its constituent shares of Spiros Corp. II Common Stock,
however, such gain may be treated as ordinary income if Spiros Corp. II were
determined to be a "collapsible corporation" as described below.
A U.S. Holder of the Units will not recognize gain or loss at the time that
the shares of Spiros Corp. II Common Stock and the Warrant become separately
tradeable. The basis of the Units will be allocated between the Spiros Corp. II
Common Stock and the Warrants after separation in proportion to the relative
fair market value of the Spiros Corp. II Common Stock and the Warrants on the
date the U.S. Holder acquired the Units. The respective holding period of each
constituent part of a Unit on and after the Separation Date will include the
holding period for the Unit prior to the Separation Date.
TAXATION OF WARRANTS
A U.S. Holder of a Warrant will not recognize taxable income or loss upon
exercise of the Warrant. If the Warrant expires unexercised, the U.S. Holder
will recognize a capital loss equal to the U.S. Holder's tax basis in the
Warrant (which will include the portion of the U.S. Holder's basis in the Unit
allocable thereto). Such loss will generally be a capital loss and will be
long-term if the U.S. Holder's holding period for the Warrant is more than one
year. Gain or loss upon a sale of a Warrant will be capital gain or loss. In the
case of an individual U.S. Holder, any such capital gain will be taxable at
various preferential rates, if the holding period for the Warrants is more than
one year, depending on the actual holding period of the Warrants at the time of
sale. Any such loss will be long-term if the holding period for the Warrant was
more than one year on the date of sale. The holding period of the Warrant
acquired as part of the Units should commence on the date the U.S. Holder
acquires the Units.
Adjustments to the exercise price of the Warrants pursuant to the
anti-dilution provisions of the Warrant Agreement, or the failure to make
adjustments to the exercise price upon the occurrence of certain events, may
result in constructive dividends to the U.S. Holders of the Warrants or the
shares of Dura Common Stock under Section 305 of the Code regardless of whether
there is a distribution of cash or property to the U.S. Holder.
TAXATION OF SPIROS CORP. II COMMON STOCK
Upon the sale of shares of Spiros Corp. II Common Stock acquired as part of
a Unit, including a sale pursuant to the Purchase Option, the U.S. Holder will,
except as otherwise discussed in this paragraph, recognize capital gain or loss
equal to the difference between his tax basis in the shares of Spiros Corp. II
Common Stock and the amount realized from such sale. For this purpose, the
amount realized will equal the sum of the cash plus the fair market value of
other property received in such sale (including Dura Common Stock). In addition,
if the sale occurs pursuant to the Purchase Option or prior to the lapse of the
Purchase Option, the amount realized will also include any Stock Option
Consideration the U.S. Holder was deemed to have received. However, the
inclusion of the Stock Option Consideration in the basis of the Spiros Corp. II
Common Stock will offset the inclusion of such amount in the amount realized
upon sale. Therefore, any such U.S. Holder will not recognize either gain or
loss solely as a result of the deemed receipt of the Stock Option Consideration.
In the case of an individual U.S. Holder, any such capital gain will be taxable
at various preferential rates, if the holding period for the Spiros Corp. II
Common Stock is more than one year, depending on the actual holding period of
the Warrants at the time of sale. Any capital loss will be long-term if the
holding period for the Spiros Corp. II Common Stock was more than one year on
the date of sale. The holding period of Spiros Corp. II Common Stock acquired as
part of a
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Unit should commence on the date the U.S. Holder acquired the Unit. However, a
gain realized upon a sale of shares of Spiros Corp. II Common Stock by a U.S.
Holder owning (or considered as owning pursuant to certain "attribution rules")
more than 5% of the Spiros Corp. II Common Stock may be treated as ordinary
income if Spiros Corp. II is determined to be a "collapsible corporation" within
the meaning of Section 341 of the Code based on the facts in existence on the
date of such sale. In addition, the IRS may assert, under certain circumstances
where, in the aggregate, U.S. Holders transferring shares of Spiros Corp. II
Common Stock pursuant to the Purchase Option own, directly or indirectly, a
controlling interest in Dura, that U.S. Holders of the shares of Spiros Corp. II
Common Stock should recognize ordinary income upon the exercise of the Purchase
Option on the theory that payment of the exercise price should be treated as a
dividend distribution by Dura under Sections 301 and 304 of the Code.
Neither the exercise nor the lapse of the Albuterol Option and the Product
Option should have any direct tax consequences on the U.S. Holders. However,
Spiros Corp. II will recognize gain on the exercise of the Albuterol Option and
the Product Option in an amount equal to the amount received on exercise over
the basis of the purchased assets. For this purpose, the amount received should
include the portion of the Dura Contribution which is attributable to the
Albuterol Option and the Product Option. If the Albuterol Option and the Product
Option expire unexercised, the portion of the Dura Contribution attributable to
the Albuterol Option and the Product Option would be included in income by
Spiros Corp. II at the time of such expiration.
The U.S. Holder of Units who is deemed to have received Stock Option
Consideration on the purchase of Units will recognize a short-term capital gain
if the Purchase Option expires unexercised in an amount equal to the Stock
Option Consideration notwithstanding that no cash or other consideration will be
received by the U.S. Holder at such time. However, the basis of the U.S.
Holders' Spiros Corp. II Common Stock will still include the amount of the Stock
Option Consideration. That additional basis will reduce the gain or increase the
loss recognized on the eventual sale of the Spiros Corp. II Common Stock. If
stock is sold in the same year that the Purchase Option expires, the gain
recognized on the expiration of the Purchase Option should be fully offset by
the increased loss (or reduced gain) recognized on the sale of the stock as a
result of the inclusion of the Stock Option Consideration in the basis of the
Spiros Corp. II Common Stock. As a result, the net taxable gain (or loss) for
the year will equal the U.S. Holders' economic gain or loss from the investment.
If the Spiros Corp. II Common Stock is not sold in the same year that the
Purchase Option lapses, U.S. Holders will incur an additional income tax
liability for the year of lapse which will not be offset until a later year when
such stock is sold. Finally, significant limitations apply to the deductibility
of capital losses. If the additional basis attributable to the Stock Option
Consideration results in the recognition of a capital loss (as opposed to a
reduction in gain), these limitations could significantly affect the ability of
the U.S. Holders to utilize such loss.
UNITED STATES TAXATION OF NON-U.S. PERSONS
The following is a general discussion of certain anticipated United States
federal income tax consequences of the purchase, ownership and disposition of
the Units, the Spiros Corp. II Common Stock, the Warrants and the Dura Common
Stock (the "Securities") by a "Non-U.S. Holder." A Non-U.S. Holder is a person
that, for United States federal income tax purposes, (1) is not a "United States
person," (2) is not, and has not been, engaged in a United States trade or
business, and (3) in the case of an individual, is not present in the United
States for 183 days or more during the relevant tax year of the ownership and
disposition of the Securities. A United States person means a citizen or
resident of the United States for United States federal income tax purposes, a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any state thereof, an estate the income of which is
subject to U.S. federal income taxation regardless of its source, or a trust
that meets the following two tests: (A) a U.S. court is able to exercise primary
supervision over the administration of the trust, and (B) one or more U.S.
fiduciaries have the authority to control all substantial decisions of the
trust.
The following discussion does not consider specific facts and circumstances
that may be relevant to the taxation of a particular Non-U.S. Holder.
Specifically, this discussion does not address the United States tax
consequences to any person who might own, or be considered as owning under
certain attribution rules, 5% or more of the outstanding shares of Spiros Corp.
II or Dura or who acquired or holds the Securities
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other than for investment. In addition, the following discussion assumes that
the investment in the Spiros Corp. II Common Stock and the transactions related
thereto, including the transactions between Spiros Corp II and Dura will be
characterized for United States federal income tax purposes in a manner
consistent with the form of such transactions under their governing documents.
While counsel believes that such characterization should be given to the
transactions, there can be no assurance that the IRS will not assert that a
different characterization should apply.
The discussion is based on the Internal Revenue Code of 1986, as amended
(the "Code"), judicial decisions, administrative pronouncements, and existing
and proposed United States Treasury Regulations issued by the U.S. Department of
the Treasury now in effect. Each prospective investor should understand that
future legislative, administrative and judicial changes could modify the tax
consequences described below, possibly with retroactive effect. The following
discussion is limited to United States federal income tax consequences and does
not address any state, local or non-U.S. tax consequences of the purchase,
ownership and disposition of the Securities.
EACH NON-U.S. HOLDER IS URGED TO CONSULT HIS, HER OR ITS OWN TAX ADVISOR
WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO HIM, HER OR IT OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF THE SECURITIES, INCLUDING THE TAX
CONSEQUENCES UNDER STATE, LOCAL AND FOREIGN TAX LAWS, ESTATE LAWS AND PROPOSED
CHANGES IN APPLICABLE LAWS.
DIVIDENDS
Neither Spiros Corp. II nor Dura anticipates paying a dividend to
stockholders in the foreseeable future. In the event a dividend is paid by
Spiros Corp. II or Dura, the payment will be a taxable dividend for United
States federal income tax purposes to the extent of the current or accumulated
earnings and profits of the payor. Each Non-U.S. Holder who receives a taxable
dividend will be subject to withholding of United States federal income tax
equal to 30% of the taxable dividend unless such Holder is eligible for a
reduced tax rate or tax exemption under an applicable income tax treaty.
Satisfaction of certain certification requirements may be necessary in order to
claim the benefit of any applicable treaty.
GAIN ON DISPOSITIONS
A Non-U.S. Holder of the Unit will not recognize gain or loss at the time
that the shares of Spiros Corp. II Common Stock and the Warrant become
separately tradeable or upon exercise of the Dura Warrant.
Non-U.S. Holders may recognize gain if the Purchase Option lapses without
having been exercised and on the sale or other disposition of a Security.
However, a Non-U.S. Holder will not be subject to United States federal income
tax (and no tax will generally be withheld) with respect to such gain.
FEDERAL ESTATE TAXES
Securities held by an individual Non-U.S. Holder at the date of his or her
death will be included in his or her gross estate for United States federal
estate tax purposes unless an applicable estate tax treaty provides otherwise.
BACKUP WITHHOLDING
Under United States Treasury Regulations, dividends payable prior to 1999 at
an address outside of the United States to a Non-U.S. Holder are not subject to
backup withholding (which is generally imposed at a rate of 31% on payment to
which applicable). Dividends payable after 1998 will require additional evidence
of a person's foreign status in order to be exempt from backup withholding.
Backup withholding may also apply to the gross proceeds paid by or through
certain brokers (not including non-U.S. offices or brokers) to a Non-U.S. Holder
upon a sale or other disposition of a Security unless such Holder certifies its
foreign status or otherwise establishes an exemption. A Non-U.S. Holder may
obtain a refund of amounts withheld under the backup withholding rules by filing
the appropriate claim for refund with the IRS.
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UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"U.S. Purchase Agreement") among Dura, Spiros Corp. II and each of the
underwriters named below (the "U.S. Underwriters"), Dura and Spiros Corp. II
have agreed to sell to each of the U.S. Underwriters, and each of the U.S.
Underwriters severally has agreed to purchase, the number of Units set forth
opposite its name below:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF UNITS
---------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.......................................................
Donaldson, Lufkin & Jenrette Securities Corporation..........................
---------------
3,750,000
---------------
---------------
</TABLE>
Merrill Lynch, Pierce, Fenner & Smith Incorporated and Donaldson, Lufkin &
Jenrette Securities Corporation are acting as representatives (the "U.S.
Representatives") of the U.S. Underwriters.
Dura and Spiros Corp. II also have entered into a purchase agreement (the
"International Purchase Agreement") with certain international underwriters (the
"International Underwriters"), for whom Merrill Lynch International and
Donaldson, Lufkin & Jenrette Securities Corporation are acting as
representatives (the "International Representatives" and, together with the U.S.
Representatives, the "Representatives"), providing for the concurrent offer and
sale of 937,500 Units in the International Offering. The closings with respect
to the U.S. Offering and the International Offering are conditional upon one
another.
In the U.S. Purchase Agreement, the several U.S. Underwriters have agreed,
subject to the terms and conditions set forth therein, to purchase all of the
Units being sold pursuant to such agreement if any Units being sold pursuant to
such agreement are purchased. Under certain circumstances, the commitments of
non-defaulting U.S. Underwriters may be increased. Dura and Spiros Corp. II have
been advised by the U.S. Underwriters that the U.S. Underwriters propose
initially to offer the Units to the public at the public offering price set
forth on the cover page of this Prospectus and to certain selected dealers at
such price less a discount not in excess of $ per Unit. The U.S.
Underwriters may allow, and such dealers may reallow, a discount not in excess
of $ per Unit on sales to certain other dealers. After the initial public
offering, the offering price, concession and discount may be changed. The public
offering price, concession and discount per Unit are identical under the U.S.
Purchase Agreement and the International Purchase Agreement.
The U.S. Underwriters do not intend to sell Units offered hereby to any
accounts over which they exercise discretionary authority.
The U.S. Underwriters and International Underwriters have entered into an
Intersyndicate Agreement (the "Intersyndicate Agreement") that provides for the
coordination of their activities. Pursuant to the Intersyndicate Agreement, the
International Underwriters and any dealer to whom they sell Units will not offer
to sell or sell Units to United States or Canadian persons or to persons they
believe intend to resell to United States or Canadian persons, and the U.S.
Underwriters and any dealer to whom they sell Units will not offer to sell or
sell Units to non-United States or Canadian persons or to persons they believe
intend to resell to non-United States or Canadian persons, except, in each case,
for transactions pursuant to the Intersyndicate Agreement. The Intersyndicate
Agreement also provides, among other
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things, that sales may be made between the U.S. Underwriters and the
International Underwriters of such number of Units as may be mutually agreed.
The price of any Units so sold shall be the public offering price, less an
amount not greater than the selling concession.
Dura and Spiros Corp. II have granted to the U.S. Underwriters an option
exercisable in whole or in part for 30 days after the date hereof to purchase up
to 562,500 additional Units to cover over-allotments, if any, at the initial
public offering price, less the underwriting discount. To the extent that the
U.S. Underwriters exercise this option, each of the U.S. Underwriters will have
a firm commitment, subject to certain conditions, to purchase approximately the
same percentage of such Units that the number of Units to be purchased by it
shown in the foregoing table bears to the total number of Units initially
offered to the U.S. Underwriters hereby. Dura and Spiros Corp. II have granted
to the International Underwriters an option to purchase up to an aggregate of
140,625 additional Units, exercisable in whole or in part for 30 days after the
date hereof, solely to cover over-allotments, if any, in terms similar to those
granted to the U.S. Underwriters. All or a portion of an over-allotment option
in either of the Offerings may be allocated to cover an over-allotment in the
other Offering.
Prior to the Offerings, there has been no public market for the Units, the
Spiros Corp. II Common Stock or the Warrants. The initial public offering price
for the Units and the Warrant Exercise Price have been determined by
negotiations among Dura, Spiros Corp. II and the Representatives. Among the
factors considered in such negotiations were the number of Units to be issued,
the stock price of the Dura Common Stock, an assessment of Dura's recent results
of operations, the future prospects of Dura and Spiros Corp. II and their
industry in general, the price-earnings ratios and market prices of securities
of companies engaged in activities similar to those of Dura and Spiros Corp. II,
the agreements between Dura and Spiros Corp. II, the present state of Dura's
business operations, an assessment of Dura and Spiros Corp. II management,
interest rates, the volatility for the market price of Dura Common Stock and
prevailing conditions in the securities market. There can be no assurance that
an active trading market will develop for the Units or that the Units will trade
in the public market subsequent to the Offerings at or above the initial public
offering price.
The Purchase Option Exercise Price will be determined by Dura and Spiros
Corp. II, giving consideration to the compound annual rate of return, as
required by potential investors, to be achieved upon any exercise of the
Purchase Option, the implied returns to investors purchasing securities with a
similar structure historically and the comparability of the Offerings to those
prior offerings, the value of the Warrants, the nature of Spiros Products, the
agreements between Dura and Spiros Corp. II, and such other factors as Dura and
Spiros Corp. II deem appropriate and advice given by the Representatives.
Dura and its officers and directors and Spiros Corp. II's officers and
directors have agreed not to offer, sell, contract to sell, grant any option to
purchase or otherwise dispose of Dura Common Stock (or, in the case of Dura,
rights to acquire Dura Common Stock) without the prior written consent of the
Representatives, for a period of 90 days after the date of this Prospectus.
In the U.S. Purchase Agreement, Dura and Spiros Corp. II have agreed to
indemnify the U.S. Underwriters against certain civil liabilities, including
liabilities under the Act, and contribute to payments the U.S. Underwriters may
be required to make in respect thereof.
At the request of Dura and Spiros Corp. II, the U.S. Underwriters have
reserved up to 552,200 Units for sale at the initial public offering price to
directors, officers, employees and business associates of Dura and Spiros Corp.
II. The number of Units available for sale to the general public will be reduced
to the extent such persons purchase such reserved shares. Any reserved shares
which are not so purchased will be offered by the U.S. Underwriters to the
general public on the same basis as the other shares offered hereby. Certain
individuals purchasing reserved Units may be required to agree not to sell,
offer or otherwise dispose of any Units for a period of three months after the
date of this Prospectus.
79
<PAGE>
Until the distribution of the Units is completed, rules of the Securities
and Exchange Commission may limit the ability of the U.S. Underwriters, the
International Underwriters and certain selling group members to bid for and
purchase the Units. As an exception to these rules, the Representatives are
permitted to engage in certain transactions that stabilize the price of the
Units. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the Units.
If the U.S. Underwriters or the International Underwriters create a short
position in the Units in connection with the Offerings, i.e., if they sell more
shares of Units than set forth on the cover page of this Prospectus, the
Representatives may reduce that short position by purchasing Units in the open
market. The Representatives may also elect to reduce any short position by
exercising all or part of the over-allotment option described above.
The Representatives also may impose a penalty bid on certain U.S.
Underwriters, International Underwriters and selling group members. This means
that if the Representatives purchase Units in the open market to reduce the U.S.
Underwriters' or the International Underwriters' short position or to stabilize
the price of the Units, they may reclaim the amount of the selling concession
from the U.S. Underwriters, International Underwriters and selling group members
who sold those shares as part of the Offerings.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
The Underwriters have agreed to reimburse Spiros Corp. II for up to $900,000
in expenses incurred in connection with the issuance and sale of the Units
offered hereby.
None of Dura, Spiros Corp. II nor any of the U.S. Underwriters or the
International Underwriters makes any representation or prediction as to the
direction or magnitude of any effect that the transactions described above may
have on the price of the Units. In addition, none of Dura, Spiros Corp. II nor
any of the U.S. Underwriters or the International Underwriters makes any
representation that the U.S. Underwriters or the International Underwriters will
engage in such transactions or that such transactions, once commenced, will not
be discontinued without notice.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Dura Common Stock and the Units is
ChaseMellon Shareholder Services.
LEGAL MATTERS
Certain legal matters relating to the Offerings will be passed upon by
Brobeck, Phleger & Harrison LLP, San Diego, California, counsel for Dura and
Spiros Corp. II. Certain legal matters in connection with the Offerings will be
passed upon for the Underwriters by Shearman & Sterling, New York, New York,
counsel for the Underwriters.
EXPERTS
The consolidated financial statements of Dura incorporated in this
Prospectus by reference from Dura's Annual Report on Form 10-K for the year
ended December 31, 1996 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report, which is incorporated herein by reference,
and have been so incorporated in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
80
<PAGE>
The financial statements of Spiros Development Corporation as of December
31, 1995 and 1996 and for the periods then ended incorporated in this Prospectus
by reference from Dura's Current Report on Form 8-K filed on October 10, 1997,
as amended, have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report, which is incorporated herein by reference, and have been
so incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
The balance sheet of Spiros Corp. II at September 30, 1997, appearing in
this Prospectus has been audited by Deloitte & Touche LLP, independent auditors,
as stated in their report included herein, and has been so included in reliance
upon the report of such firm given upon their authority as experts in accounting
and auditing.
The statements concerning U.S. federal regulatory process for investigating
and obtaining FDA clearance of drugs and medical devices in this Prospectus
under the caption "Risk Factors--Business Risks Related to Spiros Corp. II and
Dura--Government Regulation; No Assurance of FDA Approval," "Business of Spiros
Corp. II--Government Regulation," "Business of Dura--Government Regulation" and
other references herein relating to such processes have been reviewed and
approved by Kleinfeld, Kaplan and Becker, regulatory counsel for Dura and Spiros
Corp. II, as an expert in such matters, and are included herein in reliance upon
that review and approval. In conducting this review, Kleinfeld, Kaplan and
Becker assumed the accuracy and adequacy of the factual statements and
conclusions in this Prospectus, including those concerning Dura's manufacturing
capabilities and procedures, compliance with regulatory requirements, the status
of marketed drugs and drugs under development and the potential significance of
such drugs in targeting the disease states identified.
81
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report.......................................................... F-2
Balance Sheet of Spiros Development Corporation II, Inc. as of September 30, 1997..... F-3
Notes to Balance Sheet of Spiros Development Corporation II, Inc...................... F-4
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholder of
Spiros Development Corporation II, Inc.:
We have audited the accompanying balance sheet of Spiros Development
Corporation II, Inc. (a development stage enterprise) (the "Company") as of
September 30, 1997. This balance sheet is the responsibility of the Company's
management. Our responsibility is to express an opinion on this balance sheet
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, such balance sheet presents fairly, in all material
respects, the financial position of the Company as of September 30, 1997 in
conformity with generally accepted accounting principles.
The Company is in the development stage as of September 30, 1997. As
discussed in Note 1 to the balance sheet, the Company has not yet commenced
operations, and its only activity to date has been the initial capitalization
provided by Dura Pharmaceuticals, Inc., which owns all of the Company's common
stock.
DELOITTE & TOUCHE LLP
San Diego, California
October 9, 1997
F-2
<PAGE>
SPIROS DEVELOPMENT CORPORATION II, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-------------------
<S> <C>
ASSETS
Cash.......................................................................................... $ 1,000
------
Total Asssets................................................................................. $ 1,000
------
------
SHAREHOLDER'S EQUITY
Common stock, par value $.001, 1,000 shares authorized; issued and outstanding................ $ 1
Additional paid-in capital.................................................................... 999
------
Total Shareholder's Equity.................................................................... $ 1,000
------
------
</TABLE>
See accompanying notes to balance sheet.
F-3
<PAGE>
SPIROS DEVELOPMENT CORPORATION II, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO BALANCE SHEET
SEPTEMBER 30, 1997
1. ORGANIZATION AND INCORPORATION
Spiros Development Corporation II, Inc. (the "Company") was incorporated on
September 23, 1997 in the state of Delaware for the purpose of continuing the
development of Spiros, a pulmonary drug delivery system, and to conduct
formulation work, clinical trials and commercialization for certain leading
asthma drugs with the Spiros system.
The Company has not yet commenced operations. Its only activity to date has
been the initial capitalization provided by Dura Pharmaceuticals, Inc., ("Dura")
which owns all of the Company's common stock. Accordingly, no statement of
operations or statement of cash flows is presented. The Company's fiscal year
end is December 31.
2. COMMON STOCK
All issued and outstanding shares of the Company's common stock as of
September 30, 1997 are held by Dura. The Company is in the process of filing a
Registration Statement on Form S-1 with the Securities and Exchange Commission
in contemplation of an initial public offering of units consisting of shares of
the Company's callable common stock and warrants to purchase shares of Dura's
common stock. The Company expects to exchange the shares of common stock held by
Dura with newly issued Special Shares of stock which will provide Dura with
certain voting rights as well as the right to acquire all of the shares of the
callable common stock to be offered by the Prospectus included in the
Registration Statement.
3. AGREEMENTS WITH DURA
The Company intends to enter into various agreements relating to Spiros with
Dura, including a technology license agreement, a development and management
agreement, and a manufacturing and marketing agreement. Substantially all of the
net proceeds from the initial public offering contemplated by the Prospectus,
together with a contribution from Dura and interest earned thereon, are expected
to be paid to Dura for development and administrative services provided by Dura
pursuant to these agreements.
F-4
<PAGE>
DURA'S CURRENT PRODUCT LINE
[PHOTO OF PRODUCTS]
The U.S. respiratory market is the focus of Dura's strategy. Dura divides
this market into three primary segments:
1) respiratory infection
2) allergy, cough and cold
3) asthma and chronic obstructive pulmonary disease.
These classes of respiratory ailments are treated by the 31 products in
Dura's portfolio. Twenty-four of these products are owned and promoted by Dura,
six are marketed under licensing agreements with Eli Lilly and Company and
Sanofi-Winthrop, Inc., and one is co-promoted with Bausch & Lomb
Pharmaceuticals, Inc.
Dura's marketing strategy is to promote its products to allergists,
pulmonologists and ENT specialists, as well as to high prescribing generalist
physicians and pediatricians who treat a large number of allergy and asthma
patients.
RECENT ACQUISITIONS
[PHOTO OF CECLOR-Registered Trademark- CD AND KEFTAB-Registered Trademark-]
Dura acquired the U.S. rights to two respiratory antibiotics,
Keftab-Registered Trademark- (cephalexin hydrochloride, USP) and
Ceclor-Registered Trademark- CD (cefaclor extended release tablets), from Eli
Lilly and Company in September 1996.
[PHOTO OF NASAREL/NASALIDE]
In May 1997, Dura acquired the exclusive U.S. rights to the intranasal
steroid products Nasarel-Registered Trademark- and Nasalide-Registered
Trademark- (flunisolide) Nasal Solutions 0.025%.
TRADEMARKS
DURA-VENT-Registered Trademark-, ENTEX-Registered Trademark-,
RONDEC-Registered Trademark-, RONDEC-TR-Registered Trademark-,
NASAREL-Registered Trademark- and NASALIDE-Registered Trademark- are registered
trademarks of Dura. Dura claims common law trademark rights to Spiros-TM- and
DURA-VENT/ DA-TM-. TORNALATE-Registered Trademark- is a registered trademark of
Sanofi-Winthrop, Inc. CROLOM-TM- is a trademark of Bausch & Lomb
Pharmaceuticals, Inc. Capastat-Registered Trademark-, Seromycin-Registered
Trademark-, Ceclor-Registered Trademark-CD and Keftab-Registered Trademark- are
registered trademarks of Eli Lilly and Dura. Spinhaler-Registered Trademark- is
a registered trademark of Fisons Limited. Turbuhaler-Registered Trademark-and
Pulmicort-Registered Trademark- are registered trademarks of Astra
Pharmaceuticals. Rotohaler-TM- is a trademark of Glaxo Wellcome, Inc.
Ventolin-Registered Trademark- and Beclovent-Registered Trademark-are registered
trademarks of Glaxo Wellcome, Inc. Proventil-Registered Trademark- and
Vanceril-Registered Trademark- are registered trademarks of Schering-Plough
Corporation. Atrovent-Registered Trademark- and Combivent-Registered Trademark-
are registered trademarks of Boehringer Ingelheim International GmbH.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY DURA OR
SPIROS CORP. II. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES
OTHER THAN THE UNITS TO WHICH ITS RELATES OR AN OFFER TO ANY PERSON IN ANY
JURISDICTION WHERE SUCH OFFER WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 3
Incorporation of Certain Documents by Reference........................... 3
Prospectus Summary........................................................ 4
Risk Factors.............................................................. 17
Use of Proceeds........................................................... 30
Price Range of Dura Common Stock and Dividend Policies.................... 31
Dura Capitalization....................................................... 32
Spiros Corp. II Capitalization............................................ 33
Business of Spiros Corp. II............................................... 34
Business of Dura.......................................................... 45
Dura Selected Consolidated Financial Data................................. 55
Management's Discussion and Analysis of Financial Condition and Results of
Operations of Spiros Corp. II........................................... 56
Management's Discussion and Analysis of Financial Condition and Results of
Operations of Dura...................................................... 57
Description of the Warrants............................................... 62
Dura Capital Stock........................................................ 63
Spiros Corp. II Capital Stock............................................. 66
The Agreements and the Purchase Options................................... 68
United States Federal Income Tax Consequences............................. 74
United States Taxation of Non-U.S. Persons................................ 76
Underwriting.............................................................. 78
Transfer Agent and Registrar.............................................. 80
Legal Matters............................................................. 80
Experts................................................................... 80
Index to Financial Statements............................................. F-1
</TABLE>
------------------------
UNTIL , 1998 (THE 25TH DAY AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE UNITS, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
4,687,500 UNITS
[LOGO]
SPIROS DEVELOPMENT
CORPORATION II, INC.
[LOGO]
DURA PHARMACEUTICALS, INC.
UNITS CONSISTING OF ONE SHARE OF
CALLABLE COMMON STOCK OF
SPIROS DEVELOPMENT
CORPORATION II, INC. AND ONE
WARRANT TO PURCHASE
ONE-FOURTH OF ONE SHARE OF
COMMON STOCK OF
DURA PHARMACEUTICALS, INC.
------------------------
PROSPECTUS
------------------------
MERRILL LYNCH & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains a Prospectus relating to an offering in
the United States and Canada ("U.S. Offering") of an aggregate of 3,750,000
Units, together with separate Prospectus pages relating to a concurrent offering
outside of the United States and Canada ("International Offering") of an
aggregate of 937,500 Units. The complete Prospectus for the U.S. Offering
follows immediately after this Explanatory Note. After such Prospectus are the
following alternate pages for the International Offering: a front cover page,
page 14, pages 73 through 78 ("United States Taxation of Non-U.S. Persons" and
"Underwriting") and a back cover page. All other pages of the Prospectus for the
U.S. Offering are identical and are to be used for both the U.S. Offering and
the International Offering. The complete Prospectus for each of the U.S.
Offering and International Offering in the exact forms in which they are to be
used after effectiveness will be filed with the Securities and Exchange
Commission pursuant to Rule 424(b).
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED DECEMBER 16, 1997
PROSPECTUS
4,687,500 UNITS
SPIROS DEVELOPMENT CORPORATION II, INC.
DURA PHARMACEUTICALS, INC.
EACH UNIT CONSISTING OF
ONE SHARE OF CALLABLE COMMON STOCK, PAR VALUE $.001 PER SHARE,
OF SPIROS DEVELOPMENT CORPORATION II, INC. AND
ONE WARRANT TO PURCHASE ONE-FOURTH OF ONE SHARE OF COMMON STOCK,
PAR VALUE $.001 PER SHARE, OF DURA PHARMACEUTICALS, INC.
-------------------
The Callable Common Stock, par value $.001 per share (the "Spiros Corp. II
Common Stock"), of Spiros Development Corporation II, Inc. ("Spiros Corp. II")
and the Warrants (the "Warrants") to purchase one-fourth of one share of Common
Stock, par value $.001 per share (the "Dura Common Stock"), of Dura
Pharmaceuticals, Inc. ("Dura") which comprise the units (the "Units") will trade
only as units (and not separately) through December 31, 1999 or such earlier
date as the Purchase Option (as defined below) is exercised or expires
unexercised. Of the 4,687,500 Units offered hereby, 937,500 Units are being
offered initially outside the United States and Canada by the International
Underwriters (the "International Offering") and 3,750,000 Units are being
offered in a concurrent offering in the United States and Canada by the U.S.
Underwriters (the "U.S. Offering" and, together with the International Offering,
the "Offerings"). The initial public offering price and the underwriting
discount per Unit will be identical for both Offerings. See "Underwriting." It
is currently estimated that the public offering price will be between $15.00 and
$17.00 per Unit. Application has been made to have the Units listed for
quotation on the Nasdaq National Market under the symbol "SDCO." The Warrants
are exercisable at any time from January 1, 2000 through December 31, 2002. The
exercise price of the Warrants is $ per share of Dura Common Stock
(currently anticipated to be 125% of the closing price of Dura Common Stock on
the date of the Prospectus). See "Description of the Warrants." On December 15,
1997 the last reported sales price of a share of Dura Common Stock on the Nasdaq
National Market was $44 3/4.
Immediately prior to the consummation of the Offerings, Dura will contribute
$75 million in cash to Spiros Corp. II. See "Prospectus Summary--The
Contribution."
Elan International Services, Ltd., a wholly owned subsidiary of Elan
Corporation, plc and a stockholder of Dura, has expressed an interest in
acquiring up to $15 million of the Units in the Offerings.
Prior to the Offerings, there has been no public market for the Units.
Spiros Corp. II will receive all of the net proceeds of the Offerings. Spiros
Corp. II will, pursuant to the terms of a development agreement, pay to Dura
substantially all of the net proceeds of the Offerings in research, clinical
development, product development and commercialization costs. See "Use of
Proceeds."
Beginning on the closing date of the Offerings and ending on the earlier of
(i) December 31, 2002 or (ii) the 90th day after Spiros Corp. II provides Dura
with quarterly financial statements of Spiros Corp. II showing cash or cash
equivalents of less than $5 million (which period may be extended by Dura under
certain circumstances but in no event beyond December 31, 2002), Dura will have
an option to purchase all (but not less than all) of the shares of Spiros Corp.
II Common Stock at a substantial premium over the offering price. The option
price may be paid in cash, shares of Dura Common Stock or any combination of the
foregoing, at Dura's sole discretion. The holders of Spiros Corp. II Common
Stock will be entitled to one vote per share; in a winding-up or liquidation of
Spiros Corp. II, the assets available for distribution shall be distributed pro
rata among the holders of shares of Spiros Corp. II Common Stock. See "The
Agreements and the Purchase Options--Stock Purchase Option."
At the request of Dura and Spiros Corp. II, the U.S. Underwriters have
reserved up to 552,200 Units for sale at the initial public offering price to
directors, officers, employees and business associates.
SEE "RISK FACTORS" BEGINNING ON PAGE 17 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN CONSIDERATIONS RELATED TO AN INVESTMENT IN THE UNITS.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) SPIROS CORP. II(2)
<S> <C> <C> <C>
Per Unit.............................................. $ $ $
Total(3).............................................. $ $ $
</TABLE>
(1) Spiros Corp. II and Dura have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933,
as amended. See "Underwriting."
(2) Before deducting expenses, estimated at $1,000,000 II, substantially all of
which will be paid by the Underwriters. See "Underwriting."
(3) Spiros Corp. II and Dura have granted the International Underwriters and the
U.S. Underwriters options, exercisable within 30 days after the date hereof,
to purchase up to an additional 140,625 and 562,500 Units, respectively, on
the same terms as set forth above solely to cover over-allotments, if any.
If the option is exercised in full, the total Price to Public, Underwriting
Discount, and Proceeds to Spiros Corp. II will be $ , $ and
$ , respectively. See "Underwriting."
------------------------
The Units are offered by the several Underwriters, subject to prior sale,
when, as and if issued to and accepted by the Underwriters, and subject to the
approval of certain legal matters by counsel for the Underwriters and certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
delivery of the Units will be made in New York, New York on or about ,
1997.
------------------------
MERRILL LYNCH INTERNATIONAL DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
-------------------
The date of this Prospectus is , 1997.
<PAGE>
UNITED STATES TAXATION OF NON-U.S. PERSONS
Certain United States federal income tax consequences may be applicable to
the receipt of dividends, if any, or the sale of Warrants, the Spiros Corp. II
Common Stock or the Dura Common Stock. See "United States Taxation of Non-U.S.
Persons."
USE OF PROCEEDS
The net proceeds from the Offerings, assuming an offering price of $16.00
per Unit, are expected to be approximately $69.7 million ($80.1 million if the
Underwriters' over-allotment option is exercised in full), all of which will be
received by Spiros Corp. II. Spiros Corp. II expects to use substantially all of
the net proceeds of the Offerings, the Contribution and interest to be earned
thereon, less $1 million to be used as working capital, to engage Dura to
undertake research, clinical development, product development, including
regulatory approval, and commercialization of the Spiros Products under the
Development Agreement, including to make the Other Expenditures. Spiros Corp. II
expects that during the term of the Development Agreement, unless Dura exercises
the Albuterol Option or the Product Option, it will have very limited sources of
revenue other than the net proceeds of the Offerings, the Contribution and the
interest earned thereon. Any funds received by Spiros Corp. II as a result of
Dura's exercise of the Albuterol Option or the Product Option will become part
of the Available Funds and are intended to be paid to Dura pursuant to the
Development Agreement. See "Use of Proceeds."
14
<PAGE>
UNITED STATES TAXATION OF NON-U.S. PERSONS
The following is a general discussion of certain anticipated United States
federal income tax consequences of the purchase, ownership and disposition of
the Units, the Spiros Corp. II Common Stock, the Warrants and the Dura Common
Stock (the "Securities") by a "Non-U.S. Holder." A Non-U.S. Holder is a person
that, for United States federal income tax purposes, (1) is not a "United States
person," (2) is not, and has not been, engaged in a United States trade or
business, and (3) in the case of an individual, is not present in the United
States for 183 days or more during the relevant tax year of the ownership and
disposition of the Securities. A United States person means a citizen or
resident of the United States for United States federal income tax purposes, a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any state thereof, an estate the income of which is
subject to U.S. federal income taxation regardless of its source, or a trust
that meets the following two tests: (A) a U.S. court is able to exercise primary
supervision over the administration of the trust, and (B) one or more U.S.
fiduciaries have the authority to control all substantial decisions of the
trust.
The following discussion does not consider specific facts and circumstances
that may be relevant to the taxation of a particular Non-U.S. Holder.
Specifically, this discussion does not address the United States tax
consequences to any person who might own, or be considered as owning under
certain attribution rules, 5% or more of the outstanding shares of Spiros Corp.
II or Dura or who acquired or holds the Securities other than for investment. In
addition, the following discussion assumes that the investment in the Spiros
Corp. II Common Stock and the transactions related thereto, including the
transactions between Spiros Corp II and Dura will be characterized for United
States federal income tax purposes in a manner consistent with the form of such
transactions under their governing documents. While counsel believes that such
characterization should be given to the transactions, there can be no assurance
that the IRS will not assert that a different characterization should apply.
The discussion is based on the Internal Revenue Code of 1986, as amended
(the "Code"), judicial decisions, administrative pronouncements, and existing
and proposed United States Treasury Regulations issued by the U.S. Department of
the Treasury now in effect. Each prospective investor should understand that
future legislative, administrative and judicial changes could modify the tax
consequences described below, possibly with retroactive effect. The following
discussion is limited to United States federal income tax consequences and does
not address any state, local or non-U.S. tax consequences of the purchase,
ownership and disposition of the Securities.
EACH NON-U.S. HOLDER IS URGED TO CONSULT HIS, HER OR ITS OWN TAX ADVISOR
WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO HIM, HER OR IT OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF THE SECURITIES, INCLUDING THE TAX
CONSEQUENCES UNDER STATE, LOCAL AND FOREIGN TAX LAWS, ESTATE LAWS AND PROPOSED
CHANGES IN APPLICABLE LAWS.
DIVIDENDS
Neither Spiros Corp. II nor Dura anticipates paying a dividend to
stockholders in the foreseeable future. In the event a dividend is paid by
Spiros Corp. II or Dura, the payment will be a taxable dividend for United
States federal income tax purposes to the extent of the current or accumulated
earnings and profits of the payor. Each Non-U.S. Holder who receives a taxable
dividend will be subject to withholding of United States federal income tax
equal to 30% of the taxable dividend unless such Holder is eligible for a
reduced tax rate or tax exemption under an applicable income tax treaty.
Satisfaction of certain certification requirements may be necessary in order to
claim the benefit of any applicable treaty.
73
<PAGE>
GAIN ON DISPOSITIONS
A Non-U.S. Holder of the Unit will not recognize gain or loss at the time
that the shares of Spiros Corp. II Common Stock and the Warrant become
separately tradeable or upon exercise of the Dura Warrant.
Non-U.S. Holders may recognize gain if the Purchase Option lapses without
having been exercised and on the sale or other disposition of a Security.
However, a Non-U.S. Holder will not be subject to United States federal income
tax (and no tax will generally be withheld) with respect to such gain.
FEDERAL ESTATE TAXES
Securities held by an individual Non-U.S. Holder at the date of his or her
death will be included in his or her gross estate for United States federal
estate tax purposes unless an applicable estate tax treaty provides otherwise.
BACKUP WITHHOLDING
Under United States Treasury Regulations, dividends payable prior to 1999 at
an address outside of the United States to a Non-U.S. Holder are not subject to
backup withholding (which is generally imposed at a rate of 31% on payment to
which applicable). Dividends payable after 1998 will require additional evidence
of a person's foreign status in order to be exempt from backup withholding.
Backup withholding may also apply to the gross proceeds paid by or through
certain brokers (not including non-U.S. offices or brokers) to a Non-U.S. Holder
upon a sale or other disposition of a Security unless such Holder certifies its
foreign status or otherwise establishes an exemption. A Non-U.S. Holder may
obtain a refund of amounts withheld under the backup withholding rules by filing
the appropriate claim for refund with the IRS.
74
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"International Purchase Agreement") among Dura, Spiros Corp. II and each of the
underwriters named below (the "International Underwriters"), Dura and Spiros
Corp. II have agreed to sell to each of the International Underwriters, and each
of the International Underwriters severally has agreed to purchase, the number
of Units set forth opposite its name below:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF UNITS
---------------
<S> <C>
Merrill Lynch International..................................................
Donaldson, Lufkin & Jenrette Securities Corporation..........................
-------
937,500
-------
-------
</TABLE>
Merrill Lynch International and Donaldson, Lufkin & Jenrette Securities
Corporation are acting as representatives (the "International Representatives")
of the International Underwriters.
Dura and Spiros Corp. II also have entered into a purchase agreement (the
"U.S. Purchase Agreement") with certain United States underwriters (the "U.S.
Underwriters"), for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated and
Donaldson, Lufkin & Jenrette Securities Corporation are acting as
representatives (the "U.S. Representatives" and, together with the International
Representatives, the "Representatives"), providing for the concurrent offer and
sale of 3,750,000 Units in the U.S. Offering. The closings with respect to the
International Offering and the U.S. Offering are conditional upon one another.
In the International Purchase Agreement, the several International
Underwriters have agreed, subject to the terms and conditions set forth therein,
to purchase all of the Units if any Units being sold pursuant to such agreement
are purchased. Under certain circumstances, the commitments of non-defaulting
International Underwriters may be increased. Dura and Spiros Corp. II have been
advised by the International Underwriters that the International Underwriters
propose initially to offer the Units to the public at the public offering price
set forth on the cover page of this Prospectus and to certain selected dealers
at such price less a discount not in excess of $ per Unit. The
International Underwriters may allow, and such dealers may reallow, a discount
not in excess of $ per Unit on sales to certain other dealers. After the
initial public offering, the offering price, concession and discount may be
changed. The public offering price, concession and discount per Unit are
identical under the International Purchase Agreement and the U.S. Purchase
Agreement.
The International Underwriters do not intend to sell Units offered hereby to
any accounts over which they exercise discretionary authority.
The International Underwriters and U.S. Underwriters have entered into an
Intersyndicate Agreement (the "Intersyndicate Agreement") that provides for the
coordination of their activities. Pursuant to the Intersyndicate Agreement, the
U.S. Underwriters and any dealer to whom they sell Units will not offer to sell
or sell Units to non-United States or Canadian persons or to persons they
believe intend to resell to non-United States or Canadian persons, and the
International Underwriters and any dealer to whom they sell Units will not offer
to sell or sell Units to United States or Canadian persons or to persons they
believe intend to resell to United States or Canadian persons, except, in each
case, for transactions pursuant to the
75
<PAGE>
Intersyndicate Agreement. The Intersyndicate Agreement also provides, among
other things, that sales may be made between the International Underwriters and
the U.S. Underwriters of such number of Units as may be mutually agreed. The
price of any Units so sold shall be the public offering price, less an amount
not greater than the selling concession.
Dura and Spiros Corp. II have granted to the International Underwriters an
option exercisable in whole or in part for 30 days after the date hereof to
purchase up to 140,625 additional Units to cover over-allotments, if any, at the
initial public offering price, less the underwriting discount. To the extent
that the International Underwriters exercise this option, each of the
International Underwriters will have a firm commitment, subject to certain
conditions, to purchase approximately the same percentage of such Units that the
number of Units to be purchased by it shown in the foregoing table bears to the
total number of Units initially offered to the International Underwriters
hereby. Dura and Spiros Corp. II have granted to the U.S. Underwriters an option
to purchase up to an aggregate of 562,500 additional Units, exercisable in whole
or in part for 30 days after the date hereof, solely to cover over-allotments,
if any, on terms similar to those granted to the International Underwriters. All
or a portion of an over-allotment option in either of the Offerings may be
allocated to cover an over-allotment in the other Offering.
Prior to the Offerings, there has been no public market for the Units, the
Spiros Corp. II Common Stock or the Warrants. The initial public offering price
for the Units and the Warrant Exercise Price have been determined by
negotiations among Dura, Spiros Corp. II and the Representatives. Among the
factors considered in such negotiations were the number of Units to be issued,
the stock price of the Dura Common Stock, an assessment of Dura's recent results
of operations, the future prospects of Dura and Spiros Corp. II and their
industry in general, the price-earnings ratios and market prices of securities
of companies engaged in activities similar to those of Dura and Spiros Corp. II,
the agreements between Dura and Spiros Corp. II, the present state of Dura's
business operations, an assessment of Dura and Spiros Corp. II management,
interest rates, the volatility for the market price of Dura Common Stock and
prevailing conditions in the securities market. There can be no assurance that
an active trading market will develop for the Units or that the Units will trade
in the public market subsequent to the Offerings at or above the initial public
offering price.
The Purchase Option Exercise Price will be determined by Dura and Spiros
Corp. II, giving consideration to the compound annual rate of return, as
required by potential investors, to be achieved upon any exercise of the
Purchase Option, the implied returns to investors purchasing securities with a
similar structure historically and the comparability of the Offerings to those
prior offerings, the value of the Warrants, the nature of Spiros Products, the
agreements between Dura and Spiros Corp. II, and such other factors as Dura and
Spiros Corp. II deem appropriate and advice given by the Representatives.
Dura and its officers and directors and Spiros Corp. II's officers and
directors have agreed not to offer, sell, contract to sell, grant any option to
purchase or otherwise dispose of Dura Common Stock (or, in the case of Dura,
rights to acquire Dura Common Stock) without the prior written consent of the
Representatives, for a period of 90 days after the date of this Prospectus.
In the International Purchase Agreement, Dura and Spiros Corp. II have
agreed to indemnify the International Underwriters against certain civil
liabilities, including liabilities under the Act, and contribute to payments the
International Underwriters may be required to make in respect thereof.
At the request of Dura and Spiros Corp. II, the U.S. Underwriters have
reserved up to 552,200 Units for sale at the initial public offering price to
directors, officers, employees, business associates and related persons of Dura
and Spiros Corp. II. The number of Units available for sale to the general
public will be reduced to the extent such persons purchase such reserved shares.
Any reserved shares which are not so purchased will be offered by the U.S.
Underwriters to the general public on the same basis as the other shares offered
hereby. Certain individuals purchasing reserved Units may be required to agree
not to sell, offer or otherwise dispose of any Units for a period of three
months after the date of this Prospectus.
76
<PAGE>
Each International Underwriter has represented and agreed that (i) it has
not offered or sold and, during the period of six months from the date of this
Prospectus, will not offer or sell any Units to persons in the U.K. except to
persons whose ordinary activities involve them in acquiring, holding, managing
or disposing of investments (as principal or agent) for the purposes of their
businesses or otherwise in circumstances which have not resulted and will not
result in an offer to the public in the U.K. within the meaning of the Public
Offers of Securities Regulations 1995; (ii) it has complied and will comply with
all applicable provisions of the Financial Services Act of 1986 with respect to
anything done by it in relation to the Units in, from or otherwise involving the
U.K.; and (iii) it has only issued or passed on and will only issue and pass on
in the U.K. any documents received by it in connection with the Offering to a
person who is of a kind described in Article II(3) of the Financial Services Act
of 1986 (Investment Advertisements)(Exemptions) Order 1995 or is a person to
whom the document may otherwise lawfully be issued or passed on.
Until the distribution of the Units is completed, rules of the Securities
and Exchange Commission may limit the ability of the International Underwriters,
the U.S. Underwriters and certain selling group members to bid for and purchase
the Units. As an exception to these rules, the Representatives are permitted to
engage in certain transactions that stabilize the price of the Units. Such
transactions consist of bids or purchases for the purpose of pegging, fixing or
maintaining the price of the Units.
If the International Underwriters or the U.S. Underwriters create a short
position in the Units in connection with the Offerings, i.e., if they sell more
shares of Units than set forth on the cover page of this Prospectus, the
Representatives may reduce that short position by purchasing Units in the open
market. The Representatives also may elect to reduce any short position by
exercising all or part of the over-allotment option described above.
The Representatives also may impose a penalty bid on certain International
Underwriters, U.S. Underwriters and selling group members. This means that if
the Representatives purchase Units in the open market to reduce the
International Underwriters' or U.S. Underwriters' short position or to stabilize
the price of the Units, they may reclaim the amount of the selling concession
from the International Underwriters, the U.S. Underwriters, and selling group
members who sold those shares as part of the Offerings.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
The Underwriters have agreed to reimburse the Company for up to $900,000 in
expenses incurred in connection with the issuance and sale of the Units offered
hereby.
None of Dura, Spiros Corp. II nor any of the International Underwriters or
U.S. Underwriters makes any representation or prediction as to the direction or
magnitude of any effect that the transactions described above may have on the
price of the Units. In addition, none of Dura, Spiros Corp. II nor any of the
International Underwriters or U.S. Underwriters makes any representation that
the International Underwriters or U.S. Underwriters will engage in such
transactions or that such transactions, once commenced, will not be discontinued
without notice.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Dura Common Stock and the Units is
ChaseMellon Shareholder Services.
77
<PAGE>
LEGAL MATTERS
Certain legal matters relating to the Offerings will be passed upon by
Brobeck, Phleger & Harrison LLP, San Diego, California, counsel for Dura and
Spiros Corp. II. Certain legal matters in connection with the Offerings will be
passed upon for the Underwriters by Shearman & Sterling, New York, New York,
counsel for the Underwriters.
EXPERTS
The consolidated financial statements of Dura incorporated in this
Prospectus by reference from Dura's Annual Report on Form 10-K for the year
ended December 31, 1996 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report, which is incorporated herein by reference,
and have been so incorporated in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
The financial statements of Spiros Development Corporation as of December
31, 1995 and 1996 and for the periods then ended incorporated in this Prospectus
by reference from Dura's Current Report on Form 8-K filed on October 10, 1997,
as amended, have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report, which is incorporated herein by reference, and have been
so incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
The balance sheet of Spiros Corp. II at September 30, 1997, appearing in
this Prospectus has been audited by Deloitte & Touche LLP, independent auditors,
as stated in their report included herein, and has been so included in reliance
upon the report of such firm given upon their authority as experts in accounting
and auditing.
The statements concerning U.S. federal regulatory process for investigating
and obtaining FDA clearance of drugs and medical devices in this Prospectus
under the caption "Risk Factors--Business Risks Related to Spiros Corp. II and
Dura--Government Regulation; No Assurance of FDA Approval," "Business of Spiros
Corp. II--Government Regulation," "Business of Dura--Government Regulation" and
other references herein relating to such processes have been reviewed and
approved by Kleinfeld, Kaplan and Becker, regulatory counsel for Dura and Spiros
Corp. II, as an expert in such matters, and are included herein in reliance upon
that review and approval. In conducting this review, Kleinfeld, Kaplan and
Becker assumed the accuracy and adequacy of the factual statements and
conclusions in this Prospectus, including those concerning Dura's manufacturing
capabilities and procedures, compliance with regulatory requirements, the status
of marketed drugs and drugs under development and the potential significance of
such drugs in targeting the disease states identified.
78
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY DURA OR
SPIROS CORP. II. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES
OTHER THAN THE UNITS TO WHICH ITS RELATES OR AN OFFER TO ANY PERSON IN ANY
JURISDICTION WHERE SUCH OFFER WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF. THIS DOCUMENT IS BEING DISTRIBUTED IN THE UNITED KINGDOM ONLY
TO PERSONS OF A KIND DESCRIBED IN ARTICLE 11(3) OF THE FINANCIAL SERVICES ACT OF
1988 (INVESTMENT ADVERTISEMENTS) (EXEMPTIONS) ORDER 1995 OR TO WHOM IT OTHERWISE
WOULD BE LAWFUL SO TO DO.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 3
Incorporation of Certain Documents by Reference........................... 3
Prospectus Summary........................................................ 4
Risk Factors.............................................................. 17
Use of Proceeds........................................................... 30
Price Range of Dura Common Stock and Dividend Policies.................... 31
Dura Capitalization....................................................... 32
Spiros Corp. II Capitalization............................................ 33
Business of Spiros Corp. II............................................... 34
Business of Dura.......................................................... 45
Dura Selected Consolidated Financial Data................................. 55
Management's Discussion and Analysis of Financial Condition and Results of
Operations of Spiros Corp. II........................................... 56
Management's Discussion and Analysis of Financial Condition and Results of
Operations of Dura...................................................... 56
Description of the Warrants............................................... 62
Dura Capital Stock........................................................ 63
Spiros Corp. II Capital Stock............................................. 66
The Agreements and the Purchase Options................................... 68
United States Taxation of Non-U.S. Persons................................ 73
Underwriting.............................................................. 75
Transfer Agent and Registrar.............................................. 77
Legal Matters............................................................. 78
Experts................................................................... 78
Index to Financial Statements............................................. F-1
</TABLE>
------------------------
UNTIL , 1998 (THE 25TH DAY AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE UNITS, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
4,687,500 UNITS
[LOGO]
SPIROS DEVELOPMENT
CORPORATION II, INC.
[LOGO]
DURA PHARMACEUTICALS, INC.
UNITS CONSISTING OF ONE SHARE OF
CALLABLE COMMON STOCK OF
SPIROS DEVELOPMENT
CORPORATION II, INC. AND ONE
WARRANT TO PURCHASE
ONE-FOURTH OF ONE SHARE OF
COMMON STOCK OF
DURA PHARMACEUTICALS, INC.
------------------------
PROSPECTUS
------------------------
MERRILL LYNCH INTERNATIONAL
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13.* OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, $900,000 of which are payable by the
Underwriters and the remainder of which are payable by Spiros Corp. II in
connection with the registration, issuance and distribution of the securities
being registered hereby. All the amounts shown are estimates, except for the SEC
registration fee, the Nasdaq National Market listing fee and the NASD filing
fee.
<TABLE>
<S> <C>
SEC registration fee............................................ $ 93,251
Nasdaq National Market listing fee.............................. 50,000
NASD filing fee................................................. 30,500
Blue Sky qualification fees and expenses........................ 10,000
Printing and engraving expenses................................. 220,000
Legal fees and expenses......................................... 310,000
Transfer Agent and Registrar fees............................... 10,000
Accounting fees and expenses.................................... 80,000
Miscellaneous expenses.......................................... 196,249
---------
Total....................................................... $1,000,000
---------
---------
</TABLE>
- ------------------------
* Pursuant to the Services Agreement, Dura and Spiros Corp. II have agreed
that Spiros Corp. II will pay all expenses associated with the Offerings,
except for those amounts payable by the Underwriters.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Except as hereinafter set forth, there is no charter provision, by-law,
contract, arrangement or statute under which any director or officer of either
of the Registrants is insured or indemnified in any manner against all liability
that he may incur in his capacity as such.
With respect to Dura:
(a) Section 145 of the Delaware General Corporation Law permits
indemnification of officers and directors of Dura under certain conditions
and subject to certain limitations. Section 145 of the Delaware General
Corporation Law also provides that a corporation has the power to purchase
and maintain insurance on behalf of its officers and directors against any
liability asserted against such person and incurred by him or her in such
capacity, or arising out of his or her status as such, whether or not the
corporation would have the power to indemnify him or her against such
liability under the provisions of Section 145 of the Delaware General
Corporation Law.
(b) Dura's Bylaws (Article VII, Section (1)) provide that Dura shall
indemnify its directors and executive officers to the fullest extent not
prohibited by the Delaware General Corporation Law. The rights to indemnity
thereunder continue as to a person who has ceased to be a director, officer,
employee or agent and inure to the benefit of the heirs, executors and
administrators of the person. In addition, expenses incurred by a director
or executive officer in defending any civil, criminal, administrative or
investigative action, suit or proceeding by reason of the fact that he or
she is or was a director or officer of Dura (or was serving at Dura's
request as a director or officer of another corporation) shall be paid by
Dura in advance of the final disposition of such action, suit or proceeding
upon receipt of an undertaking by or on behalf of such director or officer
to repay such
II-1
<PAGE>
amount if it shall ultimately be determined that he or she is not entitled
to be indemnified by Dura as authorized by the relevant section of the
Delaware General Corporation Law.
(c) As permitted by Section 102(b)(7) of the Delaware General
Corporation Law, Article V, Section (A) of Dura's Certificate of
Incorporation provides that a director of Dura shall not be personally
liable 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
Dura or its stockholders, (ii) for acts or omissions not in good faith or
acts or omissions that 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.
(d) Dura entered into indemnification agreements with each of its
directors and executive officers, effective upon the reincorporation of Dura
in Delaware in July 1997.
(e) There is directors and officers liability insurance now in effect
which insures directors and officers of Dura.
With respect to Spiros Corp. II:
(a) Section 145 of the Delaware General Corporation Law permits
indemnification of officers and directors of Spiros Corp. II under certain
conditions and subject to certain limitations. Section 145 of the Delaware
General Corporation Law also provides that a corporation has the power to
purchase and maintain insurance on behalf of its officers and directors
against any liability asserted against such person and incurred by him or
her in such capacity, or arising out of his or her status as such, whether
or not the corporation would have the power to indemnify him or her against
such liability under the provisions of Section 145 of the Delaware General
Corporation Law.
(b) Spiros Corp. II's Bylaws (Article VII, Section (1)) provide that
Spiros Corp. II shall indemnify its directors and executive officers to the
fullest extent not prohibited by the Delaware General Corporation Law. The
rights to indemnity thereunder continue as to a person who has ceased to be
a director, officer, employee or agent and inure to the benefit of the
heirs, executors and administrators of the person. In addition, expenses
incurred by a director or executive officer in defending any civil,
criminal, administrative or investigative action, suit or proceeding by
reason of the fact that he or she is or was a director or officer of Spiros
Corp. II (or was serving at Spiros Corp. II's request as a director or
officer of another corporation) shall be paid by Spiros Corp. II in advance
of the final disposition of such action, suit or proceeding upon receipt of
an undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that he or she is not entitled
to be indemnified by Spiros Corp. II as authorized by the relevant section
of the Delaware General Corporation Law.
(c) As permitted by Section 102(b)(7) of the Delaware General
Corporation Law, Article V, Section (A) of Spiros Corp. II's Certificate of
Incorporation provides that a director of Spiros Corp. II shall not be
personally liable 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 Spiros Corp. II or its stockholders, (ii) for acts or omissions
not in good faith or acts or omissions that 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.
(d) Spiros Corp. II entered into indemnification agreements with each of
its directors and executive officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since its incorporation on September 23, 1997, Spiros Corp. II has sold and
issued the following unregistered securities:
II-2
<PAGE>
(1) On September 30, 1997, Spiros Corp. II sold 1000 Special Shares with
an aggregate value of $1000 to Dura.
The sales and issuance of securities in the above transaction was deemed to
be exempt under the Securities Act by virtue of Section 4(2) thereof and/or
Regulation D promulgated thereunder. The purchasers in each case represented
their intention to acquire the securities for investment only and not with a
view to the distribution thereof. Appropriate legends were affixed to the stock
certificates issued in such transactions. Similar representations of investment
intent were obtained and similar legends imposed in connection with any
subsequent transfers of any such securities. Spiros Corp. II believes that all
recipients had adequate access, through employment or other relationships, to
information about Spiros Corp. II to make an informed investment decision.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- -------------------------------------------------------------------------------------------------
<C> <S>
1.1+ Form of U.S. Purchase Agreement.
1.2+ Form of International Purchase Agreement.
3.1++ Certificate of Incorporation of Spiros Corp. II.
3.2++ By-laws of Spiros Corp. II.
3.3++ Amended and Restated Certificate of Incorporation of Spiros Corp. II (to be effective immediately
prior to closing).
3.4 Amended and Restated By-laws of Spiros Corp. II (to be effective immediately prior to closing).
4.1 Purchase Option (included in Exhibit 3.3).
4.2+ Form of Warrant Agreement, including form of Warrant.
4.3 Form of Warrant (included in Exhibit 4.2).
4.4+++ Specimen Unit Certificate.
4.5+++ Specimen Stock Certificate for Dura Common Stock.
4.6+++ Specimen Stock Certificate for Spiros Corp. II Common Stock.
4.7+++ Specimen Stock Certificate for Spiros Corp. II Special Shares.
5.1 Opinion of Brobeck, Phleger & Harrison LLP as to legality of the securities being registered,
including consent.
8.1 Opinion of Brobeck, Phleger & Harrison LLP as to certain tax matters, including consent.
10.1+ Form of Technology License Agreement.
10.2+ Form of Development Agreement.
10.3++ Form of Albuterol and Product Option Agreement.
10.4++ Form of Manufacturing and Marketing Agreement.
10.5++ Form of Services Agreement.
10.6+ Spiros Corp. II 1997 Stock Option Plan.
10.7++ Form of Spiros Corp. II Notice of Grant of Stock Option
10.8++ Form of Spiros Corp. II Stock Option Agreement
10.9++ Form of Addendum to Stock Option Agreement
10.10 Form of Spiros Corp. II Indemnification Agreement for Directors.
10.11 Form of Spiros Corp. II Indemnification Agreement for Officers.
23.1 Consent of Brobeck, Phleger & Harrison LLP (included in Exhibits 5.1 and 8.1).
23.2 Consent of Deloitte & Touche LLP, Independent Auditors.
23.3 Consent of Kleinfeld, Kaplan and Becker, regulatory counsel.
24.1++ Powers of Attorney.
27.1++ Financial Data Schedule of Spiros Corp. II.
</TABLE>
- ------------------------
+ As amended.
++ Previously filed.
+++ Previously filed and incorporated herein by reference in the Company's
Registration Statement on Form 8-A, File No. 333-37673/37673-01 filed on
December 11, 1997.
II-3
<PAGE>
(b) Financial Statement Schedules included separately in the Registration
Statement.
None
All other schedules are omitted because they are not required, are not
applicable or the information is included in the Financial Statements or Notes
thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Registrants hereby undertake:
(1) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered that remain unsold at the termination
of the offering.
(4) That, insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrants pursuant to the provisions described
in Item 15, or otherwise, each of the Registrants has been advised that in
the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by a registrant of expenses incurred or
paid by a director, officer or controlling person of a Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, such registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
(5) That, for purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by either of the Registrants pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this Registration Statement as of the time it was declared
effective.
(6) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
Dura hereby undertakes that, for purposes of determining any liability under
the Securities Act of 1933, each filing of Dura's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
II-4
<PAGE>
Dura hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therin, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) If the registrant is a foreign private issuer, to file a
post-effective amendment to the registration statement to include any
financial statements required by Rule 3-19 of Regulation S-X at the start of
any delayed offering or throughout a continuous offering.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, SPIROS
DEVELOPMENT CORPORATION II, INC. HAS DULY CAUSED THIS REGISTRATION STATEMENT TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF SAN DIEGO, COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, ON THE 16TH DAY OF
DECEMBER, 1997.
SPIROS DEVELOPMENT CORPORATION II, INC.
By: /s/ DAVID S. KABAKOFF
-----------------------------------------
DAVID S. KABAKOFF
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED OF BEHALF OF SPIROS DEVELOPMENT
CORPORATION II, INC. BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES
INDICATED.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- ----------------
Chairman, President and
/s/ DAVID S. KABAKOFF Chief Executive Officer December 16,
- ------------------------------ (Principal Executive 1997
DAVID S. KABAKOFF Officer)
Vice President and Chief
* Financial Officer December 16,
- ------------------------------ (Principal Financial and 1997
ERLE T. MAST Accounting Officer)
*
- ------------------------------ Director December 16,
CAM L. GARNER 1997
*/s/ DAVID S. KABAKOFF
- ------------------------------
BY: DAVID S. KABAKOFF,
ATTORNEY-IN-FACT
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, DURA
PHARMACEUTICALS, INC. CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT
IT MEETS ALL OF THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO
DULY AUTHORIZED, IN THE CITY OF SAN DIEGO, COUNTY OF SAN DIEGO, STATE OF
CALIFORNIA, ON THE 16TH DAY OF DECEMBER, 1997.
<TABLE>
<S> <C> <C>
DURA PHARMACEUTICALS, INC.
BY: /S/ CAM L. GARNER
-----------------------------------------
CAM L. GARNER
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
</TABLE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED ON BEHALF OF DURA PHARMACEUTICALS, INC.
BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- ----------------
<C> <S> <C>
Chairman, President and
/s/ CAM L. GARNER Chief Executive Officer December 16,
- ------------------------------ (Principal Executive 1997
CAM L. GARNER Officer)
Senior Vice President,
Finance and
/s/ JAMES W. NEWMAN Administration, and Chief December 16,
- ------------------------------ Financial Officer 1997
JAMES W. NEWMAN (Principal Financial and
Accounting Officer)
/s/ DAVID S. KABAKOFF
- ------------------------------ Executive Vice President December 16,
DAVID S. KABAKOFF and Director 1997
* Senior Vice President,
- ------------------------------ Sales and Marketing, and December 16,
WALTER F. SPATH Director 1997
*
- ------------------------------ Director December 16,
JAMES C. BLAIR 1997
*
- ------------------------------ Director December 16,
HERBERT J. CONRAD 1997
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- ----------------
<C> <S> <C>
*
- ------------------------------ Director December 16,
JOSEPH C. COOK, JR. 1997
*
- ------------------------------ Director December 16,
DAVID F. HALE 1997
*
- ------------------------------ Director December 16,
GORDON V. RAMSEIER 1997
*
- ------------------------------ Director December 16,
CHARLES G. SMITH 1997
*/s/ CAM S. GARNER
- ------------------------------
BY: CAM L. GARNER,
ATTORNEY-IN-FACT
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1+ Form of U.S. Purchase Agreement.
1.2+ Form of International Purchase Agreement.
3.1++ Certificate of Incorporation of Spiros Corp. II.
3.2++ By-laws of Spiros Corp. II.
3.3++ Amended and Restated Certificate of Incorporation of Spiros Corp. II (to be effective immediately prior
to closing).
3.4 Amended and Restated By-laws of Spiros Corp. II (to be effective immediately prior to closing).
4.1 Purchase Option (included in Exhibit 3.3).
4.2+ Form of Warrant Agreement, including form of Warrant.
4.3 Form of Warrant (included in Exhibit 4.2).
4.4+++ Specimen Unit Certificate.
4.5+++ Specimen Stock Certificate for Dura Common Stock.
4.6+++ Specimen Stock Certificate for Spiros Corp. II Common Stock.
4.7+++ Specimen Stock Certificate for Spiros Corp. II Special Shares.
5.1 Opinion of Brobeck, Phleger & Harrison LLP as to legality of the securities being registered, including
consent.
8.1 Opinion of Brobeck, Phleger & Harrison LLP as to certain tax matters, including consent.
10.1+ Form of Technology License Agreement.
10.2+ Form of Development Agreement.
10.3++ Form of Albuterol and Product Option Agreement.
10.4++ Form of Manufacturing and Marketing Agreement.
10.5++ Form of Services Agreement.
10.6+ Spiros Corp. II 1997 Stock Option Plan.
10.7++ Form of Spiros Corp. II Notice of Grant of Stock Option
10.8++ Form of Spiros Corp. II Stock Option Agreement
10.9++ Form of Addendum to Stock Option Agreement
10.10 Form of Spiros Corp. II Indemnification Agreement for Directors.
10.11 Form of Spiros Corp. II Indemnification Agreement for Officers.
23.1 Consent of Brobeck, Phleger & Harrison LLP (included in Exhibits 5.1 and 8.1).
23.2 Consent of Deloitte & Touche LLP, Independent Auditors.
23.3 Consent of Kleinfeld, Kaplan and Becker, regulatory counsel.
24.1++ Powers of Attorney.
27.1++ Financial Data Schedule of Spiros Corp. II.
</TABLE>
- ------------------------
+ As amended.
++ Previously filed.
+++ Previously filed and incorporated herein by reference in the Company's
Registration Statement on Form 8-A, File No. 333-37673/37673-01 filed on
December 11, 1997.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SPIROS DEVELOPMENT CORPORATION II, INC.
(a Delaware corporation)
DURA PHARMACEUTICALS, INC.
(a Delaware corporation)
3,750,000 Units
Each Unit Consisting of
One Share of Callable Common Stock of Spiros Development Corporation II, Inc.
and One Warrant to Purchase
One-Fourth of One Share of Common Stock of Dura Pharmaceuticals, Inc.
U.S. PURCHASE AGREEMENT
Dated: December __, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
SECTION 1. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . 5
(a) Representations and Warranties by the Companies. . . . . . . . . 5
(i) Compliance with Registration Requirements. . . . . . 5
(ii) Incorporated Documents. . . . . . . . . . . . . . . . . . 6
(iii) Independent Accountants . . . . . . . . . . . . . . . . . 6
(iv) Financial Statements. . . . . . . . . . . . . . . . . . . 6
(v) No Material Adverse Change in Business. . . . . . . . . . 7
(vi) Good Standing of the Companies. . . . . . . . . . . . . . 8
(vii) Good Standing of Subsidiaries . . . . . . . . . . . . . . 8
(viii) Capitalization. . . . . . . . . . . . . . . . . . . . . . 9
(ix) Authorization of Agreements . . . . . . . . . . . . . . . 9
(x) Authorization and Description of Units. . . . . . . . . . 10
(xi) Registration or Similar Rights Waived . . . . . . . . . . 11
(xii) Absence of Defaults and Conflicts . . . . . . . . . . . . 11
(xiii) Compliance with Laws. . . . . . . . . . . . . . . . . . . 12
(xiv) Absence of Labor Dispute. . . . . . . . . . . . . . . . . 13
(xv) Absence of Proceedings. . . . . . . . . . . . . . . . . . 13
(xvi) Accuracy of Exhibits. . . . . . . . . . . . . . . . . . . 13
(xvii) Possession of Intellectual Property . . . . . . . . . . . 13
(xviii) Absence of Further Requirements . . . . . . . . . . . . . 14
(xix) Possession of Licenses and Permits. . . . . . . . . . . . 14
(xx) Title to Property . . . . . . . . . . . . . . . . . . . . 15
(xxi) Compliance with Cuba Act. . . . . . . . . . . . . . . . . 15
(xxii) Investment Company Act. . . . . . . . . . . . . . . . . . 15
(xxiii) Environmental Laws. . . . . . . . . . . . . . . . . . . . 15
(xxiv) Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(xxv) Insurance . . . . . . . . . . . . . . . . . . . . . . . . 16
(xxvi) Accounting Controls . . . . . . . . . . . . . . . . . . . 16
(xxvii) Lock-up Agreements. . . . . . . . . . . . . . . . . . . . 16
(xxviii)Affiliate Transactions. . . . . . . . . . . . . . . . . . 17
(xxix) Distribution of Prospectuses. . . . . . . . . . . . . . 17
(b) Officer's Certificates. . . . . . . . . . . . . . . . . . . . . . 17
SECTION 2. Sale and Delivery to U.S. Underwriters; Closing . . . . . . . . . 17
(a) Initial U.S. Units. . . . . . . . . . . . . . . . . . . . . . . . 17
(b) U.S. Option Units . . . . . . . . . . . . . . . . . . . . . . . . 17
(c) Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(d) Denominations; Registration . . . . . . . . . . . . . . . . . . . 18
SECTION 3. Covenants of the Companies. . . . . . . . . . . . . . . . . . . . 19
(a) Compliance with Securities Regulations and Commission
Requests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(b) Filing of Amendments. . . . . . . . . . . . . . . . . . . . . . . 19
(c) Delivery of Registration Statement. . . . . . . . . . . . . . . . 19
(d) Delivery of Prospectuses. . . . . . . . . . . . . . . . . . . . . 20
i
<PAGE>
(e) Continued Compliance with Securities Laws . . . . . . . . . . . . 20
(f) Rule 158. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(g) Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . 21
(h) Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(i) Restriction on Sale of Dura Common Stock. . . . . . . . . . . . . 21
(j) Reporting Requirements. . . . . . . . . . . . . . . . . . . . . . 21
(k) Compliance with NASD Rules. . . . . . . . . . . . . . . . . . . . 22
SECTION 4. Payment of Expenses . . . . . . . . . . . . . . . . . . . . . . . 22
(a) Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(b) Termination of Agreement. . . . . . . . . . . . . . . . . . . . . 22
SECTION 5. Conditions of U.S. Underwriters' Obligations. . . . . . . . . . . 23
(a) Effectiveness of Registration Statement . . . . . . . . . . . . . 23
(b) Opinion of Counsel for the Companies. . . . . . . . . . . . . . . 23
(c) Opinion of Patent Counsel for the Companies . . . . . . . . . . . 23
(d) Opinion of Regulatory Counsel for the Companies . . . . . . . . . 23
(e) Opinion of Counsel for the U.S. Underwriters. . . . . . . . . . . 23
(f) Officers' Certificate . . . . . . . . . . . . . . . . . . . . . . 24
(g) Accountants' Comfort Letter . . . . . . . . . . . . . . . . . . . 24
(h) Bring-down Comfort Letter . . . . . . . . . . . . . . . . . . . . 24
(i) Approval of Listing . . . . . . . . . . . . . . . . . . . . . . . 25
(j) No Objection. . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(k) Lock-up Agreements. . . . . . . . . . . . . . . . . . . . . . . . 25
(l) Purchase of Initial International Units . . . . . . . . . . . . . 25
(m) Conditions to Purchase of U.S. Option Units . . . . . . . . . . . 25
(i) Officers' Certificate. . . . . . . . . . . . . . . . . . . 25
(ii) Opinions of Counsel for the Companies. . . . . . . . . . . 25
(iii) Opinion of Counsel for the U.S. Underwriters . . . . . . . 25
(iv) Bring-down Comfort Letter. . . . . . . . . . . . . . . . . 26
(n) Additional Documents. . . . . . . . . . . . . . . . . . . . . . . 26
(o) Termination of Agreement. . . . . . . . . . . . . . . . . . . . . 26
SECTION 6. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . 26
(a) Indemnification of U.S. Underwriters. . . . . . . . . . . . . . . 26
(b) Indemnification of the Companies, Directors and Officers. . . . . 27
(c) Actions against Parties; Notification . . . . . . . . . . . . . . 27
(d) Settlement without Consent if Failure to Reimburse. . . . . . . . 28
SECTION 7. Contribution. . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 9. Termination of Agreement. . . . . . . . . . . . . . . . . . . . . 30
(a) Termination; General. . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 1. Representations and Warranties. . . . . . . . . . . . . . . . . . 5
(a) Representations and Warranties by the Companies . . . . . . . . . 5
(i) Compliance with Registration Requirements. . . . . . . . . 5
ii
<PAGE>
(ii) Incorporated Documents. . . . . . . . . . . . . . . . . . 6
(iii) Independent Accountants . . . . . . . . . . . . . . . . . 6
(iv) Financial Statements. . . . . . . . . . . . . . . . . . . 6
(v) No Material Adverse Change in Business. . . . . . . . . . 7
(vi) Good Standing of the Companies. . . . . . . . . . . . . . 7
(vii) Good Standing of Subsidiaries . . . . . . . . . . . . . . 8
(viii) Capitalization. . . . . . . . . . . . . . . . . . . . . . 9
(ix) Authorization of Agreements . . . . . . . . . . . . . . . 9
(x) Authorization and Description of Units. . . . . . . . . . 10
(xi) Registration or Similar Rights Waived . . . . . . . . . . 11
(xii) Absence of Defaults and Conflicts . . . . . . . . . . . . 11
(xiii) Compliance with Laws . . . . . . . . . . . . . . . . . . 12
(xiv) Absence of Labor Dispute. . . . . . . . . . . . . . . . . 12
(xv) Absence of Proceedings. . . . . . . . . . . . . . . . . . 13
(xvi) Accuracy of Exhibits. . . . . . . . . . . . . . . . . . . 13
(xvii) Possession of Intellectual Property . . . . . . . . . . . 13
(xviii) Absence of Further Requirements . . . . . . . . . . . . . 14
(xix) Possession of Licenses and Permits. . . . . . . . . . . . 14
(xx) Title to Property . . . . . . . . . . . . . . . . . . . . 15
(xxi) Compliance with Cuba Act. . . . . . . . . . . . . . . . . 15
(xxii) Investment Company Act. . . . . . . . . . . . . . . . . . 15
(xxiii) Environmental Laws. . . . . . . . . . . . . . . . . . . . 15
(xxiv) Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(xxv) Insurance . . . . . . . . . . . . . . . . . . . . . . . . 16
(xxvi) Accounting Controls . . . . . . . . . . . . . . . . . . . 16
(xxvii) Lock-up Agreements. . . . . . . . . . . . . . . . . . . . 16
(xxviii)Affiliate Transactions. . . . . . . . . . . . . . . . . . 17
(xxix) Distribution of Prospectuses. . . . . . . . . . . . . . . 17
(b) Officer's Certificates. . . . . . . . . . . . . . . . . . . . . . 17
SECTION 2. Sale and Delivery to U.S. Underwriters; Closing . . . . . . . . . 17
(a) Initial U.S. Units. . . . . . . . . . . . . . . . . . . . . . . . 17
(b) U.S. Option Units . . . . . . . . . . . . . . . . . . . . . . . . 17
(c) Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(d) Denominations; Registration . . . . . . . . . . . . . . . . . . . 18
SECTION 3. Covenants of the Companies. . . . . . . . . . . . . . . . . . . . 19
(a) Compliance with Securities Regulations and Commission
Requests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(b) Filing of Amendments. . . . . . . . . . . . . . . . . . . . . . . 19
(c) Delivery of Registration Statement. . . . . . . . . . . . . . . . 19
(d) Delivery of Prospectuses. . . . . . . . . . . . . . . . . . . . . 20
(e) Continued Compliance with Securities Laws . . . . . . . . . . . . 20
(f) Rule 158. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(g) Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . 20
(h) Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
iii
<PAGE>
(i) Restriction on Sale of Dura Common Stock. . . . . . . . . . . . . 21
(j) Reporting Requirements. . . . . . . . . . . . . . . . . . . . . . 21
SECTION 4. Payment of Expenses. . . . . . . . . . . . . . . . . . . . . . . 21
(a) Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(b) Termination of Agreement. . . . . . . . . . . . . . . . . . . . . 22
SECTION 5. Conditions of U.S. Underwriters' Obligations. . . . . . . . . . . 22
(a) Effectiveness of Registration Statement . . . . . . . . . . . . . 22
(b) Opinion of Counsel for the Companies. . . . . . . . . . . . . . . 22
(c) Opinion of Patent Counsel for the Companies . . . . . . . . . . . 23
(d) Opinion of Regulatory Counsel for the Companies . . . . . . . . . 23
(e) Opinion of Counsel for the U.S. Underwriters. . . . . . . . . . . 23
(f) Officers' Certificate . . . . . . . . . . . . . . . . . . . . . . 23
(g) Accountants' Comfort Letter . . . . . . . . . . . . . . . . . . . 24
(h) Bring-down Comfort Letter . . . . . . . . . . . . . . . . . . . . 24
(i) Approval of Listing . . . . . . . . . . . . . . . . . . . . . . . 24
(j) No Objection. . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(k) Lock-up Agreements. . . . . . . . . . . . . . . . . . . . . . . . 24
(l) Purchase of Initial International Units . . . . . . . . . . . . . 24
(m) Conditions to Purchase of U.S. Option Units . . . . . . . . . . . 24
(i) Officers' Certificate. . . . . . . . . . . . . . . . . . . 24
(ii) Opinions of Counsel for the Companies. . . . . . . . . . . 25
(iii) Opinion of Counsel for the U.S. Underwriters . . . . . . . 25
(iv) Bring-down Comfort Letter. . . . . . . . . . . . . . . . . 25
(n) Additional Documents. . . . . . . . . . . . . . . . . . . . . . . 25
(o) Termination of Agreement. . . . . . . . . . . . . . . . . . . . . 25
SECTION 6. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . 26
(a) Indemnification of U.S. Underwriters. . . . . . . . . . . . . . . 26
(b) Indemnification of the Companies and Directors and Officers . . . 26
(c) Actions against Parties; Notification . . . . . . . . . . . . . . 27
(d) Settlement without Consent if Failure to Reimburse. . . . . . . . 27
SECTION 7. Contribution. . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 9. Termination of Agreement. . . . . . . . . . . . . . . . . . . . . 29
(a) Termination; General. . . . . . . . . . . . . . . . . . . . . . . 29
(b) Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 10. Default by One or More of the U.S. Underwriters . . . . . . . . . 30
SECTION 11. Default by the Companies. . . . . . . . . . . . . . . . . . . . . 31
SECTION 12. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 13. Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 14. Governing Law and Time. . . . . . . . . . . . . . . . . . . . . . 32
SECTION 15. Effect of Headings. . . . . . . . . . . . . . . . . . . . . . . . 32
SCHEDULES
iv
<PAGE>
Schedule A - List of U.S. Underwriters. . . . . . . . . . . . . . . . Sch A-1
Schedule B - Pricing Information. . . . . . . . . . . . . . . . . . . Sch B-1
Schedule C - List of Persons and Entities Subject to Lock-up. . . . . Sch C-1
EXHIBITS
Exhibit A - Form of Opinion of Counsel for Dura. . . . . . . . . . . . . A-1
Exhibit B - Form of Opinion of Intellectual Property
Counsel for Dura . . . . . . . . . . . . . . . . . . . . . . B-1
Exhibit C - Form of Opinion of U.S. Regulatory Counsel
for the Companies. . . . . . . . . . . . . . . . . . . . . . C-1
Exhibit D - Form of Lock-up Letter . . . . . . . . . . . . . . . . . . . D-1
v
<PAGE>
SPIROS DEVELOPMENT CORPORATION II, INC.
(a Delaware corporation)
DURA PHARMACEUTICALS, INC.
(a Delaware corporation)
3,750,000 Units
Each Unit Consisting of
One Share of Callable Common Stock of Spiros Development Corporation II, Inc.
and One Warrant to Purchase
One-Fourth of One Share of Common Stock of Dura Pharmaceuticals, Inc.
U.S. PURCHASE AGREEMENT
-----------------------
December __, 1997
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
as U.S. Representatives of the several U.S. Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
Spiros Development Corporation II, Inc., a Delaware corporation ("SDC
II"), and Dura Pharmaceuticals, Inc., a Delaware corporation ("Dura" and,
together with SDC II, the "Companies"), confirm their respective agreements
with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith ("Merrill
Lynch") and each of the other U.S. Underwriters named in
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Schedule A hereto (collectively, the "U.S. Underwriters", which term shall
also include any underwriter substituted as hereinafter provided in Section
10 hereof), for whom Merrill Lynch and Donaldson, Lufkin & Jenrette
Securities Corporation are acting as representatives (in such capacity, the
"U.S. Representatives"), with respect to the issue and sale by the Companies,
and the purchase by the U.S. Underwriters, acting severally and not jointly,
of the respective number of units set forth in said Schedule A, each unit
composed of one share of callable common stock, par value $.001 per share, of
SDC II ("SDC II Common Stock") and one warrant (each a "Warrant") that will
entitle the registered owner thereof to purchase one-fourth of one share of
common stock, par value $.001 per share, of Dura ("Dura Common Stock") at a
per share exercise price as set forth in Schedule B hereto, pursuant to and
subject to certain adjustments as set forth in the Warrant certificate to be
issued as part of the Unit Certificate (as hereinafter defined), and with
respect to the grant by SDC II and Dura to the U.S. Underwriters, acting
severally and not jointly, of the option described in Section 2(b) hereof to
purchase all or any part of 562,500 additional units to cover
over-allotments, if any. The SDC II Common Stock and the Warrants will be
paired for sale as units by SDC II and Dura and then sold to the U.S.
Underwriters. The aforesaid 3,750,000 units (the "Initial U.S. Units") to be
purchased by the U.S. Underwriters and all or any part of the 562,500 units
subject to the option described in Section 2(b) (the "U.S. Option Units") are
hereinafter called, collectively, the "U.S. Units".
It is understood that the Companies concurrently are entering into an
agreement dated the date hereof (the "International Purchase Agreement")
providing for the offering by the Companies of an aggregate of 937,500 units
composed of one share of SDC II Common Stock and one Warrant (the "Initial
International Units") through arrangements with certain underwriters outside
the United States and Canada (the "Managers") for whom Merrill Lynch
International is acting as lead manager (the "Lead Manager") and the grant by
the Companies to the Managers, acting severally and not jointly, of an option
to purchase all or any part of the Managers' pro rata portion of up to
140,625 additional units composed of one share of SDC II Common Stock and one
Warrant solely to cover over-allotments, if any (the "International Option
Units" and, together with the U.S. Option Units, the "Option Units"). The
Initial International Units and the International Option Units are
hereinafter called the "International Units". It is understood that the
Companies are not obligated to sell and the U.S. Underwriters are not
obligated to purchase, any Initial U.S. Units unless all of the Initial
International Units are contemporaneously purchased by the Managers.
The U.S. Underwriters and the Managers are hereinafter collectively
called the "Underwriters", the Initial U.S. Units and the Initial
International Units are hereinafter collectively called the "Initial Units",
and the U.S. Units and the International Units are hereinafter collectively
called the "Units".
The Underwriters concurrently will enter into an Intersyndicate Agreement
of even date herewith (the "Intersyndicate Agreement") providing for the
coordination of certain transactions among the Underwriters under the
direction of Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated (in such capacity, the "Global Coordinator").
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The Companies understand that the U.S. Underwriters propose to make a
public offering of the U.S. Units as soon as the U.S. Representatives deem
advisable after this Agreement has been executed and delivered.
Each Unit initially will be represented by a certificate representing one
or more Warrants and one or more shares of SDC II Common Stock (a "Unit
Certificate"). Each Unit will be transferable only as a whole and as
described in the Prospectuses (as hereinafter defined) through December 31,
1999 or such earlier date on which the Purchase Option (as defined in the
Prospectuses) is exercised or expires unexercised, after which date the
Warrants and the SDC II Common Stock will trade separately; PROVIDED,
HOWEVER, that such separation date will be accelerated upon the occurrence of
an Acceleration Event (as defined in the Prospectuses) with respect to Dura.
The SDC II Common Stock, the Warrants and the U.S. Units are more fully
described in the Registration Statement (as hereinafter defined) and the
Prospectuses.
The Companies and the U.S. Underwriters agree that up to [_______] shares
of the Initial U.S. Units to be purchased by the U.S. Underwriters (the
"Reserved Units") shall be reserved for sale by the U.S. Underwriters to
certain eligible employees and persons having business relationships with the
Companies, as part of the distribution of the U.S. Units by the U.S.
Underwriters, subject to the terms of this Agreement, the applicable rules,
regulations and interpretations of the National Association of Securities
Dealers, Inc. and all other applicable laws, rules and regulations. To the
extent that such Reserved Units are not orally confirmed for purchase by such
eligible employees and persons having business relationships with the
Companies by the end of the first business day after the date of this
Agreement, such Reserved Units may be offered to the public as part of the
public offering contemplated hereby.
The Companies have filed with the Securities and Exchange Commission (the
"Commission") a combined registration statement (Nos. 333-37673 and
333-37673-01) covering the registration of the U.S. Units under the
Securities Act of 1933, as amended (the "1933 Act"), including the related
preliminary prospectus or prospectuses, (a) with respect to SDC II, on Form
S-1, relating to the SDC II Common Stock comprising a portion of the U.S.
Units, and (b) with respect to Dura, on Form S-3, relating to the Warrants
comprising a portion of the U.S. Units, the Dura Common Stock underlying the
Warrants and the Dura Common Stock issuable upon exercise of the Purchase
Option. Promptly after execution and delivery of this Agreement, the
Companies will either (i) prepare and file a prospectus in accordance with
the provisions of Rule 430A ("Rule 430A") of the rules and regulations of the
Commission under the 1933 Act (the "1933 Act Regulations") and paragraph (b)
of Rule 424 ("Rule 424(b)") of the 1933 Act Regulations or (ii) if the
Companies have elected to rely upon Rule 434 ("Rule 434") of the 1933 Act
Regulations, prepare and file a term sheet (a "Term Sheet") in accordance
with the provisions of Rule 434 and Rule 424(b). Two forms of prospectus are
to be used in connection with the offering and sale of the Units: one
relating to the U.S. Units (the "Form of U.S. Prospectus") and one relating
to the International Units (the "Form of International Prospectus"). The
Form of International Prospectus is identical to the Form of U.S. Prospectus,
except for the front cover and back cover pages, the information under the
caption "Underwriting", the inclusion in the "Prospectus Summary" section of
the Form of International Prospectus of a
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paragraph under the caption "United States Taxation of Non-U.S. Persons" and
the exclusion in the Form of International Prospectus of a section under the
caption "United States Federal Income Tax Consequences." The information
included in any such prospectus or in any such Term Sheet, as the case may
be, that was omitted from such registration statement at the time it became
effective but that is deemed to be part of such registration statement at the
time it became effective (A) pursuant to paragraph (b) of Rule 430A is
referred to as "Rule 430A Information" or (B) pursuant to paragraph (d) of
Rule 434 is referred to as "Rule 434 Information". Each Form of U.S.
Prospectus and Form of International Prospectus used before such registration
statement became effective, and any prospectus that omitted, as applicable,
the Rule 430A Information or the Rule 434 Information, that was used after
such effectiveness and prior to the execution and delivery of this Agreement,
is herein called a "preliminary prospectus". Such registration statement,
including the exhibits thereto, schedules thereto, if any, and the documents
incorporated by reference therein pursuant to Item 12 of Form S-3 under the
1933 Act, at the time it became effective and including the Rule 430A
Information and the Rule 434 Information, as applicable, is herein called the
"Registration Statement". Any registration statement filed pursuant to Rule
462(b) of the 1933 Act Regulations is herein referred to as the "Rule 462(b)
Registration Statement", and after such filing the term "Registration
Statement" shall include the Rule 462(b) Registration Statement. The final
Form of U.S. Prospectus and the final Form of International Prospectus,
including the documents incorporated by reference therein pursuant to Item 12
of Form S-3 under the 1933 Act, in the forms first furnished to the
Underwriters for use in connection with the offering of the Units (the "Unit
Offering") are herein called the "U.S. Prospectus" and the "International
Prospectus", respectively, and, collectively, the "Prospectuses". If Rule
434 is relied on, the term "U.S. Prospectus" and "International Prospectus"
shall refer to the preliminary U.S. Prospectus dated December 1, 1997 and the
preliminary International Prospectus dated December 1, 1997, respectively,
each together with the applicable Term Sheet and all references in this
Agreement to the date of such Prospectuses shall mean the date of the
applicable Term Sheet. For purposes of this Agreement, all references to the
Registration Statement, any preliminary prospectus, the U.S. Prospectus, the
International Prospectus or any Term Sheet or any amendment or supplement to
any of the foregoing shall be deemed to include the copy filed with the
Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval
system ("EDGAR").
Prior to the Closing Time (as defined), Dura intends to acquire all of
the outstanding capital stock of Spiros Development Corporation ("SDC") for
an aggregate purchase price of approximately $45.7 million, payable in cash,
shares of Dura Common Stock, or any combination thereof (the "SDC Purchase").
All references in this Agreement to financial statements and schedules
and other information which is "contained", "included" or "stated" in the
Registration Statement, any preliminary prospectus (including the Form of
U.S. Prospectus and the Form of International Prospectus) or the Prospectuses
(or other references of like import) shall be deemed to mean and include all
such financial statements and schedules and other information which is
incorporated by reference in the Registration Statement, any preliminary
prospectus (including the Form of
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U.S. Prospectus and the Form of International Prospectus) or the
Prospectuses, as the case may be; and all references in this Agreement to
amendments or supplements to the Registration Statement, any preliminary
prospectus or the Prospectuses shall be deemed to mean and include the filing
of any document under the Securities Exchange Act of 1934 (the "1934 Act")
which is incorporated by reference in the Registration Statement, such
preliminary prospectus or the Prospectuses, as the case may be.
SECTION 1. REPRESENTATIONS AND WARRANTIES.
(a) REPRESENTATIONS AND WARRANTIES BY THE COMPANIES. The Companies
jointly and severally represent and warrant to each U.S. Underwriter as of
the date hereof, as of the Closing Time referred to in Section 2(c) hereof,
and as of each Date of Delivery (if any) referred to in Section 2(b) hereof,
and agree with each U.S. Underwriter, as follows:
(i) COMPLIANCE WITH REGISTRATION REQUIREMENTS. Dura meets the
requirements for use of Form S-3 under the 1933 Act. Each of the
Registration Statement and any Rule 462(b) Registration Statement has
become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement has been issued under the 1933 Act and no proceedings for that
purpose have been instituted or are pending or, to the knowledge of the
Companies, are contemplated by the Commission, and any request on the part
of the Commission for additional information has been complied with.
At the respective times the Registration Statement, any Rule 462(b)
Registration Statement and any post-effective amendments thereto become
effective and at the Closing Time (and, if any U.S. Option Units are
purchased, at the Date of Delivery), the Registration Statement, the Rule
462(b) Registration Statement and any amendments and supplements thereto
complied and will comply in all material respects with the requirements of
the 1933 Act and the 1933 Act Regulations and did not and will not contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading. Neither of the Prospectuses nor any amendments or
supplements thereto, at the time the Prospectuses or any amendments or
supplements were issued and at the Closing Time (and, if any U.S. Option
Units are purchased, at the Date of Delivery), included or will include an
untrue statement of a material fact or omitted or will omit to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. If
Rule 434 is used, the Companies will comply with the requirements of Rule
434. The representations and warranties in this subsection shall not apply
to statements in or omissions from the Registration Statement or the U.S.
Prospectus made in reliance upon and in conformity with information
furnished to the Companies in writing by any U.S. Underwriter through
Merrill Lynch expressly for use in the Registration Statement or the U.S.
Prospectus.
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Each preliminary prospectus and the prospectuses filed as part of the
Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the 1933 Act, complied when so
filed in all material respects with the 1933 Act Regulations and each
preliminary prospectus and the Prospectuses delivered to the Underwriters
for use in connection with this offering was identical to the
electronically transmitted copies thereof filed with the Commission
pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(ii) INCORPORATED DOCUMENTS. The documents incorporated or deemed to
be incorporated by reference in the Registration Statement and the
Prospectuses, when they became effective or at the time they were or
hereafter are filed with the Commission, complied and will comply in all
material respects with the requirements of the 1933 Act and the 1933 Act
Regulations or the Securities Exchange Act of 1934 (the "1934 Act") and the
rules and regulations of the Commission thereunder (the "1934 Act
Regulations"), as applicable, and, when read together with the other
information in the Prospectuses, at the time the Registration Statement
became effective, at the time the Prospectuses were issued and at the
Closing Time (and, if any U.S. Option Units are purchased, at the Date of
Delivery), did not and will not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(iii) INDEPENDENT ACCOUNTANTS. Deloitte & Touche LLP, which are
reporting upon the audited financial statements and supporting schedules
with respect to Dura, Spiros Development Corporation ("SDC") and SDC II
incorporated by reference or included in the Registration Statement, are
independent accountants as required by the 1933 Act and the 1933 Act
Regulations.
(iv) FINANCIAL STATEMENTS. (A) The financial statements of Dura
incorporated by reference or included in the Registration Statement and the
Prospectuses, together with the related schedules and notes, present fairly
the financial position of Dura (and, for relevant periods consistent with
the Commission's rules and regulations, Dura's Subsidiaries (as defined in
clause (vii) below)) at the dates indicated and the statements of
operations, shareholders' equity and cash flows of Dura (and, for relevant
periods consistent with the Commission's rules and regulations, each of the
Subsidiaries) for the periods specified; except as otherwise stated in the
Registration Statement, said financial statements have been prepared in
conformity with generally accepted accounting principles ("GAAP") applied
on a consistent basis throughout the periods involved. The supporting
schedules, if any, included in the Registration Statement present fairly in
accordance with GAAP the information required to be stated therein. The
selected financial data and summary financial information for Dura and the
Subsidiaries included in the Prospectuses present fairly in accordance with
GAAP the information shown therein and have been compiled on a basis
consistent with that of the audited financial statements of Dura and the
Subsidiaries included in the Registration Statement. Other
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than the financial statements and schedules referred to in this paragraph
(iv), no other financial statements or schedules are required to be included
in the Registration Statement or incorporated therein by reference.
(B) The financial statements of SDC included in the Registration
Statement and the Prospectuses, together with the related schedules and
notes, present fairly the financial position of SDC at the dates indicated
and the statements of operations, shareholders' equity and cash flows of
SDC for the periods specified; EXCEPT AS OTHERWISE STATED IN THE
REGISTRATION STATEMENT, said financial statements have been prepared in
conformity with GAAP applied on a consistent basis throughout the periods
involved.
(C) The financial statements of SDC II included in the Registration
Statement and the Prospectuses, together with the related schedules and
notes, present fairly the financial position of SDC II at the date
indicated; except as otherwise stated in the Registration Statement, said
financial statements have been prepared in conformity with GAAP.
(D) The pro forma financial statements and the related notes thereto
included in the Registration Statement and the Prospectuses or incorporated
therein by reference present fairly in accordance with GAAP the information
shown therein, have been prepared in accordance with the Commission's rules
and guidelines with respect to pro forma financial statements and have been
properly compiled on the bases described therein, and the assumptions used
in the preparation thereof are reasonable and the adjustments used therein
are appropriate to give effect to the transactions and circumstances
referred to therein.
(v) NO MATERIAL ADVERSE CHANGE IN BUSINESS. Since the respective
dates as of which information is given in the Registration Statement and
the Prospectuses, except as otherwise stated therein, (A) there has been no
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of Dura and the
Subsidiaries (as defined below), considered as one enterprise, whether or
not arising in the ordinary course of business (a "Dura Material Adverse
Effect"), (B) there has been no material adverse change in the condition,
financial or otherwise, or in the earnings, business affairs or business
prospects of SDC, whether or not arising in the ordinary course of business
(an "SDC Material Adverse Effect"), (C) there has been no material adverse
change in the condition, financial or otherwise, or in the earnings,
business affairs or business prospects of SDC II, whether or not arising in
the ordinary course of business (an "SDC II Material Adverse Effect"),
(D) there have been no transactions entered into by Dura or any Subsidiary,
SDC or SDC II, other than in the ordinary course of business, which are
material with respect to Dura and the Subsidiaries, considered as one
enterprise, SDC or SDC II, respectively, and (D) there has been no dividend
or distribution of any kind declared, paid or made by each of SDC, SDC II
or Dura, on any class of its respective capital stock. As used in this
Agreement
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on the date hereof, a "Material Adverse Effect" shall mean both a Dura
Material Adverse Effect and an SDC Material Adverse Effect.
(vi) GOOD STANDING OF THE COMPANIES. (A) Dura has been duly
organized and is validly existing as a corporation in good standing under
the laws of the State of Delaware and has corporate power and authority to
own, lease and operate its properties and to conduct its business as
described in the Prospectuses and to enter into and perform its obligations
under this Agreement; and Dura is duly qualified as a foreign corporation
to transact business and is in good standing in each other jurisdiction in
which such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the failure to
so qualify or to be in good standing would not result in a Dura Material
Adverse Effect.
(B) SDC II has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware and
has corporate power and authority to own, lease and operate its properties
and to conduct its business as described in the Prospectuses and to enter
into and perform its obligations under this Agreement; and SDC II is duly
qualified as a foreign corporation to transact business and is in good
standing in each jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or the conduct of
business, except where the failure to so qualify or to be in good standing
would not result in an SDC II Material Adverse Effect.
(vii) GOOD STANDING OF SUBSIDIARIES. Dura Delivery Systems,
Inc., a Delaware corporation ("DDSI"), Health Script Pharmacy Services,
Inc., a Colorado corporation ("Health Script"), Healthco Solutions, Inc., a
Colorado corporation ("Healthco"), HS Wholesaler, Inc., a Colorado
corporation ("HS Wholesaler"), Scandi Acquisition Corp., a Delaware
corporation ("Scandi"), DCI, Ltd., a corporation organized under the laws
of the Cayman Islands ("DCI"), Dura (Bermuda) Trading Company Ltd., a
corporation organized under the laws of Bermuda ("Dura (Bermuda)") are the
only subsidiaries of Dura (DDSI, Health Script, Healthco, HS Wholesaler,
Scandi, DCI, Dura (Bermuda) and, unless otherwise indicated, SDC, are
hereinafter referred to as the "Subsidiaries"). Except for the
Subsidiaries, neither Dura nor any Subsidiary owns any shares of stock or
any other equity securities of any corporation or has any equity interests
in any firm, partnership, association or other entity other than 775,193
shares of Common Stock of Trega Biosciences, Inc. and 754,799 shares of
Common Stock of Cosmederm Technologies, Inc., each held by Dura. Each
Subsidiary has been duly organized and is validly existing as a corporation
in good standing under the laws of the jurisdiction of its incorporation,
has corporate power and authority to own, lease and operate its properties
and conduct its business as described in the Prospectuses and is duly
qualified as a foreign corporation to transact business and is in good
standing in each jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or the conduct of
business, except where the failure so to qualify or to be in good standing
would not result in a Material Adverse Effect; all of the issued and
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outstanding capital stock of each Subsidiary has been duly authorized and
validly issued, is fully paid and non-assessable and (other than with
respect to SDC) is owned solely by Dura or another Subsidiary free and
clear of any security interest, mortgage, pledge, lien, encumbrance, claim
or equity; none of the outstanding shares of capital stock of any
Subsidiary was issued in violation of the preemptive or similar rights of
any securityholder of such Subsidiary arising by operation of law, under
the charter or by-laws of such Subsidiary or under any agreement to which
Dura or such Subsidiary is a party.
(B) Upon the consummation of the SDC Purchase, all of the outstanding
shares of capital stock of SDC will be owned by Dura free and clear of any
security interest, mortgage, pledge, lien, encumbrance, claim or equity.
(viii) CAPITALIZATION. The authorized, issued and outstanding
capital stock of each of Dura and SDC II is as set forth in the
Prospectuses under the column "Actual" under the captions "Dura
Capitalization" and "Spiros Corp. II Capitalization", respectively (except,
in the case of Dura, for subsequent issuances, if any, pursuant to
reservations, agreements or employee benefit plans referred to in the
Prospectuses or incorporated by reference therein or pursuant to the
exercise of convertible securities, warrants or options referred to in the
Prospectuses or incorporated by reference therein). The shares of issued
and outstanding capital stock of each of Dura and SDC II have been duly
authorized and validly issued and are fully paid and non-assessable; none
of the outstanding shares of capital stock of Dura or SDC II was issued in
violation of the preemptive or other similar rights of any securityholder
of Dura or SDC II, respectively, arising by operation of law, under the
charter or by-laws of Dura or SDC II, as the case may be, or under any
agreement to which Dura or SDC II is a party. Except as disclosed in the
Prospectuses or incorporated by reference therein, there are no outstanding
options, warrants or other rights calling for the issuance of, and no
commitments, plans or arrangements to issue, any shares of capital stock of
Dura, SDC II or any Subsidiary or any security convertible into or
exchangeable for capital stock of Dura, SDC II or any Subsidiary.
(ix) AUTHORIZATION OF AGREEMENTS. (A) This Agreement and the
International Purchase Agreement have been duly authorized, executed and
delivered by each of Dura and SDC II.
(B) The Warrant Agreement (as hereinafter defined) has been duly
authorized by Dura, and when executed and delivered by Dura and the Warrant
Agent thereunder, will constitute a valid and binding agreement of Dura,
enforceable against Dura in accordance with its terms, except as
enforcement thereof may be limited by bankruptcy, insolvency (including,
without limitation, all laws relating to fraudulent transfers),
reorganization, moratorium or similar laws affecting enforcement of
creditors' rights generally and except as enforcement thereof is subject to
general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law).
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(C) Each of the Development Agreement, the Technology Agreement, the
Albuterol and Product Option Agreement, the Manufacturing and Marketing
Agreement and the Services Agreement (each as defined in the Prospectuses,
and collectively referred to herein as the "Transaction Agreements") has
been duly authorized by Dura and SDC II and, in the case of the Technology
Agreement, Dura, SDC II, SDC and DDSI, and when executed and delivered by
Dura and SDC II, and, in the case of the Technology Agreement, Dura, SDC
II, SDC and DDSI, will constitute valid and binding agreements of each of
Dura, SDC II, SDC and DDSI, as the case may be, enforceable against Dura,
SDC II, SDC and DDSI in accordance with their terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency (including,
without limitation, all laws relating to fraudulent transfers),
reorganization, moratorium or similar laws affecting enforcement of
creditors' rights generally and except as enforcement thereof is subject to
general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law).
(x) AUTHORIZATION AND DESCRIPTION OF UNITS. (A) The SDC II Common
Stock to be issued by SDC II as a component of the Units has been duly
authorized for issuance and sale to the U.S. Underwriters pursuant to this
Agreement and to the Managers pursuant to the International Purchase
Agreement, respectively, and, when issued and delivered by SDC II against
payment of the purchase price therefor as provided in this Agreement and
the International Purchase Agreement, respectively, will be validly issued,
fully paid and non-assessable; the SDC II Common Stock conforms in all
material respects to the statements relating thereto contained in the
Prospectuses and such description conforms to the rights set forth in the
instruments defining the same; no holder of SDC II Common Stock will be
subject to personal liability by reason of being such a holder; and the
issuance of the SDC II Common Stock is not subject to the preemptive or
other similar rights of any securityholder of SDC II.
(B) The Warrants to be issued as a component of the Units have been
duly authorized by Dura for issuance and sale to the U.S. Underwriters
pursuant to this Agreement and to the Managers pursuant to the
International Purchase Agreement, respectively, and, when duly executed,
issued and delivered by Dura and duly countersigned by the Warrant Agent
(as hereinafter defined) in the manner provided for in the Warrant
Agreement (the "Warrant Agreement") to be entered into between Dura and
ChaseMellon Shareholder Services, as warrant agent (the "Warrant Agent"),
and, when issued and delivered by Dura against payment of the purchase
price therefor as provided in this Agreement and the International Purchase
Agreement, respectively, will constitute valid and binding obligations of
Dura, entitled to the benefits of the Warrant Agreement, and will be
enforceable in accordance with its terms, except as the enforcement thereof
may be limited by bankruptcy, insolvency (including, without limitation,
all laws relating to fraudulent transfers), reorganization, moratorium or
similar laws affecting enforcement of creditors' rights generally and
except as enforcement thereof is subject to general principles of equity
(regardless of whether enforcement is
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considered in a proceeding in equity or at law); such Warrants are not
subject to the preemptive rights of any stockholder of Dura.
(C) Dura shall have available such number of shares of Dura Common
Stock deliverable upon exercise of the Warrants as is sufficient to permit
the exercise in full of the Warrants. All shares of Dura Common Stock
issued upon exercise of the Warrants, when issued and paid for in
accordance with the terms of the Warrant Agreement, will be duly
authorized, validly issued, fully paid and nonassessable; shares of Dura
Common Stock are not subject to the preemptive rights of any stockholder of
Dura; and all corporate action required to be taken for such authorization,
issue and sale of the Dura Common Stock will have been validly and
sufficiently taken upon the issuance of the Warrants; such shares of Dura
Common Stock conform in all material respects to the descriptions thereof
contained or incorporated by reference in the Prospectuses and all
corporate action required to be taken for the authorization, issue and sale
of such shares of Dura Common Stock has been validly and sufficiently
taken.
(xi) REGISTRATION OR SIMILAR RIGHTS WAIVED. There are no persons with
registration or other similar rights to have any securities registered
pursuant to the Registration Statement or otherwise registered by the
Companies under the 1933 Act who have not waived such rights.
(xii) ABSENCE OF DEFAULTS AND CONFLICTS. (A) Neither Dura nor
any Subsidiary is in violation of its charter or by-laws or in default in
the performance or observance of any obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, deed of trust,
loan or credit agreement, note, lease or other agreement or instrument to
which Dura or any Subsidiary is a party or by which it or any of them may
be bound, or to which any of the property or assets of Dura or any
Subsidiary is subject (collectively, "Agreements and Instruments") except
for such defaults that would not result in a Material Adverse Effect; and
the execution, delivery and performance of each of this Agreement, the
International Purchase Agreement, the Warrant Agreement and the Transaction
Agreements by Dura, SDC and DDSI, as the case may by, the issuance and
delivery of the Warrants and the issuance of shares of Dura Common Stock
upon the exercise of the Warrants and the consummation by Dura, SDC and
DDSI, as the case may be, of the transactions contemplated in this
Agreement, the International Purchase Agreement, the Warrant Agreement and
the Transaction Agreements and in the Registration Statement (including the
issuance and sale of the Warrants as part of the Units) and compliance by
Dura, SDC and DDSI, as the case may be, with their respective obligations
under this Agreement, the International Purchase Agreement, the Warrant
Agreement and each of the Transaction Agreements to which they are a party
have been duly authorized by all necessary corporate action and do not and
will not, whether with or without the giving of notice or passage of time
or both, conflict with or constitute a breach of, or default or Repayment
Event (as defined below) under, or result in the creation or imposition of
any lien, charge or encumbrance upon any property or assets of Dura or any
Subsidiary pursuant to, the Agreements and Instruments (except
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for such conflicts, breaches or defaults or liens, charges or
encumbrances that would not result in a Material Adverse Effect), nor
will such action result in any violation of the provisions of the charter
or by-laws of Dura or any Subsidiary or any applicable material law,
statute, rule, regulation, judgment, order, writ or decree of any
government, government instrumentality or court, domestic or foreign,
having jurisdiction over Dura or any Subsidiary or any of their assets,
properties or operations. As used herein, a "Repayment Event" means any
event or condition which gives the holder of any note, debenture or other
evidence of indebtedness (or any person acting on such holder's behalf)
the right to require the repurchase, redemption or repayment of all or a
portion of such indebtedness by Dura or any Subsidiary.
(B) SDC II is not in violation of its charter or by-laws or in
default in the performance or observance of any obligation, agreement,
covenant or condition contained in any contract, indenture, mortgage, deed
of trust, loan or credit agreement, note, lease or other agreement or
instrument to which SDC II is a party or by which it may be bound, or to
which any of the property or assets of SDC II is subject (collectively,
"SDC II Agreements and Instruments") except for such defaults that would
not result in an SDC II Material Adverse Effect; and the execution,
delivery and performance of each of this Agreement, the International
Purchase Agreement and the Transaction Agreements by SDC II and the
consummation by SDC II of the transactions contemplated herein, therein and
in the Registration Statement (including the issuance and sale of the SDC
II Common Stock as part of the Units and the use of the proceeds from the
sale of the Units as described in the Prospectuses under the caption "Use
of Proceeds") and compliance by SDC II with its obligations under this
Agreement, the International Purchase Agreement and each of the Transaction
Agreements have been duly authorized by all necessary corporate action and
do not and will not, whether with or without the giving of notice or
passage of time or both, conflict with or constitute a breach of, or
default or SDC II Repayment Event (as defined below) under, or result in
the creation or imposition of any lien, charge or encumbrance upon any
property or assets of SDC II pursuant to, the SDC II Agreements and
Instruments (except for such conflicts, breaches or defaults or liens,
charges or encumbrances that would not result in an SDC II Material Adverse
Effect), nor will such action result in any violation of the provisions of
the charter or by-laws of SDC II or any applicable material law, statute,
rule, regulation, judgment, order, writ or decree of any government,
government instrumentality or court, domestic or foreign, having
jurisdiction over SDC II or any of its assets, properties or operations.
As used herein, an "SDC II Repayment Event" means any event or condition
which gives the holder of any note, debenture or other evidence of
indebtedness (or any person acting on such holder's behalf) the right to
require the repurchase, redemption or repayment of all or a portion of such
indebtedness by SDC II.
(xiii) COMPLIANCE WITH LAWS. Except as set forth in the Prospectuses,
Dura and the Subsidiaries and SDC II are in compliance in all material
respects with all applicable laws, statutes, ordinances, rules or
regulations, the enforcement of which, individually
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or in the aggregate, would be reasonably expected to have a Material
Adverse Effect or an SDC II Material Adverse Effect, as the case may be.
(xiv) ABSENCE OF LABOR DISPUTE. No labor dispute with the employees
of Dura or any Subsidiary exists or, to the knowledge of Dura, is
imminent, and Dura is not aware of any existing or imminent labor
disturbance by the employees of any of its or any Subsidiary's principal
suppliers, manufacturers, customers or contractors, which, in either
case, may reasonably be expected to result in a Dura Material Adverse
Effect or an SDC II Material Adverse Effect.
(xv) ABSENCE OF PROCEEDINGS. There is no action, suit, proceeding,
inquiry or investigation (except applications for regulatory approval for
marketing of pharmaceutical products) before or brought by any court or
governmental agency or body, domestic or foreign, now pending or, to the
knowledge of either Dura or SDC II, threatened against or affecting Dura or
any Subsidiary or SDC II that is required to be disclosed in the
Registration Statement or that might reasonably be expected to have a
Material Adverse Effect, or an SDC II Material Adverse Effect, or which
might reasonably be expected to materially and adversely affect the
properties or assets of either Dura and the Subsidiaries (other than SDC),
considered as one enterprise, or SDC II or SDC, as the case may be, or the
consummation of the transactions contemplated in this Agreement, the
International Purchase Agreement, the Warrant Agreement and the Transaction
Agreements or the performance by Dura or SDC II of its obligations
hereunder or thereunder; the aggregate of all pending legal or governmental
proceedings to which Dura or any Subsidiary or SDC II, as the case may be,
is a party or which affect any of their respective property or assets is
subject which are not described in the Registration Statement, including
ordinary routine litigation incidental to its business, could not
reasonably be expected to result in a Material Adverse Effect or an SDC II
Material Adverse Effect, as the case may be.
(xvi) ACCURACY OF EXHIBITS. There are no contracts or documents
which are required to be described in the Registration Statement, the
Prospectuses or the documents incorporated by reference therein or to be
filed as exhibits thereto which have not been described and filed as
required.
(xvii) POSSESSION OF INTELLECTUAL PROPERTY. (A) Except as set forth
in the Prospectuses, each of Dura and the Subsidiaries owns or possesses
adequate licenses or other rights to use the patents, patent rights,
licenses, inventions, copyrights, know how (including trade secrets and
other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), which are necessary for the
operation of their businesses as presently conducted except where the
failure to so own or have the right to use would not have a Material
Adverse Effect. Except as disclosed in the Prospectuses, nothing has come
to the attention of Dura or the Subsidiaries to the effect that (1) any
product, process, method, substance, part or other material presently
contemplated to be sold by or employed by Dura or any of the Subsidiaries
in connection
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with Dura's or such Subsidiary's business may infringe any patent,
trademark, service mark, trade name, copyright, license or other right
owned by others, (2) there is pending or threatened any claim or
litigation against or affecting Dura and the Subsidiaries contesting
their right to sell or use any such product, process, method, substance,
part or other material or (3) there is, or there is pending, any patent,
invention, device, application or any applicable statute, law, rule,
regulation, standard or code, in the case of each of clause (1), (2) or
(3) above, which could have Material Adverse Effect.
(B) SDC II will, to the extent provided for in the Technology
Agreement, have the right to use all patents, patent rights, licenses,
inventions, copyrights, know how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information,
systems or procedures) owned or controlled by Dura or the Subsidiaries,
which are necessary for the operation of its business as described in the
Prospectuses. SDC II has not received any notice of proceedings relating
to revocation or modification of any such licenses, permits, certificates,
consents, orders, approvals or authorizations which singularly or in the
aggregate, if the subject of an unfavorable ruling or finding, could have a
SDC II Material Adverse Effect.
(xviii) ABSENCE OF FURTHER REQUIREMENTS. (A) No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or agency
is necessary or required for the performance by the Companies of their
obligations under this Agreement, the International Purchase Agreement,
the Warrant Agreement and the Transaction Agreements, in connection with
the offering, issuance, sale and delivery of the shares of SDC II Common
Stock, the Warrants or the shares of Dura Common Stock deliverable upon
exercise of the Warrants or the consummation of the transactions
contemplated by this Agreement, the International Purchase Agreement, the
Warrant Agreement and the Transaction Agreements, except such as have
been already obtained or as may be required under the 1933 Act or the
1933 Act Regulations and foreign or state securities or blue sky laws.
(B) No filing with, or authorization, approval, consent, license,
order, registration, qualification or decree of, any court or governmental
authority or agency is necessary or required for the consummation by SDC
and DDSI of the transactions contemplated by this Agreement, except such as
have already been obtained.
(xix) POSSESSION OF LICENSES AND PERMITS. Dura and the Subsidiaries
and SDC II possess such permits, licenses, approvals, consents and other
authorizations (collectively, "Governmental Licenses") issued by the
appropriate federal, state, local or foreign regulatory agencies or
bodies material to the conduct of the business now operated by Dura, the
Subsidiaries and SDC II, respectively; Dura and the Subsidiaries and SDC
II are in compliance with the terms and conditions of all such
Governmental Licenses, except where the failure so to comply would not,
singly or in the aggregate, have a Material Adverse Effect or a SDC II
Material Adverse Effect, as the case may be; all of the Governmental
Licenses are valid and in full force and effect, except when the
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invalidity of such Governmental Licenses or the failure of such
Governmental Licenses to be in full force and effect would not have a
Material Adverse Effect or a SDC II Material Adverse Effect, as the case
may be; and neither Dura nor any Subsidiary nor SDC II has received any
notice of proceedings relating to the revocation or modification of any
such Governmental Licenses which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would result in a
Material Adverse Effect or an SDC II Material Adverse Effect; provided,
however, that no FDA approval has been received with respect to products
that Dura, the Subsidiaries or SDC II currently are not permitted to
market.
(xx) TITLE TO PROPERTY. Dura and the Subsidiaries have good and
marketable title to all material properties and assets owned by Dura and
the Subsidiaries, in each case, free and clear of all mortgages, pledges,
liens, security interests, claims, restrictions or encumbrances of any kind
except such as (a) are described or incorporated by reference in the
Prospectuses or (b) do not, singly or in the aggregate, materially affect
the value of such property and do not interfere with the use made and
proposed to be made of such property by Dura or the affected Subsidiaries,
as the case may be; and all properties held under lease by Dura or any
Subsidiary are held under valid, subsisting and enforceable leases.
(B) SDC II has good and marketable title to all material properties
and assets described in the Prospectuses as owned by it, free and clear of
all mortgages, pledges, liens, security interests, claims, restrictions or
encumbrances of any kind except such as (a) are described in the
Prospectuses or (b) do not, singly or in the aggregate, materially affect
the value of such property and do not interfere with the use made and
proposed to be made of such property by SDC II.
(xxi) COMPLIANCE WITH CUBA ACT. Dura has complied with, and is and
will be in compliance with, the provisions of that certain Florida act
relating to disclosure of doing business with Cuba, codified as Section
517.075 of the Florida statutes, and the rules and regulations thereunder
(collectively, the "Cuba Act") or is exempt therefrom.
(xxii) INVESTMENT COMPANY ACT. Neither of the Companies is and, upon
the issuance and sale of the Units as herein contemplated and the
application of the net proceeds therefrom as described in the
Prospectuses, will not be an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in the
Investment Company Act of 1940, as amended (the "1940 Act").
(xxiii) ENVIRONMENTAL LAWS. Except as described in the Registration
Statement and except as would not, singly or in the aggregate, result in a
Dura Material Adverse Effect, (A) neither Dura nor any Subsidiary is in
material violation of any federal, state, local or foreign law, rule,
regulation, ordinance or any judicial or administrative interpretation
thereof, including any judicial or administrative order, consent, decree or
judgment, relating to pollution or protection of human health, the
environment (including,
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without limitation, ambient air, surface water, groundwater, land surface
or subsurface strata) or wildlife, including, without limitation, laws
and regulations relating to the release or threatened release of
chemicals, pollutants, contaminants, wastes, toxic substances, hazardous
substances, petroleum or petroleum products (collectively, "Hazardous
Materials") or to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous
Materials (collectively, "Environmental Laws"), (B) Dura and the
Subsidiaries have all permits, authorizations and approvals required
under any applicable Environmental Laws and are each in compliance with
their requirements, (C) there are no pending or, to the best knowledge of
Dura, threatened administrative, regulatory or judicial actions, suits,
demands, demand letters, claims, liens, notices of noncompliance or
violation, investigation or proceedings relating to any Environmental Law
against Dura or any of the Subsidiaries and (iv) to the best knowledge of
Dura, there are no events or circumstances that could form the basis of
an order for clean-up or remediation, or an action, suit or proceeding by
any private party or governmental body or agency, against or affecting
Dura or any Subsidiary relating to Hazardous Materials or any
Environmental Laws.
(xxiv) TAXES. Dura and the Subsidiaries have filed all federal,
state, local and foreign tax returns that are required to be filed or
have duly requested extensions thereof and have paid all taxes required
to be paid by any of them and any related assessments, fines or
penalties, except for any such tax, assessment, fine or penalty that is
being contested in good faith and by appropriate proceedings; and
adequate charges, accruals and reserves have been provided for in the
financial statements referred to in Section 1(a)(iv)(A) above in respect
of all federal, state, local and foreign taxes for all periods as to
which the tax liability of Dura or any Subsidiary has not been finally
determined or remains open to examination by applicable taxing
authorities.
(xxv) INSURANCE. Dura and the Subsidiaries carry or are entitled to
the benefits of insurance in such amounts and covering such risks as is
generally maintained by companies of established repute engaged in the
same or similar business and all such insurance is in full force and
effect.
(xxvi) ACCOUNTING CONTROLS. Dura and the Subsidiaries maintain a
system of internal accounting controls sufficient to provide reasonable
assurance that (A) transactions are executed in accordance with
management's general and specific authorizations; (B) transactions are
recorded as necessary to permit preparations of financial statements in
conformity with GAAP and to maintain accountability for assets; (C)
access to assets is permitted only in accordance with management's
general or specific authorizations; and (D) the recorded accountability
for assets is compared with the existing assets at reasonable intervals
and appropriate action is taken with respect to any differences.
(xxvii) LOCK-UP AGREEMENTS. The Companies have obtained and delivered
to the U.S. Underwriters the agreements, in the form of Exhibit D hereto,
of the persons and
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entities named in Schedule C annexed hereto to the effect that each such
person will not, for a period of 90 days from the date of this Agreement
and except as otherwise provided in their respective agreement, without
the prior written consent of Merrill Lynch, directly or indirectly, offer
to sell, grant any option for the sale of, or otherwise dispose of any
shares of Dura Common Stock or any securities convertible into or
exercisable for shares of Dura Common Stock owned by such person or
entity or with respect to which such person has the power of disposition.
(xxviii) AFFILIATE TRANSACTIONS. No relationship, direct or indirect,
exists between or among any of Dura or any affiliate of Dura, on the one
hand, and any director, officer, shareholder, customer or supplier of any
of them, on the other hand, which is required by the 1933 Act or by the
1933 Act Regulations to be described in the Registration Statement or the
Prospectuses and which is not so described or is not described as required
or is not incorporated by reference therein.
(xxix) DISTRIBUTION OF PROSPECTUSES. The Companies have not
distributed and, prior to the later to occur of (A) Closing Time and (B)
completion of the distribution of the Units, will not distribute any
prospectus (as such term is defined in the 1933 Act and the 1933 Act
Regulations) in connection with the offering and sale of the Units other
than the Registration Statement, any preliminary prospectus, the
Prospectuses or other materials, if any, permitted by the 1933 Act or by
the 1933 Act Regulations and approved by the U.S. Representatives.
(b) OFFICER'S CERTIFICATES. Any certificate signed by any officer of Dura
or any Subsidiary or SDC II, delivered to the Global Coordinator, the U.S.
Representatives or to counsel for the U.S. Underwriters shall be deemed a
representation and warranty by Dura or SDC II, as the case may be, to each U.S.
Underwriter as to the matters covered thereby.
SECTION 2. SALE AND DELIVERY TO U.S. UNDERWRITERS; CLOSING.
(a) INITIAL U.S. UNITS. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Companies, severally and not jointly, agree to sell to each U.S.
Underwriter, and each U.S. Underwriter, severally and not jointly, agrees to
purchase from the Companies, at the price per Unit set forth in Schedule B, the
number of Initial U.S. Units set forth in Schedule A opposite the name of such
U.S. Underwriter, plus any additional number of Initial U.S. Units that such
U.S. Underwriter may become obligated to purchase pursuant to the provisions of
Section 10 hereof.
(b) U.S. OPTION UNITS. In addition, on the basis of the representations
and warranties herein contained and subject to the terms and conditions herein
set forth, the Companies, acting severally and not jointly, hereby grant an
option to the U.S. Underwriters, severally and not jointly, to purchase up to an
additional 562,500 Units at the same price per Unit set forth in Schedule B for
the Initial U.S. Units. The option hereby granted will expire 30 days after the
date hereof and may be exercised in whole or in part from time to time only for
the purpose of
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covering over-allotments which may be made in connection with the offering
and distribution of the Initial U.S. Units upon notice by the Global
Coordinator to the Companies setting forth the number of U.S. Option Units as
to which the several U.S. Underwriters are then exercising the option and the
time and date of payment and delivery for such U.S. Option Units. Any such
time and date of delivery (a "Date of Delivery") shall be determined by the
Global Coordinator, but shall not be later than seven full business days
after the exercise of said option, nor in any event prior to the Closing
Time, as hereinafter defined. If the option is exercised as to all or any
portion of the U.S. Option Units, each of the U.S. Underwriters, acting
severally and not jointly, will purchase that proportion of the total number
of U.S. Option Units then being purchased which the number of Initial U.S.
Units set forth in Schedule A opposite the name of such U.S. Underwriter
bears to the total number of Initial U.S. Units, subject in each case to such
adjustments as the Global Coordinator in its discretion shall make to
eliminate any sales or purchases of fractional Units.
(c) PAYMENT. Payment of the purchase price for, and delivery of
certificates for, the Initial U.S. Units shall be made at the offices of
Brobeck, Phleger & Harrison LLP, 550 West C Street, Suite 1300, San Diego,
California 92101, or at such other place as shall be agreed upon by the Global
Coordinator and the Companies, at 7:00 A.M. (California time) on the third
(fourth, if the pricing occurs after 4:30 P.M. (Eastern time) on any given day)
business day after the date hereof (unless postponed in accordance with the
provisions of Section 10), or such other time not later than ten business days
after such date as shall be agreed upon by the Global Coordinator and the
Companies (such time and date of payment and delivery being herein called
"Closing Time").
In addition, in the event that any or all of the U.S. Option Units are
purchased by the U.S. Underwriters, payment of the purchase price for, and
delivery of certificates for, such U.S. Option Units shall be made at the
above-mentioned offices, or at such other place as shall be agreed upon by the
Global Coordinator and the Companies, on each Date of Delivery as specified in
the notice from the Global Coordinator to the Companies.
Payment shall be made to the Companies by wire transfer of immediately
available funds to a bank account designated by the Companies against delivery
to the U.S. Representatives of certificates for the respective accounts of the
U.S. Underwriters of certificates for the U.S. Units to be purchased by them.
It is understood that each U.S. Underwriter has authorized the U.S.
Representatives, for its account, to accept delivery of, receipt for, and make
payment of the purchase price for, the Initial U.S. Units and the U.S. Option
Units, if any, that it has agreed to purchase. Merrill Lynch, individually and
not as representative of the U.S. Underwriters, may (but shall not be obligated
to) make payment of the purchase price for the Initial U.S. Units or the U.S.
Option Units, if any, to be purchased by any U.S. Underwriter whose funds have
not been received by the Closing Time or the relevant Date of Delivery, as the
case may be, but such payment shall not relieve such U.S. Underwriter from its
obligations hereunder.
(d) DENOMINATIONS; REGISTRATION. Certificates for the Initial U.S. Units
and the U.S. Option Units, if any, shall be in such denominations and registered
in such names as the U.S.
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Representatives may request in writing at least one full business day before
the Closing Time or the relevant Date of Delivery, as the case may be. The
certificates for the Initial U.S. Units and the U.S. Option Units, if any,
will be made available for examination and packaging by the U.S. Underwriters
in The City of New York not later than 10:00 A.M. (Eastern time) on the
business day prior to the Closing Time or the relevant Date of Delivery, as
the case may be.
SECTION 3. COVENANTS OF THE COMPANIES. Each of the Companies covenants
with each U.S. Underwriter as follows:
(a) COMPLIANCE WITH SECURITIES REGULATIONS AND COMMISSION REQUESTS.
The Companies, subject to Section 3(b), will comply with the requirements
of Rule 430A or Rule 434, as applicable, and will notify the Global
Coordinator immediately, and confirm the notice in writing, (i) when any
post-effective amendment to the Registration Statement shall become
effective, or any supplement to the Prospectuses or any amended
Prospectuses shall have been filed, (ii) of the receipt of any comments
from the Commission, (iii) of any request by the Commission for any
amendment to the Registration Statement or any amendment or supplement to
the Prospectuses or for additional information and (iv) of the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement or of any order preventing or suspending the use of
any preliminary prospectus, or of the suspension of the qualification of
the Units for offering or sale in any jurisdiction, or of the initiation or
threatening of any proceedings for any of such purposes. The Companies
will promptly effect the filings necessary pursuant to Rule 424(b) and will
take such steps as they deem necessary to ascertain promptly whether the
form of prospectus transmitted for filing under Rule 424(b) was received
for filing by the Commission and, in the event that it was not, will
promptly file such prospectus. The Companies will make every reasonable
effort to prevent the issuance of any stop order and, if any stop order is
issued, to obtain the lifting thereof at the earliest possible moment.
(b) FILING OF AMENDMENTS. The Companies will give the Global
Coordinator notice of their intention to file or prepare any amendment to
the Registration Statement (including any filing under Rule 462(b)), any
Term Sheet or any amendment, supplement or revision to either the
prospectus included in the Registration Statement at the time it became
effective or to the Prospectuses, whether pursuant to the 1933 Act, the
1934 Act or otherwise, will furnish the Global Coordinator with copies of
any such documents a reasonable amount of time prior to such proposed
filing or use, as the case may be, and will not file or use any such
document to which the Global Coordinator or counsel for the U.S.
Underwriters shall object.
(c) DELIVERY OF REGISTRATION STATEMENT. The Companies have furnished
or will deliver to the U.S. Representatives and counsel for the U.S.
Underwriters, without charge, signed copies of the Registration Statement
as originally filed and of each amendment thereto (including exhibits filed
therewith or incorporated by reference therein and documents incorporated
or deemed to be incorporated by reference therein)
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and signed copies of all consents and certificates of experts, and will
also deliver to the U.S. Representatives, without charge, a conformed
copy of the Registration Statement as originally filed and of each
amendment thereto (without exhibits) for each of the U.S. Underwriters.
The copies of the Registration Statement and each amendment thereto
furnished to the U.S. Underwriters will be identical to the
electronically transmitted copies thereof filed with the Commission
pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(d) DELIVERY OF PROSPECTUSES. The Companies have delivered to each
U.S. Underwriter, without charge, as many copies of each preliminary
prospectus as such U.S. Underwriter reasonably requested, and the Companies
hereby consent to the use of such copies for purposes permitted by the 1933
Act. The Companies will furnish to each U.S. Underwriter, without charge,
during the period when the U.S. Prospectus is required to be delivered
under the 1933 Act or the 1934 Act, such number of copies of the U.S.
Prospectus (as amended or supplemented) as such U.S. Underwriter may
reasonably request. The U.S. Prospectus and any amendments or supplements
thereto furnished to the U.S. Underwriters will be identical to the
electronically transmitted copies thereof filed with the Commission
pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(e) CONTINUED COMPLIANCE WITH SECURITIES LAWS. The Companies will
comply with the 1933 Act and the 1933 Act Regulations and the 1934 Act and
the 1934 Act Regulations so as to permit the completion of the distribution
of the Units as contemplated in this Agreement, the International Purchase
Agreement and in the Prospectuses. If at any time when a prospectus is
required by the 1933 Act to be delivered in connection with sales of the
Units, any event shall occur or condition shall exist as a result of which
it is necessary, in the opinion of counsel for the U.S. Underwriters or for
the Companies, to amend the Registration Statement or amend or supplement
any Prospectus in order that the Prospectuses will not include any untrue
statements of a material fact or omit to state a material fact necessary in
order to make the statements therein not misleading in the light of the
circumstances existing at the time any such Prospectus is delivered to a
purchaser, or if it shall be necessary, in the opinion of such counsel, at
any such time to amend the Registration Statement or amend or supplement
any Prospectus in order to comply with the requirements of the 1933 Act or
the 1933 Act Regulations, the Companies will promptly prepare and file with
the Commission, subject to Section 3(b), such amendment or supplement as
may be necessary to correct such statement or omission or to make the
Registration Statement or the Prospectuses comply with such requirements,
and the Companies will furnish to the U.S. Underwriters such number of
copies of such amendment or supplement as the U.S. Underwriters may
reasonably request.
(f) RULE 158. The Companies will timely file such reports pursuant
to the 1934 Act as are necessary in order to make generally available to
their securityholders
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as soon as practicable an earnings statement for the purposes of, and to
provide the benefits contemplated by, the last paragraph of Section 11(a)
of the 1933 Act.
(g) USE OF PROCEEDS. SDC II will use the net proceeds received by it
from the sale of the Units in the manner specified in the Prospectuses
under "Use of Proceeds".
(h) LISTING. The Companies will use their best efforts to effect and
maintain the quotation of the Units on the Nasdaq National Market and will
file with the Nasdaq National Market all documents and notices required by
the Nasdaq National Market of companies that have securities that are
traded in the over-the-counter market and quotations for which are reported
by the Nasdaq National Market.
(i) RESTRICTION ON SALE OF DURA COMMON STOCK. During a period of 90
days from the date of the Prospectuses, Dura will not, without the prior
written consent of the Global Coordinator, (i) directly or indirectly,
offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right
or warrant to purchase or otherwise transfer or dispose of any shares of
Dura Common Stock or any securities convertible into or exercisable or
exchangeable for shares of Dura Common Stock or file any registration
statement under the 1933 Act with respect to any of the foregoing or
(ii) enter into any swap or any other agreement or any transaction that
transfers, in whole or in part, directly or indirectly, the economic
consequence of ownership of Dura Common Stock whether any such swap or
transaction described in clause (i) or (ii) above is to be settled by
delivery of shares of Dura Common Stock or such other securities, in cash
or otherwise. The foregoing sentence shall not apply to (A) the Units to
be sold hereunder or under the International Purchase Agreement, (B) any
shares of Dura Common Stock issued by Dura upon the exercise of an option
or warrant or the conversion of a security outstanding on the date hereof
and referred to in, or incorporated by reference into, the Prospectuses,
(C) any shares of Dura Common Stock issued or options to purchase Dura
Common Stock granted pursuant to existing employee benefit plans of Dura
referred to in, or incorporated by reference into, the Prospectuses or (D)
any shares of Dura Common Stock issued to stockholders of SDC in connection
with the acquisition of all of the outstanding stock of SDC pursuant to a
registration statement on Form S-3 filed with the Commission on October 15,
1997, as amended (No. 333-37955).
(j) REPORTING REQUIREMENTS. The Companies, during the period when the
Prospectuses are required to be delivered under the 1933 Act or the 1934
Act, will file all documents required to be filed with the Commission
pursuant to the 1934 Act within the time periods required by the 1934 Act
and the 1934 Act Regulations.
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(k) COMPLIANCE WITH NASD RULES. The Companies hereby agree that they
will ensure that the Reserved Units will be restricted as required by the
National Association of Securities Dealers, Inc. (the "NASD") or the NASD
rules from sale, transfer, assignment, pledge or hypothecation for a period
of three months following the date of this Agreement. The U.S.
Underwriters will notify the Companies as to which persons will need to be
so restricted. At the request of the Underwriters, the Companies will
direct the transfer agent to place a stop transfer restriction upon such
securities for such period of time. Should the Companies release, or seek
to release, from such restrictions any of the Reserved Units, the Companies
agree to reimburse the U.S. Underwriters for any reasonable expenses
(including, without limitation, legal expenses) they incur in connection
with such release.
SECTION 4. PAYMENT OF EXPENSES.
(a) EXPENSES. SDC II will pay or cause to be paid all expenses incident
to the performance of the Companies' obligations under this Agreement, including
(i) the preparation, printing and filing of the Registration Statement
(including financial statements and exhibits) as originally filed and of each
amendment thereto, (ii) the preparation, printing and delivery to the
Underwriters of this Agreement, any Agreement among Underwriters, the Warrant
Agreement and such other documents as may be required in connection with the
offering, purchase, sale, issuance or delivery of the Units, (iii) the
preparation, issuance and delivery of the certificates for the Units to the
Underwriters, including any stock or other transfer taxes and any stamp or other
duties payable upon the sale, issuance or delivery of the Units to the
Underwriters and the transfer of the Units between the U.S. Underwriters and the
Managers, (iv) the fees and disbursements of the Companies' counsel, accountants
and other advisors, (v) the fees and disbursements of SDC's counsel, accountants
and other advisors, (vi) the printing and delivery to the Underwriters of copies
of each preliminary prospectus, any Term Sheets and of the Prospectuses and any
amendments or supplements thereto, (vii) the preparation, printing and delivery
to the Underwriters of copies of the Blue Sky Survey and any supplement thereto,
(viii) the fees and expenses of any transfer agent or registrar for the Units,
(ix) all charges of the Warrant Agent, (x) the filing fees incident to, and the
reasonable fees and disbursements of counsel to the Underwriters in connection
with, the review by the NASD of the terms of the sale of the Units, (xi) the
fees and expenses incurred in connection with the listing of the Units, the
SDC II Common Stock and the Warrants on the Nasdaq National Market and (xii) all
costs and expenses of the U.S. Underwriters, including the fees and
disbursements of counsel for the U.S. Underwriters, in connection with matters
related to the Reserved Units that are designated by the Companies for sale to
employees and others having a business relationship with the Companies.
(b) TERMINATION OF AGREEMENT. If this Agreement is terminated by the U.S.
Representatives in accordance with the provisions of Section 5, Section 9(a)(i)
or Section 11, the Companies shall reimburse the U.S. Representatives for all of
their out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the U.S. Underwriters.
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SECTION 5. CONDITIONS OF U.S. UNDERWRITERS' OBLIGATIONS. The
obligations of the several U.S. Underwriters hereunder are subject to the
accuracy of the representations and warranties of the Companies contained in
Section 1 hereof or in certificates of any officer of the Companies or any
Subsidiary delivered pursuant to the provisions hereof, to the performance by
the Companies of their covenants and other obligations hereunder, and to the
following further conditions:
(a) EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration
Statement, including any Rule 462(b) Registration Statement has become
effective and at Closing Time no stop order suspending the effectiveness of
the Registration Statement shall have been issued under the 1933 Act or
proceedings therefor initiated or threatened by the Commission, and any
request on the part of the Commission for additional information shall have
been complied with to the reasonable satisfaction of counsel to the U.S.
Underwriters. A prospectus containing the Rule 430A Information shall have
been filed with the Commission in accordance with Rule 424(b) (or a
post-effective amendment providing such information shall have been filed
and declared effective in accordance with the requirements of Rule 430A) or,
if the Companies have elected to rely upon Rule 434, a Term Sheet shall have
been filed with the Commission in accordance with Rule 424(b).
(b) OPINION OF COUNSEL FOR THE COMPANIES. At Closing Time, the U.S.
Representatives shall have received the favorable opinion, dated as of
Closing Time, of Brobeck, Phleger & Harrison LLP, counsel for Dura and SDC
II, in form and substance satisfactory to counsel for the U.S.
Underwriters, and, to the extent provided in Exhibit A hereto, Mitchell R.
Woodbury, General Counsel for Dura, together with signed or reproduced
copies of such letters for each of the other U.S. Underwriters, to the
effect set forth in Exhibit A hereto.
(c) OPINION OF PATENT COUNSEL FOR THE COMPANIES. At Closing Time,
the U.S. Representatives shall have received the favorable opinion, dated
as of Closing Time, of Lyon & Lyon LLP (solely with respect to patents
concerning the Spiros products), patent counsel for the Companies, in form
and substance satisfactory to counsel for the U.S. Underwriters, together
with signed or reproduced copies of such letter for each of the other U.S.
Underwriters, to the effect set forth in Exhibit B hereto.
(d) OPINION OF REGULATORY COUNSEL FOR THE COMPANIES. At Closing
Time, the U.S. Representatives shall have received the favorable opinion,
dated as of Closing Time, of Kleinfeld, Kaplan and Becker, regulatory
counsel for the Companies, in form and substance satisfactory to counsel
for the U.S. Underwriters, together with signed or reproduced copies of
such letter for each of the other U.S. Underwriters, to the effect set
forth in Exhibit C hereto.
(e) OPINION OF COUNSEL FOR THE U.S. UNDERWRITERS. At Closing Time,
the U.S. Representatives shall have received the favorable opinion, dated
as of Closing Time, of
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Shearman & Sterling, counsel for the U.S. Underwriters, together with signed
or reproduced copies of such letter for each of the other U.S. Underwriters,
with respect to the issuance and sale of the Units and other related
matters as the Representatives may reasonably require. In giving such
opinion, such counsel may rely, as to all matters governed by the laws of
jurisdictions other than the law of the State of New York and the federal
law of the United States upon the opinions of counsel satisfactory to the
U.S. Representatives. Such counsel may also state that, insofar as such
opinion involves factual matters, they have relied, to the extent they deem
proper, upon certificates of officers of the Companies and the Subsidiaries
and certificates of public officials.
(f) OFFICERS' CERTIFICATE. At Closing Time, there shall not have
been, since the date hereof or since the respective dates as of which
information is given in the Prospectuses, any Dura Material Adverse Effect,
SDC Material Adverse Effect or SDC II Material Adverse Effect, whether or
not arising in the ordinary course of business, and the U.S.
Representatives shall have received a certificate of the President or a
Vice President of Dura and of the chief financial or chief accounting
officer of Dura, and the President or a Vice President of SDC II and of the
chief financial or chief accounting officer of SDC II, dated as of the
Closing Time, to the effect that (i) there has been no such material
adverse effect, (ii) the representations and warranties of Dura and SDC II
set forth in Section 1(a) hereof are true and correct with the same force
and effect as though expressly made at and as of the Closing Time,
(iii) each of Dura and SDC II shall have complied with all agreements and
satisfied all conditions on its part to be performed or satisfied at or
prior to Closing Time, and (iv) no stop order suspending the effectiveness
of the Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or are contemplated by the
Commission.
(g) ACCOUNTANTS' COMFORT LETTER. At the time of the execution of
this Agreement, the U.S. Representatives shall have received from Deloitte
& Touche LLP a letter, dated such date, in form and substance satisfactory
to the U.S. Representatives, together with signed or reproduced copies of
such letter for each of the other U.S. Underwriters, containing statements
and information of the type ordinarily included in accountants' "comfort
letters" to underwriters with respect to the financial statements and
certain financial information contained in the Registration Statement and
the Prospectuses.
(h) BRING-DOWN COMFORT LETTER. At Closing Time, the U.S.
Representatives shall have received from Deloitte & Touche LLP a letter,
dated as of Closing Time, to the effect that they reaffirm the statements
made in the letter furnished pursuant to
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subsection (g) of this Section 5, except that the specified date referred to
shall be a date not more than three business days prior to Closing Time.
(i) APPROVAL OF LISTING. At Closing Time, the Units shall have been
approved for inclusion in the Nasdaq National Market, subject only to
official notice of issuance.
(j) NO OBJECTION. The NASD has confirmed that it has not raised any
objection with respect to the fairness and reasonableness of the
underwriting terms and arrangements.
(k) LOCK-UP AGREEMENTS. At the date of this Agreement, the U.S.
Underwriters shall have received an agreement substantially in the form of
Exhibit D hereto signed by the persons listed on Schedule C hereto.
(l) PURCHASE OF INITIAL INTERNATIONAL UNITS. Contemporaneously with
the purchase by the U.S. Underwriters of the Initial U.S. Units under this
Agreement, the Managers shall have purchased the Initial International
Units under the International Purchase Agreement.
(m) CONDITIONS TO PURCHASE OF U.S. OPTION UNITS. In the event that
the U.S. Underwriters exercise their option provided in Section 2(b) hereof
to purchase all or any portion of the U.S. Option Units, the
representations and warranties of the Companies contained herein and the
statements in any certificates furnished by the Companies and any
Subsidiary hereunder shall be true and correct as of each Date of Delivery
and, at the relevant Date of Delivery, the U.S. Representatives shall have
received:
(i) OFFICERS' CERTIFICATE. A certificate, dated such Date of
Delivery, of the President or a Vice President of each of the
Companies and of the chief financial or chief accounting officer of
each of the Companies confirming that the certificate delivered at the
Closing Time pursuant to Section 5(f) remains true and correct as of
such Date of Delivery.
(ii) OPINIONS OF COUNSEL FOR THE COMPANIES. The favorable
opinions of Brobeck, Phleger & Harrison LLP, counsel for the
Companies, Lyon & Lyon, patent counsel for the Companies, and
Kleinfeld, Kaplan and Becker, regulatory counsel for the Companies,
each in form and substance satisfactory to counsel for the U.S.
Underwriters, dated such Date of Delivery, relating to the U.S. Option
Units to be purchased on such Date of Delivery and otherwise to the
same effect as the opinions required by Sections 5(b), 5(c) and 5(d).
(iii)OPINION OF COUNSEL FOR THE U.S. UNDERWRITERS. The
favorable opinion of Shearman & Sterling, counsel for the U.S.
Underwriters, dated such Date of Delivery, relating to the U.S. Option
Units to be purchased on such Date
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of Delivery and otherwise to the same effect as the opinion required
by Section 5(e).
(iv) BRING-DOWN COMFORT LETTER. A letter from Deloitte & Touche
LLP, in form and substance satisfactory to the U.S. Representatives
and dated such Date of Delivery, substantially in the same form and
substance as the letter furnished to the U.S. Representatives pursuant
to Section 5(h), except that the "specified date" in the letter
furnished pursuant to this paragraph shall be a date not more than
five days prior to such Date of Delivery.
(n) ADDITIONAL DOCUMENTS. At Closing Time and at each Date of
Delivery, counsel for the U.S. Underwriters shall have been furnished with
such documents and opinions as they may require for the purpose of enabling
them to pass upon the issuance and sale of the Units as herein
contemplated, or in order to evidence the accuracy of any of the
representations or warranties, or the fulfillment of any of the conditions,
herein contained; and all proceedings taken by the Companies in connection
with the issuance and sale of the Units as herein contemplated shall be
reasonably satisfactory in form and substance to the U.S. Representatives
and counsel for the U.S. Underwriters.
(o) TERMINATION OF AGREEMENT. If any condition specified in this
Section 5 shall not have been fulfilled when and as required to be
fulfilled, this Agreement, or, in the case of any condition to the purchase
of U.S. Option Units, on a Date of Delivery which is after the Closing
Time, the obligations of the U.S. Underwriters to purchase the relevant
U.S. Option Units, may be terminated by the U.S. Representatives by notice
to the Companies at any time at or prior to Closing Time or such Date of
Delivery, as the case may be, and such termination shall be without
liability of any party to any other party except as provided in Section 4
and except that Sections 1, 6, 7 and 8 shall survive any such termination
and remain in full force and effect.
SECTION 6. INDEMNIFICATION.
(a) INDEMNIFICATION OF U.S. UNDERWRITERS. The Companies, jointly and
severally, agree to indemnify and hold harmless each U.S. Underwriter and each
person, if any, who controls any U.S. Underwriter within the meaning of
Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(or any amendment thereto), including the Rule 430A Information and the
Rule 434 Information, if applicable, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to
make the statements therein not misleading or arising out of any untrue
statement or alleged untrue statement of a material fact included in any
preliminary prospectus or the Prospectuses (or any amendment or supplement
thereto), or the omission or alleged
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omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission; provided that (subject to Section
6(d) below) any such settlement is effected with the written consent of the
Companies; and
(iii)against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill Lynch),
reasonably incurred in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency
or body, commenced or threatened, or any claim whatsoever based upon any
such untrue statement or omission, or any such alleged untrue statement or
omission, to the extent that any such expense is not paid under (i) or (ii)
above;
PROVIDED, HOWEVER, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Companies by
any U.S. Underwriter through the U.S. Representatives expressly for use in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any preliminary
prospectus or the U.S. Prospectus (or any amendment or supplement thereto).
(b) INDEMNIFICATION OF THE COMPANIES, DIRECTORS AND OFFICERS. Each U.S.
Underwriter severally agrees to indemnify and hold harmless the Companies, their
directors, each of their officers who signed the Registration Statement, and
each person, if any, who controls either of the Companies within the meaning of
Section 15 of the 1933 Act or Section 20 of the 1934 Act, against any and all
loss, liability, claim, damage and expense described in the indemnity contained
in subsection (a) of this Section 6, as incurred, but only with respect to
untrue statements or omissions, or alleged untrue statements or omissions, made
in the Registration Statement (or any amendment thereto), including the Rule
430A Information and the Rule 434 Information, if applicable, or any preliminary
U.S. prospectus or the U.S. Prospectus (or any amendment or supplement thereto)
in reliance upon and in conformity with written information furnished to the
Companies by such U.S. Underwriter through the U.S. Representatives expressly
for use in the Registration Statement (or any amendment thereto) or such
preliminary prospectus or the U.S. Prospectus (or any amendment or supplement
thereto).
(c) ACTIONS AGAINST PARTIES; NOTIFICATION. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the
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extent it is not materially prejudiced as a result thereof and in any event
shall not relieve it from any liability which it may have otherwise than on
account of this indemnity agreement. In the case of parties indemnified
pursuant to Section 6(a) above, counsel to the indemnified parties shall be
selected by Merrill Lynch, and, in the case of parties indemnified pursuant
to Section 6(b) above, counsel to the indemnified parties shall be selected
by the Companies. An indemnifying party may participate at its own expense
in the defense of any such action; PROVIDED, HOWEVER, that counsel to the
indemnifying party shall not (except with the consent of the indemnified
party) also be counsel to the indemnified party. In no event shall the
indemnifying parties be liable for fees and expenses of more than one counsel
(in addition to any local counsel) separate from their own counsel for all
indemnified parties in connection with any one action or separate but similar
or related actions in the same jurisdiction arising out of the same general
allegations or circumstances. No indemnifying party shall, without the prior
written consent of the indemnified parties, settle or compromise or consent
to the entry of any judgment with respect to any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever in respect of which indemnification or
contribution could be sought under this Section 6 or Section 7 hereof
(whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising
out of such litigation, investigation, proceeding or claim and (ii) does not
include a statement as to or an admission of fault, culpability or a failure
to act by or on behalf of any indemnified party.
(d) SETTLEMENT WITHOUT CONSENT IF FAILURE TO REIMBURSE. If at any time an
indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 6(a) effected without its written consent if (i) such settlement is
entered into more than 45 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.
(e) INDEMNIFICATION FOR RESERVED UNITS. In connection with the offer and
sale of the Reserved Units, the Companies agree, promptly upon a request in
writing, to indemnify and hold harmless the U.S. Underwriters from and against
any and all losses, liabilities, claims, damages and expenses incurred by them
as a result of the failure of eligible directors, officers, employees, business
associates and related persons of the Companies to pay for and accept delivery
of Reserved Units which, by the end of the first business day following the date
of this Agreement, were subject to a properly confirmed agreement to purchase.
SECTION 7. CONTRIBUTION. If the indemnification provided for in
Section 6 hereof is for any reason unavailable to or insufficient to hold
harmless an indemnified party in respect of any losses, liabilities, claims,
damages or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount of such losses, liabilities, claims, damages
and
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expenses incurred by such indemnified party, as incurred, (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Companies on the one hand and the U.S. Underwriters on the other hand from
the offering of the Units pursuant to this Agreement or (ii) if the
allocation provided by clause (i) is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Companies
on the one hand and of the U.S. Underwriters on the other hand in connection
with the statements or omissions that resulted in such losses, liabilities,
claims, damages or expenses, as well as any other relevant equitable
considerations.
The relative benefits received by the Companies on the one hand and the
U.S. Underwriters on the other hand in connection with the offering of the Units
pursuant to this Agreement shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the Units pursuant to
this Agreement (before deducting expenses) received by the Companies and the
total underwriting discount received by the U.S. Underwriters, in each case as
set forth on the cover of the U.S. Prospectus, or, if Rule 434 is used, the
corresponding location on the Term Sheet, bear to the aggregate initial public
offering price of the Units as set forth on such cover.
The relative fault of the Companies on the one hand and the U.S.
Underwriters on the other hand shall be determined by reference to, among other
things, whether any such untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Companies or by the U.S. Underwriters and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Companies and the U.S. Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the U.S. Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 7. The aggregate
amount of losses, liabilities, claims, damages and expenses incurred by an
indemnified party and referred to above in this Section 7 shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no U.S. Underwriter shall
be required to contribute any amount in excess of the amount by which the total
price at which the Units underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such U.S.
Underwriter has otherwise been required to pay by reason of any such untrue or
alleged untrue statement or omission or alleged omission.
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No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls a U.S.
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such U.S.
Underwriter, and each director of each of the Companies, each officer of each
of the Companies who signed the Registration Statement, and each person, if
any, who controls the Companies within the meaning of Section 15 of the 1933
Act or Section 20 of the 1934 Act shall have the same rights to contribution
as the Companies. The U.S. Underwriters' respective obligations to
contribute pursuant to this Section are several in proportion to the number
of Initial U.S. Units set forth opposite their respective names in Schedule A
hereto and not joint.
SECTION 8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties and agreements contained in this
Agreement or in certificates of officers of the Companies or any Subsidiary
submitted pursuant hereto, shall remain operative and in full force and
effect, regardless of any investigation made by or on behalf of any U.S.
Underwriter or controlling person, or by or on behalf of the Companies, and
shall survive delivery of the Units to the U.S. Underwriters.
SECTION 9. TERMINATION OF AGREEMENT.
(a) TERMINATION; GENERAL. The U.S. Representatives may terminate this
Agreement, by notice to the Companies, at any time at or prior to Closing
Time (i) if there has been, since the time of execution of this Agreement or
since the respective dates as of which information is given in the U.S.
Prospectus, any Dura Material Adverse Effect or SDC II Material Adverse
Effect, whether or not arising in the ordinary course of business, or (ii)
if there has occurred any material adverse change in the financial markets in
the United States or the international financial markets, any outbreak of
hostilities or escalation thereof or other calamity or crisis or any change
or development involving a prospective change in national or international
political, financial or economic conditions, in each case the effect of which
is such as to make it, in the judgment of the U.S. Representatives,
impracticable to market the Units or to enforce contracts for the sale of the
Units, or (iii) if trading in any securities of the Companies has been
suspended or materially limited by the Commission or the Nasdaq National
Market, or if trading generally on the American Stock Exchange or the New
York Stock Exchange or in the Nasdaq National Market has been suspended or
materially limited, or minimum or maximum prices for trading have been fixed,
or maximum ranges for prices have been required, by any of said exchanges or
by such system or by order of the Commission, the NASD or any other
governmental authority, or (iv) if a banking moratorium has been declared by
either Federal or New York or California authorities.
(b) LIABILITIES. If this Agreement is terminated pursuant to this
Section 9, such termination shall be without liability of any party to any
other party except as provided in
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Section 4 hereof, and provided further that Sections 1, 6, 7 and 8 shall
survive such termination and remain in full force and effect.
SECTION 10. DEFAULT BY ONE OR MORE OF THE U.S. UNDERWRITERS. If one or
more of the U.S. Underwriters shall fail at Closing Time or a Date of
Delivery to purchase the Units which it or they are obligated to purchase
under this Agreement (the "Defaulted Units"), the U.S. Representatives shall
have the right, within 24 hours thereafter, to make arrangements for one or
more of the non-defaulting U.S. Underwriters, or any other underwriters, to
purchase all, but not less than all, of the Defaulted Units in such amounts
as may be agreed upon and upon the terms herein set forth; if, however, the
U.S. Representatives shall not have completed such arrangements within such
24-hour period, then:
(a) if the number of Defaulted Units does not exceed 10% of the
number of Units to be purchased on such date, the non-defaulting U.S.
Underwriters shall be obligated, each severally and not jointly, to
purchase the full amount thereof in the proportions that their respective
underwriting obligations hereunder bear to the underwriting obligations of
all non-defaulting U.S. Underwriters, or
(b) if the number of Defaulted Units exceeds 10% of the number of
Units to be purchased on such date, this Agreement or, with respect to any
Date of Delivery which occurs after Closing Time, the obligation of the
U.S. Underwriters to purchase and of the Companies to sell the U.S. Option
Units to be purchased and sold on such Date of Delivery shall terminate
without liability on the part of any non-defaulting U.S. Underwriter.
No action taken pursuant to this Section 10 shall relieve any defaulting
U.S. Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination
of this Agreement or, in the case of a Date of Delivery which is after
Closing Time, which does not result in a termination of the obligation of the
U.S. Underwriters to purchase and the Companies to sell the relevant U.S.
Option Units, as the case may be, either the U.S. Representatives or the
Companies shall have the right to postpone Closing Time or the relevant Date
of Delivery, as the case may be, for a period not exceeding seven days in
order to effect any required changes in the Registration Statement or
Prospectuses or in any other documents or arrangements. As used herein, the
term "U.S. Underwriter" includes any person substituted for a U.S. Underwriter
under this Section.
SECTION 11. DEFAULT BY THE COMPANIES. If the Companies shall fail at
Closing Time or at the Date of Delivery to sell the number of Units that they
are obligated to sell hereunder, then this Agreement shall terminate without
any liability on the part of any nondefaulting party; PROVIDED, HOWEVER, that
the provisions of Sections 1, 4, 6, 7 and 8 shall remain in full force and
effect. No action taken pursuant to this Section 11 shall relieve the
Companies from liability, if any, in respect of such default.
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SECTION 12. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the U.S.
Underwriters shall be directed to the U.S. Representatives at North Tower,
World Financial Center, New York, New York 10281, attention of Cara Londin;
notices to either of the Companies shall be directed to them at:
Dura Pharmaceuticals, Inc.
5880 Pacific Center Boulevard
San Diego, California 92121- 4204
Attn: Mitchell R. Woodbury
with a copy to:
Brobeck, Phleger & Harrison LLP
550 West "C" Street, Suite 1300
San Diego, California 92101
Attn: Faye H. Russell
SECTION 13. PARTIES. This Agreement shall inure to the benefit of and
be binding upon the U.S. Underwriters and the Companies and their respective
successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the
U.S. Underwriters and the Companies and their respective successors and the
controlling persons and officers and directors referred to in Sections 6 and
7 and their heirs and legal representatives, any legal or equitable right,
remedy or claim under or in respect of this Agreement or any provision herein
contained. This Agreement and all conditions and provisions hereof are
intended to be for the sole and exclusive benefit of the U.S. Underwriters
and the Companies and their respective successors, and said controlling
persons and officers and directors and their heirs and legal representatives,
and for the benefit of no other person, firm or corporation. No purchaser of
Units from any U.S. Underwriter shall be deemed to be a successor by reason
merely of such purchase.
SECTION 14. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
EXCEPT AS OTHERWISE SET FORTH HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW
YORK CITY TIME.
SECTION 15. EFFECT OF HEADINGS. The Article and Section headings
herein and the Table of Contents are for convenience only and shall not
affect the construction hereof.
32
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to each of Dura and SDC II a counterpart
hereof, whereupon this instrument, along with all counterparts, will become a
binding agreement among the U.S. Underwriters, Dura and SDC II in accordance
with its terms.
Very truly yours,
DURA PHARMACEUTICALS, INC.
By: __________________________
Title:
SPIROS DEVELOPMENT CORPORATION II, INC.
By: __________________________
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: ______________________________
Authorized Signatory
For themselves and as U.S. Representatives of the other U.S. Underwriters
named in Schedule A hereto.
33
<PAGE>
SCHEDULE A
Name of U.S. Underwriter Number of
------------------------ Initial U.S.
Units
-----
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...............................................
Donaldson, Lufkin & Jenrette Securities Corporation..........
-----------
Total.................................................. -----------
-----------
Sch A - 1
<PAGE>
SCHEDULE B
SPIROS DEVELOPMENT CORPORATION II, INC.
DURA PHARMACEUTICALS, INC.
3,750,000 Units
Each Unit Consisting of
One Share of Callable Common Stock of Spiros Development Corporation II, Inc.
and One Warrant to Purchase
One-Fourth of One Share of Common Stock of Dura Pharmaceuticals, Inc.
1. The initial public offering price per U.S. Unit, determined as
provided in Section 2, shall be $____.
2. The purchase price per U.S. Unit to be paid by the U.S. Underwriters
shall be $____, being an amount equal to the initial public offering price set
forth above less $____per U.S. Unit.
3. The exercise price of the Warrants shall be $____per share of Dura
Common Stock.
Sch B - 1
<PAGE>
SCHEDULE C
[List of persons and entities
subject to lock-up]
Sch C - 1
<PAGE>
EXHIBIT A
FORM OF OPINION OF COUNSEL FOR DURA, SDC II and SDC
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
[For purposes of this opinion, to be delivered at the Closing Time, the
term "Subsidiaries" includes SDC.]
(i) Each of Dura and SDC II has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware.
(ii) Each of Dura and SDC II has full corporate power and authority to
own or lease its properties and conduct its business as described in the
Registration Statement and Prospectuses and, to enter into and perform its
obligations under the U.S. Purchase Agreement and the International Purchase
Agreement.
(iii) Each of Dura and SDC II is duly qualified as a foreign corporation
to transact business and is in good standing in each jurisdiction in which
such qualification is required, whether by reason of the ownership or leasing
of property or the conduct of business, except where the failure so to
qualify or to be in good standing would not result in a Dura Material Adverse
Effect or a SDC II Material Adverse Effect, as the case may be (which opinion
as to Dura may be given by the General Counsel of Dura).
(iv) The authorized capital stock of Dura conforms as to legal matters in
all material respects to the description thereof contained in the Registration
Statement and Prospectuses. The authorized and outstanding shares of capital
stock of Dura are as set forth under the caption "Capitalization" and have
been duly and validly authorized and issued, are fully paid and non-assessable,
and are not subject to any preemptive rights (the opinion called for by the
last sentence of this paragraph (iv) may be given by the General Counsel of
Dura).
(v) The authorized, capital stock of SDC II conforms as to legal matters
in all material respects to the descriptions thereof contained in the
Registration Statement and Prospectuses under the caption "Spiros Corp. II
Capital Stock".
(vi) The outstanding shares of Special Common Stock of SDC II are as set
forth under the caption "Capitalization" and have been duly and validly
authorized and issued, are, to our knowledge, fully paid and nonassessable, and
are not subject to any preemptive rights.
(vii) The Warrant Agreement has been duly authorized, executed and
delivered by Dura and constitutes a legal, valid and binding obligation of
Dura, enforceable against Dura in accordance to its terms.
A-1
<PAGE>
(viii) The issuance of the Warrants has been duly authorized by Dura and,
when duly executed, issued and delivered by Dura and countersigned by the
Warrant Agent and when payment of the purchase price for the Units has been
made, the Warrants will constitute valid and binding obligations of Dura
entitled to the benefits of the Warrant Agreement. The Warrants are not
subject to the preemptive rights of any stockholder of Dura. The Warrants
conform as to legal matters in all material respects to the description
thereof contained in the Registration Statement and the Prospectuses under
the caption "Description of the Warrants."
(ix) The shares of Dura Common Stock issuable upon exercise of the
Warrants have been duly and validly reserved for the issuance and, when and
if issued upon such exercise and upon payment of the exercise price, in
accordance with the terms of the Warrant Agreement, will be duly and validly
authorized and issued, will be fully paid and nonassessable, and will not be
subject to any preemptive or similar rights of any stockholder of Dura.
(x) The issuance of the SDC II Common Stock has been duly authorized and,
when issued and paid for as part of the Units as contemplated by the Purchase
Agreements, will be validly issued, fully paid and non-assessable. Such SDC II
Common Stock is not subject to the preemptive or similar rights of any
stockholder of SDC II.
(xi) To our knowledge, the Subsidiaries, are Dura's sole subsidiaries. Each
Subsidiary has been duly incorporated and is validly existing as a corporation
in good standing under the laws of the jurisdiction of its incorporation, has
corporate power and authority to own or lease its properties and to conduct its
business as described in the Registration Statement and Prospectuses and is
duly qualified as a foreign corporation to transact business and is in good
standing in each jurisdiction in which such qualification is required, whether
by reason of the ownership or leasing of property or the conduct of business,
except where the failure so to qualify or to be in good standing would not
result in a Dura Material Adverse Effect; all of the issued and outstanding
capital stock of each Subsidiary and SDC has been duly and validly authorized
and issued, are fully paid and non-assessable and, to the best of our knowledge
and information is owned by Dura free and clear of any security interest,
mortgage, pledge, lien, encumbrance, claim or equity; and none of the
outstanding shares of capital stock of any Subsidiary was issued in violation
of the preemptive rights of any securityholder of such Subsidiary (the opinion
called for by the last sentence of this paragraph (xi) may be given by the
General Counsel of Dura).
(xii) Each of the U.S. Purchase Agreement and the International Purchase
Agreement has been duly authorized, executed and delivered by Dura and SDC II.
(xiii) The Registration Statement, including any Rule 462(b) Registration
Statement, has become effective under the Act. Any required filing of the
Prospectuses pursuant to Rule 424(b) has been made in the manner and within
the time period required by Rule 424(b). To our knowledge, no stop order
proceedings suspending the effectiveness of the Registration Statement or any
Rule 462(b) Registration Statement have been instituted or threatened or are
pending under the Act.
A-2
<PAGE>
(xiv) All descriptions in the Prospectuses of agreements and other
instruments to which Dura, SDC II or the Subsidiaries are a party are accurate
in all material respects. We know of no agreements required to be filed or
described in the Prospectuses which are not so filed or described. To our
knowledge, no breach or default exists under any agreement or instrument to
which Dura, SDC II or any Subsidiary is a party and which is filed as an
Exhibit to the Registration Statement or incorporated by reference therein (the
opinion called for by the last two sentences of this paragraph (xiv) may be
given by the General Counsel of Dura and SDC II).
(xv) The form of certificate used to evidence the Units complies in all
material respects with all applicable statutory requirements, and the
requirements of the Nasdaq National Market.
(xvi) To our knowledge, there is no legal or governmental proceeding
pending or threatened to which Dura, any Subsidiary or SDC II is a party or
to which any of the properties of Dura, any Subsidiary or SDC II is subject
that is required to be described in the Registration Statement or the
Prospectuses and is not so described, or of any statute or regulation,
contract or other document that is required to be described in the
Registration Statement or the Prospectuses or to be filed as an exhibit to
the Registration Statement that is not described or filed as required.
(xvii) The statements in the Registration Statement under Item 14,
to the extent that such statements constitute matters of law, summaries of
documents contained therein or summaries of legal matters have been prepared
by or reviewed by us and are correct in all material respects.
(xviii) The September 30, 1997 offer and sale of 1,000 shares of SDC II
common stock with an aggregate value of $1,000 by SDC II to Dura was exempt
from the registration requirements of Section 5 of the Securities Act of 1933,
as amended, by virtue of Section 4(2) and/or Regulation D promulgated
thereunder.
(xix) None of Dura, any Subsidiary or SDC is in violation of its charter
or by-laws and no default by Dura or any subsidiary exists in the due
performance or observance of any material obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, loan agreement,
note, lease or other agreement or instrument that is described or referred to
in the Registration Statement or the Prospectuses or filed or incorporated by
reference as an exhibit to the Registration Statement (which opinion as to
Dura may be given by the General Counsel of Dura).
(xx) No filing with, or authorization, approval, consent, license, order,
registration, qualification or decree of, any court or governmental authority
or agency, domestic or foreign, (other than under the Act and the 1933 Act
Regulations, which have been obtained, or as may be required under the
securities or blue sky laws of the various states, as to which no opinion is
requested or given) is necessary or required in connection with the due
authorization, execution and delivery of the U.S. Purchase Agreement or for the
offering, issuance, sale or delivery of the Units, the SDC II Common Stock,
the Warrants, or the Dura Common Stock issuable upon exercise of the Warrants.
(xxi) The execution, delivery by Dura of, and the performance by Dura of its
obligations under the U.S. Purchase Agreement or the International Purchase
Agreement and the Warrant Agreement and the issuance and sale of the Units
contemplated thereby will not contravene any provision of applicable law or the
certificate of incorporation or bylaws of Dura or any Subsidiaries, or, to our
knowledge, any judgment, order
A-3
<PAGE>
or decree of any governmental body, agency or court having jurisdiction over
Dura or any of its property or any Subsidiaries or any of their property, or,
to our knowledge, constitute a breach or default or a Dura Repayment Event
(as defined in section 1(a)(xi) of the U.S. Purchase Agreement) under any
agreement or other instrument binding upon Dura or any of the Subsidiaries,
to which Dura or any of the Subsidiaries is a party and filed as an exhibit
to the Registration Statement or an Incorporated Document.
(xxii) The execution, delivery by Spiros II of, and the performance by Spiros
II of its obligations under the U.S. Purchase Agreement and the International
Purchase Agreement and the issuance and sale of the Units contemplated thereby
will not contravene any provision of applicable law or the certificate of
incorporation or bylaws of Spiros II, or, to our knowledge, any judgment, order
or decree of any governmental body, agency or court having jurisdiction over
Spiros II or any of its property, or, to our knowledge, constitute a breach or
default or a SDC II Repayment Event (as defined in section 1(a)(xii) of the U.S.
Purchase Agreement) under any agreement or other instrument binding upon
Spiros II, to which Spiros II is a party and filed as an exhibit to the
Registration Statement or an Incorporated Document.
(xxiii) Each of the Major Agreements has been duly authorized, executed and
delivered by Dura, SDC, DDSI and SDC II as applicable.
(xxiv) To our knowledge, no holders of securities of Dura have rights
against Dura which have not been waived to the registration of shares of Dura
Common Stock or other securities, because of the filing of the Registration
Statement by Dura or the offering contemplated thereby (this opinion may be
given by the general counsel of Dura).
(xxv) The Units have been duly authorized for quotation on the Nasdaq
National Market, upon notice of official issuance.
(xxvi) The statements in the Registration Statement and Prospectuses under
the caption "United States Federal Income Tax Consequences" and "United States
Taxation of Non-U.S. Persons" to the extent they constitute matters of law or
legal conclusions with respect thereto, have been prepared or reviewed by us
and are correct in all material respects.
(xxvii) Neither Dura nor SDC II is an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined in the
1940 Act.
In addition to the foregoing, (i) we believe that each of the
Incorporated Documents (except for financial statements and schedules and
other financial data included therein or omitted therefrom, as to which no
opinion is requested or given), when they became effective or were filed with
the Commission, as the case may be, complied as to form when filed with the
Commission in all material respects with the requirements of the Act and the
1934 Act, as applicable, and the rules and regulations of the Commission
thereunder; (ii) we believe that the Registration Statement, the Prospectuses
and each amendment or supplement to the Registration Statement and
Prospectuses (except for financial statements and schedules and other
financial data included or incorporated by reference therein or omitted
therefrom, as to which no opinion is requested or given), as of their
respective effective or issue dates, complied as to form in all material
respects with the requirements of the Act and the applicable rules and
regulations of the Commission thereunder; (iii) we confirm that nothing has
come to our attention that has caused us to conclude that (except for
financial statements and schedules and other financial data included or
incorporated by reference therein or omitted therefrom, as to which we need
make no statement) the Registration Statement or any amendment thereto,
including the Rule 430A Information and Rule 434 Information (if applicable),
at the time such Registration Statement or any such amendment became
effective, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary
A-4
<PAGE>
to make the statements therein, in the lights of the circumstances under
which they were made, not misleading or that (except for financial statements
and schedules and other financial data included or incorporated by reference
therein or omitted therefrom, as to which we need make no statement) the
Prospectuses, on the date hereof, include an untrue statement of a material
fact or omits to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made
not misleading.
In rendering such opinion, such counsel may rely (A) upon the
opinions of Lyon & Lyon and Kleinfeld, Kaplan & Becker and Mitchell R.
Woodbury, Esq. With respect to the matters opined upon by each, and (B), as
to matters of fact (but not as to legal conclusions), to the extent they deem
proper, on certificates of responsible officers of Dura or SDC II and public
officials. Such opinion shall be subject to standard limitations, exclusions,
qualifications and assumptions. Such opinion shall not state that it is to
be governed or qualified by, or that it is otherwise subject to, any
treatise, written policy or other document relating to legal opinions,
including, without limitation, the Legal Opinion Accord of the ABA Section of
Business Law (1991).
A-5
<PAGE>
EXHIBIT B
EXHIBIT B
FORM OF OPINION OF PATENT COUNSEL
FOR DURA AND SDC II DELIVERED PURSUANT TO SECTION 5(C)
(i) Dura owns U.S. patents and U.S. Foreign patent applications which
are directed to Spiros and to certain uses of the Spiros product necessary
to conduct the business of Dura and Spiros Corp. II as described in the
Prospectuses. With regard to the business presently and as proposed to be
conducted by Dura and Spiros Corp. II relating to the Spiros product as
described in the Registration Statement and the Prospectuses, and, except
as described therein, we have not received any notice of infringement of or
conflict with, and does not otherwise know of any basis for notice of any
such infringement of or conflict with, asserted rights of others with
respect to any patents, trademarks, service marks, trade names, copyrights,
technology or know-how relating to the Spiros product.
(ii) To the extent that the statements relating to the Spiros product
contained in the Registration Statement and Prospectuses under the
subheadings "Risk Factors--Business Risks Related to Spiros Corp. II and
Dura--Uncertainty Regarding Patents and Proprietary Technology;
Unpredictability of Patent Protection - Spiros Corp. II," "Risk Factors -
Business Risks Related to Spiros Corp. II and Dura" and the first paragraph
of "Business of Spiros Corp. II -- Patents" refer to opinions of counsel or
matters of law, patents or patent applications or purport to summarize the
status of litigation or the provisions of statutes, regulations, contracts,
agreements or other documents, such statements (A) have been prepared or
reviewed by us and accurately reflect the status of any such patent
applications, litigation, the provisions purported to be summarized and any
of our opinions and (B) do not contain any untrue statements of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
<PAGE>
EXHIBIT C
FORM OF OPINION OF REGULATORY COUNSEL
FOR DURA AND SDC II
TO BE DELIVERED PURSUANT
TO SECTION 5(d)
(i) The descriptions in the Registration Statement of the statutes,
regulations and legal or governmental proceedings or procedures relating to
the FDA and the approval process relating to the products of Dura and SDC
II are accurate in all material respects and are a fair summary of those
statutes, regulations, proceedings or procedures.
(ii) Nothing has come to our attention that leads us to believe that
the descriptions of federal laws, regulations or rules relating to the
manufacture or sale of Dura's products and the approval process relating
thereto contained in the Registration Statement and the Prospectuses,
including, without limitation, the portions of the Registration Statement
and Prospectuses entitled "Risk Factors - Business Risks Related to Spiros
Corp, II and Dura - Government Regulation; No Assurance of FDA Approval,"
and "Business of Dura - Government Regulation," contain an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statement therein not misleading.
<PAGE>
EXHIBIT D
October __, 1997
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
as Representatives of the several
Underwriters to be named in the
within mentioned Purchase Agreement
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Re: Proposed Public Offering by Dura Pharmaceuticals, Inc. and Spiros
Development Corporation II
Ladies and Gentlemen:
The undersigned, a stockholder and/or officer and/or director of Dura
Pharmaceuticals, Inc. ("Dura") understands that Merrill Lynch & Co. ("Merrill
Lynch") and Donaldson, Lufkin & Jenrette ("DLJ") propose to enter into a
Purchase Agreement (the "Purchase Agreement") with Dura and Spiros
Development Corporation II ("SDC II") that will provide for the public
offering of units comprised of the common stock of SDC II and warrants to
purchase Dura's common stock (the "Securities"). In recognition of the
benefit that such an offering will confer upon the undersigned as a
stockholder and/or officer and/or director of Dura, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the undersigned agrees with each underwriter to be named in the
Purchase Agreement that, during a period of ninety (90) days from the date of
the Purchase Agreement, the undersigned will not, without the prior written
consent of Merrill Lynch, directly or indirectly, (i) sell, offer to sell,
pledge, contract to sell, sell any option or contract to purchase, purchase
any option or contract to sell, grant any option, right or warrant for the
sale of, or otherwise dispose of or transfer any shares of Dura's common
stock (the "Dura Common Stock"), or any securities convertible into or
exchangeable or exercisable for Dura Common Stock, whether now owned or
hereafter acquired by the undersigned, or with respect to which the
undersigned has or hereafter acquires the power of disposition, or file,
participate in, or request the filing of any registration statement under the
Securities Act of 1933, as amended, with respect to any of the foregoing or
(ii) enter into any swap or any other agreement or any transaction that
transfers, in whole or in part,
<PAGE>
directly or indirectly, the economic consequence of ownership of Dura Common
Stock, whether any such swap or transaction is to be settled by delivery of
Dura Common Stock or other securities, in cash or otherwise.
Very truly yours,
Signature: ________________________
Print Name: ________________________
<PAGE>
Exhibit 1.2
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
SPIROS DEVELOPMENT CORPORATION II, INC.
(a Delaware corporation)
DURA PHARMACEUTICALS, INC.
(a Delaware corporation)
937,500 Units
Each Unit Consisting of
One Share of Callable Common Stock of Spiros Development Corporation II, Inc.
and One Warrant to Purchase
One-Fourth of One Share of Common Stock of Dura Pharmaceuticals, Inc.
INTERNATIONAL PURCHASE AGREEMENT
Dated: December __, 1997
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
SECTION 1. Representations and Warranties . . . . . . . . . . . . . . . 4
(a) Representations and Warranties by the Companies. . . . . . . 4
(i) Compliance with Registration Requirements. . . . . 5
(ii) Incorporated Documents . . . . . . . . . . . . . . 5
(iii) Independent Accountants. . . . . . . . . . . . . . 6
(iv) Financial Statements . . . . . . . . . . . . . . . 6
(v) No Material Adverse Change in Business . . . . . . 7
(vi) Good Standing of the Companies . . . . . . . . . . 7
(vii) Good Standing of Subsidiaries. . . . . . . . . . . 8
(viii) Capitalization . . . . . . . . . . . . . . . . . . 8
(ix) Authorization of Agreements. . . . . . . . . . . . 9
(x) Authorization and Description of Units . . . . . . 10
(xi) Registration or Similar Rights Waived. . . . . . . 11
(xii) Absence of Defaults and Conflicts. . . . . . . . . 11
(xiii) Compliance with Laws . . . . . . . . . . . . . . . 12
(xiv) Absence of Labor Dispute . . . . . . . . . . . . . 12
(xv) Absence of Proceedings . . . . . . . . . . . . . . 12
(xvi) Accuracy of Exhibits . . . . . . . . . . . . . . . 13
(xvii) Possession of Intellectual Property. . . . . . . . 13
(xviii) Absence of Further Requirements. . . . . . . . . . 14
(xix) Possession of Licenses and Permits . . . . . . . . 14
(xx) Title to Property. . . . . . . . . . . . . . . . . 14
(xxi) Compliance with Cuba Act . . . . . . . . . . . . . 15
(xxii) Investment Company Act . . . . . . . . . . . . . . 15
(xxiii) Environmental Laws . . . . . . . . . . . . . . . . 15
(xxiv) Taxes. . . . . . . . . . . . . . . . . . . . . . . 15
(xxv) Insurance. . . . . . . . . . . . . . . . . . . . . 16
(xxvi) Accounting Controls. . . . . . . . . . . . . . . . 16
(xxvii) Lock-up Agreements . . . . . . . . . . . . . . . . 16
(xxviii) Affiliate Transactions . . . . . . . . . . . . . . 16
(xxix) Distribution of Prospectuses . . . . . . . . . . . 16
(b) Officer's Certificates . . . . . . . . . . . . . . . . . . . 17
SECTION 2. Sale and Delivery to Managers; Closing . . . . . . . . . . . 17
(a) Initial International Units. . . . . . . . . . . . . . . . . 17
(b) International Option Units . . . . . . . . . . . . . . . . . 17
(c) Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(d) Denominations; Registration. . . . . . . . . . . . . . . . . 18
SECTION 3. Covenants of the Companies . . . . . . . . . . . . . . . . . 18
(a) Compliance with Securities Regulations and Commission
Requests . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(b) Filing of Amendments . . . . . . . . . . . . . . . . . . . . 19
(c) Delivery of Registration Statement . . . . . . . . . . . . . 19
i
<PAGE>
(d) Delivery of Prospectuses . . . . . . . . . . . . . . . . . . 19
(e) Continued Compliance with Securities Laws. . . . . . . . . . 20
(f) Rule 158 . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(g) Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . 20
(h) Listing. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(i) Restriction on Sale of Dura Common Stock . . . . . . . . . . 20
(j) Reporting Requirements . . . . . . . . . . . . . . . . . . . 21
SECTION 4. Payment of Expenses. . . . . . . . . . . . . . . . . . . . . 21
(a) Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(b) Termination of Agreement . . . . . . . . . . . . . . . . . . 21
SECTION 5. Conditions of Managers' Obligations. . . . . . . . . . . . . 22
(a) Effectiveness of Registration Statement. . . . . . . . . . . 22
(b) Opinion of Counsel for the Companies . . . . . . . . . . . . 22
(c) Opinion of Patent Counsel for the Companies. . . . . . . . . 22
(d) Opinion of Regulatory Counsel for the Companies. . . . . . . 22
(e) Opinion of Counsel for the Managers. . . . . . . . . . . . . 22
(f) Officers' Certificate. . . . . . . . . . . . . . . . . . . . 23
(g) Accountants' Comfort Letter. . . . . . . . . . . . . . . . . 23
(h) Bring-down Comfort Letter. . . . . . . . . . . . . . . . . . 23
(i) Approval of Listing. . . . . . . . . . . . . . . . . . . . . 23
(j) No Objection . . . . . . . . . . . . . . . . . . . . . . . . 23
(k) Lock-up Agreements . . . . . . . . . . . . . . . . . . . . . 24
(l) Purchase of Initial U.S. Units . . . . . . . . . . . . . . . 24
(m) Conditions to Purchase of International Option Units . . . . 24
(i) Officers' Certificate. . . . . . . . . . . . . . . 24
(ii) Opinions of Counsel for the Companies. . . . . . . 24
(iii) Opinion of Counsel for the Managers. . . . . . . . 24
(iv) Bring-down Comfort Letter. . . . . . . . . . . . . 24
(n) Additional Documents . . . . . . . . . . . . . . . . . . . . 24
(o) Termination of Agreement . . . . . . . . . . . . . . . . . . 25
SECTION 6. Indemnification. . . . . . . . . . . . . . . . . . . . . . . 25
(a) Indemnification of Managers. . . . . . . . . . . . . . . . . 25
(b) Indemnification of the Companies and Directors and Officers. 26
(c) Actions against Parties; Notification. . . . . . . . . . . . 26
(d) Settlement without Consent if Failure to Reimburse . . . . . 27
SECTION 7. Contribution . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 9. Termination of Agreement . . . . . . . . . . . . . . . . . . 29
(a) Termination; General . . . . . . . . . . . . . . . . . . . . 29
(b) Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 10. Default by One or More of the Managers . . . . . . . . . . . 29
SECTION 11. Default by the Companies . . . . . . . . . . . . . . . . . . 30
SECTION 12. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ii
<PAGE>
SECTION 13. Parties. . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 14. Governing Law and Time . . . . . . . . . . . . . . . . . . . 31
SECTION 15. Effect of Headings . . . . . . . . . . . . . . . . . . . . . 31
SCHEDULES
Schedule A - List of Managers . . . . . . . . . . . . . . . . . . . . Sch A-1
Schedule B - Pricing Information. . . . . . . . . . . . . . . . . . . Sch B-1
Schedule C - List of Persons and Entities Subject to Lock-up. . . . . Sch C-1
EXHIBITS
Exhibit A - Form of Opinion of Counsel for Dura. . . . . . . . . . . . . A-1
Exhibit B - Form of Opinion of Intellectual Property
Counsel for Dura . . . . . . . . . . . . . . . . . . . . . . B-1
Exhibit C - Form of Opinion of U.S. Regulatory Counsel
for the Companies. . . . . . . . . . . . . . . . . . . . . . C-1
Exhibit D - Form of Lock-up Letter . . . . . . . . . . . . . . . . . . . D-1
iii
<PAGE>
SPIROS DEVELOPMENT CORPORATION II, INC.
(a Delaware corporation)
DURA PHARMACEUTICALS, INC.
(a Delaware corporation)
937,500 Units
Each Unit Consisting of
One Share of Callable Common Stock of Spiros Development Corporation II, Inc.
and One Warrant to Purchase
One-Fourth of One Share of Common Stock of Dura Pharmaceuticals, Inc.
INTERNATIONAL PURCHASE AGREEMENT
--------------------------------
December __, 1997
MERRILL LYNCH INTERNATIONAL
(as "Lead Manager")
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
(together, the "Managers")
c/o Merrill Lynch International
Ropemaker Place
25 Ropemaker Street
London EC2Y 9LY
England
Ladies and Gentlemen:
Spiros Development Corporation II, Inc., a Delaware corporation ("SDC
II"), and Dura Pharmaceuticals, Inc., a Delaware corporation ("Dura" and,
together with SDC II, the "Companies"), confirm their respective agreements
with Merrill Lynch International ("Merrill Lynch") and Donaldson, Lufkin &
Jenrette Securities Corporation (together, the "Managers," which term shall
also include any underwriter substituted as hereinafter provided in Section
10 hereof), for whom Merrill Lynch is acting as representative (in such
capacity, the "Lead
<PAGE>
Manager"), with respect to the issue and sale by the Companies, and the
purchase by the Managers, acting severally and not jointly, of the respective
number of units set forth in said Schedule A, each unit composed of one share
of callable common stock, par value $.001 per share, of SDC II ("SDC II
Common Stock") and one warrant (each a "Warrant") that will entitle the
registered owner thereof to purchase one-fourth of one share of common stock,
par value $.001 per share, of Dura ("Dura Common Stock") at a per share
exercise price as set forth in Schedule A hereto, pursuant to and subject to
certain adjustments as set forth in the Warrant certificate to be issued as
part of the Unit Certificate (as hereinafter defined), and with respect to
the grant by SDC II and Dura to the Managers, acting severally and not
jointly, of the option described in Section 2(b) hereof to purchase all or
any part of 140,625 additional units to cover over-allotments, if any. The
SDC II Common Stock and the Warrants will be paired for sale as units by SDC
II and Dura and then sold to the Managers. The aforesaid 937,500 units (the
"Initial International Units") to be purchased by the Managers and all or any
part of the 140,625 units subject to the option described in Section 2(b)
(the "International Option Units") are hereinafter called, collectively, the
"International Units."
It is understood that the Companies concurrently are entering into an
agreement dated the date hereof (the "U.S. Purchase Agreement") providing for
the offering by the Companies of an aggregate of 3,750,000 units composed of
one share of SDC II Common Stock and one Warrant (the "Initial U.S. Units")
through arrangements with certain underwriters in the United States and
Canada (the "U.S. Underwriters") for whom Merrill Lynch, Pierce, Fenner &
Smith Incorporated and Donaldson, Lufkin & Jenrette Securities Corporation
are acting as representatives (the "U.S. Representatives") and the grant by
the Companies to the U.S. Underwriters, acting severally and not jointly, of
an option to purchase all or any part of the U.S. Underwriters' pro rata
portion of up to 562,500 additional units composed of one share of SDC II
Common Stock and one Warrant solely to cover over-allotments, if any (the
"U.S. Option Units" and, together with the International Option Units, the
"Option Units"). The Initial U.S. Units and the U.S. Option Units are
hereinafter called the "U.S. Units." It is understood that the Companies are
not obligated to sell and the Managers are not obligated to purchase, any
Initial International Units unless all of the Initial U.S. Units are
contemporaneously purchased by the U.S. Underwriters.
The Managers and the U.S. Underwriters are hereinafter collectively
called the "Underwriters", the Initial U.S. Units and the Initial
International Units are hereinafter collectively called the "Initial Units",
and the U.S. Units and the International Units are hereinafter collectively
called the "Units."
The Underwriters concurrently will enter into an Intersyndicate Agreement
of even date herewith (the "Intersyndicate Agreement") providing for the
coordination of certain transactions among the Underwriters under the
direction of Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated (in such capacity, the "Global Coordinator").
2
<PAGE>
The Companies understand that the Managers propose to make a public
offering of the International Units as soon as the Lead Manager deems
advisable after this Agreement has been executed and delivered.
Each Unit initially will be represented by a certificate representing one
or more Warrants and one or more shares of SDC II Common Stock (a "Unit
Certificate"). Each Unit will be transferable only as a whole and as
described in the Prospectuses (as hereinafter defined) through December 31,
1999 or such earlier date on which the Purchase Option (as defined in the
Prospectuses) is exercised or expires unexercised, after which date the
Warrants and the SDC II Common Stock will trade separately; PROVIDED,
HOWEVER, that such separation date will be accelerated upon the occurrence of
an Acceleration Event (as defined in the Prospectuses) with respect to Dura.
The SDC II Common Stock, the Warrants and the U.S. Units are more fully
described in the Registration Statement (as hereinafter defined) and the
Prospectuses.
The Companies have filed with the Securities and Exchange Commission (the
"Commission") a combined registration statement (Nos. 333-37673 and
333-37673-01) covering the registration of the U.S. Units under the
Securities Act of 1933, as amended (the "1933 Act"), including the related
preliminary prospectus or prospectuses, (a) with respect to SDC II, on Form
S-1, relating to the SDC II Common Stock comprising a portion of the U.S.
Units, and (b) with respect to Dura, on Form S-3, relating to the Warrants
comprising a portion of the U.S. Units, the Dura Common Stock underlying the
Warrants and the Dura Common Stock issuable upon exercise of the Purchase
Option. Promptly after execution and delivery of this Agreement, the
Companies will either (i) prepare and file a prospectus in accordance with
the provisions of Rule 430A ("Rule 430A") of the rules and regulations of the
Commission under the 1933 Act (the "1933 Act Regulations") and paragraph (b)
of Rule 424 ("Rule 424(b)") of the 1933 Act Regulations or (ii) if the
Companies have elected to rely upon Rule 434 ("Rule 434") of the 1933 Act
Regulations, prepare and file a term sheet (a "Term Sheet") in accordance
with the provisions of Rule 434 and Rule 424(b). Two forms of prospectus are
to be used in connection with the offering and sale of the Units: one
relating to the International Units (the "Form of International Prospectus")
and one relating to the U.S. Units (the "Form of U.S. Prospectus"). The Form
of International Prospectus is identical to the Form of U.S. Prospectus,
except for the front cover and back cover pages, the information under the
caption "Underwriting", the inclusion in the "Prospectus Summary" section of
the Form of International Prospectus of a paragraph under the caption "United
States Taxation of Non-U.S. Persons" and the exclusion in the Form of
International Prospectus of a section under the caption "United States
Federal Income Tax Consequences." The information included in any such
prospectus or in any such Term Sheet, as the case may be, that was omitted
from such registration statement at the time it became effective but that is
deemed to be part of such registration statement at the time it became
effective (A) pursuant to paragraph (b) of Rule 430A is referred to as "Rule
430A Information" or (B) pursuant to paragraph (d) of Rule 434 is referred to
as "Rule 434 Information." Each Form of International Prospectus and Form of
U.S. Prospectus used before such registration statement became effective, and
any prospectus that omitted, as applicable, the Rule 430A Information or the
Rule 434 Information, that was used after such effectiveness and prior to the
execution and delivery of this Agreement, is herein called a "preliminary
3
<PAGE>
prospectus." Such registration statement, including the exhibits thereto,
schedules thereto, if any, and the documents incorporated by reference
therein pursuant to Item 12 of Form S-3 under the 1933 Act, at the time it
became effective and including the Rule 430A Information and the Rule 434
Information, as applicable, is herein called the "Registration Statement."
Any registration statement filed pursuant to Rule 462(b) of the 1933 Act
Regulations is herein referred to as the "Rule 462(b) Registration
Statement," and after such filing the term "Registration Statement" shall
include the Rule 462(b) Registration Statement. The final Form of
International Prospectus and the final Form of U.S. Prospectus, including the
documents incorporated by reference therein pursuant to Item 12 of Form S-3
under the 1933 Act, in the forms first furnished to the Underwriters for use
in connection with the offering of the Units (the "Unit Offering") are herein
called the "International Prospectus" and the "U.S. Prospectus,"
respectively, and, collectively, the "Prospectuses." If Rule 434 is relied
on, the term "International Prospectus" and "U.S. Prospectus" shall refer to
the preliminary International Prospectus dated December 1, 1997 and the
preliminary U.S. Prospectus dated December 1, 1997, respectively, each
together with the applicable Term Sheet and all references in this Agreement
to the date of such Prospectuses shall mean the date of the applicable Term
Sheet. For purposes of this Agreement, all references to the Registration
Statement, any preliminary prospectus, the International Prospectus, the U.S.
Prospectus or any Term Sheet or any amendment or supplement to any of the
foregoing shall be deemed to include the copy filed with the Commission
pursuant to its Electronic Data Gathering, Analysis and Retrieval system
("EDGAR").
Prior to the Closing Time (as defined), Dura intends to acquire all of
the outstanding capital stock of Spiros Development Corporation ("SDC") for
an aggregate purchase price of approximately $45.7 million, payable in cash,
shares of Dura Common Stock, or any combination thereof (the "SDC Purchase").
All references in this Agreement to financial statements and schedules
and other information which is "contained", "included" or "stated" in the
Registration Statement, any preliminary prospectus (including the Form of
U.S. Prospectus and the Form of International Prospectus) or the Prospectuses
(or other references of like import) shall be deemed to mean and include all
such financial statements and schedules and other information which is
incorporated by reference in the Registration Statement, any preliminary
prospectus (including the Form of U.S. Prospectus and the Form of
International Prospectus) or the Prospectuses, as the case may be; and all
references in this Agreement to amendments or supplements to the Registration
Statement, any preliminary prospectus or the Prospectuses shall be deemed to
mean and include the filing of any document under the Securities Exchange Act
of 1934 (the "1934 Act") which is incorporated by reference in the
Registration Statement, such preliminary prospectus or the Prospectuses, as
the case may be.
4
<PAGE>
SECTION 1. REPRESENTATIONS AND WARRANTIES.
(a) REPRESENTATIONS AND WARRANTIES BY THE COMPANIES. The Companies
jointly and severally represent and warrant to each Manager as of the date
hereof, as of the Closing Time referred to in Section 2(c) hereof, and as of
each Date of Delivery (if any) referred to in Section 2(b) hereof, and agree
with each Manager, as follows:
(i) COMPLIANCE WITH REGISTRATION REQUIREMENTS. Dura meets the
requirements for use of Form S-3 under the 1933 Act. Each of the
Registration Statement and any Rule 462(b) Registration Statement has
become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement has been issued under the 1933 Act and no proceedings for that
purpose have been instituted or are pending or, to the knowledge of the
Companies, are contemplated by the Commission, and any request on the part
of the Commission for additional information has been complied with.
At the respective times the Registration Statement, any Rule 462(b)
Registration Statement and any post-effective amendments thereto become
effective and at the Closing Time (and, if any International Option Units
are purchased, at the Date of Delivery), the Registration Statement, the
Rule 462(b) Registration Statement and any amendments and supplements
thereto complied and will comply in all material respects with the
requirements of the 1933 Act and the 1933 Act Regulations and did not and
will not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading. Neither of the Prospectuses nor any
amendments or supplements thereto, at the time the Prospectuses or any
amendments or supplements were issued and at the Closing Time (and, if any
International Option Units are purchased, at the Date of Delivery),
included or will include an untrue statement of a material fact or omitted
or will omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. If Rule 434 is used, the Companies will comply with
the requirements of Rule 434. The representations and warranties in this
subsection shall not apply to statements in or omissions from the
Registration Statement or the International Prospectus made in reliance
upon and in conformity with information furnished to the Companies in
writing by any Manager through Merrill Lynch expressly for use in the
Registration Statement or the International Prospectus.
Each preliminary prospectus and the prospectuses filed as part of the
Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the 1933 Act, complied when so
filed in all material respects with the 1933 Act Regulations and each
preliminary prospectus and the Prospectuses delivered to the Underwriters
for use in connection with this offering was identical to the
electronically transmitted copies thereof filed with the Commission
pursuant to EDGAR, except to the extent permitted by Regulation S-T.
5
<PAGE>
(ii) INCORPORATED DOCUMENTS. The documents incorporated or deemed to
be incorporated by reference in the Registration Statement and the
Prospectuses, when they became effective or at the time they were or
hereafter are filed with the Commission, complied and will comply in all
material respects with the requirements of the 1933 Act and the 1933 Act
Regulations or the Securities Exchange Act of 1934 (the "1934 Act") and the
rules and regulations of the Commission thereunder (the "1934 Act
Regulations"), as applicable, and, when read together with the other
information in the Prospectuses, at the time the Registration Statement
became effective, at the time the Prospectuses were issued and at the
Closing Time (and, if any U.S. Option Units are purchased, at the Date of
Delivery), did not and will not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(iii) INDEPENDENT ACCOUNTANTS. Deloitte & Touche LLP, which are
reporting upon the audited financial statements and supporting schedules
with respect to Dura, Spiros Development Corporation ("SDC") and SDC II
incorporated by reference or included in the Registration Statement, are
independent accountants as required by the 1933 Act and the 1933 Act
Regulations.
(iv) FINANCIAL STATEMENTS. (A) The financial statements of Dura
incorporated by reference or included in the Registration Statement and the
Prospectuses, together with the related schedules and notes, present fairly
the financial position of Dura (and, for relevant periods consistent with
the Commission's rules and regulations, Dura's Subsidiaries (as defined in
clause (vii) below)) at the dates indicated and the statements of
operations, shareholders' equity and cash flows of Dura (and, for relevant
periods consistent with the Commission's rules and regulations, each of the
Subsidiaries) for the periods specified; except as otherwise stated in the
Registration Statement, said financial statements have been prepared in
conformity with generally accepted accounting principles ("GAAP") applied
on a consistent basis throughout the periods involved. The supporting
schedules, if any, included in the Registration Statement present fairly in
accordance with GAAP the information required to be stated therein. The
selected financial data and summary financial information for Dura and the
Subsidiaries included in the Prospectuses present fairly in accordance with
GAAP the information shown therein and have been compiled on a basis
consistent with that of the audited financial statements of Dura and the
Subsidiaries included in the Registration Statement. Other than the
financial statements and schedules referred to in this paragraph (iv), no
other financial statements or schedules are required to be included in the
Registration Statement or incorporated therein by reference.
(B) The financial statements of SDC included in the Registration
Statement and the Prospectuses, together with the related schedules and
notes, present fairly the financial position of SDC at the dates indicated
and the statements of operations, shareholders' equity and cash flows of
SDC for the periods specified; EXCEPT AS OTHERWISE
6
<PAGE>
STATED IN THE REGISTRATION STATEMENT, said financial statements have been
prepared in conformity with GAAP applied on a consistent basis throughout
the periods involved.
(C) The financial statements of SDC II included in the Registration
Statement and the Prospectuses, together with the related schedules and
notes, present fairly the financial position of SDC II at the date
indicated; except as otherwise stated in the Registration Statement, said
financial statements have been prepared in conformity with GAAP.
(D) The pro forma financial statements and the related notes thereto
included in the Registration Statement and the Prospectuses or incorporated
therein by reference present fairly in accordance with GAAP the information
shown therein, have been prepared in accordance with the Commission's rules
and guidelines with respect to pro forma financial statements and have been
properly compiled on the bases described therein, and the assumptions used
in the preparation thereof are reasonable and the adjustments used therein
are appropriate to give effect to the transactions and circumstances
referred to therein.
(v) NO MATERIAL ADVERSE CHANGE IN BUSINESS. Since the respective
dates as of which information is given in the Registration Statement and
the Prospectuses, except as otherwise stated therein, (A) there has been no
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of Dura and the
Subsidiaries (as defined below), considered as one enterprise, whether or
not arising in the ordinary course of business (a "Dura Material Adverse
Effect"), (B) there has been no material adverse change in the condition,
financial or otherwise, or in the earnings, business affairs or business
prospects of SDC, whether or not arising in the ordinary course of business
(an "SDC Material Adverse Effect"), (C) there has been no material adverse
change in the condition, financial or otherwise, or in the earnings,
business affairs or business prospects of SDC II, whether or not arising in
the ordinary course of business (an "SDC II Material Adverse Effect"),
(D) there have been no transactions entered into by Dura or any Subsidiary,
SDC or SDC II, other than in the ordinary course of business, which are
material with respect to Dura and the Subsidiaries, considered as one
enterprise, SDC or SDC II, respectively, and (D) there has been no dividend
or distribution of any kind declared, paid or made by each of SDC, SDC II
or Dura, on any class of its respective capital stock. As used in this
Agreement on the date hereof, a "Material Adverse Effect" shall mean both a
Dura Material Adverse Effect and an SDC Material Adverse Effect.
(vi) GOOD STANDING OF THE COMPANIES. (A) Dura has been duly
organized and is validly existing as a corporation in good standing under
the laws of the State of Delaware and has corporate power and authority to
own, lease and operate its properties and to conduct its business as
described in the Prospectuses and to enter into and perform its obligations
under this Agreement; and Dura is duly qualified as a foreign corporation
to transact business and is in good standing in each other jurisdiction in
which such
7
<PAGE>
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure to so qualify
or to be in good standing would not result in a Dura Material Adverse
Effect.
(B) SDC II has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware and
has corporate power and authority to own, lease and operate its properties
and to conduct its business as described in the Prospectuses and to enter
into and perform its obligations under this Agreement; and SDC II is duly
qualified as a foreign corporation to transact business and is in good
standing in each jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or the conduct of
business, except where the failure to so qualify or to be in good standing
would not result in an SDC II Material Adverse Effect.
(vii) GOOD STANDING OF SUBSIDIARIES. Dura Delivery Systems,
Inc., a Delaware corporation ("DDSI"), Health Script Pharmacy Services,
Inc., a Colorado corporation ("Health Script"), Healthco Solutions, Inc., a
Colorado corporation ("Healthco"), HS Wholesaler, Inc., a Colorado
corporation ("HS Wholesaler"), Scandi Acquisition Corp., a Delaware
corporation ("Scandi"), DCI, Ltd., a corporation organized under the laws
of the Cayman Islands ("DCI"), Dura (Bermuda) Trading Company Ltd., a
corporation organized under the laws of Bermuda ("Dura (Bermuda)") are the
only subsidiaries of Dura (DDSI, Health Script, Healthco, HS Wholesaler,
Scandi, DCI, Dura (Bermuda) and, unless otherwise indicated, SDC, are
hereinafter referred to as the "Subsidiaries"). Except for the
Subsidiaries, neither Dura nor any Subsidiary owns any shares of stock or
any other equity securities of any corporation or has any equity interests
in any firm, partnership, association or other entity other than 775,193
shares of Common Stock of Trega Biosciences, Inc. and 754,799 shares of
Common Stock of Cosmederm Technologies, Inc., each held by Dura. Each
Subsidiary has been duly organized and is validly existing as a corporation
in good standing under the laws of the jurisdiction of its incorporation,
has corporate power and authority to own, lease and operate its properties
and conduct its business as described in the Prospectuses and is duly
qualified as a foreign corporation to transact business and is in good
standing in each jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or the conduct of
business, except where the failure so to qualify or to be in good standing
would not result in a Material Adverse Effect; all of the issued and
outstanding capital stock of each Subsidiary has been duly authorized and
validly issued, is fully paid and non-assessable and (other than with
respect to SDC) is owned solely by Dura or another Subsidiary free and
clear of any security interest, mortgage, pledge, lien, encumbrance, claim
or equity; none of the outstanding shares of capital stock of any
Subsidiary was issued in violation of the preemptive or similar rights of
any securityholder of such Subsidiary arising by operation of law, under
the charter or by-laws of such Subsidiary or under any agreement to which
Dura or such Subsidiary is a party.
8
<PAGE>
(B) Upon the consummation of the SDC Purchase, all of the outstanding
shares of capital stock of SDC will be owned by Dura free and clear of any
security interest, mortgage, pledge, lien, encumbrance, claim or equity.
(viii) CAPITALIZATION. The authorized, issued and outstanding
capital stock of each of Dura and SDC II is as set forth in the
Prospectuses under the column "Actual" under the captions "Dura
Capitalization" and "Spiros Corp. II Capitalization", respectively (except,
in the case of Dura, for subsequent issuances, if any, pursuant to
reservations, agreements or employee benefit plans referred to in the
Prospectuses or incorporated by reference therein or pursuant to the
exercise of convertible securities, warrants or options referred to in the
Prospectuses or incorporated by reference therein). The shares of issued
and outstanding capital stock of each of Dura and SDC II have been duly
authorized and validly issued and are fully paid and non-assessable; none
of the outstanding shares of capital stock of Dura or SDC II was issued in
violation of the preemptive or other similar rights of any securityholder
of Dura or SDC II, respectively, arising by operation of law, under the
charter or by-laws of Dura or SDC II, as the case may be, or under any
agreement to which Dura or SDC II is a party. Except as disclosed in the
Prospectuses or incorporated by reference therein, there are no outstanding
options, warrants or other rights calling for the issuance of, and no
commitments, plans or arrangements to issue, any shares of capital stock of
Dura, SDC II or any Subsidiary or any security convertible into or
exchangeable for capital stock of Dura, SDC II or any Subsidiary.
(ix) AUTHORIZATION OF AGREEMENTS. (A) This Agreement and the U.S.
Purchase Agreement have been duly authorized, executed and delivered by
each of Dura and SDC II.
(B) The Warrant Agreement (as hereinafter defined) has been duly
authorized by Dura, and when executed and delivered by Dura and the Warrant
Agent thereunder, will constitute a valid and binding agreement of Dura,
enforceable against Dura in accordance with its terms, except as
enforcement thereof may be limited by bankruptcy, insolvency (including,
without limitation, all laws relating to fraudulent transfers),
reorganization, moratorium or similar laws affecting enforcement of
creditors' rights generally and except as enforcement thereof is subject to
general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law).
(C) Each of the Development Agreement, the Technology Agreement, the
Albuterol and Product Option Agreement, the Manufacturing and Marketing
Agreement and the Services Agreement (each as defined in the Prospectuses,
and collectively referred to herein as the "Transaction Agreements") has
been duly authorized by Dura and SDC II and, in the case of the Technology
Agreement, Dura, SDC II, SDC and DDSI, and when executed and delivered by
Dura and SDC II, and, in the case of the Technology Agreement, Dura, SDC
II, SDC and DDSI, will constitute valid and binding agreements of each of
Dura, SDC II, SDC and DDSI, as the case may be, enforceable
9
<PAGE>
against Dura, SDC II, SDC and DDSI in accordance with their terms,
except as the enforcement thereof may be limited by bankruptcy,
insolvency (including, without limitation, all laws relating to
fraudulent transfers), reorganization, moratorium or similar laws
affecting enforcement of creditors' rights generally and except as
enforcement thereof is subject to general principles of equity
(regardless of whether enforcement is considered in a proceeding in
equity or at law).
(x) AUTHORIZATION AND DESCRIPTION OF UNITS. (A) The SDC II Common
Stock to be issued by SDC II as a component of the Units has been duly
authorized for issuance and sale to the Managers pursuant to this Agreement
and to the U.S. Underwriters pursuant to the U.S. Purchase Agreement,
respectively, and, when issued and delivered by SDC II against payment of
the purchase price therefor as provided in this Agreement and the U.S.
Purchase Agreement, respectively, will be validly issued, fully paid and
non-assessable; the SDC II Common Stock conforms in all material respects
to the statements relating thereto contained in the Prospectuses and such
description conforms to the rights set forth in the instruments defining
the same; no holder of SDC II Common Stock will be subject to personal
liability by reason of being such a holder; and the issuance of the SDC II
Common Stock is not subject to the preemptive or other similar rights of
any securityholder of SDC II.
(B) The Warrants to be issued as a component of the Units have been
duly authorized by Dura for issuance and sale to the Managers pursuant to
this Agreement and to the U.S. Underwriters pursuant to the U.S. Purchase
Agreement, respectively, and, when duly executed, issued and delivered by
Dura and duly countersigned by the Warrant Agent (as hereinafter defined)
in the manner provided for in the Warrant Agreement (the "Warrant
Agreement") to be entered into between Dura and ChaseMellon Shareholder
Services, as warrant agent (the "Warrant Agent"), and, when issued and
delivered by Dura against payment of the purchase price therefor as
provided in this Agreement and the U.S. Purchase Agreement, respectively,
will constitute valid and binding obligations of Dura, entitled to the
benefits of the Warrant Agreement, and will be enforceable in accordance
with its terms, except as the enforcement thereof may be limited by
bankruptcy, insolvency (including, without limitation, all laws relating to
fraudulent transfers), reorganization, moratorium or similar laws affecting
enforcement of creditors' rights generally and except as enforcement
thereof is subject to general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law); such
Warrants are not subject to the preemptive rights of any stockholder of
Dura.
(C) Dura shall have available such number of shares of Dura Common
Stock deliverable upon exercise of the Warrants as is sufficient to permit
the exercise in full of the Warrants. All shares of Dura Common Stock
issued upon exercise of the Warrants, when issued and paid for in
accordance with the terms of the Warrant Agreement, will be duly
authorized, validly issued, fully paid and nonassessable; shares of Dura
Common Stock are not subject to the preemptive rights of any stockholder of
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Dura; and all corporate action required to be taken for such authorization,
issue and sale of the Dura Common Stock will have been validly and
sufficiently taken upon the issuance of the Warrants; such shares of Dura
Common Stock conform in all material respects to the descriptions thereof
contained or incorporated by reference in the Prospectuses and all
corporate action required to be taken for the authorization, issue and sale
of such shares of Dura Common Stock has been validly and sufficiently
taken.
(xi) REGISTRATION OR SIMILAR RIGHTS WAIVED. There are no persons with
registration or other similar rights to have any securities registered
pursuant to the Registration Statement or otherwise registered by the
Companies under the 1933 Act who have not waived such rights.
(xii) ABSENCE OF DEFAULTS AND CONFLICTS. (A) Neither Dura nor
any Subsidiary is in violation of its charter or by-laws or in default in
the performance or observance of any obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, deed of trust,
loan or credit agreement, note, lease or other agreement or instrument to
which Dura or any Subsidiary is a party or by which it or any of them may
be bound, or to which any of the property or assets of Dura or any
Subsidiary is subject (collectively, "Agreements and Instruments") except
for such defaults that would not result in a Material Adverse Effect; and
the execution, delivery and performance of each of this Agreement, the U.S.
Purchase Agreement, the Warrant Agreement and the Transaction Agreements by
Dura, SDC and DDSI, as the case may by, the issuance and delivery of the
Warrants and the issuance of shares of Dura Common Stock upon the exercise
of the Warrants and the consummation by Dura, SDC and DDSI, as the case may
be, of the transactions contemplated in this Agreement, the U.S. Purchase
Agreement, the Warrant Agreement and the Transaction Agreements and in the
Registration Statement (including the issuance and sale of the Warrants as
part of the Units) and compliance by Dura, SDC and DDSI, as the case may
be, with their respective obligations under this Agreement, the U.S.
Purchase Agreement, the Warrant Agreement and each of the Transaction
Agreements to which they are a party have been duly authorized by all
necessary corporate action and do not and will not, whether with or without
the giving of notice or passage of time or both, conflict with or
constitute a breach of, or default or Repayment Event (as defined below)
under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of Dura or any Subsidiary pursuant
to, the Agreements and Instruments (except for such conflicts, breaches or
defaults or liens, charges or encumbrances that would not result in a
Material Adverse Effect), nor will such action result in any violation of
the provisions of the charter or by-laws of Dura or any Subsidiary or any
applicable material law, statute, rule, regulation, judgment, order, writ
or decree of any government, government instrumentality or court, domestic
or foreign, having jurisdiction over Dura or any Subsidiary or any of their
assets, properties or operations. As used herein, a "Repayment Event"
means any event or condition which gives the holder of any note, debenture
or other evidence of indebtedness (or any person acting on such holder's
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behalf) the right to require the repurchase, redemption or repayment of all
or a portion of such indebtedness by Dura or any Subsidiary.
(B) SDC II is not in violation of its charter or by-laws or in
default in the performance or observance of any obligation, agreement,
covenant or condition contained in any contract, indenture, mortgage, deed
of trust, loan or credit agreement, note, lease or other agreement or
instrument to which SDC II is a party or by which it may be bound, or to
which any of the property or assets of SDC II is subject (collectively,
"SDC II Agreements and Instruments") except for such defaults that would
not result in an SDC II Material Adverse Effect; and the execution,
delivery and performance of each of this Agreement, the U.S. Purchase
Agreement and the Transaction Agreements by SDC II and the consummation by
SDC II of the transactions contemplated herein, therein and in the
Registration Statement (including the issuance and sale of the SDC II
Common Stock as part of the Units and the use of the proceeds from the sale
of the Units as described in the Prospectuses under the caption "Use of
Proceeds") and compliance by SDC II with its obligations under this
Agreement, the U.S. Purchase Agreement and each of the Transaction
Agreements have been duly authorized by all necessary corporate action and
do not and will not, whether with or without the giving of notice or
passage of time or both, conflict with or constitute a breach of, or
default or SDC II Repayment Event (as defined below) under, or result in
the creation or imposition of any lien, charge or encumbrance upon any
property or assets of SDC II pursuant to, the SDC II Agreements and
Instruments (except for such conflicts, breaches or defaults or liens,
charges or encumbrances that would not result in an SDC II Material Adverse
Effect), nor will such action result in any violation of the provisions of
the charter or by-laws of SDC II or any applicable material law, statute,
rule, regulation, judgment, order, writ or decree of any government,
government instrumentality or court, domestic or foreign, having
jurisdiction over SDC II or any of its assets, properties or operations.
As used herein, an "SDC II Repayment Event" means any event or condition
which gives the holder of any note, debenture or other evidence of
indebtedness (or any person acting on such holder's behalf) the right to
require the repurchase, redemption or repayment of all or a portion of such
indebtedness by SDC II.
(xiii) COMPLIANCE WITH LAWS. Except as set forth in the
Prospectuses, Dura and the Subsidiaries and SDC II are in compliance in all
material respects with all applicable laws, statutes, ordinances, rules or
regulations, the enforcement of which, individually or in the aggregate,
would be reasonably expected to have a Material Adverse Effect or an SDC II
Material Adverse Effect, as the case may be.
(xiv) ABSENCE OF LABOR DISPUTE. No labor dispute with the
employees of Dura or any Subsidiary exists or, to the knowledge of Dura, is
imminent, and Dura is not aware of any existing or imminent labor
disturbance by the employees of any of its or any Subsidiary's principal
suppliers, manufacturers, customers or contractors, which, in either case,
may reasonably be expected to result in a Dura Material Adverse Effect or
an SDC II Material Adverse Effect.
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(xv) ABSENCE OF PROCEEDINGS. There is no action, suit, proceeding,
inquiry or investigation (except applications for regulatory approval for
marketing of pharmaceutical products) before or brought by any court or
governmental agency or body, domestic or foreign, now pending or, to the
knowledge of either Dura or SDC II, threatened against or affecting Dura or
any Subsidiary or SDC II that is required to be disclosed in the
Registration Statement or that might reasonably be expected to have a
Material Adverse Effect, or an SDC II Material Adverse Effect, or which
might reasonably be expected to materially and adversely affect the
properties or assets of either Dura and the Subsidiaries (other than SDC),
considered as one enterprise, or SDC II or SDC, as the case may be, or the
consummation of the transactions contemplated in this Agreement, the U.S.
Purchase Agreement, the Warrant Agreement and the Transaction Agreements or
the performance by Dura or SDC II of its obligations hereunder or
thereunder; the aggregate of all pending legal or governmental proceedings
to which Dura or any Subsidiary or SDC II, as the case may be, is a party
or which affect any of their respective property or assets is subject which
are not described in the Registration Statement, including ordinary routine
litigation incidental to its business, could not reasonably be expected to
result in a Material Adverse Effect or an SDC II Material Adverse Effect,
as the case may be.
(xvi) ACCURACY OF EXHIBITS. There are no contracts or documents
which are required to be described in the Registration Statement, the
Prospectuses or the documents incorporated by reference therein or to be
filed as exhibits thereto which have not been described and filed as
required.
(xvii) POSSESSION OF INTELLECTUAL PROPERTY. (A) Except as set
forth in the Prospectuses, each of Dura and the Subsidiaries owns or
possesses adequate licenses or other rights to use the patents, patent
rights, licenses, inventions, copyrights, know how (including trade secrets
and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), which are necessary for the operation
of their businesses as presently conducted except where the failure to so
own or have the right to use would not have a Material Adverse Effect.
Except as disclosed in the Prospectuses, nothing has come to the attention
of Dura or the Subsidiaries to the effect that (1) any product, process,
method, substance, part or other material presently contemplated to be sold
by or employed by Dura or any of the Subsidiaries in connection with Dura's
or such Subsidiary's business may infringe any patent, trademark, service
mark, trade name, copyright, license or other right owned by others,
(2) there is pending or threatened any claim or litigation against or
affecting Dura and the Subsidiaries contesting their right to sell or use
any such product, process, method, substance, part or other material or
(3) there is, or there is pending, any patent, invention, device,
application or any applicable statute, law, rule, regulation, standard or
code, in the case of each of clause (1), (2) or (3) above, which could have
Material Adverse Effect.
(B) SDC II will, to the extent provided for in the Technology
Agreement, have the right to use all patents, patent rights, licenses,
inventions, copyrights, know how
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(including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures) owned or
controlled by Dura or the Subsidiaries, which are necessary for the
operation of its business as described in the Prospectuses. SDC II has
not received any notice of proceedings relating to revocation or
modification of any such licenses, permits, certificates, consents,
orders, approvals or authorizations which singularly or in the
aggregate, if the subject of an unfavorable ruling or finding, could
have a SDC II Material Adverse Effect.
(xviii) ABSENCE OF FURTHER REQUIREMENTS. (A) No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or agency
is necessary or required for the performance by the Companies of their
obligations under this Agreement, the U.S. Purchase Agreement, the Warrant
Agreement and the Transaction Agreements, in connection with the offering,
issuance, sale and delivery of the shares of SDC II Common Stock, the
Warrants or the shares of Dura Common Stock deliverable upon exercise of
the Warrants or the consummation of the transactions contemplated by this
Agreement, the U.S. Purchase Agreement, the Warrant Agreement and the
Transaction Agreements, except such as have been already obtained or as may
be required under the 1933 Act or the 1933 Act Regulations and foreign or
state securities or blue sky laws.
(B) No filing with, or authorization, approval, consent, license,
order, registration, qualification or decree of, any court or governmental
authority or agency is necessary or required for the consummation by SDC
and DDSI of the transactions contemplated by this Agreement, except such as
have already been obtained.
(xix) POSSESSION OF LICENSES AND PERMITS. Dura and the
Subsidiaries and SDC II possess such permits, licenses, approvals, consents
and other authorizations (collectively, "Governmental Licenses") issued by
the appropriate federal, state, local or foreign regulatory agencies or
bodies material to the conduct of the business now operated by Dura, the
Subsidiaries and SDC II, respectively; Dura and the Subsidiaries and SDC II
are in compliance with the terms and conditions of all such Governmental
Licenses, except where the failure so to comply would not, singly or in the
aggregate, have a Material Adverse Effect or a SDC II Material Adverse
Effect, as the case may be; all of the Governmental Licenses are valid and
in full force and effect, except when the invalidity of such Governmental
Licenses or the failure of such Governmental Licenses to be in full force
and effect would not have a Material Adverse Effect or a SDC II Material
Adverse Effect, as the case may be; and neither Dura nor any Subsidiary nor
SDC II has received any notice of proceedings relating to the revocation or
modification of any such Governmental Licenses which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding,
would result in a Material Adverse Effect or an SDC II Material Adverse
Effect; provided, however, that no FDA approval has been received with
respect to products that Dura, the Subsidiaries or SDC II currently are not
permitted to market.
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(xx) TITLE TO PROPERTY. Dura and the Subsidiaries have good and
marketable title to all material properties and assets owned by Dura and
the Subsidiaries, in each case, free and clear of all mortgages, pledges,
liens, security interests, claims, restrictions or encumbrances of any kind
except such as (a) are described or incorporated by reference in the
Prospectuses or (b) do not, singly or in the aggregate, materially affect
the value of such property and do not interfere with the use made and
proposed to be made of such property by Dura or the affected Subsidiaries,
as the case may be; and all properties held under lease by Dura or any
Subsidiary are held under valid, subsisting and enforceable leases.
(B) SDC II has good and marketable title to all material properties
and assets described in the Prospectuses as owned by it, free and clear of
all mortgages, pledges, liens, security interests, claims, restrictions or
encumbrances of any kind except such as (a) are described in the
Prospectuses or (b) do not, singly or in the aggregate, materially affect
the value of such property and do not interfere with the use made and
proposed to be made of such property by SDC II.
(xxi) COMPLIANCE WITH CUBA ACT. Dura has complied with, and is
and will be in compliance with, the provisions of that certain Florida act
relating to disclosure of doing business with Cuba, codified as Section
517.075 of the Florida statutes, and the rules and regulations thereunder
(collectively, the "Cuba Act") or is exempt therefrom.
(xxii) INVESTMENT COMPANY ACT. Neither of the Companies is and,
upon the issuance and sale of the Units as herein contemplated and the
application of the net proceeds therefrom as described in the Prospectuses,
will not be an "investment company" or an entity "controlled" by an
"investment company" as such terms are defined in the Investment Company
Act of 1940, as amended (the "1940 Act").
(xxiii) ENVIRONMENTAL LAWS. Except as described in the Registration
Statement and except as would not, singly or in the aggregate, result in a
Dura Material Adverse Effect, (A) neither Dura nor any Subsidiary is in
material violation of any federal, state, local or foreign law, rule,
regulation, ordinance or any judicial or administrative interpretation
thereof, including any judicial or administrative order, consent, decree or
judgment, relating to pollution or protection of human health, the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or wildlife, including,
without limitation, laws and regulations relating to the release or
threatened release of chemicals, pollutants, contaminants, wastes, toxic
substances, hazardous substances, petroleum or petroleum products
(collectively, "Hazardous Materials") or to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials (collectively, "Environmental Laws"), (B) Dura and the
Subsidiaries have all permits, authorizations and approvals required under
any applicable Environmental Laws and are each in compliance with their
requirements, (C) there are no pending or, to the best knowledge of Dura,
threatened administrative, regulatory or judicial actions, suits, demands,
demand
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letters, claims, liens, notices of noncompliance or violation,
investigation or proceedings relating to any Environmental Law against
Dura or any of the Subsidiaries and (iv) to the best knowledge of Dura,
there are no events or circumstances that could form the basis of an
order for clean-up or remediation, or an action, suit or proceeding by
any private party or governmental body or agency, against or affecting
Dura or any Subsidiary relating to Hazardous Materials or any
Environmental Laws.
(xxiv) TAXES. Dura and the Subsidiaries have filed all federal,
state, local and foreign tax returns that are required to be filed or have
duly requested extensions thereof and have paid all taxes required to be
paid by any of them and any related assessments, fines or penalties, except
for any such tax, assessment, fine or penalty that is being contested in
good faith and by appropriate proceedings; and adequate charges, accruals
and reserves have been provided for in the financial statements referred to
in Section 1(a)(iv)(A) above in respect of all federal, state, local and
foreign taxes for all periods as to which the tax liability of Dura or any
Subsidiary has not been finally determined or remains open to examination
by applicable taxing authorities.
(xxv) INSURANCE. Dura and the Subsidiaries carry or are entitled
to the benefits of insurance in such amounts and covering such risks as is
generally maintained by companies of established repute engaged in the same
or similar business and all such insurance is in full force and effect.
(xxvi) ACCOUNTING CONTROLS. Dura and the Subsidiaries maintain a
system of internal accounting controls sufficient to provide reasonable
assurance that (A) transactions are executed in accordance with
management's general and specific authorizations; (B) transactions are
recorded as necessary to permit preparations of financial statements in
conformity with GAAP and to maintain accountability for assets; (C) access
to assets is permitted only in accordance with management's general or
specific authorizations; and (D) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(xxvii) LOCK-UP AGREEMENTS. The Companies have obtained and delivered
to the Managers the agreements, in the form of Exhibit D hereto, of the
persons and entities named in Schedule C annexed hereto to the effect that
each such person will not, for a period of 90 days from the date of this
Agreement and except as otherwise provided in their respective agreement,
without the prior written consent of Merrill Lynch, directly or indirectly,
offer to sell, grant any option for the sale of, or otherwise dispose of
any shares of Dura Common Stock or any securities convertible into or
exercisable for shares of Dura Common Stock owned by such person or entity
or with respect to which such person has the power of disposition.
(xxviii) AFFILIATE TRANSACTIONS. No relationship, direct or indirect,
exists between or among any of Dura or any affiliate of Dura, on the one
hand, and any director,
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officer, shareholder, customer or supplier of any of them, on the other
hand, which is required by the 1933 Act or by the 1933 Act Regulations to
be described in the Registration Statement or the Prospectuses and which
is not so described or is not described as required or is not
incorporated by reference therein.
(xxix) DISTRIBUTION OF PROSPECTUSES. The Companies have not
distributed and, prior to the later to occur of (A) Closing Time and (B)
completion of the distribution of the Units, will not distribute any
prospectus (as such term is defined in the 1933 Act and the 1933 Act
Regulations) in connection with the offering and sale of the Units other
than the Registration Statement, any preliminary prospectus, the
Prospectuses or other materials, if any, permitted by the 1933 Act or by
the 1933 Act Regulations and approved by the Lead Manager.
(b) OFFICER'S CERTIFICATES. Any certificate signed by any officer of Dura
or any Subsidiary or SDC II, delivered to the Global Coordinator, the Lead
Manager or to counsel for the Managers shall be deemed a representation and
warranty by Dura or SDC II, as the case may be, to each Manager as to the
matters covered thereby.
SECTION 2. SALE AND DELIVERY TO MANAGERS; CLOSING.
(a) INITIAL INTERNATIONAL UNITS. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Companies, severally and not jointly, agree to sell to each Manager,
and each Manager, severally and not jointly, agrees to purchase from the
Companies, at the price per Unit set forth in Schedule B, the number of Initial
International Units set forth in Schedule A opposite the name of such Manager,
plus any additional number of Initial International Units that such Manager may
become obligated to purchase pursuant to the provisions of Section 10 hereof.
(b) INTERNATIONAL OPTION UNITS. In addition, on the basis of the
representations and warranties herein contained and subject to the terms and
conditions herein set forth, the Companies, acting severally and not jointly,
hereby grant an option to the Managers, severally and not jointly, to purchase
up to an additional 140,625 Units at the same price per Unit set forth in
Schedule B for the Initial International Units. The option hereby granted will
expire 30 days after the date hereof and may be exercised in whole or in part
from time to time only for the purpose of covering over-allotments which may be
made in connection with the offering and distribution of the Initial
International Units upon notice by the Global Coordinator to the Companies
setting forth the number of International Option Units as to which the several
Managers are then exercising the option and the time and date of payment and
delivery for such International Option Units. Any such time and date of
delivery (a "Date of Delivery") shall be determined by the Global Coordinator,
but shall not be later than seven full business days after the exercise of said
option, nor in any event prior to the Closing Time, as hereinafter defined. If
the option is exercised as to all or any portion of the International Option
Units, each of the Managers, acting severally and not jointly, will purchase
that proportion of the total number of International Option Units then being
purchased which the number of Initial International Units
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set forth in Schedule A opposite the name of such Manager bears to the total
number of Initial International Units, subject in each case to such
adjustments as the Global Coordinator in its discretion shall make to
eliminate any sales or purchases of fractional Units.
(c) PAYMENT. Payment of the purchase price for, and delivery of
certificates for, the Initial U.S. Units shall be made at the offices of
Brobeck, Phleger & Harrison LLP, 550 West C Street, Suite 1300, San Diego,
California 92101, or at such other place as shall be agreed upon by the Global
Coordinator and the Companies, at 7:00 A.M. (California time) on the third
(fourth, if the pricing occurs after 4:30 P.M. (Eastern time) on any given day)
business day after the date hereof (unless postponed in accordance with the
provisions of Section 10), or such other time not later than ten business days
after such date as shall be agreed upon by the Global Coordinator and the
Companies (such time and date of payment and delivery being herein called
"Closing Time").
In addition, in the event that any or all of the International Option Units
are purchased by the Managers, payment of the purchase price for, and delivery
of certificates for, such International Option Units shall be made at the
above-mentioned offices, or at such other place as shall be agreed upon by the
Global Coordinator and the Companies, on each Date of Delivery as specified in
the notice from the Global Coordinator to the Companies.
Payment shall be made to the Companies by wire transfer of immediately
available funds to a bank account designated by the Companies, against
delivery to the Lead Manager of certificates for the respective accounts of
the Managers of certificates for the International Units to be purchased by
them. It is understood that each Manager has authorized the Lead Manager,
for its account, to accept delivery of, receipt for, and make payment of the
purchase price for, the Initial International Units and the International
Option Units, if any, that it has agreed to purchase. Merrill Lynch,
individually and not as representative of the Managers, may (but shall not be
obligated to) make payment of the purchase price for the Initial
International Units or the International Option Units, if any, to be
purchased by any Manager whose funds have not been received by the Closing
Time or the relevant Date of Delivery, as the case may be, but such payment
shall not relieve such Manager from its obligations hereunder.
(d) DENOMINATIONS; REGISTRATION. Certificates for the Initial
International Units and the International Option Units, if any, shall be in such
denominations and registered in such names as the Lead Manager may request in
writing at least one full business day before the Closing Time or the relevant
Date of Delivery, as the case may be. The certificates for the Initial
International Units and the International Option Units, if any, will be made
available for examination and packaging by the Managers in The City of New York
not later than 10:00 A.M. (Eastern time) on the business day prior to the
Closing Time or the relevant Date of Delivery, as the case may be.
SECTION 3. COVENANTS OF THE COMPANIES. Each of the Companies covenants
with each Manager as follows:
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(a) COMPLIANCE WITH SECURITIES REGULATIONS AND COMMISSION REQUESTS.
The Companies, subject to Section 3(b), will comply with the requirements
of Rule 430A or Rule 434, as applicable, and will notify the Global
Coordinator immediately, and confirm the notice in writing, (i) when any
post-effective amendment to the Registration Statement shall become
effective, or any supplement to the Prospectuses or any amended
Prospectuses shall have been filed, (ii) of the receipt of any comments
from the Commission, (iii) of any request by the Commission for any
amendment to the Registration Statement or any amendment or supplement to
the Prospectuses or for additional information and (iv) of the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement or of any order preventing or suspending the use of
any preliminary prospectus, or of the suspension of the qualification of
the Units for offering or sale in any jurisdiction, or of the initiation or
threatening of any proceedings for any of such purposes. The Companies
will promptly effect the filings necessary pursuant to Rule 424(b) and will
take such steps as they deem necessary to ascertain promptly whether the
form of prospectus transmitted for filing under Rule 424(b) was received
for filing by the Commission and, in the event that it was not, will
promptly file such prospectus. The Companies will make every reasonable
effort to prevent the issuance of any stop order and, if any stop order is
issued, to obtain the lifting thereof at the earliest possible moment.
(b) FILING OF AMENDMENTS. The Companies will give the Global
Coordinator notice of their intention to file or prepare any amendment to
the Registration Statement (including any filing under Rule 462(b)), any
Term Sheet or any amendment, supplement or revision to either the
prospectus included in the Registration Statement at the time it became
effective or to the Prospectuses, whether pursuant to the 1933 Act, the
1934 Act or otherwise, will furnish the Global Coordinator with copies of
any such documents a reasonable amount of time prior to such proposed
filing or use, as the case may be, and will not file or use any such
document to which the Global Coordinator or counsel for the Managers shall
object.
(c) DELIVERY OF REGISTRATION STATEMENT. The Companies have furnished
or will deliver to the Lead Manager and counsel for the Managers, without
charge, signed copies of the Registration Statement as originally filed and
of each amendment thereto (including exhibits filed therewith or
incorporated by reference therein and documents incorporated or deemed to
be incorporated by reference therein) and signed copies of all consents and
certificates of experts, and will also deliver to the Lead Manager, without
charge, a conformed copy of the Registration Statement as originally filed
and of each amendment thereto (without exhibits) for each of the Managers.
The copies of the Registration Statement and each amendment thereto
furnished to the Managers will be identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR,
except to the extent permitted by Regulation S-T.
(d) DELIVERY OF PROSPECTUSES. The Companies have delivered to each
Manager, without charge, as many copies of each preliminary prospectus as
such
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Manager reasonably requested, and the Companies hereby consent to the use
of such copies for purposes permitted by the 1933 Act. The Companies
will furnish to each Manager, without charge, during the period when the
International Prospectus is required to be delivered under the 1933 Act
or the 1934 Act, such number of copies of the International Prospectus
(as amended or supplemented) as such Manager may reasonably request. The
International Prospectus and any amendments or supplements thereto
furnished to the Managers will be identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR,
except to the extent permitted by Regulation S-T.
(e) CONTINUED COMPLIANCE WITH SECURITIES LAWS. The Companies will
comply with the 1933 Act and the 1933 Act Regulations and the 1934 Act and
the 1934 Act Regulations so as to permit the completion of the distribution
of the Units as contemplated in this Agreement, the U.S. Purchase Agreement
and in the Prospectuses. If at any time when a prospectus is required by
the 1933 Act to be delivered in connection with sales of the Units, any
event shall occur or condition shall exist as a result of which it is
necessary, in the opinion of counsel for the Managers or for the Companies,
to amend the Registration Statement or amend or supplement any Prospectus
in order that the Prospectuses will not include any untrue statements of a
material fact or omit to state a material fact necessary in order to make
the statements therein not misleading in the light of the circumstances
existing at the time any such Prospectus is delivered to a purchaser, or if
it shall be necessary, in the opinion of such counsel, at any such time to
amend the Registration Statement or amend or supplement any Prospectus in
order to comply with the requirements of the 1933 Act or the 1933 Act
Regulations, the Companies will promptly prepare and file with the
Commission, subject to Section 3(b), such amendment or supplement as may be
necessary to correct such statement or omission or to make the Registration
Statement or the Prospectuses comply with such requirements, and the
Companies will furnish to the Managers such number of copies of such
amendment or supplement as the Managers may reasonably request.
(f) RULE 158. The Companies will timely file such reports pursuant
to the 1934 Act as are necessary in order to make generally available to
their securityholders as soon as practicable an earnings statement for the
purposes of, and to provide the benefits contemplated by, the last
paragraph of Section 11(a) of the 1933 Act.
(g) USE OF PROCEEDS. SDC II will use the net proceeds received by it
from the sale of the Units in the manner specified in the Prospectuses
under "Use of Proceeds."
(h) LISTING. The Companies will use their best efforts to effect and
maintain the quotation of the Units on the Nasdaq National Market and will
file with the Nasdaq National Market all documents and notices required by
the Nasdaq National Market of companies that have securities that are
traded in the over-the-counter market and quotations for which are reported
by the Nasdaq National Market.
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(i) RESTRICTION ON SALE OF DURA COMMON STOCK. During a period of 90
days from the date of the Prospectuses, Dura will not, without the prior
written consent of the Global Coordinator, (i) directly or indirectly,
offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right
or warrant to purchase or otherwise transfer or dispose of any shares of
Dura Common Stock or any securities convertible into or exercisable or
exchangeable for shares of Dura Common Stock or file any registration
statement under the 1933 Act with respect to any of the foregoing or
(ii) enter into any swap or any other agreement or any transaction that
transfers, in whole or in part, directly or indirectly, the economic
consequence of ownership of Dura Common Stock whether any such swap or
transaction described in clause (i) or (ii) above is to be settled by
delivery of shares of Dura Common Stock or such other securities, in cash
or otherwise. The foregoing sentence shall not apply to (A) the Units to
be sold hereunder or under the U.S. Purchase Agreement, (B) any shares of
Dura Common Stock issued by Dura upon the exercise of an option or warrant
or the conversion of a security outstanding on the date hereof and referred
to in, or incorporated by reference into, the Prospectuses, (C) any shares
of Dura Common Stock issued or options to purchase Dura Common Stock
granted pursuant to existing employee benefit plans of Dura referred to in,
or incorporated by reference into, the Prospectuses or (D) any shares of
Dura Common Stock issued to stockholders of SDC in connection with the
acquisition of all of the outstanding stock of SDC pursuant to a
registration statement on Form S-3 filed with the Commission on October 15,
1997, as amended (No. 333-37955).
(j) REPORTING REQUIREMENTS. The Companies, during the period when the
Prospectuses are required to be delivered under the 1933 Act or the 1934
Act, will file all documents required to be filed with the Commission
pursuant to the 1934 Act within the time periods required by the 1934 Act
and the 1934 Act Regulations.
SECTION 4. PAYMENT OF EXPENSES.
(a) EXPENSES. SDC II will pay or cause to be paid all expenses incident
to the performance of the Companies' obligations under this Agreement,
including (i) the preparation, printing and filing of the Registration
Statement (including financial statements and exhibits) as originally filed
and of each amendment thereto, (ii) the preparation, printing and delivery to
the Underwriters of this Agreement, any Agreement among Underwriters, the
Warrant Agreement and such other documents as may be required in connection
with the offering, purchase, sale, issuance or delivery of the Units, (iii)
the preparation, issuance and delivery of the certificates for the Units to
the Underwriters, including any stock or other transfer taxes and any stamp
or other duties payable upon the sale, issuance or delivery of the Units to
the Underwriters and the transfer of the Units between the Managers and the
U.S. Underwriters, (iv) the fees and disbursements of the Companies' counsel,
accountants and other advisors, (v) the fees and disbursements of SDC's
counsel, accountants and other advisors, (vi) the printing and delivery to
the Underwriters of copies of each preliminary prospectus, any Term Sheets
and of the Prospectuses and any amendments or supplements thereto, (vii) the
preparation, printing and
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delivery to the Underwriters of copies of the Blue Sky Survey and any
supplement thereto, (viii) the fees and expenses of any transfer agent or
registrar for the Units, (ix) all charges of the Warrant Agent, (x) the
filing fees incident to, and the reasonable fees and disbursements of counsel
to the Underwriters in connection with, the review by the National
Association of Securities Dealers, Inc. (the "NASD") of the terms of the sale
of the Units, and (xi) the fees and expenses incurred in connection with the
listing of the Units, the SDC II Common Stock and the Warrants on the Nasdaq
National Market.
(b) TERMINATION OF AGREEMENT. If this Agreement is terminated by the Lead
Manager in accordance with the provisions of Section 5, Section 9(a)(i) or
Section 11, the Companies shall reimburse the Managers for all of their
out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the Managers.
SECTION 5. CONDITIONS OF MANAGERS' OBLIGATIONS. The obligations of the
several Managers hereunder are subject to the accuracy of the representations
and warranties of the Companies contained in Section 1 hereof or in certificates
of any officer of the Companies or any Subsidiary delivered pursuant to the
provisions hereof, to the performance by the Companies of their covenants and
other obligations hereunder, and to the following further conditions:
(a) EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration
Statement, including any Rule 462(b) Registration Statement has become
effective and at Closing Time no stop order suspending the effectiveness
of the Registration Statement shall have been issued under the 1933 Act
or proceedings therefor initiated or threatened by the Commission, and
any request on the part of the Commission for additional information
shall have been complied with to the reasonable satisfaction of counsel
to the Managers. A prospectus containing the Rule 430A Information shall
have been filed with the Commission in accordance with Rule 424(b) (or a
post-effective amendment providing such information shall have been filed
and declared effective in accordance with the requirements of Rule 430A)
or, if the Companies have elected to rely upon Rule 434, a Term Sheet
shall have been filed with the Commission in accordance with Rule 424(b).
(b) OPINION OF COUNSEL FOR THE COMPANIES. At Closing Time, the Lead
Manager shall have received the favorable opinion, dated as of Closing
Time, of Brobeck, Phleger & Harrison LLP, counsel for Dura and SDC II, in
form and substance satisfactory to counsel for the Managers, and, to the
extent provided in Exhibit A hereto, Mitchell R. Woodbury, General Counsel
for Dura, together with signed or reproduced copies of such letters for the
other Manager, to the effect set forth in Exhibit A hereto.
(c) OPINION OF PATENT COUNSEL FOR THE COMPANIES. At Closing Time,
the Lead Manager shall have received the favorable opinion, dated as of
Closing Time, of Lyon & Lyon LLP (solely with respect to patents concerning
the Spiros products), patent counsel for the Companies, in form and
substance satisfactory to counsel for the Managers, together with signed or
reproduced copies of such letter for the other Manager, to the effect set
forth in Exhibit B hereto.
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(d) OPINION OF REGULATORY COUNSEL FOR THE COMPANIES. At Closing
Time, the Lead Manager shall have received the favorable opinion, dated as
of Closing Time, of Kleinfeld, Kaplan and Becker, regulatory counsel for
the Companies, in form and substance satisfactory to counsel for the
Managers, together with signed or reproduced copies of such letter for the
other Manager, to the effect set forth in Exhibit C hereto.
(e) OPINION OF COUNSEL FOR THE MANAGERS. At Closing Time, the Lead
Manager shall have received the favorable opinion, dated as of Closing
Time, of Shearman & Sterling, counsel for the Managers, together with
signed or reproduced copies of such letter for the other Manager, with
respect to issuance and sale of the Units and other related matters as the
Representatives may reasonably require. In giving such opinion, such counsel
may rely, as to all matters governed by the laws of jurisdictions other than
the law of the State of New York and the federal law of the United States
upon the opinions of counsel satisfactory to the Lead Manager. Such counsel
may also state that, insofar as such opinion involves factual matters, they
have relied, to the extent they deem proper, upon certificates of officers
of the Companies and the Subsidiaries and certificates of public officials.
(f) OFFICERS' CERTIFICATE. At Closing Time, there shall not have
been, since the date hereof or since the respective dates as of which
information is given in the Prospectuses, any Dura Material Adverse Effect,
SDC Material Adverse Effect or SDC II Material Adverse Effect, whether or
not arising in the ordinary course of business, and the Lead Manager shall
have received a certificate of the President or a Vice President of Dura
and of the chief financial or chief accounting officer of Dura, and the
President or a Vice President of SDC II and of the chief financial or chief
accounting officer of SDC II, dated as of the Closing Time, to the effect
that (i) there has been no such material adverse effect, (ii) the
representations and warranties of Dura and SDC II set forth in Section 1(a)
hereof are true and correct with the same force and effect as though
expressly made at and as of the Closing Time, (iii) each of Dura and SDC II
shall have complied with all agreements and satisfied all conditions on its
part to be performed or satisfied at or prior to Closing Time, and (iv) no
stop order suspending the effectiveness of the Registration Statement has
been issued and no proceedings for that purpose have been instituted or are
pending or are contemplated by the Commission.
(g) ACCOUNTANTS' COMFORT LETTER. At the time of the execution of
this Agreement, the Lead Manager shall have received from Deloitte & Touche
LLP a letter, dated such date, in form and substance satisfactory to the
Lead Manager, together with signed or reproduced copies of such letter for
the other Manager, containing statements
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and information of the type ordinarily included in accountants' "comfort
letters" to underwriters with respect to the financial statements and
certain financial information contained in the Registration Statement and
the Prospectuses.
(h) BRING-DOWN COMFORT LETTER. At Closing Time, the Lead Manager
shall have received from Deloitte & Touche LLP a letter, dated as of
Closing Time, to the effect that they reaffirm the statements made in the
letter furnished pursuant to subsection (g) of this Section 5, except that
the specified date referred to shall be a date not more than three business
days prior to Closing Time.
(i) APPROVAL OF LISTING. At Closing Time, the Units shall have been
approved for inclusion in the Nasdaq National Market, subject only to
official notice of issuance.
(j) NO OBJECTION. The NASD has confirmed that it has not raised any
objection with respect to the fairness and reasonableness of the
underwriting terms and arrangements.
(k) LOCK-UP AGREEMENTS. At the date of this Agreement, the Managers
shall have received an agreement substantially in the form of Exhibit D
hereto signed by the persons listed on Schedule C hereto.
(l) PURCHASE OF INITIAL U.S. UNITS. Contemporaneously with the
purchase by the Managers of the Initial International Units under this
Agreement, the U.S. Underwriters shall have purchased the Initial U.S.
Units under the U.S. Purchase Agreement.
(m) CONDITIONS TO PURCHASE OF INTERNATIONAL OPTION UNITS. In the
event that the Managers exercise their option provided in Section 2(b)
hereof to purchase all or any portion of the International Option Units,
the representations and warranties of the Companies contained herein and
the statements in any certificates furnished by the Companies and any
Subsidiary hereunder shall be true and correct as of each Date of Delivery
and, at the relevant Date of Delivery, the Lead Manager shall have
received:
(i) OFFICERS' CERTIFICATE. A certificate, dated such Date of
Delivery, of the President or a Vice President of each of the
Companies and of the chief financial or chief accounting officer of
each of the Companies confirming that the certificate delivered at the
Closing Time pursuant to Section 5(f) remains true and correct as of
such Date of Delivery.
(ii) OPINIONS OF COUNSEL FOR THE COMPANIES. The favorable
opinions of Brobeck, Phleger & Harrison LLP, counsel for the
Companies, Lyon & Lyon, patent counsel for the Companies, and
Kleinfeld, Kaplan and Becker, regulatory counsel for the Companies,
each in form and substance satisfactory to counsel for the Managers,
dated such Date of Delivery, relating to the International Option
Units to be purchased on such Date of Delivery and otherwise to the
same effect as the opinions required by Sections 5(b), 5(c) and 5(d).
(iii) OPINION OF COUNSEL FOR THE MANAGERS. The favorable opinion
of Shearman & Sterling, counsel for the Managers, dated such Date of
Delivery, relating to the International Option
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Units to be purchased on such Date of Delivery and otherwise to the
same effect as the opinion required by Section 5(e).
(iv) BRING-DOWN COMFORT LETTER. A letter from Deloitte &
Touche LLP, in form and substance satisfactory to the Lead Manager and
dated such Date of Delivery, substantially in the same form and
substance as the letter furnished to the Lead Manager pursuant to
Section 5(h), except that the "specified date" in the letter furnished
pursuant to this paragraph shall be a date not more than five days
prior to such Date of Delivery.
(n) ADDITIONAL DOCUMENTS. At Closing Time and at each Date of
Delivery, counsel for the Managers shall have been furnished with such
documents and opinions as they may require for the purpose of enabling them
to pass upon the issuance and sale of the Units as herein contemplated, or
in order to evidence the accuracy of any of the representations or
warranties, or the fulfillment of any of the conditions, herein contained;
and all proceedings taken by the Companies in connection with the issuance
and sale of the Units as herein contemplated shall be reasonably
satisfactory in form and substance to the Managers and counsel for the
Managers.
(o) TERMINATION OF AGREEMENT. If any condition specified in this
Section 5 shall not have been fulfilled when and as required to be
fulfilled, this Agreement, or, in the case of any condition to the purchase
of International Option Units, on a Date of Delivery which is after the
Closing Time, the obligations of the Managers to purchase the relevant
International Option Units, may be terminated by the Lead Manager by notice
to the Companies at any time at or prior to Closing Time or such Date of
Delivery, as the case may be, and such termination shall be without
liability of any party to any other party except as provided in Section 4
and except that Sections 1, 6, 7 and 8 shall survive any such termination
and remain in full force and effect.
SECTION 6. INDEMNIFICATION.
(a) INDEMNIFICATION OF MANAGERS. The Companies, jointly and severally,
agree to indemnify and hold harmless each Manager and each person, if any, who
controls any Manager within the meaning of Section 15 of the 1933 Act or Section
20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(or any amendment thereto), including the Rule 430A Information and the
Rule 434 Information, if applicable, or the omission or
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alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein not misleading or
arising out of any untrue statement or alleged untrue statement of a
material fact included in any preliminary prospectus or the Prospectuses
(or any amendment or supplement thereto), or the omission or alleged
omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission; provided that (subject to Section
6(d) below) any such settlement is effected with the written consent of the
Companies; and
(iii) against any and all expense whatsoever, as incurred (including
the fees and disbursements of counsel chosen by Merrill Lynch), reasonably
incurred in investigating, preparing or defending against any litigation,
or any investigation or proceeding by any governmental agency or body,
commenced or threatened, or any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue statement or omission, to
the extent that any such expense is not paid under (i) or (ii) above;
PROVIDED, HOWEVER, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Companies by
any Manager through the Lead Manager expressly for use in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if applicable, or any preliminary prospectus or the
International Prospectus (or any amendment or supplement thereto).
(b) INDEMNIFICATION OF THE COMPANIES, DIRECTORS AND OFFICERS. Each
Manager severally agrees to indemnify and hold harmless the Companies, their
directors, each of their officers who signed the Registration Statement, and
each person, if any, who controls either of the Companies within the meaning of
Section 15 of the 1933 Act or Section 20 of the 1934 Act, against any and all
loss, liability, claim, damage and expense described in the indemnity contained
in subsection (a) of this Section 6, as incurred, but only with respect to
untrue statements or omissions, or alleged untrue statements or omissions, made
in the Registration Statement (or any amendment thereto), including the Rule
430A Information and the Rule 434 Information, if applicable, or any preliminary
international prospectus or the International Prospectus (or any amendment or
supplement thereto) in reliance upon and in conformity with written information
furnished to the Companies by such Manager through the Lead Manager expressly
for use in the Registration Statement (or any amendment thereto) or such
preliminary prospectus or the International Prospectus (or any amendment or
supplement thereto).
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(c) ACTIONS AGAINST PARTIES; NOTIFICATION. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified pursuant to Section 6(a) above,
counsel to the indemnified parties shall be selected by Merrill Lynch, and, in
the case of parties indemnified pursuant to Section 6(b) above, counsel to the
indemnified parties shall be selected by the Companies. An indemnifying party
may participate at its own expense in the defense of any such action; PROVIDED,
HOWEVER, that counsel to the indemnifying party shall not (except with the
consent of the indemnified party) also be counsel to the indemnified party. In
no event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 6 or Section
7 hereof (whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
(d) SETTLEMENT WITHOUT CONSENT IF FAILURE TO REIMBURSE. If at any time an
indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 6(a) effected without its written consent if (i) such settlement is
entered into more than 45 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.
SECTION 7. CONTRIBUTION. If the indemnification provided for in Section
6 hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute
to the aggregate amount of such losses, liabilities, claims, damages and
expenses incurred by such indemnified party, as incurred, (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Companies on the one hand and the Managers on the other hand from the
offering of the Units pursuant to this Agreement or (ii) if the allocation
provided by clause (i) is not permitted by applicable law, in such proportion
as is appropriate
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to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Companies on the one hand and of the Managers
on the other hand in connection with the statements or omissions that
resulted in such losses, liabilities, claims, damages or expenses, as well as
any other relevant equitable considerations.
The relative benefits received by the Companies on the one hand and the
Managers on the other hand in connection with the offering of the Units
pursuant to this Agreement shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the Units pursuant
to this Agreement (before deducting expenses) received by the Companies and
the total underwriting discount received by the Managers, in each case as set
forth on the cover of the International Prospectus, or, if Rule 434 is used,
the corresponding location on the Term Sheet, bear to the aggregate initial
public offering price of the Units as set forth on such cover.
The relative fault of the Companies on the one hand and the Managers on
the other hand shall be determined by reference to, among other things,
whether any such untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to information
supplied by the Companies or by the Managers and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Companies and the Managers agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro
rata allocation (even if the Managers were treated as one entity for such
purpose) or by any other method of allocation which does not take account of
the equitable considerations referred to above in this Section 7. The
aggregate amount of losses, liabilities, claims, damages and expenses
incurred by an indemnified party and referred to above in this Section 7
shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no U.S. Underwriter
shall be required to contribute any amount in excess of the amount by which
the total price at which the Units underwritten by it and distributed to the
public were offered to the public exceeds the amount of any damages which
such Manager has otherwise been required to pay by reason of any such untrue
or alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls a Manager
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act
shall have the same rights to contribution as such Manager, and each director of
each of the Companies, each officer of
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each of the Companies who signed the Registration Statement, and each person,
if any, who controls the Companies within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act shall have the same rights to
contribution as the Companies. The Managers' respective obligations to
contribute pursuant to this Section are several in proportion to the number
of Initial International Units set forth opposite their respective names in
Schedule A hereto and not joint.
SECTION 8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties and agreements contained in this
Agreement or in certificates of officers of the Companies or any Subsidiary
submitted pursuant hereto, shall remain operative and in full force and
effect, regardless of any investigation made by or on behalf of any Manager
or controlling person, or by or on behalf of the Companies, and shall survive
delivery of the Units to the Managers.
SECTION 9. TERMINATION OF AGREEMENT.
(a) TERMINATION; GENERAL. The Lead Manager may terminate this
Agreement, by notice to the Companies, at any time at or prior to Closing
Time (i) if there has been, since the time of execution of this Agreement or
since the respective dates as of which information is given in the
International Prospectus, any Dura Material Adverse Effect or SDC II Material
Adverse Effect, whether or not arising in the ordinary course of business, or
(ii) if there has occurred any material adverse change in the financial
markets in the United States or the international financial markets, any
outbreak of hostilities or escalation thereof or other calamity or crisis or
any change or development involving a prospective change in national or
international political, financial or economic conditions, in each case the
effect of which is such as to make it, in the judgment of the Lead Manager,
impracticable to market the Units or to enforce contracts for the sale of the
Units, or (iii) if trading in any securities of the Companies has been
suspended or materially limited by the Commission or the Nasdaq National
Market, or if trading generally on the American Stock Exchange or the New
York Stock Exchange or in the Nasdaq National Market has been suspended or
materially limited, or minimum or maximum prices for trading have been fixed,
or maximum ranges for prices have been required, by any of said exchanges or
by such system or by order of the Commission, the NASD or any other
governmental authority, or (iv) if a banking moratorium has been declared by
either Federal or New York or California authorities.
(b) LIABILITIES. If this Agreement is terminated pursuant to this
Section 9, such termination shall be without liability of any party to any
other party except as provided in Section 4 hereof, and provided further that
Sections 1, 6, 7 and 8 shall survive such termination and remain in full
force and effect.
SECTION 10. DEFAULT BY ONE OR MORE OF THE MANAGERS. If one or more of
the Managers shall fail at Closing Time or a Date of Delivery to purchase the
Units which it or they are obligated to purchase under this Agreement (the
"Defaulted Units"), the Lead Manager shall have the right, within 24 hours
thereafter, to make arrangements for one or more of the
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non-defaulting Managers, or any other underwriters, to purchase all, but not
less than all, of the Defaulted Units in such amounts as may be agreed upon
and upon the terms herein set forth; if, however, the Lead Manager shall not
have completed such arrangements within such 24-hour period, then:
(a) if the number of Defaulted Units does not exceed 10% of the
number of Units to be purchased on such date, the non-defaulting Managers
shall be obligated, each severally and not jointly, to purchase the full
amount thereof in the proportions that their respective underwriting
obligations hereunder bear to the underwriting obligations of all
non-defaulting Managers, or
(b) if the number of Defaulted Units exceeds 10% of the number of
Units to be purchased on such date, this Agreement or, with respect to any
Date of Delivery which occurs after Closing Time, the obligation of the
Managers to purchase and of the Companies to sell the International Option
Units to be purchased and sold on such Date of Delivery shall terminate
without liability on the part of any non-defaulting Manager.
No action taken pursuant to this Section 10 shall relieve any defaulting
Manager from liability in respect of its default.
In the event of any such default which does not result in a termination
of this Agreement or, in the case of a Date of Delivery which is after
Closing Time, which does not result in a termination of the obligation of the
Managers to purchase and the Companies to sell the relevant International
Option Units, as the case may be, either the Managers or the Companies shall
have the right to postpone Closing Time or the relevant Date of Delivery, as
the case may be, for a period not exceeding seven days in order to effect any
required changes in the Registration Statement or Prospectuses or in any
other documents or arrangements. As used herein, the term "Manager" includes
any person substituted for a Manager under this Section.
SECTION 11. DEFAULT BY THE COMPANIES. If the Companies shall fail at
Closing Time or at the Date of Delivery to sell the number of Units that they
are obligated to sell hereunder, then this Agreement shall terminate without
any liability on the part of any nondefaulting party; PROVIDED, HOWEVER, that
the provisions of Sections 1, 4, 6, 7 and 8 shall remain in full force and
effect. No action taken pursuant to this Section 11 shall relieve the
Companies from liability, if any, in respect of such default.
SECTION 12. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Managers shall be directed to the Lead Manager at Ropemaker Place, 25
Ropemaker Street, London, EC2Y 92Y, England attention of _________; notices
to either of the Companies shall be directed to them at:
Dura Pharmaceuticals, Inc.
5880 Pacific Center Boulevard
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San Diego, California 92121- 4204
Attn: Mitchell R. Woodbury
with a copy to:
Brobeck, Phleger & Harrison LLP
550 West "C" Street, Suite 1300
San Diego, California 92101
Attn: Faye H. Russell
SECTION 13. PARTIES. This Agreement shall inure to the benefit of and
be binding upon the Managers and the Companies and their respective
successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the
Managers and the Companies and their respective successors and the
controlling persons and officers and directors referred to in Sections 6 and
7 and their heirs and legal representatives, any legal or equitable right,
remedy or claim under or in respect of this Agreement or any provision herein
contained. This Agreement and all conditions and provisions hereof are
intended to be for the sole and exclusive benefit of the Managers and the
Companies and their respective successors, and said controlling persons and
officers and directors and their heirs and legal representatives, and for the
benefit of no other person, firm or corporation. No purchaser of Units from
any Manager shall be deemed to be a successor by reason merely of such
purchase.
SECTION 14. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EXCEPT
AS OTHERWISE SET FORTH HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY
TIME.
SECTION 15. EFFECT OF HEADINGS. The Article and Section headings herein
and the Table of Contents are for convenience only and shall not affect the
construction hereof.
31
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to each of Dura and SDC II a counterpart
hereof, whereupon this instrument, along with all counterparts, will become a
binding agreement among the Managers, Dura and SDC II in accordance with its
terms.
Very truly yours,
DURA PHARMACEUTICALS, INC.
By:
-------------------------
Title:
SPIROS DEVELOPMENT CORPORATION II, INC.
By:
-------------------------
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH INTERNATIONAL
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
By: MERRILL LYNCH INTERNATIONAL
By:
-------------------------
Authorized Signatory
32
<PAGE>
SCHEDULE A
Number
of Initial
International
Name of Manager Units
- --------------- -----
Merrill Lynch International . . . . . . . . . . . . . . . .
Donaldson, Lufkin & Jenrette Securities Corporation . . . .
------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . ------------
------------
Sch A-1
<PAGE>
SCHEDULE B
SPIROS DEVELOPMENT CORPORATION II, INC.
DURA PHARMACEUTICALS, INC.
937,500 Units
Each Unit Consisting of
One Share of Callable Common Stock of Spiros Development Corporation II, Inc.
and One Warrant to Purchase
One-Fourth of One Share of Common Stock of Dura Pharmaceuticals, Inc.
1. The initial public offering price per International Unit, determined
as provided in Section 2, shall be $______.
2. The purchase price per International Unit to be paid by the Managers
shall be $______, being an amount equal to the initial public offering price
set forth above less $______ per International Unit.
3. The exercise price of the Warrants shall be $_______ per share of Dura
Common Stock.
Sch B-1
<PAGE>
SCHEDULE C
[List of persons and entities
subject to lock-up]
<PAGE>
EXHIBIT A
FORM OF OPINION OF COUNSEL FOR DURA, SDC II and SDC
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
[For purposes of this opinion, to be delivered at the Closing Time, the
term "Subsidiaries" includes SDC.]
(i) Each of Dura and SDC II has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware.
(ii) Each of Dura and SDC II has full corporate power and authority to
own or lease its properties and conduct its business as described in the
Registration Statement and Prospectuses and, to enter into and perform its
obligations under the U.S. Purchase Agreement and the International Purchase
Agreement.
(iii) Each of Dura and SDC II is duly qualified as a foreign corporation
to transact business and is in good standing in each jurisdiction in which
such qualification is required, whether by reason of the ownership or leasing
of property or the conduct of business, except where the failure so to
qualify or to be in good standing would not result in a Dura Material Adverse
Effect or a SDC II Material Adverse Effect, as the case may be (which opinion
as to Dura may be given by the General Counsel of Dura).
(iv) The authorized capital stock of Dura conforms as to legal matters in
all material respects to the description thereof contained in the Registration
Statement and Prospectuses. The authorized and outstanding shares of capital
stock of Dura are as set forth under the caption "Capitalization" and have
been duly and validly authorized and issued, are fully paid and non-assessable,
and are not subject to any preemptive rights (the opinion called for by the
last sentence of this paragraph (iv) may be given by the General Counsel of
Dura).
(v) The authorized, capital stock of SDC II conforms as to legal matters
in all material respects to the descriptions thereof contained in the
Registration Statement and Prospectuses under the caption "Spiros Corp. II
Capital Stock".
(vi) The outstanding shares of Special Common Stock of SDC II are as set
forth under the caption "Capitalization" and have been duly and validly
authorized and issued, are, to our knowledge, fully paid and nonassessable, and
are not subject to any preemptive rights.
(vii) The Warrant Agreement has been duly authorized, executed and
delivered by Dura and constitutes a legal, valid and binding obligation of
Dura, enforceable against Dura in accordance to its terms.
A-1
<PAGE>
(viii) The issuance of the Warrants has been duly authorized by Dura and,
when duly executed, issued and delivered by Dura and countersigned by the
Warrant Agent and when payment of the purchase price for the Units has been
made, the Warrants will constitute valid and binding obligations of Dura
entitled to the benefits of the Warrant Agreement. The Warrants are not
subject to the preemptive rights of any stockholder of Dura. The Warrants
conform as to legal matters in all material respects to the description
thereof contained in the Registration Statement and the Prospectuses under
the caption "Description of the Warrants."
(ix) The shares of Dura Common Stock issuable upon exercise of the
Warrants have been duly and validly reserved for the issuance and, when and
if issued upon such exercise and upon payment of the exercise price, in
accordance with the terms of the Warrant Agreement, will be duly and validly
authorized and issued, will be fully paid and nonassessable, and will not be
subject to any preemptive or similar rights of any stockholder of Dura.
(x) The issuance of the SDC II Common Stock has been duly authorized and,
when issued and paid for as part of the Units as contemplated by the Purchase
Agreements, will be validly issued, fully paid and non-assessable. Such SDC II
Common Stock is not subject to the preemptive or similar rights of any
stockholder of SDC II.
(xi) To our knowledge, the Subsidiaries, are Dura's sole subsidiaries. Each
Subsidiary has been duly incorporated and is validly existing as a corporation
in good standing under the laws of the jurisdiction of its incorporation, has
corporate power and authority to own or lease its properties and to conduct its
business as described in the Registration Statement and Prospectuses and is
duly qualified as a foreign corporation to transact business and is in good
standing in each jurisdiction in which such qualification is required, whether
by reason of the ownership or leasing of property or the conduct of business,
except where the failure so to qualify or to be in good standing would not
result in a Dura Material Adverse Effect; all of the issued and outstanding
capital stock of each Subsidiary and SDC has been duly and validly authorized
and issued, are fully paid and non-assessable and, to the best of our knowledge
and information is owned by Dura free and clear of any security interest,
mortgage, pledge, lien, encumbrance, claim or equity; and none of the
outstanding shares of capital stock of any Subsidiary was issued in violation
of the preemptive rights of any securityholder of such Subsidiary (the opinion
called for by the last sentence of this paragraph (xi) may be given by the
General Counsel of Dura).
(xii) Each of the U.S. Purchase Agreement and the International Purchase
Agreement has been duly authorized, executed and delivered by Dura and SDC II.
(xiii) The Registration Statement, including any Rule 462(b) Registration
Statement, has become effective under the Act. Any required filing of the
Prospectuses pursuant to Rule 424(b) has been made in the manner and within
the time period required by Rule 424(b). To our knowledge, no stop order
proceedings suspending the effectiveness of the Registration Statement or any
Rule 462(b) Registration Statement have been instituted or threatened or are
pending under the Act.
A-2
<PAGE>
(xiv) All descriptions in the Prospectuses of agreements and other
instruments to which Dura, SDC II or the Subsidiaries are a party are accurate
in all material respects. We know of no agreements required to be filed or
described in the Prospectuses which are not so filed or described. To our
knowledge, no breach or default exists under any agreement or instrument to
which Dura, SDC II or any Subsidiary is a party and which is filed as an
Exhibit to the Registration Statement or incorporated by reference therein (the
opinion called for by the last two sentences of this paragraph (xiv) may be
given by the General Counsel of Dura and SDC II).
(xv) The form of certificate used to evidence the Units complies in all
material respects with all applicable statutory requirements, and the
requirements of the Nasdaq National Market.
(xvi) To our knowledge, there is no legal or governmental proceeding
pending or threatened to which Dura, any Subsidiary or SDC II is a party or
to which any of the properties of Dura, any Subsidiary or SDC II is subject
that is required to be described in the Registration Statement or the
Prospectuses and is not so described, or of any statute or regulation,
contract or other document that is required to be described in the
Registration Statement or the Prospectuses or to be filed as an exhibit to
the Registration Statement that is not described or filed as required.
(xvii) The statements in the Registration Statement under Item 14,
to the extent that such statements constitute matters of law, summaries of
documents contained therein or summaries of legal matters have been prepared
by or reviewed by us and are correct in all material respects.
(xviii) The September 30, 1997 offer and sale of 1,000 shares of SDC II
common stock with an aggregate value of $1,000 by SDC II to Dura was exempt
from the registration requirements of Section 5 of the Securities Act of 1933,
as amended, by virtue of Section 4(2) and/or Regulation D promulgated
thereunder.
(xix) None of Dura, any Subsidiary or SDC is in violation of its charter
or by-laws and no default by Dura or any subsidiary exists in the due
performance or observance of any material obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, loan agreement,
note, lease or other agreement or instrument that is described or referred to
in the Registration Statement or the Prospectuses or filed or incorporated by
reference as an exhibit to the Registration Statement (which opinion as to
Dura may be given by the General Counsel of Dura).
(xx) No filing with, or authorization, approval, consent, license, order,
registration, qualification or decree of, any court or governmental authority
or agency, domestic or foreign, (other than under the Act and the 1933 Act
Regulations, which have been obtained, or as may be required under the
securities or blue sky laws of the various states, as to which no opinion is
requested or given) is necessary or required in connection with the due
authorization, execution and delivery of the U.S. Purchase Agreement or for the
offering, issuance, sale or delivery of the Units, the SDC II Common Stock,
the Warrants, or the Dura Common Stock issuable upon exercise of the Warrants.
(xxi) The execution, delivery by Dura of, and the performance by Dura of its
obligations under the U.S. Purchase Agreement or the International Purchase
Agreement and the Warrant Agreement and the issuance and sale of the Units
contemplated thereby will not contravene any provision of applicable law or the
certificate of incorporation or bylaws of Dura or any Subsidiaries, or, to our
knowledge, any judgment, order
A-3
<PAGE>
or decree of any governmental body, agency or court having jurisdiction over
Dura or any of its property or any Subsidiaries or any of their property, or,
to our knowledge, constitute a breach or default or a Dura Repayment Event
(as defined in section 1(a)(xi) of the U.S. Purchase Agreement) under any
agreement or other instrument binding upon Dura or any of the Subsidiaries,
to which Dura or any of the Subsidiaries is a party and filed as an exhibit
to the Registration Statement or an Incorporated Document.
(xxii) The execution, delivery by Spiros II of, and the performance by Spiros
II of its obligations under the U.S. Purchase Agreement and the International
Purchase Agreement and the issuance and sale of the Units contemplated thereby
will not contravene any provision of applicable law or the certificate of
incorporation or bylaws of Spiros II, or, to our knowledge, any judgment, order
or decree of any governmental body, agency or court having jurisdiction over
Spiros II or any of its property, or, to our knowledge, constitute a breach or
default or a SDC II Repayment Event (as defined in section 1(a)(xii) of the U.S.
Purchase Agreement) under any agreement or other instrument binding upon
Spiros II, to which Spiros II is a party and filed as an exhibit to the
Registration Statement or an Incorporated Document.
(xxiii) Each of the Major Agreements has been duly authorized, executed and
delivered by Dura, SDC, DDSI and SDC II as applicable.
(xxiv) To our knowledge, no holders of securities of Dura have rights
against Dura which have not been waived to the registration of shares of Dura
Common Stock or other securities, because of the filing of the Registration
Statement by Dura or the offering contemplated thereby (this opinion may be
given by the general counsel of Dura).
(xxv) The Units have been duly authorized for quotation on the Nasdaq
National Market, upon notice of official issuance.
(xxvi) The statements in the Registration Statement and Prospectuses under
the caption "United States Federal Income Tax Consequences" and "United States
Taxation of Non-U.S. Persons" to the extent they constitute matters of law or
legal conclusions with respect thereto, have been prepared or reviewed by us
and are correct in all material respects.
(xxvii) Neither Dura nor SDC II is an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined in the
1940 Act.
In addition to the foregoing, (i) we believe that each of the
Incorporated Documents (except for financial statements and schedules and
other financial data included therein or omitted therefrom, as to which no
opinion is requested or given), when they became effective or were filed with
the Commission, as the case may be, complied as to form when filed with the
Commission in all material respects with the requirements of the Act and the
1934 Act, as applicable, and the rules and regulations of the Commission
thereunder; (ii) we believe that the Registration Statement, the Prospectuses
and each amendment or supplement to the Registration Statement and
Prospectuses (except for financial statements and schedules and other
financial data included or incorporated by reference therein or omitted
therefrom, as to which no opinion is requested or given), as of their
respective effective or issue dates, complied as to form in all material
respects with the requirements of the Act and the applicable rules and
regulations of the Commission thereunder; (iii) we confirm that nothing has
come to our attention that has caused us to conclude that (except for
financial statements and schedules and other financial data included or
incorporated by reference therein or omitted therefrom, as to which we need
make no statement) the Registration Statement or any amendment thereto,
including the Rule 430A Information and Rule 434 Information (if applicable),
at the time such Registration Statement or any such amendment became
effective, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary
A-4
<PAGE>
to make the statements therein, in the lights of the circumstances under
which they were made, not misleading or that (except for financial statements
and schedules and other financial data included or incorporated by reference
therein or omitted therefrom, as to which we need make no statement) the
Prospectuses, on the date hereof, include an untrue statement of a material
fact or omits to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made
not misleading.
In rendering such opinion, such counsel may rely (A) upon the
opinions of Lyon & Lyon and Kleinfeld, Kaplan & Becker and Mitchell R.
Woodbury, Esq. With respect to the matters opined upon by each, and (B), as
to matters of fact (but not as to legal conclusions), to the extent they deem
proper, on certificates of responsible officers of Dura or SDC II and public
officials. Such opinion shall be subject to standard limitations, exclusions,
qualifications and assumptions. Such opinion shall not state that it is to
be governed or qualified by, or that it is otherwise subject to, any
treatise, written policy or other document relating to legal opinions,
including, without limitation, the Legal Opinion Accord of the ABA Section of
Business Law (1991).
A-5
<PAGE>
EXHIBIT B
EXHIBIT B
FORM OF OPINION OF PATENT COUNSEL
FOR DURA AND SDC II DELIVERED PURSUANT TO SECTION 5(C)
(i) Dura owns U.S. patents and U.S. Foreign patent applications
which are directed to Spiros and to certain uses of the Spiros product
necessary to conduct the business of Dura and Spiros Corp. II as described in
the Prospectuses. With regard to the business presently and as proposed to
be conducted by Dura and Spiros Corp. II relating to the Spiros product as
described in the Registration Statement and the Prospectuses, and, except as
described therein, we have not received any notice of infringement of or
conflict with, and does not otherwise know of any basis for notice of any
such infringement of or conflict with, asserted rights of others with respect
to any patents, trademarks, service marks, trade names, copyrights,
technology or know-how relating to the Spiros product.
(ii) To the extent that the statements relating to the Spiros product
contained in the Registration Statement and Prospectuses under the
subheadings "Risk Factors--Business Risks Related to Spiros Corp. II and
Dura--Uncertainty Regarding Patents and Proprietary Technology;
Unpredictability of Patent Protection - Spiros Corp. II," "Risk Factors
- - Business Risks Related to Spiros Corp. II and Dura" and the first paragraph
of "Business of Spiros Corp. II -- Patents" refer to opinions of counsel or
matters of law, patents or patent applications or purport to summarize the
status of litigation or the provisions of statutes, regulations, contracts,
agreements or other documents, such statements (A) have been prepared or
reviewed by us and accurately reflect the status of any such patent
applications, litigation, the provisions purported to be summarized and any
of our opinions and (B) do not contain any untrue statements of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
<PAGE>
EXHIBIT C
FORM OF OPINION OF REGULATORY COUNSEL
FOR DURA AND SDC II
TO BE DELIVERED PURSUANT
TO SECTION 5(d)
(i) The descriptions in the Registration Statement of the statutes,
regulations and legal or governmental proceedings or procedures relating to
the FDA and the approval process relating to the products of Dura and SDC II
are accurate in all material respects and are a fair summary of those
statutes, regulations, proceedings or procedures.
(ii) Nothing has come to our attention that leads us to believe that the
descriptions of federal laws, regulations or rules relating to the
manufacture or sale of Dura's products and the approval process relating
thereto contained in the Registration Statement and the Prospectuses,
including, without limitation, the portions of the Registration Statement and
Prospectuses entitled "Risk Factors - Business Risks Related to Spiros Corp,
II and Dura - Government Regulation; No Assurance of FDA Approval," and
"Business of Dura - Government Regulation," contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein
or necessary to make the statement therein not misleading.
<PAGE>
EXHIBIT D
October , 1997
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
as Representatives of the several
Underwriters to be named in the
within mentioned Purchase Agreement
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Re: Proposed Public Offering by Dura Pharmaceuticals, Inc. and Spiros
Development Corporation II
Ladies and Gentlemen:
The undersigned, a stockholder and/or officer and/or director of Dura
Pharmaceuticals, Inc. ("Dura") understands that Merrill Lynch & Co. ("Merrill
Lynch") and Donaldson, Lufkin & Jenrette ("DLJ") propose to enter into a
Purchase Agreement (the "Purchase Agreement") with Dura and Spiros Development
Corporation II ("SDC II") that will provide for the public offering of units
comprised of the common stock of SDC II and warrants to purchase Dura's common
stock (the "Securities"). In recognition of the benefit that such an offering
will confer upon the undersigned as a stockholder and/or officer and/or director
of Dura, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the undersigned agrees with each
underwriter to be named in the Purchase Agreement that, during a period of
ninety (90) days from the date of the Purchase Agreement, the undersigned will
not, without the prior written consent of Merrill Lynch, directly or indirectly,
(i) sell, offer to sell, pledge, contract to sell, sell any option or contract
to purchase, purchase any option or contract to sell, grant any option, right or
warrant for the sale of, or otherwise dispose of or transfer any shares of
Dura's common stock (the "Dura Common Stock"), or any securities convertible
into or exchangeable or exercisable for Dura Common Stock, whether now owned or
hereafter acquired by the undersigned, or with respect to which the undersigned
has or hereafter acquires the power of disposition, or file, participate in, or
request the filing of any registration statement under the Securities Act of
1933, as amended, with respect to any of the foregoing or (ii) enter into any
swap or any other agreement or any transaction that transfers, in whole or in
part,
<PAGE>
directly or indirectly, the economic consequence of ownership of Dura
Common Stock, whether any such swap or transaction is to be settled by delivery
of Dura Common Stock or other securities, in cash or otherwise.
Very truly yours,
Signature:
------------------------
Print Name:
------------------------
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
SPIROS DEVELOPMENT CORPORATION II, INC.
ARTICLE I.
OFFICES
SECTION 1.01 REGISTERED OFFICE. The address of the registered office
of the Corporation in the State of Delaware is 30 Old Rudnick Lane, City of
Dover, County of Kent 19901. The name of the registered agent of the
Corporation at such address is CorpAmerica, Inc.
SECTION 1.02 OTHER OFFICES. The Corporation may have other offices,
either within or without the State of Delaware, at such place or places as
the Board of Directors may from time to time appoint or the business of the
Corporation may require.
ARTICLE II.
MEETINGS OF STOCKHOLDERS
SECTION 2.01 ANNUAL MEETINGS. (a) Annual meetings of stockholders for
the election of directors and for the transaction of any proper business
shall be held at such place, either within or without the State of Delaware,
and at such time and date as the Board of Directors shall determine by
resolution and as set forth in the notice of the meeting. If the annual
meeting of stockholders is not held on the date designated therefor, the
Board of Directors shall cause the meeting to be held as soon thereafter as
convenient. At each annual meeting, the stockholders entitled to vote
thereat shall elect a Board of Directors and they may transact such other
corporate business as may properly be brought before the meeting.
(b) 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
not less than 120 calendar days in advance of the date specified in the
corporation's proxy statement released to stockholders in connection with the
previous year's annual meeting of stockholders; 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 30
-1-
<PAGE>
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 such
stockholder's capacity as a proponent to a stockholder proposal.
Notwithstanding 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. 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). 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 should so determine, he 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 which 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
person (naming such person or person) pursuant to which the nominations are to
be made by the stockholder, and (E) any other information relating to such
person that is required to be disclosed in solicitations of proxies for election
of Directors, or is otherwise required, in each case pursuant to Regulation 14A
under the 1934 Act (including without limitation such person's written consent
to being named in the proxy statement, if any, as a nominee and to serving as a
Director if elected); and (ii) as to such stockholder giving notice, the
information required to be provided pursuant to paragraph (b) of this Section
2.01. 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
-2-
<PAGE>
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 should so determine, he
shall so declare at the meeting, and the defective nomination shall be
disregarded.
SECTION 2.02 VOTING. (a) For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the
stock records of the Corporation on the record date, as provided in Section
2.02(b) of these Bylaws, shall be entitled to vote at any meeting of
stockholders. Each stockholder entitled to vote in accordance with the terms
of the Certificate of Incorporation and in accordance with the provisions of
these Bylaws shall be entitled to one vote, in person or by proxy, for each
share of stock outstanding and entitled to vote held by such stockholder, but
no proxy shall be voted after three years from its date unless such proxy
provides for a longer period. Upon the demand of any stockholder, the vote
for directors and the vote upon any question before the meeting shall be by
written ballot. When a quorum is present at any meeting, the vote of the
holders of a majority of the shares of stock outstanding and having voting
power present in person or represented by proxy shall decide any question
brought before such meeting; PROVIDED, HOWEVER, that directors shall be
elected by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors; and, PROVIDED FURTHER, HOWEVER, that if the question is one upon
which by express provision of a statute or of the Certificate of
Incorporation a different vote is required, such express provision shall,
notwithstanding any other provision of this Section 2.02, govern and control
the decision of such question.
(b) The officer who has charge of the stock ledger of the Corporation
shall prepare and make, at least ten days before every meeting of stockholders,
a complete list of the stockholders entitled to vote thereat, 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 days prior to the
meeting, either at a place within the city or town 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 2.03 QUORUM. At all meetings of stockholders, except as
otherwise required by statute or by the Certificate of Incorporation, the
presence, in person or by proxy, of the holders of a majority of the shares
of stock outstanding and entitled to vote thereat shall be requisite for and
shall constitute a quorum for the transaction of business, unless the
question is one upon which by express provision of the statutes or of the
Certificate of Incorporation, a different vote is required, in which case
such express provision shall govern and control the decision of such
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question. In case a quorum shall not be present at any meeting, a majority
in interest of the stockholders entitled to vote thereat, present in person
or by proxy, shall have power to adjourn the meeting from time to time,
without notice of the adjourned meeting other than an announcement of the
time and place thereof at the meeting which shall be so adjourned, until the
requisite amount of shares entitled to vote shall be present or represented.
At any such adjourned meeting at which the requisite amount of shares
entitled to vote thereat 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 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 the Corporation
as of the applicable record date, whether or not entitled to vote at the
meeting.
SECTION 2.04 SPECIAL MEETINGS. Special meetings of the stockholders
for any purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by the Chairman of the Board, the
President or the Secretary, and shall be called by the Chairman of the Board,
the President or the Secretary at the request of (i) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of
authorized directors (whether or not there exist any vacancies in previously
authorized directorships at the time any such resolution is presented to the
Board of Directors for adoption), (ii) at the request in writing of the
holders of a majority of the shares of Callable Common Stock outstanding, or
(iii) at the request in writing of the holders of more than fifty percent
(50%) of the Special Common Stock outstanding. Such request shall state the
purpose or purposes of the proposed meeting. If a special meeting is called
by any person or persons other than the Board of Directors, the request shall
be in writing, specifying the general nature of the business proposed to be
transacted, and shall be delivered personally or sent by registered mail or
by telegraphic or other facsimile transmission to the Chairman of the Board
of Directors, the President, or the Secretary of the Corporation. No
business may be transacted at such special meeting otherwise than specified
in such notice. The Board of Directors shall determine the time and place of
such special meeting, which shall be held not less than thirty-five (35) nor
more than one hundred twenty (120) days after the date of the receipt of the
request. Upon determination of the time and place of the meeting, the
officer receiving the request shall cause notice to be given to the
stockholders entitled to vote, in accordance with the provisions of Section
2.05 of these Bylaws. If the notice is not given within sixty (60) days
after the receipt of the request, the person or persons requesting the
meeting may set the time and place of the meeting and give the notice.
Nothing contained in this Section 2.04 shall be construed as limiting,
fixing, or affecting the time when a meeting of stockholders called by action
of the Board of Directors may be held.
SECTION 2.05 NOTICE OF MEETINGS. Written notice, stating the place, date
and time of any meeting, annual or special, and, if a special meeting, the
purpose or purposes for which the meeting is called, shall be given to each
stockholder, whether or not entitled to vote thereat, not less than ten, nor
more than sixty days, before the date of the meeting. Notice of the time, place
and purpose of any meeting of stockholders may be waived in writing, signed by
the person entitled to notice thereof, either before or after such meeting, and
will be waived by any
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stockholder by his attendance thereat in person or by proxy, except when the
stockholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. Any stockholder so waiving
notice of such meeting shall be bound by the proceedings of any such meeting
in all respects as if due notice thereof had been given.
SECTION 2.06 ACTION WITHOUT MEETING. Unless otherwise provided in the
Certificate of Incorporation, any action required to be taken at any annual
or special meeting of stockholders, or any action which may be taken at any
annual or special meeting of the stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted. Prompt notice of the
taking of the corporate action without a meeting by less than unanimous
written consent shall be given to those stockholders who have not consented
in writing.
SECTION 2.07 JOINT OWNERS OF STOCK. If shares or other securities
having voting power stand of record in the names of two (2) or more persons,
whether fiduciaries, members of a partnership, joint tenants, tenants in
common, tenants by the entirety, or otherwise, or if two (2) or more persons
have the same fiduciary relationship respecting the same shares, unless the
Secretary is given written notice to the contrary and is furnished with a
copy of the instrument or order appointing them or creating the relationship
wherein it is so provided, their acts with respect to voting shall have the
following effect: (a) if only one (1) votes, his act binds all; (b) if more
than one (1) votes, the act of the majority so voting binds all; (c) if more
than one (1) votes, but the vote is evenly split on any particular matter,
each faction may vote the securities in question proportionally, or may apply
to the Delaware Court of Chancery for relief as provided in the General
Corporation Law of Delaware, Section 217(b). If the instrument filed with the
Secretary shows that any such tenancy is held in unequal interests, a
majority or even-split for the purpose of subsection (c) shall be a majority
or even-split in interest.
SECTION 2.08 ORGANIZATION. (a) At every meeting of stockholders, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed
or is absent, the President, or, if the President is absent, a chairman of
the meeting chosen by a majority in interest of the stockholders entitled to
vote, present in person or by proxy, shall act as chairman. The Secretary,
or, in his absence, an Assistant Secretary directed to do so by the
President, shall act as secretary of the meeting.
(b) The Board of Directors of the Corporation shall be entitled to make
such rules or regulations for the conduct of meetings of stockholders as it
shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, the chairman of the meeting shall
have the right and authority to prescribe such rules, regulations and procedures
and to do all such acts as, in the judgment of such chairman, are necessary,
appropriate or convenient for the proper conduct of the meeting, including,
without limitation,
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establishing an agenda or order of business for the meeting, rules and
procedures for maintaining order at the meeting and the safety of those
present, limitations on participation in such meeting to stockholders of
record of the Corporation and their duly authorized and constituted proxies
and such other persons as the chairman shall permit, restrictions on entry to
the meeting after the time fixed for the commencement thereof, limitations on
the time allotted to questions or comments by participants and regulation of
the opening and closing of the polls for balloting on matters which are to be
voted on by ballot. Unless and to the extent determined by the Board of
Directors or the chairman of the meeting, meetings of stockholders shall not
be required to be held in accordance with rules of parliamentary procedure.
ARTICLE III.
DIRECTORS
SECTION 3.01 NUMBER AND TERM. Unless otherwise provided in the
Certificate of Incorporation, the number of directors may be fixed from time
to time by resolution of the Board of Directors or by action of the
stockholders. The directors shall be elected at the annual meeting of the
stockholders and each director shall be elected to hold office until his
successor shall be elected and qualified. Directors need not be stockholders.
SECTION 3.02 RESIGNATIONS. Any director or member of a committee may
resign at any time. Such resignation shall be made in writing and shall take
effect at the time specified therein or, if no time be specified, at the time
of its receipt by the President or the Secretary. The acceptance of a
resignation shall not be necessary to make it effective.
SECTION 3.03 VACANCIES. (a) Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be
filled by a majority of the directors then in office, though less than a
quorum, or by a sole remaining director, and the directors so chosen shall
hold office until the next annual election and until their successors shall
be elected and qualified unless sooner displaced.
(b) Unless otherwise provided by the Certificate of Incorporation, when
one or more directors shall resign from the Board of Directors, effective at
a future date, a majority of the directors then in office, including those
who have so resigned, shall have power to fill such vacancy or vacancies, the
vote thereon to take effect when such resignation or resignations shall
become effective, and each director so chosen shall hold office as herein
provided in the filling of other vacancies.
(c) In the event that a vacancy or newly created directorship shall not
have been filled by the Board of Directors, the additional director or
directors may be elected by the stockholders entitled to vote thereon, either
at an annual meeting of stockholders or at a special meeting called for that
purpose. The director or directors so chosen shall hold office until the
next annual meeting of stockholders and until their successors shall be
elected and qualified.
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(d) Notwithstanding the foregoing, vacancies in the directorships elected
or to be elected by the holders of the Special Common Stock pursuant to the
Certificate of Incorporation (the "Special Stock Directors") may be filled
only by the vote or written consent of holders of more than fifty percent
(50%) of the outstanding shares of Special Common Stock.
SECTION 3.04 REMOVAL. Subject to any limitations imposed by law or the
Certificate of Incorporation, any director or directors may be removed either
for or without cause at any time by the affirmative vote of the holders of a
majority of all the shares of stock outstanding and entitled to vote, at a
special meeting of the holders of such shares, and the vacancies thus created
may be filled, at such meeting or at any subsequent meeting, by the
affirmative vote of a majority in interest of the stockholders entitled to
vote; provided, however, that notwithstanding the foregoing, in no event
shall any Special Stock Director be removed without cause without the vote or
written consent of holders of more than fifty percent (50%) of the
outstanding shares of Special Common Stock, and any vacancy resulting from
the removal of a Special Stock Director shall be filled in the manner
provided for in Section 3.03(d).
SECTION 3.05 POWERS. The business and affairs of the Corporation shall
be managed by the Board of Directors, which may exercise all the powers of
the Corporation and do all lawful acts and things which are not conferred
upon or reserved to the stockholders by law, the Certificate of Incorporation
or these Bylaws.
SECTION 3.06 COMMITTEES OF THE BOARD. 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 two 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 or disqualification of a
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not such member(s) 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, 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 expressly so provides, 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
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meetings and report the same to the Board of Directors when required.
SECTION 3.07 MEETINGS. (a) Meetings of the Board of Directors shall be
held at such place, either within or without the State of Delaware, as the
Board of Directors shall from time to time designate or as may be specified
in the notice of such meeting.
(b) Special Meetings of the Board of Directors may be held at any time
upon the call of the Chairman of the Board, the President or the Secretary by
notice to each director given not less than two days, or not less than three
days in the case of notice given by mail, before such meeting. Special
meetings shall be called by the Chairman of the Board, the President or the
Secretary in like manner and on like notice on the written request of two
directors.
(c) 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. The first meeting of a newly elected Board of
Directors shall be held without notice as soon as practicable after each
annual meeting of the stockholders at the same place at which such meeting
was held, provided a quorum is present. If a quorum is not present, such
first meeting may be held at such time and at such place as shall be
specified in a notice given as herein provided for special meetings of the
Board of Directors.
SECTION 3.08 QUORUM. Not less than a majority of the total number of
directors shall constitute a quorum for the transaction of business. If at
any meeting of the Board of Directors there shall be less than a quorum
present, a majority of those present may adjourn the meeting from time to
time until a quorum is obtained, and no further notice of the adjourned
meeting need be given if the time and place thereof are announced at the
meeting which shall be so adjourned. The vote of the majority of the
directors present at a meeting at which a quorum is present shall be the act
of the Board of Directors unless a statute or the Certificate of
Incorporation shall require a vote of a greater number.
SECTION 3.09 COMPENSATION. Unless otherwise restricted by the
Certificate of Incorporation, 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 directors. No such payment shall preclude
any director from serving the corporation in any other capacity and receiving
compensation therefor.
SECTION 3.10 ACTION WITHOUT MEETING; PRESENCE AT MEETINGS. (a)Unless
otherwise restricted by the Certificate of Incorporation, 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 the members of the
Board of Directors or the 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.
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(b) Unless otherwise restricted by the Certificate of Incorporation,
members of the Board of Directors, or any committee designated by such Board,
may participate in a meeting of such Board or 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 such
meeting.
ARTICLE IV.
OFFICERS
SECTION 4.01 OFFICERS. The officers of the Corporation shall be a
President, a Secretary and a Treasurer, all of whom shall be elected by the
Board of Directors, and who shall hold office until their successors shall be
elected and qualified. The Board of Directors also may elect a Chairman of
the Board, one or more Vice Presidents and one or more Assistant Secretaries
and Assistant Treasurers. Two or more offices, except the offices of
President and Secretary, may be held by the same person. The officers shall
be elected annually by the Board of Directors at its first meeting following
the annual meeting of stockholders and shall hold office until their
successors are chosen and qualify.
SECTION 4.02 OTHER OFFICERS AND AGENTS. The Board of Directors may
appoint such other officers and agents as may from time to time appear to be
necessary or advisable in the conduct of the affairs of the Corporation, who
shall hold their offices for such terms and shall exercise such powers and
perform such duties as shall be determined from time to time by the Board of
Directors.
SECTION 4.03 RESIGNATION; REMOVAL. Any officer may resign at any time.
Such resignation shall be made in writing and shall take effect at the time
specified therein, and if no time be specified, at the time of its receipt by
the Chairman of the Board, the President or the Secretary. The acceptance of
a resignation shall not be necessary to make it effective. Any officer may
be removed, for or without cause, at any time by the affirmative vote of a
majority of the Board of Directors. Any vacancy occurring in any office
shall be filled for the unexpired portion of the term by the Board of
Directors.
SECTION 4.04 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 the Chairman of the Board shall be present. The
Chairman of the Board shall have and may exercise such powers as are, from
time to time, assigned to him or her by the Board and as may be provided by
law.
SECTION 4.05 PRESIDENT. The President shall be the Chief Executive
Officer of the Corporation; and in the absence of the Chairman and Vice Chairman
of the Board the President shall preside at all meetings of the stockholders and
the Board of Directors; the President shall have general and active management
of the business of the Corporation and shall see that all
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orders and resolutions of the Board of Directors are carried into effect.
SECTION 4.06 VICE PRESIDENTS. The Vice Presidents, if any,
respectively shall have such powers and perform such duties as may be
assigned to them from time to time by the Board of Directors, the Chairman of
the Board or the President. In the absence of the Chairman of the Board and
the President, or in the event of the inability of the Chairman of the Board
and the President to act, the Vice Presidents, if any, in the order of their
annual election, shall have authority to exercise the power and perform the
duties of the Chairman of the Board and of the President.
SECTION 4.07 TREASURER. The Treasurer shall have the care and custody
of all the funds of the Corporation and shall deposit the same in such banks
or other depositories as the Board of Directors, or any officer or officers,
or any officer and agent jointly, duly authorized by the Board of Directors,
shall, from time to time, direct or approve. The Treasurer shall disburse
the funds of the Corporation under the direction of the Board of Directors,
the Chairman of the Board or the President. The Treasurer shall keep a full
and accurate account of all moneys received and paid on account of the
Corporation and shall render a statement of the accounts whenever the Board
of Directors shall require. The Treasurer shall perform all other necessary
acts and duties in connection with the administration of the financial
affairs of the Corporation and shall generally perform all the duties usually
appertaining to the office of treasurer of a corporation. When required by
the Board of Directors, the Treasurer shall give bonds for the faithful
discharge of the Treasurer's duties in such sums and with such sureties as
the Board of Directors shall approve. In case of the Treasurer's death,
resignation, retirement or removal from office, all books, papers, vouchers,
money and other property of whatever kind in the Treasurer's possession or
under the Treasurer's control belonging to the Corporation shall be returned
to the Corporation.
SECTION 4.08 SECRETARY. The Secretary shall attend all meetings of the
Board of Directors and the stockholders and shall record all votes and the
minutes of all proceedings in a book to be kept for that purpose and shall,
when requested, perform like duties for all committees of the Board of
Directors. The Secretary shall attend to the giving of notice of all meetings
of the stockholders and, if notice is required, of meetings of the Board of
Directors and of committees thereof; the Secretary shall have custody of the
corporate seal and, when authorized by the Board of Directors, shall have
authority to affix the same to any instrument and, when so affixed, it shall
be attested by the Secretary's signature or by the signature of the Treasurer
or an Assistant Secretary or an Assistant Treasurer. The Secretary shall
keep and account for all books, documents, papers and records of the
Corporation, except those for which some other officer or agent is properly
accountable. The Secretary shall generally perform all the duties
appertaining to the office of secretary of a corporation. In the absence of
the Secretary, such person as shall be designated by the President shall
perform the Secretary's duties.
SECTION 4.09 ASSISTANT SECRETARIES. Each Assistant Secretary, if any,
shall perform such duties and have such powers as may, from time to time, be
assigned to the Assistant Secretary by
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the Board of Directors. In the absence or disability of the Secretary, the
Secretary's duties shall be performed and his powers may be exercised by the
Assistant Secretary or the Assistant Secretaries, if any, in the order
determined by the Board of Directors or, failing such designation, in the
order of their last election to that office.
SECTION 4.10 ASSISTANT TREASURERS. Each Assistant Treasurer, if any,
shall perform such duties and have such powers as may, from time to time, be
assigned to the Assistant Treasurer by the Board of Directors. In the
absence or disability of the Treasurer, the Treasurer's duties shall be
performed and the Treasurer's powers may be exercised by the Assistant
Treasurer or the Assistant Treasurers, if any, in the order determined by the
Board of Directors or, failing such designation, in the order of their last
election to that office.
SECTION 4.11 COMPENSATION. The Board of Directors shall have the power
to fix the compensation of all officers of the Corporation.
ARTICLE V.
MISCELLANEOUS
SECTION 5.01 CERTIFICATES OF STOCK. The shares of stock of the
Corporation shall be represented by certificates in such form as shall be
determined by the Board of Directors and shall be signed by the Chairman of
the Board or the President or a Vice President and the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer, and shall be
sealed with the seal of the Corporation or a facsimile thereof. The
signatures of the officers upon a certificate may be facsimiles if the
certificate is countersigned by a Transfer Agent or registered by a Registrar
other than the Corporation or its employee. In case any officer who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be an officer before such certificate is issued, it may be
issued by the Corporation with the same effect as such officer were an
officer at the date of issue.
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 qualification, 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.
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SECTION 5.02 TRANSFER AGENTS AND REGISTRARS. The Board of Directors
may, in its discretion, appoint one or more banks or trust companies in such
city or cities as the Board of Directors may deem advisable, from time to
time, to act as Transfer Agents and Registrars of the shares of stock of the
Corporation, and, upon such appointments being made, no certificate
representing shares shall be valid until countersigned by one of such
Transfer Agents and registered by one of such Registrars.
SECTION 5.03 LOST CERTIFICATES. In case any certificate representing
shares shall be lost, stolen or destroyed, the Board of Directors, or any
officer or officers authorized by the Board of Directors, may authorize the
issuance of a substitute certificate in place of the certificate so lost,
stolen or destroyed, and, if the Corporation shall have a Transfer Agent and
Registrar, may cause or authorize such substitute certificate to be
countersigned by the appropriate Transfer Agent and registered by the
appropriate Registrar. In each such case, the applicant for a substitute
certificate shall furnish to the Corporation, and to such of its Transfer
Agents and Registrars as may require the same, evidence to their
satisfaction, in their discretion, of the loss, theft or destruction of such
certificate and of the ownership thereof, and also such security or indemnity
as may by them be required.
SECTION 5.04 TRANSFER OF SHARES. Transfers of shares shall be made on
the books of the Corporation only by the person named in the certificate or
by such person's attorney lawfully constituted in writing, and upon surrender
and cancellation of a certificate or certificates of a like number of shares,
with duly executed assignment and power of transfer endorsed thereon or
attached thereto, and with such proof of the authenticity of the signatures
as the Corporation or its agents may reasonably require.
SECTION 5.05 STOCKHOLDERS RECORD DATE. In order that the Corporation
may determine the stockholders entitled to notice of or to vote at any
meeting of stockholders or any adjournment thereof, or to express consent to
corporate action in writing without a meeting, 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 nor
less than ten days before the date of such meeting, nor more than sixty 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 5.06 DIVIDENDS. Subject to the provisions of the Certificate
of Incorporation, the Board of Directors may, out of funds legally available
therefor, at any regular or special meeting, declare dividends upon the
capital stock of the Corporation as and when they deem expedient. Before
declaring any dividend there may be set apart, out of any funds of the
Corporation available for dividends, such sum or sums as the directors, from
time to time, in their discretion
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deem proper for working capital or as a reserve fund to meet contingencies or
for equalizing dividends or for such other purposes as the directors shall
deem conducive to the interests of the Corporation, and in its discretion the
Board of Directors may decrease or abolish any such reserve.
SECTION 5.07 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 other distributions, and to
vote as such owner, and to hold liable for calls and assessments the 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 shares on the
part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by law.
SECTION 5.08 SEAL. The corporate seal shall be circular in form and
shall contain 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.
SECTION 5.09 FISCAL YEAR. The fiscal year of the Corporation shall be
determined by the Board of Directors.
SECTION 5.10 CHECKS. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name
of the Corporation shall be signed by such officer or officers, agent or
agents of the Corporation and in such manner as shall be determined, from
time to time, by resolution of the Board of Directors.
SECTION 5.11 EXECUTION OF PROXIES. The Chairman of the Board or the
President, or, in the absence or disability of the Chairman of the Board and
the President, a Vice President, may authorize, from time to time, the
signature and issuance of proxies to vote upon shares of stock of other
corporations standing in the name of the Corporation or authorize the
execution of consents to action taken or to be taken by such other
corporation. All such proxies and consents shall be signed in the name of
the Corporation by the Chairman of the Board or the President or a Vice
President and by the Secretary or an Assistant Secretary.
SECTION 5.12 NOTICE AND WAIVER OF NOTICE. (a) Whenever any notice is
required to be given under the provisions of any law, of the Certificate of
Incorporation or of these Bylaws, personal notice is not meant unless
expressly so stated, and any notice so required shall be deemed to be
sufficient if given by depositing the same in the United States mail, postage
prepaid, addressed to the person entitled thereto at his address as it
appears on the records of the Corporation, and such notice shall be deemed to
have been given on the day of such mailing. Notice to directors may also be
given by telex, cable or telegram. Stockholders not entitled to vote shall
not be entitled to receive notice of any meetings except as otherwise
provided by statute.
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(b) Whenever any notice whatever is required to be given under the
provisions of any law or of the Certificate of Incorporation 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. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the stockholders, directors or
members of a committee of directors need be specified in any written waiver
of notice unless so required by the Certificate of Incorporation. Attendance
of a person at a meeting shall constitute a waiver of notice of such meeting,
except when the person attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened.
ARTICLE VI.
AMENDMENTS
SECTION 6.01 AMENDMENTS. These Bylaws may be altered, amended or
repealed, and new Bylaws may be adopted, by the stockholders or, when such
power is conferred upon the Board of Directors by the Certificate of
Incorporation, by the Board of Directors, at any regular meeting of the
stockholders or of the Board of Directors or at any special meeting of the
stockholders or of the Board of Directors if notice of the proposed
alteration, amendment, repeal or adoption be contained in the notice of such
special meeting. Notwithstanding the foregoing, however, prior to the
earlier of (A) the exercise of the Stock Purchase Option pursuant to the
Certificate of Incorporation or (B) the Stock Purchase Option Termination
Date (as defined in the Certificate of Incorporation), no such alteration,
amendment, repeal or adoption shall be made without the affirmative vote or
written consent of the holders of more than fifty percent (50%) of the issued
and outstanding Special Common Stock voting separately and as a class.
ARTICLE VII.
INDEMNIFICATION
SECTION 7.01 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 or (iii) such indemnification is provided by the Corporation, in
its sole discretion, pursuant to the powers
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vested in the Corporation under the Delaware General Corporation Law.
SECTION 7.02 INDEMNIFICATION OF OTHER OFFICERS, EMPLOYEES AND OTHER
AGENTS. The Corporation shall have power to indemnify its other officers,
employees and other agents as set forth in the Delaware General Corporation
Law.
SECTION 7.03 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
that such Director or executive officer 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 such Director's or executive officer's conduct was unlawful, if his
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 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 contenders or its equivalent shall not, of
itself, create a presumption that the person did not act in good faith and in
a manner which such person reasonably believed to be in or not opposed to the
best interests of the Corporation, and, with respect to any criminal
proceeding, that such person had reasonable cause to believe that such
person's conduct was unlawful.
(c) The provisions of this Section 7.03 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 7.04 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
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behalf of such person to repay said amounts if it should be determined
ultimately that such person is not entitled to be indemnified under these
Bylaws or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
Section 7.04 of these Bylaws, no advance shall be made by the Corporation if
a determination is reasonably and promptly made (i) by the Board of Directors
by a majority vote of a quorum consisting of Directors who were not parties
to the proceeding, or (ii) if such quorum is not obtainable, or, even if
obtainable, a quorum of disinterested Directors so directs, by independent
legal counsel in a written opinion, that the facts known to the
decision-making party at the time such determination is made demonstrate
clearly and convincingly that such person acted in bad faith or in a manner
that such person did not believe to be in or not opposed to the best
interests of the Corporation.
SECTION 7.05 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 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 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 such claimant 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 claimant has not met the
applicable standard of conduct.
SECTION 7.06 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, Bylaws, agreement, vote of stockholders or
disinterested Directors or otherwise, both as to action in his 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.
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<PAGE>
SECTION 7.07 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 7.08 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 7.09 AMENDMENTS. Any repeal or modification of this Bylaw
shall only be prospective and shall not affect the rights under this Bylaw in
effect at the time of the alleged occurrence of any action or omission to act
that is the cause of any proceeding against any agent of the Corporation.
SECTION 7.10 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 7.11 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 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 "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 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
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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 that such person reasonably believed
to be in the interest of the participants and beneficiaries of an employee
benefit plan shall be deemed to have acted in a manner "not opposed to the
best interests of the Corporation" as referred to in this Bylaw.
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EXHIBIT 4.2
WARRANT AGREEMENT
WARRANT AGREEMENT, dated as of ________________, 1997, between DURA
PHARMACEUTICALS, INC., a Delaware corporation ("Dura"), and CHASEMELLON
SHAREHOLDER SERVICES L.L.C., as warrant agent (the "Warrant Agent"), in favor
of each person who acquires from time to time warrants (the "Warrants") to
purchase shares of Dura's Common Stock, $.001 par value per share (the "Warrant
Shares"), issued in the offering of units (the "Units"), each Unit consisting of
one share of common stock, $.001 par value per share ("Spiros II Common Stock"),
of SPIROS DEVELOPMENT CORPORATION II, INC., a Delaware corporation ("Spiros
Corp. II"), and one Warrant, made pursuant to a registration statement on
Forms S-l/S-3 (Nos. 333-_________ and 333-________) (the "Registration
Statement") filed by Dura and Spiros Corp. II with the Securities and Exchange
Commission (the "Commission").
Section 1. APPOINTMENT OF WARRANT AGENT. Dura hereby appoints the Warrant
Agent to act as agent for Dura in accordance with the instructions set forth
herein, and the Warrant Agent hereby accepts such appointment, upon the terms
and conditions hereinafter set forth.
Section 2. CERTAIN DEFINITIONS. As used herein, the following terms shall
have the following meanings:
"ACCELERATION DATE" means the first date upon which an Acceleration Event
occurs; PROVIDED, HOWEVER, that, if approval of the stockholders of Dura is
required in connection with such Acceleration Event, Acceleration Date means the
date of such stockholder approval.
"ACCELERATION EVENT" means the occurrence of, or the execution of a
definitive agreement by Dura with respect to, any of the following events: (i)
any capital reorganization of Dura or reclassification of the Common Stock
(other than a subdivision, combination or reclassification of the outstanding
Common Stock for which adjustment is provided in paragraphs (i), (ii), (iv) and
(v) of Section 13(a) hereof and other than a change in the par value of the
Common Stock or an increase in the authorized capital stock of Dura not
involving the issuance of any shares thereof), (ii) any consolidation of Dura
with, or merger of Dura with or into, any other person (including any
individual, partnership, joint venture, corporation, trust or group thereof)
other than (a) a consolidation or merger pursuant to which the stockholders of
Dura immediately prior to such consolidation or merger own more than 50% of the
outstanding securities having power to vote in the election of directors after
such consolidation or merger or (b) a consolidation or merger by Dura with a
subsidiary of Dura in which Dura is the continuing corporation for which
adjustment is provided in Section 13 hereof, (iii) any sale, lease, transfer or
conveyance of all or substantially all of the assets of Dura (other than a sale,
lease, transfer or conveyance of such assets to an Affiliate (within the meaning
of the Securities Act)) or (iv) the announcement or commencement by any "person
" or " group" (within the meaning of Section 13 (d) and Section 14(d) of the
Exchange Act) other than with respect to a consolidation or merger pursuant to
clause (ii) above, of a BONAFIDE tender offer or exchange offer in accordance
with the rules and
<PAGE>
2
regulations of the Exchange Act to purchase, or the acquisition of securities of
Dura, such that after such acquisition or proposed purchase, the acquiror
"beneficially owns" or would "beneficially own" (as defined in Rule 13d-3 under
the Exchange Act) securities of Dura representing 30% percent or more of the
combined voting power of Dura's then outstanding securities having power to vote
in the election of directors.
"CLOSING PRICE" means the closing price per share of Common Stock on the
principal national securities exchange on which the Common Stock is listed or
admitted to trading or, if not listed or traded on any such exchange, on the
Nasdaq National Market or if not listed or traded on any such exchange or the
Nasdaq National Market, the average of the last bid and asked prices per share
on the Nasdaq over-the-counter system or, if such quotations are not available,
the fair market value as reasonably determined by the Board of Directors of Dura
or any committee of such Board.
"COMMON STOCK" means (i) the class of stock designated as the Common Stock,
$.001 par value per share, of Dura on the date hereof or (ii) any other class of
stock resulting from successive changes or reclassifications of such shares
consisting solely of changes in par value, or from par value to no par value, or
from no par value to par value. Unless the context requires otherwise, all
references to Common Stock and Warrant Shares in this Agreement and in the
Warrant Certificates shall, in the event of an adjustment pursuant to Section 13
hereof, be deemed to refer also to any other securities or property then
issuable upon exercise of the Warrants as a result of such adjustment.
"ELIGIBLE INSTITUTION" shall have the meaning set forth in Section 8(c)
hereof.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXERCISE PRICE" shall have the meaning set forth in Section 5(b) hereof.
"EXERCISE PERIOD" means the period during which the Warrants may be
exercised as set forth in Section 5(a) hereof.
"EXPIRATION DATE" shall have the meaning set forth in Section 5(a) hereof.
"HOLDERS" shall have the meaning set forth in Section 4(b) hereof.
"NASD" means the National Association of Securities Dealers, Inc.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SEPARATION DATE" shall have the meaning set forth in Section 5(a) hereof.
<PAGE>
3
"STOCK PURCHASE OPTION" means the option by Dura to purchase all (but not
less than all) of the shares of Spiros Corp. II Common Stock as set forth in
Article V of the Spiros Corp. II Charter.
"WARRANT CERTIFICATE" shall have the meaning set forth in Section 3(a)
hereof.
"WARRANT REGISTER" means the books and records kept by the Warrant Agent
for the registration, and the registration of transfer, of the Warrant
Certificates in which shall be registered the names and addresses of Holders of
Warrants evidenced by Warrant Certificates in registered form and the
certificate numbers and denominations of such Warrant Certificates.
Section 3. FORM OF WARRANT CERTIFICATE: PURCHASE PRICE: SEPARATION FROM
SPIROS CORP. II COMMON STOCK.
(a) The certificates evidencing the Warrants (the "Warrant Certificates"),
and the forms of election to purchase Warrant Shares and of assignment to be
printed on the reverse thereof, shall be substantially in the form set forth in
Exhibit A hereto and may have such letters, numbers or other marks of
identification or designation and such legends, summaries or endorsements
printed, lithographed or engraved thereon as Dura reasonably deems appropriate
and as are not inconsistent with the provisions of this Agreement, or as may be
required to comply with any law, any rule or regulation related thereto, or with
any rule or regulation of the NASD, the Nasdaq National Market or any securities
exchange on which the Warrants may from time to time be listed.
(b) Each Warrant shall entitle the Holder thereof to purchase one-fourth
of a Warrant Share upon the exercise thereof at the applicable Exercise Price,
subject to adjustment as provided in Section 13 hereof, during the Exercise
Period; PROVIDED, HOWEVER, that the Warrants are exercisable only for whole
shares; cash will be paid in lieu of fractional shares in accordance with
Section 5(e) hereof. Each Warrant Certificate shall be executed on behalf of
Dura by the manual or facsimile signature of the present or any future President
or any officer of Dura, under its corporate seal, affixed or in facsimile,
attested by the manual or facsimile signature of the present or any future
Secretary or Assistant Secretary of Dura. Warrants shall be dated as of the
date of their initial issue.
(c) As set forth in Section 8 hereof, until the Separation Date, a Warrant
may not be divided or combined with other Warrants or exchanged, assigned or
transferred apart from the share of the Spiros Corp. II Common Stock with which
it was initially sold as a Unit.
Section 4. REGISTRATION AND COUNTERSIGNATURE.
(a) The Warrant Agent shall maintain the Warrant Register. The Warrant
Certificates shall be countersigned by the Warrant Agent and shall not be valid
for any purpose unless so
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4
countersigned. The Warrant Certificates shall be so countersigned, however, by
the Warrant Agent and shall be delivered by the Warrant Agent, notwithstanding
whether the persons whose manual or facsimile signatures appear thereon as
proper officers of Dura shall have ceased to be such officers at the time of
such countersignature or delivery.
(b) Prior to due presentment for registration or transfer of the Warrant
Certificates, Dura and the Warrant Agent may deem and treat the registered
holder (a "Holder") thereof as the absolute owner of the Warrant Certificates
(notwithstanding any notation of ownership or other writing made thereon by
anyone other than Dura or the Warrant Agent), for the purpose of any exercise
thereof and for all other purposes, and neither Dura nor the Warrant Agent shall
be affected by any notice to the contrary.
Section 5. DURATION AND EXERCISE OF WARRANTS.
(a) Warrants may be exercised at any time or from time to time on or after
the earliest of (i) January 1, 2000, (ii) the exercise by Dura of the Stock
Purchase Option, (iii) the termination of the Stock Purchase Option with respect
to Dura and (iv) an Acceleration Date (such earliest date being referred to
herein as the "Separation Date") and will expire at 5:00 p.m., New York City
time, on December 31, 2002 (the "Expiration Date"). Upon the Expiration Date,
all rights evidenced by the Warrants shall cease and the Warrants shall become
void.
(b) Subject to the provisions of this Agreement, the Holder of each
Warrant shall have the right to purchase from Dura (and Dura shall issue and
sell to such Holder) the number of fully paid and nonassessable Warrant Shares
set forth on such Holder's Warrant Certificate (or such number of Warrant Shares
as may result from adjustments made from time to time as provided in this
Agreement) at the price of $_______ per Warrant Share in lawful money of the
United States of America (such exercise price per Warrant Share, as adjusted
from time to time as provided herein, being referred to herein as the "Exercise
Price"), upon (i) surrender of the Warrant Certificates to Dura at the office of
the Warrant Agent designated by the Warrant Agent for such purpose with the
exercise form on the reverse thereof duly completed and signed by the Holder or
Holders thereof or by a duly appointed legal representative thereof or by a duly
authorized attorney, such signature to be guaranteed by an Eligible Institution
(as defined in Section 8(c) hereof) if such guarantee is required by the terms
of the Warrant Certificate, and (ii) payment, in lawful money of the United
States of America, of the Exercise Price for the Warrant Share or Warrant Shares
in respect of which such Warrant is then exercised. The Exercise Price payable
upon exercise of any Warrant may be paid only by certified or, at the option of
the Holder, official bank check payable to the order of Dura. Upon surrender of
the Warrant Certificate, and payment of the Exercise Price, Dura shall issue and
cause to be delivered with all reasonable dispatch to or upon the written order
of the Holder of such Warrant and in such name or names as such Holder may
designate, a certificate or certificates for the number of Warrant Shares so
purchased upon the exercise of such Warrants, together with cash or check,
<PAGE>
5
at Dura's option, in respect of any fraction of a Warrant Share issuable upon
such surrender pursuant to Section 5(e) hereof. The Warrant Agent shall deliver
on a weekly basis all funds received upon exercise of the Warrants to Dura, 7475
Lusk Boulevard, San Diego, California 92121, Attention: Senior Vice President
and Chief Financial Officer.
(c) Each person in whose name any certificate for Warrant Shares is issued
upon the exercise of Warrants shall for all purposes be deemed to have become
the holder of record of the Warrant Shares represented thereby, and such
certificate shall be dated the date upon which the Warrant Certificate
evidencing such Warrants was duly surrendered and payment of the Exercise Price
(and any applicable transfer taxes pursuant to Section 10 hereof) was made;
PROVIDED, HOWEVER, that if the date of such surrender and payment is a date upon
which the Common Stock transfer books of Dura are closed, such person shall be
deemed to have become the record holder of such Warrant Shares on, and such
certificate shall be dated, the next succeeding business day on which the Common
Stock transfer books of Dura are open.
(d) In the event that, during the Exercise Period, fewer than all of the
Warrants represented by a Warrant Certificate are exercised, a new Warrant
Certificate, duly executed by Dura, will be issued for the remaining number of
Warrants exercisable pursuant to the Warrant Certificate so surrendered, and the
Warrant Agent shall countersign and deliver such new Warrant Certificate to the
Holder of such unexercised Warrants pursuant to the provisions of this Section 5
and of Section 4 hereof.
(e) No fractional shares of Common Stock or scrip shall be issued to any
Holder in connection with the exercise of a Warrant. Instead of any fractional
shares of Common Stock that would otherwise be issuable to such Holder, Dura
shall pay to such Holder a cash adjustment in respect of such fractional
interest in an amount equal to that fractional interest of the then current
Closing Price on the date of exercise per share of Common Stock.
(f) The number of Warrant Shares to be received upon the exercise of a
Warrant and the price to be paid for a Warrant Share are subject to adjustment
from time to time as hereinafter set forth.
(g) Warrants not exercised on or prior to the Expiration Date shall become
void and all rights in respect thereof shall cease as of such time.
Section 6. RESERVATION OF WARRANT SHARES; STOCK CERTIFICATES. Dura shall
at all times reserve, for issuance and delivery upon exercise of the Warrants,
such number of Warrant Shares or other shares of capital stock of Dura as may be
issuable from time to time upon exercise of the Warrants. All such shares shall
be duly authorized and, when issued upon such exercise and receipt by Dura of
payment in full of the Exercise Price, shall be validly issued, fully paid and
nonassessable, free and clear of all liens, security interests, charges and
other encumbrances or
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6
restrictions on sale and free and clear of all preemptive rights. The Warrant
Agent is hereby irrevocably authorized to requisition, from time to time from
the transfer agent for the Common Stock, stock certificates issuable upon
exercise of outstanding Warrants. Dura will supply such transfer agent with
duly executed stock certificates for such purpose. All Warrant Certificates
surrendered upon exercise shall be cancelled by the Warrant Agent and shall
thereafter be delivered to Dura or otherwise disposed of in a manner
satisfactory to Dura. Unless all Warrants shall have been exercised prior to
5:00 P.M., New York City time, on the Expiration Date, the Warrant Agent shall
certify to Dura, as of the close of business on the Expiration Date, the total
aggregate number of Warrants then outstanding, and thereafter no shares of
Common Stock shall be subject to reservation in respect of such Warrants. Dura
shall keep a copy of this Agreement on file with its transfer agent and with
every transfer agent for any shares of Common Stock.
Section 7. TRANSFER AND REGISTRATION OF THE WARRANTS AND WARRANT SHARES.
(a) The Warrants and the Warrant Shares, and any interest in either, may
be sold, assigned, pledged, encumbered or in any other manner transferred or
disposed of, in whole or in part, only in accordance with Section 8 hereof and
in compliance with applicable United States federal and state securities laws
and the terms and conditions hereof.
(b) The Warrants and the Warrant Shares have been registered under the
Securities Act pursuant to the Registration Statement. Dura covenants and
agrees:
(i) it will prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such Registration Statement effective
through the termination of the Exercise Period or until such earlier time as no
Warrants remain outstanding;
(ii) as expeditiously as possible, to register or qualify the
Warrants and the Warrant Shares under the securities or "Blue Sky" laws of each
jurisdiction in which such registration or qualification is necessary; and
(iii) to pay all expenses incurred by Dura in complying with this
Section 7(b), including, without limitation (A) all registration and filing
fees, (B) all printing expenses, (C) all fees and disbursements of counsel and
independent public accountants for Dura, (D) all NASD and "Blue Sky" fees and
expenses (including fees and expenses of counsel in connection with any "Blue
Sky" surveys) and (E) the entire expense of any special audits incident to or
required in connection with any such registration.
Section 8. EXCHANGE, TRANSFER OR ASSIGNMENT OF WARRANTS.
(a) Through the Separation Date, a Warrant may not be divided or combined
with other
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7
Warrants or exchanged, assigned or transferred apart from the share of Spiros
Corp. II Common Stock with which it was initially sold as a Unit. Until the
occurrence of the Separation Date, the Warrant Agent will not record an
exchange, assignment or transfer of a Warrant Certificate in the Warrant
Register without certification by Spiros Corp. II that the holder has
transferred its Spiros Corp. II Common Stock to the assignee named on the
Warrant Assignment Form printed on the reverse of the Warrant Certificate.
(b) After the Separation Date, Warrants may be exchanged, at the option of
the Holder thereof, upon presentation and surrender to the Warrant Agent of the
Warrant Certificate evidencing such Warrants, for other Warrant Certificates of
different denominations, entitling the Holder or Holders thereof to purchase in
the aggregate the same number of Warrant Shares as did such surrendered Warrant
Certificate. Subject to the preceding sentence, a Warrant Certificate may be
divided or combined with other Warrant Certificates that carry the same rights
upon presentation thereof at the office of the Warrant Agent, together with
written notice signed by the Holder or Holders thereof specifying the names and
denominations in which new Warrant Certificates are to be issued.
(c) After the Separation Date, Warrants may be assigned or transferred, at
the option of the Holder thereof, upon surrender of the Warrant Certificates
evidencing such Warrants to the Warrant Agent, accompanied (if so required by
Dura or the Warrant Agent) by a written instrument or instruments of transfer in
form satisfactory to Dura and the Warrant Agent, duly executed by such Holder or
by a duly authorized representative or attorney, such signature to be guaranteed
by a commercial bank or trust company having an office in the United States, by
a broker or a dealer that is a member of the NASD or by a member of a national
securities exchange (any such entity, an "Eligible Institution"). Upon any such
registration of transfer, a new Warrant Certificate shall be issued to the
transferee and the surrendered Warrant Certificate shall be cancelled by the
Warrant Agent. Warrant Certificates so cancelled shall be delivered by the
Warrant Agent to Dura from time to time or otherwise disposed of by the Warrant
Agent in a manner satisfactory to Dura.
(d) Any transfer, exchange or assignment of Warrants (including any new
Warrants issued pursuant to Section 11 hereof) shall be without charge (other
than the cost of any transfer tax) to the Holder and any new Warrant or Warrants
issued pursuant to this Section 8 shall be dated the date hereof.
Section 9. REMOVAL OF LEGEND. Through the Separation Date, each Warrant
Certificate shall bear the following legend:
UNTIL DECEMBER 31, 1999 OR SUCH EARLIER DATE ON WHICH THIS LEGEND IS
REMOVED PURSUANT TO SECTION 9 OF THE WARRANT AGREEMENT, DATED AS
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8
OF ABOUT _______________, 1997, BETWEEN DURA PHARMACEUTICALS, INC. AND
CHASEMELLON SHAREHOLDER SERVICES, AS WARRANT AGENT, THE WARRANTS
REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED SEPARATELY,
SPLIT UP, COMBINED OR EXCHANGED, BUT MAY ONLY BE TRANSFERRED, SPLIT
UP, COMBINED OR EXCHANGED TOGETHER WITH THE SHARES OF CALLABLE COMMON
STOCK OF SPIROS DEVELOPMENT CORPORATION II, INC. WITH WHICH SUCH
WARRANTS WERE SOLD AS A UNIT.
After the Separation Date, any Holder of Warrants may surrender the Warrant
Certificate evidencing such Warrants to the Warrant Agent, whereupon the Warrant
Agent shall execute and deliver to such Holder a new Warrant Certificate,
without the legend set forth in this Section 9, entitling such Holder to
purchase the same number of Warrant Shares as provided for by such surrendered
Warrant Certificate. Dura shall supply the Warrant Agent with Warrant
Certificates that do not bear such legend for use after the Separation Date.
Section 10. PAYMENT OF TAXES. Dura shall pay all documentary stamp taxes
attributable to the original issuance of the Warrants and of Warrant Shares;
PROVIDED, HOWEVER, that Dura shall not be required to (a) pay any tax which may
be payable in respect of any transfer involving the transfer and delivery of
Warrant Certificates or the issuance or delivery of certificates for Warrant
Shares in a name other than that of the Holder of the Warrant Certificate
surrendered upon the exercise of a Warrant or (b) issue or deliver any
certificate for Warrant Shares upon the exercise of any Warrants until any such
tax required to be paid under clause (a) shall have been paid, all such tax
being payable by the Holder of such Warrant at the time of surrender.
Section 11. MUTILATED OR MISSING WARRANT CERTIFICATES. In the event that
any Warrant Certificate shall be mutilated, lost, stolen or destroyed, Dura may
in its discretion issue, and the Warrant Agent may countersign and deliver, upon
the request of the Holder of the Warrants evidenced by such Warrant Certificate,
in exchange for and upon cancellation of any such mutilated Warrant Certificate,
or in substitution for any such lost, stolen or destroyed Warrant Certificate, a
new Warrant Certificate of like tenor and evidencing the same number of Warrant
Shares as were evidenced by such mutilated, lost, stolen or destroyed Warrant
Certificate, but only upon receipt of evidence satisfactory to the Warrant Agent
of such loss, theft or destruction of such Warrant Certificate and an indemnity,
if requested, reasonably satisfactory to it. An applicant for such substitute
Warrant Certificate shall also comply with such other reasonable regulations and
pay such other reasonable charges as Dura or the Warrant Agent may prescribe.
Any such new Warrant Certificate shall constitute an original contractual
obligation of Dura, whether or not the allegedly mutilated, lost, stolen or
destroyed Warrant Certificate shall be enforceable by any person at any time
thereafter.
<PAGE>
9
Section 12. NO STOCK RIGHTS: LIMITATION OF LIABILITY. No Holder of any
Warrant shall, by virtue thereof, be entitled to the rights of a stockholder of
Dura, unless and until exercise of such Warrant has occurred. No provisions of
any Warrant or of this Agreement, in the absence of affirmative action by the
Holder of any such Warrant to exercise such Warrant, and no mere enumeration
herein of the rights or privileges of such Holder, shall give rise to any
liability of such Holder for the Exercise Price or as a stockholder of Dura,
whether such liability is asserted by Dura or by its creditors.
Section 13. ANTIDILUTION PROVISIONS.
(a) The Exercise Price and the number of Warrant Shares that may be
purchased upon the exercise of a Warrant shall be subject to change or
adjustment from time to time as follows:
(i) STOCK DIVIDENDS AND STOCK SPLITS. If at any time during the
Exercise Period (A) Dura shall fix a record date for the issuance of any
dividend payable in shares of Common Stock or (B) the number of shares of Common
Stock shall have been increased by a subdivision or split-up of shares of Common
Stock, then, on the record date fixed for the determination of holders of Common
Stock entitled to receive such dividend or immediately after the effective date
of such subdivision or split-up, as the case may be, the number of shares to be
delivered upon exercise of any Warrant will be appropriately increased so that
each Holder thereafter will be entitled to receive the number of shares of
Common Stock that such Holder would have owned immediately following such action
had such Warrant been exercised immediately prior thereto, and the Exercise
Price will be appropriately adjusted. The time of occurrence of an event giving
rise to an adjustment made pursuant to this Section 13(a)(i) shall, in the case
of a stock dividend, be deemed to be the record date thereof and shall, in the
case of a subdivision or split-up, be deemed to be the effective date thereof.
(ii) COMBINATION OF STOCK. If the number of shares of Common Stock
outstanding at any time during the Exercise Period is decreased by a combination
of the outstanding shares of Common Stock, then, immediately after the effective
date of such combination, the number of shares of Common Stock to be delivered
upon exercise of any Warrant shall be appropriately decreased so that the Holder
of such Warrant thereafter will be entitled to receive the number of shares of
Common Stock that such Holder would have owned immediately following such action
had such Warrant been exercised immediately prior thereto, and the Exercise
Price shall be appropriately adjusted.
(iii) REORGANIZATION. If, at any time during the Exercise Period,
any capital reorganization of Dura, or any reclassification of the Common Stock,
or any consolidation of Dura with, or merger of Dura with or into, any other
person or any sale, lease or other transfer of all or substantially all of the
assets of Dura to any other person (including any individual, partnership, joint
venture, corporation, trust or group thereof) shall be effected in such a way
that
<PAGE>
10
upon consummation of such transaction the holders of the Common Stock shall be
entitled to receive stock, securities or assets with respect to or in exchange
for Common Stock, then, upon exercise of any Warrant in accordance with the
terms of this Agreement and the Warrant Certificate, the Holder of such Warrant
shall have the right to receive the kind and amount of stock, securities or
assets receivable upon such reorganization, reclassification, consolidation,
merger or sale, lease or other transfer by a holder of the number of shares of
Common Stock that such Holder would have been entitled to receive upon exercise
of such Warrant pursuant to Section 3 hereof had such Warrant been exercised
immediately prior to such reorganization, reclassification, consolidation,
merger or sale, lease or other transfer, subject to additional adjustments that
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Section 13(a).
(iv) SPECIAL DIVIDENDS. If, at any time during the Exercise Period
(other than in a dissolution or liquidation), Dura shall distribute to holders
of Common Stock evidences of indebtedness of Dura, securities or other assets
(other than cash dividends payable out of retained earnings) by way of a
dividend on outstanding shares of Common Stock, then the Exercise Price shall be
adjusted so that immediately after the date fixed by Dura as the record date in
respect of such distribution, such Exercise Price shall equal the price
determined by multiplying the Exercise Price in effect immediately prior to the
close of business on the record date for the determination of the stockholders
entitled to receive such distribution by a fraction, (A) the numerator of which
shall be the Closing Price on such record date less the then fair market value
as determined reasonably and in good faith by the Board of Directors of Dura of
the portion of the securities or other assets distributed applicable to one
share of Common Stock and (B) the denominator of which shall be such Closing
Price. Such adjustment shall become effective on such record date. In such
case, no adjustment shall be made to the number of Warrant Shares to be received
upon the exercise of a Warrant.
(v) RIGHTS OFFERING. If, at any time during the Exercise Period,
Dura shall issue or sell or fix a record date for the issuance of rights,
options, warrants or convertible or exchangeable securities to all holders of
Common Stock entitling the holders thereof to subscribe for or purchase Common
Stock (or securities convertible into or exchangeable for Common Stock), in any
such case, at a price per share (or having a conversion price per share) that,
together with the value (if for consideration other than cash, as reasonably
determined in good faith by the Board of Directors of Dura) of any consideration
paid for any such rights, options, warrants or convertible or exchangeable
securities, is greater than the Exercise Price and less than the Closing Price
on the date of such issuance or sale or on such record date, as the case may be,
then, immediately after the date of such issuance or sale or on such record
date, the number of shares to be delivered upon exercise of the Warrants shall
be appropriately increased so that the Holder, thereafter during the Exercise
Period, shall be entitled to receive the number of shares of Common Stock
determined by multiplying the number of shares such Holder would have been
entitled to receive immediately before the date of such issuance or sale or such
record date by
<PAGE>
11
a fraction, (A) the numerator of which shall be the number of shares of Common
Stock outstanding on such date plus the number of additional shares of Common
Stock offered for subscription or purchase (or into which the convertible or
exchangeable securities so offered are initially convertible or exchangeable)
and (B) the denominator of which shall be the number of shares of Common Stock
outstanding on such date plus the number of shares of Common Stock that the
aggregate offering price of the total number of shares so offered for
subscription or purchase (or the aggregate initial conversion price of the
convertible securities so offered) would purchase at such Closing Price, and the
Exercise Price shall be appropriately adjusted. The time of occurrence of an
event giving rise to an adjustment pursuant to this Section 13(v) shall, in the
case of a dividend, be the record date and shall, in the case of an issuance or
sale, be the date of such issuance or sale.
(vi) NO ADJUSTMENTS TO EXERCISE PRICE. No adjustment of the Exercise
Price in accordance with the provisions of paragraph (i), (ii), (iii), (iv) or
(v) above shall be made in an amount of less than $.01; PROVIDED, HOWEVER, that
the amount by which any adjustment is not made by reason of the provisions of
this Section shall be carried forward and taken into account at the time of any
subsequent adjustment in the Exercise Price.
(vii) READJUSTMENTS, ETC. If an adjustment is made under paragraph
(i), (ii), (iii), (iv) or (v) above, and the event to which the adjustment
relates does not occur, then any adjustments in the Exercise Price or Warrant
Shares that were made in accordance with such paragraphs shall be adjusted back
to the Exercise Price and the number of Warrant Shares that were in effect
immediately prior to the record date for such event.
(b) NO IMPAIRMENT, CERTAIN EVENTS.
(i) Dura shall not, by amendment of its Certificate of Incorporation
or through any reorganization, reclassification, consolidation, merger, sale,
lease or transfer of assets, issuance or sale of securities or any other action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed under this Section 13 by Dura, but will at all times in
good faith assist in the carrying out of all the provisions of this Section 13
and in the taking of all such action as may be necessary or appropriate in order
to protect the rights of the Holders against impairment.
(ii) If any event occurs as to which the provisions of paragraph (a)
of this Section 13 are not strictly applicable but with respect to which, in the
reasonable, good faith opinion of Dura, an adjustment of the Exercise Price, and
the number of Warrant Shares issuable upon the exercise of a Warrant, would
fairly protect the exercise rights of the Holders in accordance with the basic
intent and principles of such provisions or as to which an adjustment pursuant
to such provisions, if strictly applied, would not fairly protect the purchase
rights of the Holders in accordance with the basic intent and principles of such
provisions, then Dura shall make any
<PAGE>
12
computation required under this Section 13(b)(ii) with respect to any such
adjustment on a basis consistent with the basic intent and principles
established by the provisions of this Section 13, necessary to preserve, without
dilution, the exercise rights of the Holders. Dura shall appoint a firm of
independent certified public accountants (which may be the regular auditors of
Dura) of recognized national standing, which firm shall review the computation
of Dura prepared pursuant to this Section 13(b)(ii) and prepare a report signed
by such firm, which shall be provided to Dura and which shall acknowledge that
the adjustment calculation prepared by Dura is arithmetically correct. Such
report shall be conclusive evidence of the correctness of the computation made
under this Section 13(b)(ii). Upon receipt of such report, Dura shall forthwith
cause to be made, or shall act to prevent, the adjustments described in such
calculation.
Section 14. OFFICER'S CERTIFICATE. Whenever the number of Warrant Shares
that may be purchased upon exercise of the Warrant is adjusted as required by
the provisions of this Agreement, Dura shall file forthwith with the Warrant
Agent and with its Secretary or Assistant Secretary at its principal office an
officer's certificate indicating the adjusted number of Warrant Shares that may
be purchased upon exercise of a Warrant and the adjusted Exercise Price,
determined as herein provided, and setting forth in reasonable detail the facts
requiring such adjustment and the manner of computing such adjustment. Each
such officer's certificate shall be made available at all reasonable times for
inspection by the Holders. Dura shall, forthwith after each such adjustment,
cause a copy of such officer's certificate to be mailed to the Holders. The
Warrant Agent may rely on such certificate without further inquiry and shall not
be deemed to have knowledge of any adjustment unless and until it shall have
received such certificate.
Section 15. NOTICE OF CERTAIN EVENTS. In the event that, at any time
during the period commencing on the Separation Date and ending on the last day
of the Exercise Period:
(a) Dura shall pay any dividend on Common Stock that is payable in stock,
or make any distribution (other than regular cash dividends) to the holders of
Common Stock;
(b) Dura authorizes the issuance to all holders of Common Stock of rights
or warrants to subscribe for or purchase shares of Common Stock or any other
subscription rights or warrants;
(c) Dura authorizes the distribution to all holders of Common Stock of any
of Dura's assets, including evidences of its indebtedness or assets (other than
cash dividends payable out of retained earnings);
(d) there shall be any capital reorganization or reclassification of the
capital stock of Dura or consolidation or merger of Dura with another person
(other than a consolidation or merger of Dura with a subsidiary of Dura in which
Dura is the surviving or continuing corporation and there is no change with
respect to the Common Stock), or sale, conveyance or transfer of all or
substantially all of Dura's property and assets (other than a sale, conveyance
or transfer of such
<PAGE>
13
assets to an Affiliate (within the meaning of the Securities Act));
(e) there shall be a voluntary or involuntary dissolution, liquidation,
bankruptcy, assignment for the benefit of creditors or winding up of Dura; or
(f) Dura shall propose to take any other action, or any other event
occurs, that would require an adjustment pursuant to Section 13 hereof of the
Exercise Price or the number of Warrant Shares that may be purchased upon the
exercise of a Warrant;
then Dura will cause to be mailed to the Holder by first-class mail addressed to
such Holder at the address appearing in the Warrant Register, at least twenty
(20) days (or ten (10) days in any case specified in clauses (a), (b) or (c)
above) before the applicable record or effective date hereinafter specified, a
notice stating (A) the date as of which the holders of Common Stock of record
entitled to receive any such dividends, rights, warrants or distributions are to
be determined or (B) the date on which any such consolidation, merger,
conveyance, transfer, dissolution, liquidation or winding-up is expected to
become effective, and the date as of which it is expected that holders of Common
Stock of record will be entitled to exchange their shares of Common Stock for
securities or other property, if any, deliverable upon such reorganization,
reclassification, consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding-up.
Section 16. ACCELERATION EVENT. In case of any Acceleration Event, Dura
shall, as a condition precedent to the consummation of the transaction
constituting, or announced as, such Acceleration Event, cause effective
provisions to be made so that the Holder of a Warrant shall have the right
immediately thereafter, by exercising such Warrant, to purchase during the
Exercise Period the aggregate amount and kind of shares of stock and other
securities and property that were receivable upon such Acceleration Event by a
holder of the number of shares of Common Stock that would have been received
immediately prior to such Acceleration Event upon exercise of such Warrant. Any
such provisions shall require adjustments in respect of such shares of stock and
other securities and assets and other property that shall be as nearly
equivalent as may be practicable to the adjustments provided for in such
Warrant. The foregoing provisions of this Section 16 shall similarly apply to
successive Acceleration Events. Dura shall, at least twenty (20) days prior to
the Acceleration Date relating to any Acceleration Event (or if such
Acceleration Event was beyond the control of Dura, and Dura did not have
knowledge thereof twenty (20) days prior to such Acceleration Date, as soon as
practicable thereafter), cause to be mailed to the Holders a notice describing
in reasonable detail such Acceleration Event and informing the Holders of the
date the Exercise Period will commence and that the Holders may exercise
Warrants at any time during the Exercise Period.
Section 17. LISTING ON SECURITIES EXCHANGES. Dura will list on each
national securities exchange or, if not so listed, will list for quotation on
the Nasdaq National Market, or such other
<PAGE>
14
over-the-counter quotation system on which any Common Stock may at any time be
listed, all shares of the Common Stock from time to time issuable upon the
exercise of the Warrants, and will maintain such listing so long as any other
shares of Common Stock are so listed; and Dura shall so list on each national
securities exchange or the Nasdaq National Market, or such other over-the-
counter quotation system, and shall maintain such listing of, any other shares
of capital stock of Dura issuable upon the exercise of the Warrants if and so
long as any shares of capital stock of the same class are listed on such
national securities exchange or are traded on the Nasdaq National Market or such
over-the-counter quotation system. Any such listing or quotation will be at
Dura's expense.
Section 18. AVAILABILITY OF INFORMATION. Dura will comply with all
applicable periodic public information reporting requirements of the Commission
to which it may from time to time be subject.
Section 19. WARRANT AGENT.
(a) MERGER, CONSOLIDATION OR CHANGE OF NAME OF WARRANT AGENT.
(i) Any corporation into which the Warrant Agent may be merged or
with which it may be consolidated, or any corporation resulting from any merger
or consolidation to which the Warrant Agent shall be a party, or any corporation
succeeding to the corporate trust business of the Warrant Agent, shall be the
successor to the Warrant Agent hereunder without the execution or filing of any
paper or any further act on the part of any of the parties hereto; PROVIDED,
HOWEVER, that such successor corporation must be otherwise eligible for
appointment as a Warrant Agent hereunder. In the event that at the time such
successor to the Warrant Agent shall succeed to the agency created by this
Agreement any of the Warrant Certificates shall have been countersigned but not
delivered, any such successor to the Warrant Agent may adopt the
countersignature of such predecessor Warrant Agent and deliver such Warrant
Certificates so countersigned; and in the event that at the time of such
succession any of the Warrant Certificates shall not have been countersigned,
any such successor to the Warrant Agent may countersign such Warrant
Certificates either in the name of such predecessor Warrant Agent or in the name
of such successor Warrant Agent; and in any event, all such Warrant Certificates
shall have the full force and effect provided in such Warrant Certificates and
in this Agreement.
(ii) In the case that at any time the name of the Warrant Agent shall
be changed and at such time one or more of the Warrant Certificates shall have
been countersigned but not delivered, the Warrant Agent may adopt the
countersignature under its prior name and deliver Warrant Certificates so
countersigned; in the event that at that time one or more of the Warrant
Certificates shall not have been countersigned, the Warrant Agent may
countersign such Warrant Certificates either in its prior name or in its changed
name; and in all such cases such Warrant Certificates shall have the full force
and effect provided in such Warrant Certificates and in this
<PAGE>
15
Agreement.
(b) DUTIES OF WARRANT AGENT. The Warrant Agent undertakes the duties and
obligations imposed by this Agreement upon the following terms and conditions,
by which the Holders, by their acceptance of Warrants, and Dura, shall be bound:
(i) The Warrant Agent shall not be responsible for any failure of
Dura to comply with any of the covenants to be complied with by Dura that are
contained in this Agreement or in the Warrant Certificates.
(ii) The Warrant Agent may consult at any time with counsel
satisfactory thereto, and the Warrant Agent shall incur no liability or
responsibility to Dura or to any Holder in respect of any action taken, suffered
or omitted by the Warrant Agent hereunder in good faith and in accordance with
the opinion or the advice of such counsel, provided that the Warrant Agent shall
have exercised reasonable care in the selection and continued employment of such
counsel.
(iii) The Warrant Agent shall incur no liability or responsibility to
Dura or to any Holder for any action taken in reliance on any notice,
resolution, waiver, consent, order, certificate or other paper, document or
instrument believed by the Warrant Agent to be genuine and to have been signed,
sent or presented by the party or parties thereto.
(iv) Dura shall (A) pay to the Warrant Agent reasonable compensation
for all services rendered by the Warrant Agent in the execution of this
Agreement, (B) reimburse the Warrant Agent for all expenses, taxes (other than
taxes based on such Warrant Agent's net income), governmental charges, and other
charges of any kind and nature, incurred by the Warrant Agent in the performance
of this Agreement, (C) advance to the Warrant Agent, upon request, funds to pay
cash in lieu of fractional shares of Common Stock issuable upon exercise of
Warrants and (D) indemnify the Warrant Agent and save it harmless against any
and all losses, expenses or liabilities, including judgments, costs and counsel
fees, arising out of or in connection with its agency under this Agreement,
except as a result of its negligence or bad faith. In no case shall the
Warrant Agent be liable for special, indirect, incidental or
consequential loss or damage of any kind whatsoever (including but not limited
to lost profits), unless such loss or damages arise as a result of the
Warrant Agent's gross negligence or intentional misconduct.
(v) The Warrant Agent shall be under no obligation to institute any
action, suit or legal proceeding or to take any other action likely to involve
the incurrence by the Warrant Agent of expenses unless Dura or one or more
Holders shall have furnished the Warrant Agent with reasonable security and
indemnity for any costs and expenses which may be incurred. All rights of
action under this Agreement or under any of the Warrants may be enforced by the
Warrant Agent without the possession of any of the Warrants or the production
thereof at any trial or other proceeding relative thereto, and any such action,
suit or proceeding instituted by the Warrant Agent shall be brought in its name
as Warrant Agent, and any recovery of judgment shall be for the ratable benefit
of the Holders, as their respective rights or interests may appear.
<PAGE>
16
(vi) The Warrant Agent and any stockholder, director, officer or
employee of the Warrant Agent may buy, sell or deal in any of the Warrants or
other securities of Dura, or become pecuniarily interested in any transaction in
which Dura may be interested or contract with or lend money or otherwise act as
fully and freely as though it were not the Warrant Agent under this Agreement.
Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for Dura or for any other legal entity.
(vii) The Warrant Agent shall act hereunder solely as agent, and its
duties shall be determined solely by the provisions hereof. The Warrant Agent
shall not be liable for any actions which it may take or refrain from taking, in
connection with this Agreement, except as result from its own gross negligence
or bad faith.
(viii) The Warrant Agent shall make copies of this Agreement available
for inspection at its principal offices at _________________________ during
normal business hours and shall provide copies to Holders upon their written
request.
(c) CHANGE OF WARRANT AGENT. The Warrant Agent may resign and be
discharged from its duties under this Agreement by providing both (i) written
notice to Dura and (ii) written notice, sent at the Company's expense by
first-class mail, postage prepaid, to each Holder at such Holder's address
appearing in the Warrant Register, which notice shall specify a date when such
resignation shall take effect and shall be sent at least two weeks prior to the
date so specified. If the Warrant Agent shall resign or otherwise become
incapable of acting, Dura shall appoint a successor thereto. If Dura shall
fail to make such appointment within a period of thirty (30) days after
receiving written notification of such resignation or incapacity by the Warrant
Agent or by any Holder (which Holder shall, with such notice, submit Warrant
Certificates held thereby for inspection by Dura), then any Holder may apply to
any court of competent jurisdiction for the appointment of a successor to the
Warrant Agent. Pending appointment of a successor to the Warrant Agent, either
by Dura or by a court, the duties of the Warrant Agent shall be carried out by
Dura. After such appointment, the successor Warrant Agent shall be vested with
such powers, rights, duties and responsibilities as such Warrant Agent would
have been vested had such Warrant Agent been named originally as Warrant Agent
hereunder, without further act or deed. The former Warrant Agent shall deliver
and transfer to the successor Warrant Agent any property at the time held by
such former Warrant Agent hereunder and shall execute and deliver any further
assurance, conveyance, act or deed necessary therefor. Failure to provide any
notice called for in this Section 19, however, or any defect therein, shall not
affect the legality or validity of the resignation or removal of the Warrant
Agent or the appointment of a successor Warrant Agent.
Section 20. IDENTITY OF TRANSFER AGENT. Forthwith upon the appointment
after the date hereof of any transfer agent for the Common Stock, or of any
subsequent transfer agent for shares of the Common Stock, Dura will file with
the Warrant Agent a statement setting forth the name
<PAGE>
17
and address of such transfer agent.
Section 21. SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of Dura, the Warrant Agent or any of the Holders
shall bind and inure to the benefit of their respective successors, assigns,
heirs and personal representatives.
Section 22. TERMINATION. This Agreement shall terminate at 5:00 p.m., New
York City time, on the Expiration Date or upon such earlier date on which all
Warrants have been exercised or redeemed, except that the Warrant Agent shall
account to Dura for all cash held by it at 5:00 p.m., New York City time, on
such Expiration Date or such other date.
Section 23. HEADINGS. The headings of sections of this Agreement have
been inserted for convenience of reference only, are not to be considered a part
hereof, and shall in no way modify or restrict any of the terms or provisions
hereof.
Section 24. AMENDMENTS. This Agreement may be amended only by both (i)
the written consent of Dura and (ii) the affirmative vote or the written consent
of Holders holding not less than two-thirds in interest of the then outstanding
Warrants; PROVIDED, HOWEVER, that, except as expressly provided herein, this
Agreement may not be amended to change (a) the Exercise Price, (b) the Exercise
Period, (c) the number or type of securities to be issued upon the exercise of
the Warrants or (d) the provisions of this Section 24, without the consent of
each Holder.
Section 25. COUNTERPARTS. This Agreement may be executed in any number of
counterparts each of which when so executed shall be deemed to be an original,
but all of which taken together shall constitute one and the same agreement.
Section 26. NOTICES.
(a) Any notice required by the provisions of this Agreement to be provided
to Dura by the Warrant Agent or by any Holder shall be deemed given if deposited
in the United States mail, first class postage prepaid, addressed (until another
address is filed in writing by Dura with the Warrant Agent) as follows:
Dura Pharmaceuticals Inc.
7475 Lusk Boulevard
San Diego, CA 92121
Attention: Corporate Secretary
(b) Any notice required by the provisions of this Agreement to be provided
to the Warrant Agent by Dura or by any Holder shall be deemed given if deposited
in the United States mail, first class postage prepaid, addressed (until another
address is filed in writing by the
<PAGE>
18
Warrant Agent with Dura or notice of the address of a successor Warrant Agent is
provided pursuant to this Agreement) as follows:
ChaseMellon Shareholder Services
________________________________
________________________________
Attn:___________________________
(c) Any notice required by the provisions of this Agreement to be provided
to any Holder by Dura or by the Warrant Agent shall be deemed given if deposited
in the United States mail, first class postage prepaid, addressed to such Holder
at its address set forth in the Warrant Register. Any notice given in
conformity with this Section 26 shall be deemed effective three (3) days after
mailing.
Section 27. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be
construed to give to any person or corporation, other than Dura, the Warrant
Agent and the Holders, any legal or equitable right, remedy or claim under this
Agreement; but this Agreement shall be for the sole and exclusive benefit of
Dura, the Warrant Agent and the Holders.
Section 28. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly caused this Agreement to
be signed by its duly authorized officers.
DURA PHARMACEUTICALS, INC.
By:
------------------------------------------
Title:
---------------------------------------
CHASEMELLON SHAREHOLDER SERVICES, as
Warrant Agent
By:
------------------------------------------
Title:
---------------------------------------
<PAGE>
EXHIBIT A
FORM OF WARRANT CERTIFICATE
UNTIL THIS LEGEND IS REMOVED PURSUANT TO SECTION 9 OF THE WARRANT AGREEMENT,
DATED ON OR ABOUT _______________, 1997, BETWEEN DURA PHARMACEUTICALS,INC. AND
CHASEMELLON SHAREHOLDER SERVICES, AS WARRANT AGENT, THE WARRANTS REPRESENTED BY
THIS CERTIFICATE MAY NOT BE TRANSFERRED SEPARATELY, SPLIT UP, COMBINED OR
EXCHANGED, BUT MAY ONLY BE TRANSFERRED, SPLIT UP, COMBINED OR EXCHANGED TOGETHER
WITH THE SHARES OF CALLABLE COMMON STOCK OF SPIROS DEVELOPMENT CORPORATION II,
INC. WITH WHICH SUCH WARRANTS WERE SOLD AS A UNIT.
VOID AFTER 5:00 P.M., Warrant No.______________
NEW YORK CITY TIME, ON Warrants_________________
DECEMBER 31, 2002
CUSIP _____________
DURA PHARMACEUTICALS, INC.
Warrants to Purchase Shares of Common Stock
THIS CERTIFIES THAT, FOR VALUE RECEIVED,
_______________, or registered assigns, is the registered holder of the number
of Warrants (the "Warrants") set forth above. Each Warrant entitles the holder
thereof to purchase from Dura Pharmaceuticals, Inc., a Delaware corporation
("Dura"), subject to the terms and conditions hereinafter set forth and in the
Warrant Agreement hereinafter referred to, one fully paid and nonassessable
share of Common Stock, par value $.001 per share, of Dura (the "Common Stock").
The Warrants may be exercised at any time or from time to time on or after the
first to occur of (i) January 1, 2000, (ii) the exercise by Dura of the Stock
Purchase Option, (iii) the termination of the Stock Purchase Option with respect
to Dura and (iv) an Acceleration Date (as defined in the Warrant Agreement)
(such earliest date being referred to herein as the "Separation Date") and will
expire at 5:00 p.m., New York City time, on December 31, 2002] (the "Expiration
Date"). Upon the Expiration Date, all rights evidenced by the Warrants shall
cease and the Warrants shall become void. Subject to the provisions of the
Warrant Agreement, the holder of each Warrant shall have the right to purchase
from Dura until the Expiration Date (and Dura shall issue and sell to such
holder of a Warrant) one-third of one fully paid and nonassessable share of
Common Stock (a "Warrant Share") at an exercise price (the "Exercise Price") of
$_______ per share upon surrender of this Warrant Certificate to Dura at the
office of the Warrant Agent (as defined in the Warrant Agreement) designated by
the Warrant Agent for such purpose with the form of election to purchase
appearing on this Warrant Certificate duly completed and signed, together with
payment of the Exercise Price by certified or official bank
<PAGE>
A-2
check payable to the order of Dura.
The Exercise Price and the number of Warrant Shares that may be purchased
upon the exercise of the Warrants and the number of Warrants outstanding are
subject to change or adjustment upon the occurrence of certain events set forth
in the Warrant Agreement.
REFERENCE IS MADE TO THE PROVISIONS OF THIS WARRANT CERTIFICATE SET FORTH
ON THE REVERSE SIDE HEREOF, AND SUCH FURTHER PROVISIONS SHALL FOR ALL PURPOSES
HAVE THE SAME EFFECT AS THOUGH FULLY SET FORTH ON THE FRONT OF THIS CERTIFICATE.
This Warrant Certificate shall not be valid unless countersigned by the
Warrant Agent.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of California.
IN WITNESS WHEREOF, Dura has caused this Warrant Certificate to be executed
by its duly authorized officers.
Dated: ____________, 1997 DURA PHARMACEUTICALS, INC.
By:
---------------------------
Title:
------------------------
Countersigned:
CHASEMELLON SHAREHOLDER SERVICES,
as Warrant Agent
By:
--------------------------------
Authorized Signature
<PAGE>
A-3
[REVERSE SIDE]
DURA PHARMACEUTICALS, INC.
This Warrant Certificate is subject to all of the terms and conditions of
the Warrant Agreement, dated on or about ___________, 1997 (the "Warrant
Agreement"), between Dura and the Warrant Agent, to all of which terms and
conditions the registered holder of the Warrant consents by acceptance hereof.
The Warrant Agreement is incorporated herein by reference and made a part hereof
and reference is made to the Warrant Agreement for a full description of the
rights, limitations of rights, obligations, duties and immunities of the Warrant
Agent, Dura and the registered holders of Warrant Certificates. Copies of the
Warrant Agreement are available for inspection at the principal office of the
Warrant Agent or may be obtained upon written request addressed to the Warrant
Agent at its principal office in _________________.
Dura shall not be required upon the exercise of the Warrants evidenced by
this Warrant Certificate to issue fractional shares, but shall make adjustment
therefore in cash on the basis of the current market value of any fractional
interest as provided in the Warrant Agreement.
Dura has agreed to cause a registration statement under the Securities Act
of 1933, as amended, covering the Warrants and Warrant Shares to be effective
through the termination of the Exercise Period (as defined in the Warrant
Agreement) or until such earlier time as no Warrants remain outstanding, and to
register or qualify the Warrants and the Warrant Shares to be delivered upon
exercise of the Warrants under the laws of each jurisdiction in which such
registration or qualification is necessary.
The Warrants evidenced by this Warrant Certificate may not be divided or
combined with other Warrants or exchanged, assigned or transferred apart from
the shares of Spiros Development Corp. II, Inc. Callable Common Stock with which
they were sold as a Unit to the public until the Separation Date. After the
Separation Date, this Warrant Certificate may be exchanged, at the option of the
holder upon presentation and surrender hereof to the Warrant Agent, for other
Warrant Certificates of different denominations, entitling the holder hereof to
purchase in the aggregate the same number of Warrant Shares, but without the
legend that appears hereon. After the Separation Date, Warrants may be assigned
or transferred upon surrender of this Warrant Certificate to the Warrant Agent,
accompanied (if so required by Dura or the Warrant Agent) by the form of
assignment appearing on this Warrant Certificate duly completed and signed,
whereupon the Warrant Agent shall execute and deliver to the transferee a new
Warrant Certificate entitling the transferee to purchase the same number of
Warrant Shares, but without the legend that appears hereon. If the Warrants
evidenced by this Warrant Certificate shall be exercised in part, the holder
hereof shall be
<PAGE>
A-4
entitled to receive upon surrender hereof another Warrant Certificate or
Certificates evidencing the number of Warrants not so exercised.
The holder of this Warrant Certificate shall not, by virtue hereof, be
entitled to any of the rights of a stockholder in Dura, either at law or in
equity, and the rights of the holder are limited to those expressed in the
Warrant Agreement.
If this Warrant Certificate shall be surrendered for exercise within any
period during which the transfer books for the Common Stock are closed for
any purpose, Dura shall not be required to make delivery of certificates for
shares purchasable upon such transfer until the date of the reopening of said
transfer books.
Each holder of this Warrant Certificate, by accepting the same, consents
and agrees with Dura, the Warrant Agent and with every other holder of a Warrant
Certificate that:
(a) this Warrant Certificate is transferable on the registry books of
the Warrant Agent only upon the terms and conditions set forth in the Warrant
Agreement; and
(b) Dura and the Warrant Agent may deem and treat the person in whose
name this Warrant Certificate is registered as the absolute owner hereof
(notwithstanding any notation of ownership or other writing hereon made by
anyone other than Dura or the Warrant Agent) for all purposes whatever and
neither Dura nor the Warrant Agent shall be affected by any notice to the
contrary.
This Warrant Certificate shall not be valid or enforceable for any purpose
until it shall have been countersigned by the Warrant Agent.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
<TABLE>
<CAPTION>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - __________ Custodian __________
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right under Uniform Gifts to Minors
of survivorship and not Act
as tenants in common --------------------------------------
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
<PAGE>
A-5
ELECTION TO PURCHASE
(To be executed upon exercise of Warrant)
Dated___________, _____
The undersigned hereby irrevocably exercises this Warrant to purchase _____
shares of Common Stock and herewith makes payment of $___________ in payment of
the Exercise Price thereof on the terms and conditions specified in this Warrant
Certificate, surrenders this Warrant Certificate and all right, title, and
interest therein to Dura and directs that the Warrant Shares deliverable upon
the exercise of such Warrants be registered in the name and at the address
specified below and delivered thereto.
Name:
---------------------------------------------------------------------------
(Please Print)
Name:
---------------------------------------------------------------------------
City, State and Zip Code:
-------------------------------------------------------
If such number of Warrant Shares is less than the aggregate number of
Warrant Shares purchasable hereunder, the undersigned requests that a new
Warrant Certificate representing the balance of such Warrant Shares to be
registered in the name and at the address specified below and delivered thereto.
Name:
---------------------------------------------------------------------------
(Please Print)
Address:
------------------------------------------------------------------------
City, State and Zip Code:
-------------------------------------------------------
Taxpayer's Identification or Social Security Number:
----------------------------
Signature(s)
-----------------------
-----------------------
NOTE: The above signature(s) must correspond with the name as written upon the
face of this Warrant Certificate in every particular, without alteration or
enlargement or any change whatsoever. If the certificate representing the
Warrant Shares or any Warrant Certificate representing Warrants not exercised is
to be registered in a name other than that in which this Warrant Certificate is
registered, the signature of the holder hereof must be guaranteed.
Signature(s) Guaranteed:
- -----------------------------
<PAGE>
A-6
ASSIGNMENT
FOR VALUE RECEIVED, ____________ hereby sells, assigns and transfers to:
Name:
---------------------------------------------------------------------------
(Please Print)
Address:
------------------------------------------------------------------------
City, State and Zip Code:
-------------------------------------------------------
Taxpayer's Identification or Social Security Number:
----------------------------
the right to purchase up to _____ Warrant Shares represented by this Warrant and
does hereby irrevocably constitute and appoint _______________ to transfer said
Warrant on behalf of Dura, with full power of substitution in the premises.
Dated:__________, __ __________________________________
__________________________________
Signature(s) of registered Holder
NOTE: The above signature(s) must correspond with the name as written upon the
face of this Warrant Certificate in every particular, without alteration or
enlargement or any change whatsoever.
Signature(s) Guaranteed:
- ------------------------------
<PAGE>
EXHIBIT 5.1
[BROBECK, PHLEGER & HARRISON LLP LETTERHEAD]
December 16, 1997
Dura Pharmaceuticals, Inc.
7475 Lusk Boulevard
San Diego, CA 92121
Spiros Development Corporation II, Inc.
7475 Lusk Boulevard
San Diego, CA 92121
Re: PUBLIC OFFERING OF UNITS
Ladies and Gentlemen:
We have acted as counsel to Dura Pharmaceuticals, Inc., a Delaware
corporation ("Dura"), and Spiros Development Corporation II, Inc., a Delaware
corporation ("Spiros Corp. II"), in connection with the proposed issuance and
sale, pursuant to a Registration Statement on Forms S-1/S-3 (the
"Registration Statement"), of up to 5,390,625 units (the "Units"), including
562,500 and 140,625 Units which the U.S. Underwriters and International
Underwriters, respectively, have the option to purchase to cover
over-allotments, if any. Each Unit consists of one share of the callable
common stock of Spiros Corp. II (the "Callable Common Stock") and one warrant
to purchase one-fourth of one share of the common stock of Dura (the
"Warrants"). The Registration Statement relates to (i) the offer and sale of
the Callable Common Stock, (ii) the offer and sale of the Warrants and the
shares of Dura common stock underlying the Warrants (the "Warrant Shares")
and (iii) the shares of Dura common stock issuable, if any, if Dura exercises
the Purchase Option as described in the Registration Statement and related
prospectuses (the "Prospectuses") and pays the exercise price in shares of
Dura common stock (the "Purchase Option Shares"). The Units, the Callable
Common Stock, the Warrants, the Warrant Shares and the Purchase Option Shares
are hereinafter collectively referred to as the "Securities." Capitalized
terms not otherwise defined herein shall have the meanings given to them in
the Registration Statement.
This opinion is being furnished in accordance with the requirements of
Item 16(a) of Form S-1, Item 16(a) of Form S-3 and Item 601(b)(5)(i) of
Regulation S-K under the Securities Act of 1933, as amended (the "Act").
In connection with this opinion, we have examined the Registration
Statement and related Prospectuses; Dura's Amended and Restated Certificate of
Incorporation, as amended through the date hereof; Spiros Corp. II's Certificate
of Incorporation, as amended through the date hereof; the Amended and Restated
Certificate of Incorporation of Spiros
<PAGE>
Dura Pharmaceuticals, Inc. December 16, 1997
Spiros Development Corporation II, Inc. Page 2
Corp. II, which the Registration Statement contemplates will become effective
immediately prior to the issuance and sale of the Units; Dura's Amended and
Restated Bylaws, as amended through the date hereof; Spiros Corp. II's Bylaws,
as amended through the date hereof; the Amended and Restated Bylaws of Spiros
Corp. II, which the Registration Statement contemplates will become effective
immediately prior to the issuance and sale of the Units; and the originals, or
copies certified to our satisfaction, of such records, documents, certificates,
memoranda and other instruments as in our judgment are necessary or appropriate
to enable us to render the opinion expressed below (the "Documents"). We are
relying (without any independent investigation thereof) upon the truth and
accuracy of the statements, covenants, representations and warranties set forth
in such Documents.
On the basis of the foregoing, and in reliance thereon, we are of
the opinion that the Securities, if, as and when sold and issued in
accordance with and in the manner referred to in the Registration Statement
and Prospectuses (as amended and supplemented through the date of issuance)
and, in the case of the Warrant Shares or the Purchase Option Shares, when
issued in compliance with the terms of the respective Warrants or Purchase
Option, will be validly issued, fully paid and nonassessable.
We consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Prospectuses. In giving this consent, we do not thereby
admit that we are within the category of persons whose consent is required under
Section 7 of the Act or the rules and regulations of the Securities and Exchange
Commission promulgated thereunder.
This opinion is expressed as of the date hereof and we disclaim any
undertaking to advise you of any subsequent changes in applicable law or in the
facts stated or assumed herein which may alter, affect or modify the opinion
expressed herein. Our opinion is expressly limited to the matters set forth
above and we render no opinion, whether by implication or otherwise, as to any
other matters relating to Dura, Spiros Corp. II or the Securities.
Very truly yours,
/s/ Brobeck, Phleger & Harrison LLP
BROBECK, PHLEGER & HARRISON LLP
<PAGE>
EXHIBIT 8.1
December 16, 1997
Dura Pharmaceuticals, Inc.
7475 Lusk Boulevard
San Diego, California 92121
Spiros Development Corporation II, Inc.
7475 Lusk Boulevard
San Diego, California 92121
Ladies and Gentlemen:
We have acted as counsel to Dura Pharmaceuticals, Inc., a Delaware
corporation ("Dura"), and, in certain limited matters, to Spiros Development
Corporation II, Inc., a Delaware corporation ("Spiros Corp. II"), in
connection with the offering ("Offering") of units consisting of one share of
the Callable Common Stock of Spiros Corp. II ("Spiros Corp. II Common Stock")
and one warrant ("Warrant") to purchase one-fourth of one share of the Common
Stock of Dura (the "Units"), pursuant to Spiros Corp. II's and Dura's
Registration Statement on Forms S-1/S-3 (the "Registration Statement").
In connection with this opinion, we have examined the Registration
Statement and related Prospectuses, Dura's Amended and Restated Certificate
of Incorporation, as amended through the date hereof, Dura's bylaws, as
amended through the date hereof, Spiros Corp. II's Certificate of
Incorporation (including a copy of the Amended and Restated Certificate of
Incorporation to be filed by Spiros Corp. II immediately prior to the closing
of the Subscription Offering), and Spiros Corp. II's bylaws, as amended
through the date hereof. We have also reviewed the originals, or copies
certified to our satisfaction, of the Technology License Agreement, the
Development Agreement, the Manufacturing and Marketing Agreement, the
Services Agreement, the Albuterol and Product Option Agreement and such other
agreements (the "Agreements") and such records, documents, certificates,
memoranda and other instruments as in our judgment are necessary or
appropriate to enable us to render the opinion expressed below (the
"Documents"). We are relying (without any independent investigation thereof)
upon the truth and accuracy of the statements, covenants, representations and
warranties set forth in the Registration Statement, the Agreements and the
Documents.
In rendering the opinions set forth below, we have relied (or will rely)
upon the following additional representations and assumptions:
<PAGE>
Dura Pharmaceuticals, Inc. December 16, 1997
Spiros Development Corporation II, Inc. Page 2
1. The form of Agreements and Documents supplied to us that we reviewed
in connection with rendering opinions hereunder will be validly
executed in substantially the same form in which they have been filed
as exhibits to the Registration Statement and will be binding and
enforceable in accordance with their terms.
2. All parties will perform under such Agreements in accordance with
their terms.
3. There are no other or further agreements which would alter, amend or
otherwise materially affect the relationships created by or described
in the above listed Agreements and Documents or described in the
Registration Statement.
Our opinions represent only our best judgment regarding the application
of federal income tax laws under the Internal Revenue Code of 1986, as
amended (the "Code"), existing judicial decisions, administrative regulations
and published rulings and procedures. Our opinion is not binding upon the
Internal Revenue Service or the courts, and there is no assurance that the
Internal Revenue Service will not successfully assert contrary positions.
Furthermore, no assurance can be given that future legislative, judicial
decisions or administrative changes, applicable either on a prospective or
retroactive basis, might not materially alter our opinions. Nevertheless, we
undertake no responsibility to advise you of any new developments in the
application or interpretation of the federal income tax laws.
Based on and subject to the foregoing, we are of the opinion that the
statements in the Registration Statement and the Prospectuses (as amended and
supplemented through the date of issuance) under the captions "United States
Federal Income Tax Consequences" and "United States Taxation of Non-U.S.
Persons," to the extent they constitute matters of law or legal conclusions
with respect thereto, have been prepared or reviewed by us and are correct in
all material respects.
We express no opinion as to any other tax issues affecting persons
acquiring, holding or disposing of the Units, the Spiros Corp. II Common
Stock, the Warrants or the Common Stock of Dura issuable upon exercise of the
Warrants or Dura's Purchase Option (as defined in the Registration Statement)
or any other party to any of the Agreements, nor does our opinion address
state, local or foreign tax consequences that may result from the
transactions.
<PAGE>
Dura Pharmaceuticals, Inc. December 16, 1997
Spiros Development Corporation II, Inc. Page 3
We consent to the use of this opinion as an exhibit to the Registration
Statement. Subject to the foregoing sentence, this opinion is given as of the
date hereof solely for your benefit and may not be relied upon, circulated,
quoted or otherwise referred to for any purpose without our prior written
consent.
Respectfully,
/s/ Brobeck, Phleger & Harrison LLP
BROBECK, PHLEGER & HARRISON LLP
<PAGE>
Exibit 10.1
TECHNOLOGY LICENSE AGREEMENT
This TECHNOLOGY LICENSE AGREEMENT (the "Agreement") is made as of
__________, 1997, by and among DURA PHARMACEUTICALS, INC., a Delaware
corporation ("DURA"), DURA DELIVERY SYSTEMS, INC., a Delaware corporation
("DDSI"), SPIROS DEVELOPMENT CORPORATION, a Delaware corporation ("Spiros
Corp."), and SPIROS DEVELOPMENT CORPORATION II, INC., a Delaware corporation
("Spiros Corp. II").
RECITALS
WHEREAS, DURA and Spiros Corp. II are parties to the Development Agreement,
the Manufacturing and Marketing Agreement, and the Albuterol and Product Option
Agreement (all capitalized terms shall have the respective meanings set forth in
Section 1 hereof).
WHEREAS, DURA has the Purchase Option to acquire all of the Spiros Corp. II
Common Stock.
WHEREAS, DURA, DDSI and/or Spiros Corp. are the owners or licensees of the
Core Technology and of certain rights relating to the Spiros Products and
certain intellectual property rights relating thereto.
WHEREAS, DURA, DDSI and Spiros Corp. are willing to grant to Spiros Corp.
II and Spiros Corp. II desires to acquire from DURA, DDSI and Spiros Corp., a
license to the Core Technology and the Spiros Products for the purpose of
allowing Spiros Corp. II to perform research, develop and commercialize the
Spiros Products.
WHEREAS, pursuant to the Development Agreement, Spiros Corp. II has engaged
DURA to employ the intellectual property rights and technology licensed
hereunder in conducting the Development and commercialization of Spiros
Products.
WHEREAS, in the course of researching and developing the Program
Technology, DURA or Spiros Corp. II may develop certain inventions, processes or
know-how, or DURA may obtain on behalf of Spiros Corp. II rights to certain
additional technology or patents or other proprietary rights useful to other
than just the Spiros Products.
WHEREAS, DURA desires to acquire, and Spiros Corp. II is willing to grant
to DURA, an exclusive worldwide license or sublicense to make, use, market and
sell such developments, technology or rights other than with respect to Spiros
Products.
NOW, THEREFORE, in consideration of the mutual covenants set forth herein
and for other good and valuable consideration, the
<PAGE>
receipt and sufficiency of which are hereby acknowledged, and in order to induce
DURA to enter into the Agreements, DURA, DDSI, Spiros Corp. and Spiros Corp. II
hereby agree as follows:
1. DEFINITIONS.
1.1 DEFINITIONS. All capitalized terms used herein and not otherwise
defined shall have the respective meanings, to the extent such terms are used
herein, set forth in SCHEDULE 1.1 attached hereto, which is incorporated by this
reference as though fully set forth herein.
1.2 SINGULAR AND PLURAL. Singular and plural forms, as the case may be,
of terms defined herein shall have correlative meanings.
2. GRANT OF LICENSES.
2.1 GRANT OF EXCLUSIVE LICENSES TO SPIROS CORP. II; RIGHT TO SUBLICENSE.
2.1.1 DURA GRANT. Subject to the terms and conditions of this
Agreement, DURA hereby grants to Spiros Corp. II an exclusive (against DURA and
all other Persons) perpetual, worldwide right and license, terminable only as
set forth herein, to employ the DURA Core Technology to research, develop, make,
have made, use, sell, have sold and import the Spiros Products (except with
respect to beclomethasone in Japan, Hong Kong, Singapore, the Republic of China,
Taiwan, the Republic of Korea and the People's Republic of China).
2.1.2 DDSI GRANT. Subject to the terms and conditions of this
Agreement, DDSI hereby grants to Spiros Corp. II an exclusive (against DDSI and
all other Persons) perpetual, worldwide right and license, terminable only as
set forth herein, to employ the DDSI Core Technology to research, develop, make,
have made, use, sell, have sold and import the Spiros Products (except with
respect to beclomethasone in Japan, Hong Kong, Singapore, the Republic of China,
Taiwan, the Republic of Korea and the People's Republic of China).
2.1.3 SPIROS CORP. GRANT. Subject to the terms and conditions of
this Agreement, Spiros Corp. hereby grants to Spiros Corp. II an exclusive
(against Spiros Corp. and all other Persons) perpetual, worldwide right and
license, terminable only as set forth herein, to employ the Spiros Core
Technology to research, develop, make, have made, use, sell, have sold and
import the Spiros Products (except with respect to beclomethasone in Japan, Hong
Kong, Singapore, the Republic of China, Taiwan, the Republic of Korea and the
People's Republic of China).
2.2 THIRD PARTY LICENSES TO DURA OR ANY OF ITS AFFILIATES. With respect
to the rights of third parties that may be obtained by DURA after the date
hereof, and which are necessary or useful to the Development under the
Development Agreement or the
- 2 -
<PAGE>
commercialization of the Spiros Products under the Manufacturing and
Marketing Agreement, DURA shall use commercially reasonable efforts to secure
such rights and the right to sublicense such rights to Spiros Corp. II and
shall sublicense such rights to Spiros Corp. II whenever possible; PROVIDED
that Spiros Corp. II shall not be obligated to accept any grant of rights or
assume any obligations hereunder without its prior written consent. If
Spiros Corp. II desires to obtain any such rights licensed to DURA or any of
its Affiliates pursuant to an agreement with any Person other than Spiros
Corp. II (a "Third Party Agreement"), the existence of which DURA shall
promptly inform Spiros Corp. II, Spiros Corp. II and DURA agree to negotiate
in good faith regarding the allocation between DURA or any of its Affiliates
and Spiros Corp. II of the royalty, license fee, milestone fee or other
payments payable to the third party and the assumption of any obligations
applicable to such license, if any. Spiros Corp. II shall bear the cost of
obtaining any such rights and shall assume such obligations only in
proportion to its and its sublicensees' (other than DURA's and/or any of its
Affiliates) use of such rights. Any sublicense granted to Spiros Corp. II
hereunder shall be limited to the rights that DURA and/or any of its
Affiliates has a right to grant under any such Third Party Agreement and to
any obligations under any such Third Party Agreement, and to any obligations
assumed by DURA and/or any of its Affiliates in consideration of the grant or
assignment of such rights to DURA which are to be sublicensed to Spiros Corp.
II. No party shall take any action, or fail to take any action within its
control, that would constitute or give rise to a breach or other violation by
DURA or any of its Affiliates of any such Third Party Agreement. The parties
agree that no future licensing fees are required to be paid by Spiros Corp.
II during the term of this Agreement as consideration for the licenses and
sublicenses granted to Spiros Corp. II hereunder, except as set forth in this
Section 2.2.
2.3 SPIROS CORP. II SUBLICENSES AND LICENSES TO DURA.
2.3.1 DEVELOPMENT LICENSE. Spiros Corp. II hereby grants DURA an
exclusive, even as to Spiros Corp. II and all other Persons, royalty-free
license to employ and engage in any and all uses of the Program Technology to
conduct Development, subject to the terms and conditions of and to the extent
necessary to perform its obligations under the Development Agreement. The
rights granted under this Section 2.3.1 may be further sublicensed by DURA only
to its Affiliates or as permitted under of the Development Agreement (and, in
such a case, solely to the extent necessary to perform any subcontracting
services thereunder) or as otherwise agreed to in writing by Spiros Corp. II.
2.3.2 COMMERCIALIZATION LICENSE. Spiros Corp. II hereby grants
DURA an exclusive, even as to Spiros Corp. II and all other Persons, worldwide
license to use the Program Technology to make, have made, use, sell, supply and
import Spiros Products subject to the terms and conditions of and to the extent
necessary to perform its obligations under the
- 3 -
<PAGE>
Manufacturing and Marketing Agreement. The rights granted under this
Section 2.3.2 may be further sublicensed by DURA only to its Affiliates or as
permitted under the Manufacturing and Marketing Agreement (and, in such a case,
solely to the extent necessary to perform any subcontracting services
thereunder) or as otherwise agreed to in writing by Spiros Corp. II.
2.3.3 ALBUTEROL PRODUCT LICENSE. Spiros Corp. II hereby grants
DURA effective upon the exercise of the Albuterol Option, an exclusive, royalty-
free, irrevocable, perpetual, worldwide license to use the Program Technology to
develop, make, have made, use, sell, have sold, supply and import the Albuterol
Product. The license granted hereunder shall include the right to grant
sublicenses with respect to the Program Technology licensed under this Section
2.3.3 for use with the Albuterol Product.
2.3.4 PRODUCT OPTION LICENSE. Spiros Corp. II hereby grants DURA
effective upon the exercise of the Product Option, an exclusive, royalty-free,
irrevocable, perpetual, worldwide license to use the Program Technology to
develop, have developed, make, have made, use, sell, have sold, supply and
import the Option Product. The license granted hereunder shall include the
right to grant sublicenses with respect to the Program Technology licensed under
this Section 2.3.4 for use with the Option Product.
2.3.5 ADDITIONAL LICENSE. Spiros Corp. II hereby grants DURA an
exclusive, royalty-free, irrevocable, perpetual, worldwide license to use the
Program Technology, including technology relating to enhancements to Spiros
technology or any next generation inhaler system in which Spiros Corp. II has
rights, to develop, have developed, make, have made, use, sell, have sold,
supply and import any products other than the Spiros Products.
2.3.6 OTHER LICENSES. The foregoing licenses are granted in
addition to, and not in substitution for, any other license granted to DURA,
whether pursuant to this Agreement or otherwise.
2.4 RESTRICTIONS UPON USE OF PROGRAM TECHNOLOGY. Except as provided in
the Agreements or by the prior written consent of DURA, Spiros Corp. II shall
not, directly or indirectly, prior to the expiration or termination (other than
by exercise) of the Purchase Option, (a) license, sublicense, encumber, pledge,
sell, assign or otherwise transfer to any Person any rights under the Program
Technology, (b) make, have made, use or sell any of the Program Technology for
any purpose whatsoever, or (c) authorize, cause or assist in any way any other
Person to do any of the foregoing. Following the expiration or termination
(other than by exercise) of the Purchase Option, the foregoing limitations shall
cease to be applicable and Spiros Corp. II shall have, without limitation, the
right to sublicense the Program Technology for use with the Spiros Products.
- 4 -
<PAGE>
2.5 ADJUSTMENT OF LICENSES. The licenses granted in Sections 2.1 and 2.3
hereunder shall be subject to adjustment (a) upon the Albuterol Option Closing
Date, so as to exclude any rights to the Albuterol Program Assets from the
licenses granted therein, and (b) upon the Product Option Closing Date, so as to
exclude any rights to Spiros Product Program Assets from the license granted
therein.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS.
3.1 REPRESENTATIONS, WARRANTIES AND COVENANTS OF DURA. DURA represents,
warrants and covenants to Spiros Corp. II as follows:
3.1.1 ORGANIZATION OF DURA. DURA is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
with full corporate power and authority adequate for executing and delivering
and performing its obligations under this Agreement;
3.1.2 ORGANIZATION OF DDSI. DDSI is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
with full corporate power and authority adequate for executing and delivering
and performing its obligations under this Agreement;
3.1.3 ORGANIZATION OF SPIROS CORP.. Spiros Corp. is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware with full corporate power and authority adequate for executing
and delivering and performing its obligations under this Agreement.
3.1.4 AUTHORIZATION. The execution, delivery and performance of
this Agreement have been duly authorized by all necessary corporate action on
the part of DURA, DDSI and Spiros Corp. and this Agreement shall constitute a
legal, valid and binding obligation of each of DURA, DDSI and Spiros Corp.,
enforceable against DURA, DDSI and Spiros Corp. in accordance with its terms,
subject to laws of general application relating to bankruptcy, insolvency and
the relief of debtors;
3.1.5 COMPLIANCE WITH OTHER INSTRUMENTS. The execution, delivery
and performance of this Agreement do not and will not conflict with or
contravene any provision of the charter documents or by-laws of each of DURA,
DDSI and Spiros Corp. or any material agreement, document, instrument, indenture
or other obligation of DURA, DDSI or Spiros Corp.;
3.1.6 OTHER AGREEMENTS. None of DURA, DDSI or Spiros Corp. shall
enter into any agreement, make any commitment, take any action or fail to take
any action that would contravene any material provision of, or materially
derogate or restrict any of the rights and licenses granted or assigned to
Spiros Corp. II under, this Agreement and each of DURA, DDSI and Spiros Corp.
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agree to abide and be bound by the terms of any license agreement to which they
are a party, any of the rights to which have been or will be sublicensed or
assigned to Spiros Corp. II;
3.1.7 INTELLECTUAL PROPERTY RIGHTS. To the best of its
knowledge, each of DURA, DDSI and Spiros Corp. has sufficient legal and/or
beneficial title and ownership to grant the licenses to the DURA Core
Technology, the DDSI Core Technology and the Spiros Corp. Core Technology,
respectively, and the other intellectual property rights provided in Section
2 above. None of DURA, DDSI or Spiros Corp. is aware of and has not received
any communications alleging that it has violated, or that Spiros Corp. II by
practicing the Core Technology as contemplated in the Agreements would
violate, any intellectual property rights of any third party. Except for the
1933 Royalty Agreement, there are no outstanding options, licenses or
agreements of any kind between DURA, DDSI or Spiros Corp. and any third party
relating to the research, development, manufacture, use or sale of the Spiros
Products. To the best of its knowledge, there is no material unauthorized
use, infringement or misappropriation of any of the Core Technology. DURA,
DDSI and Spiros Corp. are not aware of, nor have they received any
communications challenging the ownership, validity or effectiveness of the
Core Technology.
3.1.8 VALIDITY. None of DURA, DDSI or Spiros Corp. is aware of any
action, suit or inquiry or investigation instituted by any federal, state, local
or foreign governmental agency or instrumentality which questions or threatens
the validity of the Agreements.
3.2 REPRESENTATIONS, WARRANTIES AND COVENANTS OF SPIROS CORP. II. Spiros
Corp. II represents, warrants and covenants to DURA, DDSI and Spiros Corp. as
follows:
3.2.1 ORGANIZATION. Spiros Corp. II is a corporation duly
organized, validly existing and in good standing under the laws of State of
Delaware with full corporate power and authority adequate for executing and
delivering and performing its obligations under this Agreement;
3.2.2 AUTHORIZATION. The execution, delivery and performance of
this Agreement have been duly authorized by all necessary corporate action on
the part of Spiros Corp. II, and this Agreement shall constitute a legal, valid
and binding obligation of Spiros Corp. II, enforceable against Spiros Corp. II
in accordance with its terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors;
3.2.3 COMPLIANCE WITH OTHER INSTRUMENTS. The execution, delivery
and performance of this Agreement do not and will not conflict with or
contravene any provision of the charter documents or by-laws of Spiros Corp. II
or any material agreement, document, instrument, indenture or other obligation
of Spiros Corp. II;
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3.2.4 OTHER AGREEMENTS. Spiros Corp. II shall not enter into any
agreement, make any commitment, take any action or fail to take any action that
would contravene any material provisions of, or materially derogate or restrict
any of the rights or licenses granted to DURA under, this Agreement;
3.2.5 SUBLICENSES. Spiros Corp. II agrees to abide and be bound by
the terms of the sublicenses granted to it in accordance with the terms of this
Agreement by DURA, DDSI and/or Spiros Corp. under any Third Party Agreement or
under any agreement with a third party;
3.2.6 NON-COMPETITION. Spiros Corp. II shall not, during the
term of this Agreement, without the prior written consent of DURA, solicit
the employment of any person, in any capacity, who, at any time during the
term of this Agreement, shall have been an officer, director, employee or
agent of DURA or any of its Affiliates, except for the officers of Spiros
Corp. II on the date hereof; and
3.2.7 VALIDITY. Spiros Corp. II is aware of no action, suit or
inquiry or investigation instituted by any federal, state, local or foreign
governmental agency or instrumentality which questions or threatens the validity
of the Agreements.
4. DISCLOSURE AND USE OF TECHNOLOGY AND RIGHTS.
4.1 TECHNOLOGY TRANSFER.
4.1.1 PRIOR TO EXPIRATION OR TERMINATION OF PURCHASE OPTION. At any
time prior to the expiration or termination (other than by exercise) of the
Purchase Option and upon request by Spiros Corp. II, each of DURA, DDSI and
Spiros Corp. shall, within a reasonable time thereafter, provide access to
Spiros Corp. II to all physical manifestations of the Program Technology which
they control.
4.1.2 AFTER EXPIRATION OR TERMINATION OF OPTION. After expiration
or termination (other than by exercise) of the Purchase Option, DURA shall,
except as provided otherwise in any of the Agreements, within thirty (30) days
of a written request by Spiros Corp. II, provide to Spiros Corp. II or a
sublicensee designated by Spiros Corp. II, reasonably sufficient quantities of
previously manufactured quantities of Spiros Products and all physical
manifestations of the Program Technology, including, without limitation, copies
of all laboratory notebooks, designs, specifications, formulas, procedures,
clinical and pre-clinical data and other information, all to the extent that
such Spiros Products, or Program Technology were developed prior to the time of
such required delivery. Spiros Corp. II shall pay all costs of shipping,
packaging, copying and similar or related costs in connection therewith,
provided such costs have not been previously paid by Spiros Corp. II hereunder
or under the
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Development Agreement.
4.1.3 TECHNICAL ASSISTANCE AFTER EXPIRATION OR TERMINATION OF
PURCHASE OPTION. For a period of one (1) year after expiration or termination
(other than by exercise) of the Purchase Option, each of DURA, DDSI and Spiros
Corp. shall provide to Spiros Corp. II, or a sublicensee designated by Spiros
Corp. II, at Spiros Corp. II's or such permitted sublicensee's sole option and
expense, reasonable technical assistance and instruction in understanding,
interpreting and applying the Program Technology solely for the purposes of
further developing the Program Technology and developing and commercializing
Spiros Products. Each of DURA, DDSI and Spiros Corp. shall make their
respective employees directly involved in the Development of the Program
Technology prior to the expiration or termination (other than by exercise) of
the Purchase Option, reasonably available for consultation by telephone, or in
person at their respective offices at reasonable cost, in connection with such
assistance and instruction, all at the sole expense of Spiros Corp. II or such
sublicensee. The obligations set forth in this Section 4.1.3 shall not include
any obligation to disclose matters unrelated to the application of the Program
Technology to the Spiros Products, matters with respect to the Albuterol Product
(following the exercise of the Albuterol Option) or matters with respect to the
Option Product (following the exercise of the Product Option).
4.2 PATENTS.
4.2.1 RIGHTS PRIOR TO EXPIRATION OR TERMINATION OF PURCHASE
OPTION. Except as set forth below, until the expiration or termination (other
than by exercise) of the Purchase Option, DURA shall, at Spiros Corp. II's
sole expense, direct and cause appropriate patent applications to be
prepared, filed and prosecuted in all relevant territories, in a timely
fashion, with respect to any inventions included in the Program Technology
whether arising out of inventions made solely by DURA employees or
consultants, inventions made solely by DDSI employees or consultants,
inventions made solely by Spiros Corp. employees or consultants, inventions
made solely by Spiros Corp. II employees or consultants or inventions made
jointly by any of the parties' employees or consultants. DURA and Spiros
Corp. II shall discuss and evaluate with each other such discoveries and
inventions and shall confer regarding the advisability of filing patent
applications to cover those discoveries and inventions, including the
countries in which such patent applications should be filed. DURA shall
cause any patents issuing thereon to be maintained and enforced that DURA and
Spiros Corp. II believe, in their commercially reasonable judgment, are
patentable and commercially and technically significant to Spiros Corp. II.
With respect to the Developed Technology that has substantial application to
Spiros Products, as well as to products other than the Spiros Products, the
expenses of preparing, prosecuting and maintaining such patents shall be
reasonably allocated between DURA and Spiros Corp. II by their mutual
agreement.
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4.2.2 RIGHTS AFTER EXPIRATION OR TERMINATION OF PURCHASE OPTION.
After the expiration or termination of the Purchase Option (other than by
exercise), Spiros Corp. II shall have the exclusive right, at its sole expense,
to prepare and prosecute, in its name, patent applications, and to maintain
patents issued with respect to the Program Technology. In the event that Spiros
Corp. II declines to prepare, prosecute or maintain any such patent application
or patent, Spiros Corp. II shall give DURA no less than sixty (60) days' prior
written notice of such decision but in all events at least as much time so as to
allow DURA to take action to forestall a loss of novelty or a statutory bar to
patentability. Following such written notice, and in order to protect its
rights, DURA shall have the right in its sole discretion and at its sole
expense, to undertake the preparation, prosecution or maintenance of any such
patent application or patent issued thereon with respect to the DURA Core
Technology, the DDSI Core Technology and the Spiros Core Technology.
Enforcement rights upon the expiration or termination (other than by exercise)
of the Purchase Option are governed by Section 5.2.2 hereunder.
4.2.3 COOPERATION. Each party agrees to cause each of its employees
and agents to take all actions and to execute, acknowledge and deliver all
instruments or agreements reasonably requested by the other party, and necessary
for the perfection, maintenance, enforcement or defense of that party's rights
as set forth above.
4.3 CONFIDENTIAL INFORMATION. Any party receiving Confidential
Information shall maintain the confidential and proprietary status of such
Confidential Information, keep such Confidential Information and each part
thereof within its possession or under its control sufficient to prevent any
activity with respect to the Confidential Information that is not specifically
authorized by this Agreement, use all commercially reasonable efforts to prevent
the disclosure of any Confidential Information to any other Person, and use
commercially reasonable efforts to ensure that such Confidential Information is
used only for those purposes specifically authorized herein; PROVIDED, HOWEVER,
that such restriction shall not apply to any Confidential Information that is
(a) independently developed by the receiving party outside the scope of this
Agreement or the Development Agreement (PROVIDED, HOWEVER, that such restriction
shall apply to any technology licensed by DURA, DDSI or Spiros Corp. to Spiros
Corp. II under this Agreement), (b) in the public domain at the time of its
receipt or thereafter becomes part of the public domain through no fault of the
receiving party, (c) received without an obligation of confidentiality from a
third party having the right to disclose such information, (d) released from the
restrictions of this Section 4.3 by the express written consent of the
disclosing party, (e) disclosed to any permitted assignee, permitted sublicensee
or permitted subcontractor of DURA, DDSI, Spiros Corp. or Spiros Corp. II under
the Agreements (if such assignee, sublicensee or
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subcontractor is subject to the provisions of this Section 4.3 or
substantially similar provisions) or (f) required by law, statute, rule or
court order to be disclosed (the disclosing party shall, however, use
commercially reasonable efforts to obtain confidential treatment of any such
disclosure). The obligations set forth in this Section 4.3 shall survive for
a period of ten (10) years from the expiration or termination (other than by
exercise) of the Purchase Option. Without limiting the generality of the
foregoing, DURA, DDSI, Spiros Corp. and Spiros Corp. II each shall use
commercially reasonable efforts to obtain, if not already in place,
confidentiality agreements from their respective employees and agents,
similar in scope to this Section 4.3, to protect the Confidential Information.
4.4 PERMITTED DISCLOSURES. Notwithstanding the provisions of Section 4.3
hereof, DURA, DDSI, Spiros Corp. and Spiros Corp. II (and their permitted
sublicensees) may, to the extent necessary, disclose and use Confidential
Information, consistent with the rights of DURA, DDSI, Spiros Corp. and Spiros
Corp. II otherwise granted hereunder (a) for the purpose of securing
institutional or government approval to clinically test or market any Spiros
Product, (b) for the purpose of securing patent protection for an invention
within the scope of the Program Technology, (c) in the case of Spiros Corp. II,
following expiration or termination (other than by exercise) of the Purchase
Option, to the extent necessary or useful in the development or
commercialization of any Spiros Products or (d) in the case of DURA, following
exercise of the Albuterol Option or the Product Option, to the extent necessary
or useful in the development or commercialization of the Albuterol Product or
the Option Product, respectively; PROVIDED, that the disclosing party obtains an
agreement from any Person to whom such Confidential Information is disclosed to
preserve the confidentiality thereof upon terms reasonably equivalent to those
set forth herein and to use such Confidential Information only for those
purposes consistent with the respective rights granted to Spiros Corp., DURA,
DDSI and Spiros Corp. II hereunder or under any of the Agreements.
5. PATENT INFRINGEMENT.
5.1 NOTIFICATION OF INFRINGEMENT. Each party shall notify all other
parties of any infringement known to such party by any Person of any Patent
Rights and shall provide all other parties with the available evidence, if any,
of such infringement.
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5.2 ENFORCEMENT OF PATENT RIGHTS. If any party has actual notice of
infringement by any Person of Patent Rights, the respective officers of DURA and
Spiros Corp. II shall confer to determine in good faith an appropriate course of
action to enforce such Patent Rights or otherwise abate the infringement
thereof, subject to the provisions of this Section 5.2. DURA and Spiros Corp.
II shall consult with each other in the planning and execution of any action to
enforce Patent Rights.
5.2.1 RIGHTS PRIOR TO EXPIRATION OR TERMINATION OF OPTION. Until
the expiration or termination (other than by exercise) of the Purchase Option,
if DURA determines that enforcement of Patent Rights is appropriate, DURA shall
have the right, but not the obligation, to take appropriate action to enforce
such Patent Rights. Any enforcement with respect to the Patent Rights shall be
at DURA's expense; PROVIDED, HOWEVER, that if DURA elects to so act with respect
to the Patent Rights, Spiros Corp. II shall have the right to participate in the
enforcement of such Patent Rights by agreeing to bear a percentage of the costs
of such enforcement in such amount as the parties shall determine. If, within
six (6) months after notice of infringement, DURA has not commenced an action to
enforce such Patent Rights or thereafter ceases to diligently pursue such
action, Spiros Corp. II shall have the right, at its expense, to take
appropriate action to enforce such Patent Rights as its sole remedy hereunder.
All amounts recovered in any action to enforce Patent Rights undertaken by DURA
and Spiros Corp. II, whether by judgment or settlement, shall be retained by
DURA and Spiros Corp. II pro rata according to the respective percentages of
expenses borne by them in enforcing such Patent Rights. Neither DURA nor Spiros
Corp. II shall enter into any settlement that includes the grant of a license
under, agreement not to enforce, or any statement prejudicial to the validity or
enforceability of any Patent Rights without the consent of the other, which
consent shall not be unreasonably withheld. Any amounts retained by Spiros
Corp. II shall not be considered Available Funds.
5.2.2 RIGHTS AFTER EXPIRATION OR TERMINATION OF OPTION. After the
expiration or termination (other than by exercise) of the Purchase Option, if
Spiros Corp. II determines that enforcement of Patent Rights is appropriate,
Spiros Corp. II shall have the right, but not the obligation, to take
appropriate action to enforce such Patent Rights. Any enforcement with respect
to the Patent Rights shall be at Spiros Corp. II's expense; PROVIDED, HOWEVER,
that if Spiros Corp. II elects to so act with respect to the Patent Rights, DURA
shall have the right to participate in the enforcement of such Patent Rights by
agreeing to bear a percentage of the costs of such enforcement in such amount as
the parties shall determine. If, within six (6) months after notice of
infringement, Spiros Corp. II has not commenced an action to enforce such Patent
Rights or thereafter ceases to diligently pursue such action, DURA shall have
the right, at its expense, to take appropriate action to enforce such Patent
Rights as its sole remedy hereunder. All amounts recovered in any action to
enforce Patent Rights undertaken by
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Spiros Corp. II and DURA, whether by judgment or settlement, shall be
retained by Spiros Corp. II or DURA pro rata according to the respective
percentages of expenses borne by them in enforcing such Patent Rights.
Neither DURA nor Spiros Corp. II shall enter into any settlement that
includes the grant of a license under, agreement not to enforce, or any
statement prejudicial to the validity or enforceability of any Patent Rights
without the consent of the other, which consent shall not be unreasonably
withheld.
5.2.3 COOPERATION. Each party agrees to cause each of its employees
and agents to take all actions and to execute, acknowledge and deliver all
instruments or agreements reasonably requested by the other party, and necessary
for the perfection, maintenance, enforcement or defense of the party's rights as
set forth above.
5.3 DISCLAIMER OF WARRANTY; CONSEQUENTIAL DAMAGES.
5.3.1 DISCLAIMER OF WARRANTY. Nothing in this Agreement shall be
construed as a representation made or warranty given by any party hereto that
any patents will issue based on pending applications within the Patent Rights,
or that any such Patent Rights which do issue will be valid, or that the
practice by a party hereto of any license granted hereunder, or that the use of
any Program Technology licensed hereunder, will not infringe the patent or
proprietary rights of any other Person. Spiros Corp. II understands that the
Development shall involve technologies that have not been approved by any
regulatory authority and that none of DURA, DDSI or Spiros Corp. guarantees the
safety or usefulness of any Spiros Product. In addition, except as expressly
set forth in Section 3 of this Agreement, DURA, DDSI, Spiros Corp. and Spiros
Corp. II acknowledge that THE PROGRAM TECHNOLOGY IS LICENSED TO Spiros Corp. II
AND SUBLICENSED TO DURA HEREUNDER AS IS, AND DURA, DDSI, SPIROS CORP. AND SPIROS
CORP. II EXPRESSLY DISCLAIM AND HEREBY WAIVE, RELEASE AND RENOUNCE ANY WARRANTY,
EXPRESS OR IMPLIED, WITH RESPECT TO SUCH PROGRAM TECHNOLOGY, INCLUDING, WITHOUT
LIMITATION, ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR
NONINFRINGEMENT. Except as expressly set forth in this agreement, DURA, DDSI,
Spiros Corp. and Spiros Corp. II disclaim all warranties of any nature, express
or implied.
5.3.2 CONSEQUENTIAL DAMAGES. NONE OF THE PARTIES TO THIS AGREEMENT
SHALL BE ENTITLED TO RECOVER FROM ANOTHER PARTY HERETO ANY SPECIAL, INCIDENTAL,
CONSEQUENTIAL OR PUNITIVE DAMAGES.
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6. INDEMNIFICATION.
6.1 INDEMNIFICATION BY DURA. DURA shall indemnify the Spiros Corp. II
Indemnitees, pay on demand and protect, defend, save and hold harmless each
Spiros Corp. II Indemnitee from and against any and all Claims incurred by or
asserted against any Spiros Corp. II Indemnitee of whatever kind or nature,
including, without limitation, any claim or liability based upon negligence,
warranty, strict liability, violation of government regulation or
infringement of patent or other propriety rights, arising from or occurring
as a result of (a) any use of the Program Technology by DURA or any
Affiliate, agent or sublicensee of DURA (other than Spiros Corp. II in
contravention of the terms of this Agreement), (b) any of the Development or
any other services to be performed by DURA during the term of the Agreements
pursuant to the Agreements, including, without limitation, any workers'
compensation claim by any DURA employee or consultant or other Person or (c)
subject to Section 5.3.2, any breach of the Agreements by DURA, except, with
respect to Spiros Corp. II Indemnitees, in cases in which Claims of Spiros
Corp. II Indemnitees are based upon the gross negligence or willful
misconduct of a Spiros Corp. II Indemnitee. A Spiros Corp. II Indemnitee
shall promptly notify DURA of any Claim with respect to which an Spiros Corp.
II Indemnitee is seeking indemnification hereunder, upon becoming aware
thereof, and permit DURA at DURA's cost to defend against such Claim and
shall cooperate in the defense thereof.
6.2 INDEMNIFICATION BY SPIROS CORP. II. Spiros Corp. II shall indemnify
the DURA Indemnitees, the DDSI Indemnitees and the Spiros Corp. Indemnitees, pay
on demand and protect, defend, save and hold harmless each DURA Indemnitee, DDSI
Indemnitee or Spiros Corp. Indemnitee from and against any and all Claims
incurred by or asserted against any DURA Indemnitee, DDSI Indemnitee or Spiros
Corp. Indemnitee of whatever kind or nature, including, without limitation, any
claim or liability based upon negligence, warranty, strict liability, violation
of government regulation or infringement of patent or other propriety rights,
arising from or occurring as a result of (a) any use of the Program Technology
by Spiros Corp. II or any sublicensee of Spiros Corp. II (other than the use of
such by DURA, DDSI or Spiros Corp. whether pursuant to the Agreements or
otherwise) or (b) subject to Section 5.3.2, any breach of the Agreements by
Spiros Corp. II, except, with respect to DURA Indemnitees, in cases in which
Claims are based upon the gross negligence or willful misconduct of a DURA
Indemnitee or, except with respect to DDSI Indemnitees, in cases in which Claims
are based upon the gross negligence or willful misconduct of a DDSI Indemnitee
or, except with respect to Spiros Corp. Indemnitees, in cases in which Claims
are based upon the gross negligence or willful misconduct of a Spiros Corp.
Indemnitee. An Indemnitee hereunder shall promptly notify Spiros Corp. II of
any Claim with respect to which such Indemnitee is seeking indemnification
hereunder, upon becoming aware thereof, and permit Spiros Corp. II at Spiros
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Corp. II's cost to defend against such Claim and shall cooperate in the
defense thereof.
6.3 DEFENSE OF CLAIMS. None of DURA, DDSI, Spiros Corp. or Spiros Corp.
II shall enter into, or permit, any settlement of any Claim for which
indemnification is being sought by such party hereunder without the express
written consent of each other party (or a DURA, DDSI, Spiros Corp. or Spiros
Corp. II Indemnitee, as the case may be), which consent shall not be
unreasonably withheld or delayed. Each party may, at its option and expense,
have its own counsel participate in any proceeding which is under the direction
of another party (the "Indemnifying Party") and will cooperate with the
Indemnifying Party and its insurer in the disposition of any such matter;
PROVIDED, HOWEVER, that if the Indemnifying Party shall not defend such Claim,
the other party shall have the right to defend such Claim itself and recover
from the Indemnifying Party all reasonable attorneys' fees and expenses incurred
by it during the course of such defense.
7. TECHNOLOGY ACCESS FEE.
7.1 FEE. In consideration of the license rights granted to Spiros
Corp. II herein and in recognition of DURA's, DDSI's and Spiros Corp.'s
expertise which they have developed over a period of years and individually,
Spiros Corp. II shall pay DURA, DDSI and Spiros Corp. an aggregate technology
access fee equal to the greater of (a) five percent (5%) of the Net Sales in
a calendar year for each Spiros Product, to be paid by Spiros Corp. II ______
percent (___%) to DURA, ________ percent (___%) to DDSI and _____ percent
(___%) to Spiros Corp. or (b) Two Million Dollars for all Spiros Products in
any calendar year beginning in calendar 1998, to be paid by Spiros Corp. II
______ percent (___%) to DURA, ______ percent (___%) to DDSI and ______
percent (___%) to Spiros Corp.
7.2 TERM. Such technology access fee obligation shall terminate on a
country-to-country basis, on the following basis: (a) in those countries where
no patents covering such Spiros Product issue, ten (10) years following the
first commercial sale of such Spiros Product in such country; and (b) in those
countries where a patent(s) covering such Spiros Product issue, upon the
expiration of the last-to-expire patent covering the manufacture, use, import or
sale of a Spiros Product in such country.
7.3 PAYMENT OF TECHNOLOGY ACCESS FEES. Spiros Corp. II shall pay Five
Hundred Thousand Dollars ($500,000) on or before the forty-fifth (45th)
day following the end of each calendar quarter, ______ percent (___%) to
DURA, ______ percent (___%) to DDSI and ______ percent (___%) to Spiros
Corp. Within sixty (60) days following the end of each calendar year,
Spiros Corp. II shall provide to DURA, DDSI and Spiros Corp. a formal
accounting of the Net Sales of each Spiros Product in such calendar year
(the "Accounting"), and shall calculate the aggregate sum with respect to
sales of all Spiros Products which would be due if Spiros Corp. II were
to pay DURA five percent (5%) of the Net Sales in a calendar year for
each Spiros Product (the "Net Sales Amount"). In the event that the Net
Sales Amount is less than Two Million Dollars ($2,000,000), no additional
payments shall be due and payable from Spiros Corp. II with respect to
access to the Core Technology. In the event that the Net Sales Amount is
greater than Two Million Dollars ($2,000,000), Spiros Corp. II shall
promptly pay, but in no event later than five (5) business days following
delivery of the Accounting to DURA, DDSI and Spiros Corp., the difference
between the Net Sales Amount and Two Million Dollars ($2,000,000) with
respect to access to the Core Technology, ______ percent (___%) to DURA,
______ percent (___%) to DDSI and ______ percent (___%) to Spiros Corp.
7.4 PRODUCT SALES. The Spiros Products for which such technology access
fees are payable shall be deemed to have been sold when shipped and billed to a
third party.
7.5 PAYEE. Such technology access fees shall be paid by Spiros Corp. II
directly to the party entitled thereto or to such party's designee as duly named
in a written notice to Spiros Corp. II.
7.6 PAYMENT IN DOLLARS. Such technology access fees shall
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be paid in United States currency. All technology access fees accrued in
currencies other than U.S. dollars shall be converted into U.S. dollars on
the basis of the rate of exchange applied by Citibank, N.A., New York, as of
the last banking day of each quarter for which such technology access fees
become due.
7.7 PROHIBITED PAYMENTS. Notwithstanding any other provision of the
Agreements, if Spiros Corp. II is prevented from paying any such technology
access fee by virtue of the statutes, laws, codes or governmental regulations of
the country from which the payment is to be made, then such technology access
fee shall be made by depositing funds in the currency in which accrued to the
other party's account in a bank acceptable to the other party in the country
whose currency is involved.
7.8 TAXES. If a law or governmental regulation requires withholding of
taxes on any payment due hereunder, such taxes shall be deducted from any amount
to be remitted hereunder and shall be paid to the proper taxing authority, and
proof of payment shall be provided to the party on whose behalf such taxes were
paid as evidence of such payment in such form as required by the tax authorities
having jurisdiction thereover.
7.9 REPORTS. Each payment of any such technology access fee shall be
accompanied by a written report, prepared and signed by a financial officer of
Spiros Corp. II, showing for the quarter for which payment is being made, the
gross sales and Net Sales of each Spiros Product sold and the technolgy access
fees which shall have accrued with respect thereto and currency conversion
calculations, if any. In the event that, for any quarter following the first
quarter in which a Spiros Product is sold for which such a technology access fee
would be payable, no such technology access fee is due, the party having
responsibility for sales of such Spiros Product shall report the same to the
other parties.
7.10 MAINTENANCE AND EXAMINATION OF RECORDS. At the request and expense
of DURA, Spiros Corp. II, or their respective Affiliates, the other parties
hereto and their Affiliates shall permit an independent certified public
accountant appointed by such party and reasonably acceptable to the other
party, at reasonable times and upon reasonable notice (but not exceeding once
in any twelve (12) month period), to examine those records as may be
necessary to: (a) determine, with respect to any calendar year ending not
more than three (3) years prior to such party's request, the correctness of
any report or payment under this Agreement; or (b) obtain information as to
the Spiros Product sales for any calendar year. Said independent certified
public accountant shall verify to the requesting party only the amount of
payment due or costs incurred hereunder and disclose no other information
revealed in its audit. Results of any such examination shall be made
available to the parties. Any amount of deficiency, or overcharge, shall be
paid or refunded promptly to Spiros Corp. II, plus interest at the commercial
prime lending rate of Citibank, N.A., New York (or equivalent banking
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institution) until the date paid. The party requesting the audit shall bear
the full cost of the performance of any such audit unless such audit
discloses a variance of more than five percent (5%) from the amount of the
original report, technology access fee or payment calculation, in which case
the party being audited shall bear the full cost of the performance of such
audit. DURA and Spiros Corp. II shall maintain and keep complete and
accurate records in sufficient detail to enable any examination concerning
technology access fees to be conducted pursuant to this Section 7.10.
8. TERM AND TERMINATION.
8.1 TERM. This Agreement shall be effective as of the date hereof and
shall continue in full force and effect indefinitely, unless terminated earlier
as provided in Sections 8.2, 8.3 and 8.4 hereof.
8.2 TERMINATION BY MUTUAL AGREEMENT. By mutual agreement, the parties
hereto may at any time terminate this Agreement and the Development on mutually
acceptable terms.
8.3 EFFECT OF PURCHASE OPTION EXERCISES.
8.3.1 PURCHASE OPTION. In the event the Purchase Option is
exercised by DURA, this Agreement shall terminate, effective upon the Purchase
Option Closing Date, without any obligation to make payments pursuant to Section
7 of this Agreement.
8.3.2 PARTIAL TERMINATION UPON EXERCISE OF ALBUTEROL OPTION. In the
event that the Albuterol Option is exercised, this Agreement shall terminate,
effective on the Albuterol Option Closing Date, with respect to the Albuterol
Program Assets and any obligation to make technology access fee payments with
respect to the Albuterol Product, but shall otherwise continue in full force and
effect until terminated pursuant to this Section 8.
8.3.3 PARTIAL TERMINATION UPON EXERCISE OF PRODUCT OPTION. In the
event that the Product Option is exercised, this Agreement shall terminate,
effective on the Product Option Closing Date, with respect to the Spiros Product
Program Assets and any obligation to make technology access fee payments with
respect to the Option Product, but shall otherwise continue in full force and
effect until terminated pursuant to this Section 8.
8.4 TERMINATION BY DURA, DDSI AND SPIROS. Either DURA, DDSI and Spiros
Corp., acting by unanimous action, or Spiros Corp. II shall have the right to
terminate this Agreement, effective as set forth in a written notice of the
occurrence of an Event of Default with respect to the other party.
8.5 RIGHTS IN BANKRUPTCY. All rights and licenses granted
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under or pursuant to this Agreement by DURA, DDSI, Spiros Corp. and Spiros
Corp. II are, and shall otherwise be deemed to be, for purposes of Section
365(n) of the Bankruptcy Code, licenses of rights to "intellectual property"
as defined under Section 101 of the Bankruptcy Code. The parties agree that
DURA and Spiros Corp. II as licensees of such rights under this Agreement,
shall retain and may fully exercise all of their rights and elections under
the Bankruptcy Code. The parties further agree that, in the event of the
commencement of a bankruptcy proceeding by or against DURA, DDSI, Spiros
Corp. or Spiros Corp. II under the Bankruptcy Code, the parties hereto which
are not parties to such proceeding shall be entitled to a complete duplicate
of (or complete access to, as appropriate) any such intellectual property and
all embodiments of such intellectual property, and same, if not already in
their possession, shall be promptly delivered to them upon any such
commencement of a bankruptcy proceeding upon their written request therefor.
8.6 EFFECT OF TERMINATION.
8.6.1 TERMINATION BY DURA, DDSI AND SPIROS CORP.. If DURA, DDSI and
Spiros Corp. terminate this Agreement pursuant to Section 8.4 hereof, (a) the
licenses and sublicenses granted to Spiros Corp. II under Section 2.1 of this
Agreement shall terminate, (b) all rights to the DURA Core Technology shall
revert to DURA, all rights to the DDSI Core Technology shall revert to DDSI and
all rights to the Spiros Core Technology shall revert to Spiros Corp., (c) all
rights to the Program Technology except as set forth in (b) above shall revert
to DURA, (d) all rights to develop, make, have made, use, sell and import all
Spiros Products shall revert to DURA, DDSI and/or Spiros Corp. and (e) the
provisions of Sections 1, 3.2.6, 4.3, 4.4, 5.3, 6, 9.4 and 9.5 of this Agreement
shall survive. DURA will use reasonable efforts for a period of 120 days after
a termination by DURA, DDSI and Spiros Corp., pursuant to Section 8.4 hereof, to
negotiate royalties or any other compensation to be paid by DURA to Spiros Corp.
II with respect to the Developed Technology that will revert to DURA. In the
event the parties are unable to agree on the royalties or other compensation to
be paid by DURA with respect to the Developed Technology with the 120 day
period, such matter shall be submitted by DURA and Spiros Corp. II to binding
arbitration in accordance with the rules of the American Arbitration
Association.
8.6.2 TERMINATION BY SPIROS CORP. II. If Spiros Corp. II terminates
this Agreement pursuant to Section 8.4 hereof, the provisions of Sections 1,
2.1, 2.3.3 (if the Albuterol Option has been exercised), 2.3.4 (if the Product
Option has been exercised), 2.3.5, 3.2.6, 4.2.2, 4.3, 4.4, 5.3, 6, 7, 9.4 and
9.5 of this Agreement shall survive; PROVIDED, HOWEVER, if Spiros Corp. II fails
to perform or observe or otherwise breaches its Material Obligations under
Section 7 of this Agreement, which failure or breach is unremedied for a period
of sixty (60) days after receipt by Spiros Corp. II of written notice thereof
from DURA, or in the event such failure or breach
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is not capable of cure within sixty (60) days, for such longer period of time
as Spiros Corp. II is vigorously pursuing such cure in good faith, DURA, DDSI
and Spiros Corp. shall have the right to terminate this Agreement with the
same effect as if DURA, DDSI and Spiros Corp. were to terminate this
Agreement pursuant to Section 8.4 hereof.
8.6.3 TERMINATION OF PURCHASE OPTION UNEXERCISED. If the Purchase
Option terminates unexercised, the licenses and sublicenses granted under
Sections 2.3.1 and 2.3.2 of this Agreement shall terminate.
8.6.4 CONTINUING OBLIGATION TO MAKE PAYMENTS. Notwithstanding
anything contained herein to the contrary, upon termination of this Agreement,
the obligation to pay any amounts payable by any party to another party which
accrued prior to such termination shall survive.
9. MISCELLANEOUS.
9.1 NO IMPLIED WAIVERS; RIGHTS CUMULATIVE. No failure on the part of
DURA, DDSI, Spiros Corp. or Spiros Corp. II to exercise and no delay in
exercising any right, power, remedy or privilege under this Agreement or
provided by statute or at law or in equity or otherwise, including, without
limitation, the right or power to terminate this Agreement, shall impair,
prejudice or constitute a waiver of any such right, power, remedy or privilege
or be construed as a waiver of any breach of this Agreement or as an
acquiescence therein, nor shall any single or partial exercise of any such
right, power, remedy or privilege preclude any other or further exercise thereof
or the exercise of any other right, power, remedy or privilege.
9.2 FORCE MAJEURE. DURA, DDSI, Spiros Corp. and Spiros Corp. II shall
each be excused for any failure or delay in performing any of their respective
obligations under this Agreement, if such failure or delay is caused by Force
Majeure.
9.3 RELATIONSHIP OF THE PARTIES. Nothing contained in this Agreement is
intended or is to be construed to constitute DURA, DDSI, Spiros Corp. and Spiros
Corp. II as partners or joint venturers or one party as an employee of any other
party. Except as expressly provided herein, no party hereto shall have any
express or implied right or authority to assume or create any obligations on
behalf of or in the name of any other party or to bind any other party to any
contract, agreement or undertaking with any third party.
9.4 NOTICES. All notices, requests and other communications to DURA,
DDSI, Spiros Corp. or Spiros Corp. II hereunder shall be in writing (including
telecopy or similar electronic transmissions), shall refer specifically to this
Agreement and shall be personally delivered or sent by telecopy or other
electronic facsimile transmission or by registered mail or certified mail,
return receipt requested and postage prepaid, or
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<PAGE>
by reliable overnight courier service, in each case to the respective address
specified below (or to such address as may be specified in writing to the
other party hereto):
If to DURA, addressed to:
Dura Pharmaceuticals, Inc.
7475 Lusk Boulevard
San Diego, CA 92121
Attention: President
with a copy to the attention of General Counsel
If to DDSI, addressed to:
Dura Delivery Systems, Inc.
7475 Lusk Boulevard
San Diego, CA 92121
Attention: President
If to SPIROS, addressed to:
Spiros Development Corporation
7475 Lusk Boulevard
San Diego, CA 92121
Attention: President
If to Spiros Corp. II, addressed to:
Spiros Development Corporation II, Inc.
7475 Lusk Boulevard
San Diego, CA 92121
Attention: President
Each party shall provide each other party with copies of any notices sent
hereunder, with such copies sent at the same time as the original notice. Any
notice or communication given in conformity with this Section 9.4 shall be
deemed to be effective when received by the addressee, if delivered by hand,
telecopy or electronic transmission, three (3) days after mailing, if mailed,
and one (1) business day after delivery to a reliable overnight courier service.
9.5 FURTHER ASSURANCES. Each of DURA, DDSI, Spiros Corp. and Spiros Corp.
II hereby agrees to duly execute and deliver, or cause to be duly executed and
delivered, such further instruments and do and cause to be done such further
acts and things, including, without limitation, the filing of such additional
assignments, agreements, documents and instruments, that may be necessary or as
the other party hereto may at any time and from time to time reasonably request
in connection with this Agreement or to carry out more effectively the
provisions and purposes of, or to better assure and confirm unto such other
party its rights and remedies under, this Agreement.
9.6 SUCCESSORS AND ASSIGNS. The terms and provisions of
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<PAGE>
this Agreement shall inure to the benefit of, and be binding upon, DURA,
DDSI, Spiros Corp., Spiros Corp. II and their respective successors and
assigns; PROVIDED, HOWEVER, that DURA, DDSI, Spiros Corp. and Spiros Corp. II
may not assign or otherwise transfer any of their respective rights and
interests, nor delegate any of their respective obligations, hereunder,
including, without limitation, pursuant to a merger or consolidation, without
the prior written consent of the other party hereto; PROVIDED FURTHER,
HOWEVER, that DURA, DDSI or Spiros Corp. may fully assign their respective
rights and interests, and delegate their respective obligations, hereunder,
effective upon written notice thereof (a) to an Affiliate if such Affiliate
assumes all of the obligations of DURA, DDSI or Spiros Corp., as the case may
be, hereunder and this Agreement remains binding upon Dura, DDSI or Spiros
Corp., as the case may be; or (b) to any Person that acquires all or
substantially all of the assets of Dura, DDSI or Spiros Corp. as the case may
be, or which is the surviving Person in a merger or consolidation with Dura,
DDSI or Spiros Corp. if such Person assumes all the obligations of DURA, DDSI
or Spiros Corp., as the case may be, hereunder. Notwithstanding the
foregoing, Spiros Corp. II shall have the right to assign its rights and
delegate its obligations hereunder following expiration or termination (other
than by exercise) of the Purchase Option. Any attempt to assign or delegate
any portion of this Agreement in violation of this Section 9.6 shall be null
and void. Subject to the foregoing any reference to DURA, DDSI, Spiros Corp.
or Spiros Corp. II hereunder shall be deemed to include the successors
thereto and assigns thereof.
9.7 AMENDMENTS. No amendment, modification, waiver, termination or
discharge of any provision of this Agreement, nor consent by DURA, DDSI, Spiros
Corp. or Spiros Corp. II to any departure therefrom, shall in any event be
effective unless the same shall be in writing specifically identifying this
Agreement and the provision intended to be amended, modified, waived, terminated
or discharged and signed by DURA, DDSI, Spiros Corp. and Spiros Corp. II, and
each amendment, modification, waiver, termination or discharge shall be
effective only in the specific instance and for the specific purpose for which
given. No provision of this Agreement shall be varied, contradicted or
explained by any other agreement, course of dealing or performance or any other
matter not set forth in an agreement in writing and signed by DURA, DDSI, Spiros
Corp. and Spiros Corp. II.
9.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, as applied to contracts
made and performed entirely within the State of California. Except as otherwise
provided herein, any claim or controversy arising out of or related to this
contract or any breach hereof shall be submitted to a court of competent
jurisdiction in the State of California, and the parties hereby consent to the
jurisdiction and venue of such court.
9.9 SEVERABILITY. If any provision hereof should be held
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<PAGE>
invalid, illegal or unenforceable in any respect in any jurisdiction, then,
to the fullest extent permitted by law, (a) all other provisions hereof shall
remain in full force and effect in such jurisdiction and shall be liberally
construed in order to carry out the intentions of the parties hereto as
nearly as may be possible and (b) such invalidity, illegality or
unenforceability shall not affect the validity, legality or enforceability of
such provision in any other jurisdiction. To the extent permitted by
applicable law, DURA, DDSI, Spiros Corp. and Spiros Corp. II hereby waive any
provision of law that would render any provision hereof prohibited or
unenforceable in any respect.
9.10 HEADINGS. Headings used herein are for convenience only and shall not
in any way affect the construction of, or be taken into consideration in
interpreting, this Agreement.
9.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which counterparts, when so executed and delivered, shall
be deemed to be an original, and all of which counterparts, taken together,
shall constitute one and the same instrument.
9.12 ENTIRE AGREEMENT. This Agreement, together with any agreements
referenced herein, constitute, on and as of the date hereof, the entire
agreement of DURA, DDSI, Spiros Corp. and Spiros Corp. II with respect to the
subject matter hereof, and all prior or contemporaneous understandings or
agreements, whether written or oral, between DURA, DDSI, Spiros Corp. and Spiros
Corp. II with respect to such subject matter are hereby superseded in their
entirety.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF the parties have executed this Agreement as of the date
first above written.
SPIROS DEVELOPMENT CORPORATION II, INC.
By:
-------------------------------------------
David S. Kabakoff
President and Chief Executive Officer
DURA PHARMACEUTICALS, INC.
By:
-------------------------------------------
Cam L. Garner
President and Chief Executive Officer
DURA DELIVERY SYSTEMS, INC.
By:
-------------------------------------------
Mitchell R. Woodbury
Secretary
SPIROS DEVELOPMENT CORPORATION
By:
-------------------------------------------
Mitchell R. Woodbury
Secretary
[SIGNATURE PAGE TO TECHNOLOGY LICENSE AGREEMENT]
<PAGE>
SCHEDULE 1.1
GLOSSARY
SCHEDULE 1.1
<PAGE>
SCHEDULE 1.1
GLOSSARY
"AFFILIATE" of a person shall mean a Person that directly, or indirectly
through one or more intermediaries, controls, is controlled by or is under
common control with such Person. "Control" (and, with correlative meanings, the
terms "controlled by" and "under common control with") shall mean the possession
of the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting stock, by contract or
otherwise. In the case of a corporations, "control" shall mean, among other
things, the direct or indirect ownership of more than fifty percent (50%) of its
outstanding voting stock.
"AGREEMENTS" shall mean the Manufacturing and Marketing Agreement, the
Technology Agreement and the Development Agreement.
"ALBUTEROL OPTION" shall have the meaning assigned to it in Section 1.1 of
the Albuterol and Product Option Agreement.
"ALBUTEROL AND PRODUCT OPTION AGREEMENT" shall mean the Albuterol and
Product Option Agreement dated as of __________, 1997, between DURA and Spiros
Corp. II, as amended, modified or supplemented from time to time.
"ALBUTEROL OPTION CLOSING DATE" shall have the meaning assigned to it in
Section 1.5 of the Albuterol and Product Option Agreement.
"ALBUTEROL PROGRAM ASSETS" shall have the meaning assigned to it in Section
1.1 of the Albuterol and Product Option Agreement.
"ALBUTEROL PRODUCT" shall have the meaning assigned to it in Section 1.1 of
the Albuterol and Product Option Agreement.
"AVAILABLE FUNDS" shall mean the sum of (a) the net proceeds to Spiros
Corp. II from the sale of the Units in the Offering and the Contribution, (b)
all royalties remitted to Spiros Corp. II by DURA (or its Affiliates) from the
Sale of Spiros Products pursuant to the Agreements, (c) the Option Proceeds, if
any, (d) any other amounts provided by DURA to Spiros Corp. II, if any and (e)
interest or other income earned through temporary investment of the amounts
described in clauses (a), (b), (c) or (d).
"BANKRUPTCY CODE" shall mean the United States Bankruptcy Code, as amended
from time to time.
"CLAIM" shall mean any and all liabilities, damages, losses, settlements,
claims, actions, suits, penalties, fines, costs or expenses (including, without
limitation, reasonable attorneys' fees).
SCHEDULE 1.1
<PAGE>
"CONFIDENTIAL INFORMATION" shall mean all Program Technology disclosed by
DURA (and its Affiliates) to Spiros Corp. II or by Spiros Corp. II to DURA
pursuant to the Agreements or the Services Agreement.
"CONTRIBUTION" shall have the meaning assigned in Section 5.2 of the
Development Agreement.
"CORE TECHNOLOGY" shall mean the DURA Core Technology, the DDSI Core
Technology and the Spiros Core Technology.
"DDSI CORE TECHNOLOGY" shall mean (a) Technology owned or controlled by
DDSI as of the date of the closing of the Offering necessary or useful to the
development of the Spiros Products, and (b) the DDSI Patent Rights; PROVIDED,
HOWEVER, that DDSI Core Technology shall also include Technology acquired by
DDSI from a third party after the date of the closing of the Offering necessary
or useful to the development of the Spiros Products, except to the extent that
there are any limitations or restrictions on DDSI's ability to license or
sublicense such Technology. "Owned or controlled" shall include Technology that
DDSI owns, or under which DDSI is licensed and has the right to grant
sublicenses and/or grant immunity from suit.
"DDSI INDEMNITEE" shall mean DDSI, its successors and assigns, and the
directors, officers, employees, agents and counsel thereof.
"DDSI PATENT RIGHTS" shall mean those certain inventions described in
claims of (a) the patent applications pending, filed by DDSI (or the rights to
which have been assigned to DDSI) as of the date of the Technology Agreement
relating to dry powder inhalers, powder storage systems and/or formulation
methods for dry powder inhalation, (b) any patent application constituting an
equivalent, counterpart, reissue, extension or continuation (including, without
limitation, a continuation in part or a subdivision) of any of the foregoing
patent applications and (c) any patent issued or issuing upon any of the
foregoing.
"DESIGNATED COMPOUND(S)" shall mean any compounds for delivery using the
System selected by Spiros Corp. II, and agreed to be developed by DURA.
"DEVELOPED TECHNOLOGY" shall mean any Technology including, without
limitation, any enhancements, substitutions or improvements to the Core
Technology that is (a) discovered, developed or otherwise acquired by DURA
pursuant to the terms of the Development Agreement or (b) otherwise acquired by
or on behalf of Spiros Corp. II during the term of the Development Agreement.
"DEVELOPMENT" shall mean the further development of the Program Technology
for the purpose of identifying, developing, manufacturing, marketing and
commercializing Spiros Products and
SCHEDULE 1.1
<PAGE>
the making of the Other Expenditures.
"DEVELOPMENT AGREEMENT" shall mean the Development Agreement dated as of
_____, 1997, between DURA and Spiros Corp., as amended, modified or supplemented
from time to time.
"DEVELOPMENT COSTS" shall mean the Direct Development Costs, the Indirect
Development Costs and the Other Expenditures.
"DEVELOPMENT TERM" shall mean the period commencing on the Closing Date and
ending on the earlier of (a) the Option Closing Date or (b) the date the Option
terminates or expires other than by exercise.
"DIRECT DEVELOPMENT COSTS" shall mean all costs incurred by DURA or its
Affiliates in respect of the Development, other than Indirect Development
Costs, determined in accordance with generally accepted accounting principles
consistent with DURA's internal accounting system, allocated on a reasonable
and consistent basis. Direct Development Costs shall consist primarily of
fully-burdened payroll costs (burdened to include benefits, payroll taxes and
an allocation of facilities and overhead costs) and any other such costs
generated internally by DURA in respect of the Development.
"DPI" shall mean the motor-driven dry powder inhaler (other than an inahler
designed to deliver a single dose of a drug) developed by DURA, DDSI and/or
Spiros Corp. and to be developed by DURA and/or Spiros Corp. II.
"DURA COMMON STOCK" shall mean the Common Stock of DURA, par value $.001
per share.
"DURA CORE TECHNOLOGY" shall mean (a) Technology owned or controlled by
DURA as of the date of the closing of the Offering necessary or useful to the
development of the Spiros Products, and (b) the DURA Patent Rights and DURA
Trademarks; PROVIDED, HOWEVER, that DURA Core Technology shall also include
Technology acquired by DURA from a third party after the date of the closing of
the Offering necessary or useful to the development of the Spiros Products,
except to the extent that there are any limitations or restrictions on DURA's
ability to license or sublicense such Technology. "Owned or controlled" shall
include Technology that DURA owns, or under which DURA is licensed and has the
right to grant sublicenses and/or grant immunity from suit.
"DURA INDEMNITEE" shall mean DURA, its successors and assigns, and the
directors, officers, employees, agents and counsel thereof.
"DURA PATENT RIGHTS" shall mean those certain inventions described in
claims of (a) the patent applications pending, filed by DURA (or the rights to
which have been assigned to DURA) as of the date of the Technology Agreement
relating to DPIs, PSSs and/or formulation methods for dry powder inhalation, (b)
any
SCHEDULE 1.1
<PAGE>
patent application constituting an equivalent, counterpart, reissue,
extension or continuation (including, without limitation, a continuation in part
or a subdivision) of any of the foregoing patent applications and (c) any patent
issued or issuing upon any of the foregoing.
"DURA TRADEMARKS" shall mean Spiros-TM-.
"EVENT OF DEFAULT" shall mean any of the following events: (a) at any
time, if DURA or Spiros Corp. II fails to perform or observe or otherwise
breaches any of its Material Obligations, and such failure or breach continues
unremedied for a period of sixty (60) days after receipt by of written notice
thereof from the other party; (b) at any time, effective as set forth in a
written notice from the other party if DURA or Spiros Corp. II shall (i) seek
the liquidation, reorganization, dissolution or winding-up of itself or the
composition or readjustment of its debts (other than pursuant to a merger with
an Affiliate), (ii) apply for or consent to the appointment of, or the taking
possession by, a receiver, custodian, trustee or liquidator for itself or of all
or a substantial part of its assets, (iii) make a general assignment for the
benefit of its creditors, (iv) commence a voluntary case under the Bankruptcy
Code, (v) file a petition seeking to take advantage of any other law relating to
bankruptcy, insolvency, reorganization, winding-up or composition or
readjustment of debts (other than pursuant to a merger with an Affiliate) or
(vi) adopt any resolution of its Board of Directors or shareholders for the
purpose of effecting any of the foregoing (other than pursuant to a merger with
an Affiliate); or (c) at any time, effective as set forth in a written notice
from the other party, if a proceeding or case shall be commenced without the
application or consent of DURA or Spiros Corp. II as applicable, and such
proceeding or case shall continue undismissed, or an order, judgment or decrees
approving or ordering any of the following shall be entered and continued
unstayed and in effect, for a period of sixty (60) days from and after the date
service of process is effected, seeking (i) DURA's or Spiros Corp. II's, as
applicable, liquidation, reorganization, dissolution or winding-up, or the
composition or readjustment of its debts, (ii) the appointment of a trustee,
receiver, custodian, liquidator or the like of DURA or Spiros Corp. II or for
all or any substantial part of its assets or (iii) similar relief in respect of
DURA or Spiros Corp. II under any law relating to bankruptcy, insolvency,
reorganization, winding-up or the composition or readjustment of debts.
"FDA" shall mean the United States Food and Drug Administration or any
successor agency or authority, the approval of which is required to market
health care products in the United States.
"FDA APPROVAL" shall mean the final regulatory approval of the FDA required
to commence commercial marketing of a health product.
SCHEDULE 1.1
<PAGE>
"FORCE MAJEURE" shall mean any act of God, any accident explosion, fire,
storm, earthquake, flood, drought, peril of the sea, riot, embargo, war or
foreign, federal, state or municipal order of general application, seizure,
requisition or allocation, any failure or delay of transportation, shortage of
or inability to obtain supplies, equipment, fuel or labor or any other
circumstance or event beyond the reasonable control of the party relying upon
such circumstance or event.
"INDIRECT DEVELOPMENT COSTS" shall mean all costs, fees and out-of-pocket
or other expenses, including the purchase of any capital equipment related to
the Development, incurred or paid by DURA to a third party, other than an
Affiliate of DURA, in respect of the Development, determined in accordance with
generally accepted accounting principles consistent with DURA's internal
accounting system, allocated on a reasonable and consistent basis.
"MANUFACTURING AND MARKETING AGREEMENT" shall mean the Manufacturing and
Marketing Agreement dated as of _______, 1997 between DURA and Spiros Corp. II,
as amended, modified or supplemented from time to time.
"MANUFACTURE" shall mean the manufacture and assembly of the Spiros
Products.
"MATERIAL OBLIGATION" shall mean the material obligations of a party under
the Technology Agreement, the Development Agreement or the Manufacturing and
Marketing Agreement.
"NET SALES" shall mean the gross amount invoiced for sales of Spiros
Products by DURA or its sublicensees, if any, to third parties less (i)
discounts actually allowed, (ii) credits for claims, allowances, retroactive
price reductions or returned Spiros Products, (iii) prepaid freight charges
incurred in transporting Spiros Products to customers, (iv) sales taxes and
other governmental charges actually paid in connection with the sales (but
excluding what is commonly known as income taxes) and (v) any royalty
obligations under the 1993 Royalty Agreement. Net Sales shall not include sales
between or among DURA, its Affiliates and its sublicensees unless such sales are
for end use rather than for purposes of resale.
"OFFERING" shall mean the underwritten public offering of the Units
pursuant to the Registration Statement.
"OPTION PROCEEDS" shall have the meaning assigned to it in Section 3 of the
Albuterol and Product Option Agreement.
"OPTION PRODUCT" shall have the meaning assigned to it in Section 2.1 of
the Albuterol and Product Option Agreement.
"OTHER EXPENDITURES" shall mean funds spent by Spiros Corp. II to acquire
capital equipment, develop a next generation inhaler system or to enhance the
System.
SCHEDULE 1.1
<PAGE>
"PATENT RIGHTS" shall mean any patents or patent applications within the
Spiros Corp. II Patent Rights, the DURA Patent Rights, the DDSI Patent Rights
and the Spiros Corp. Patent Rights.
"PERSON" shall mean any individual, partnership, corporation, firm,
association, unincorporated organization, joint venture, trust or other entity.
"PRODUCT OPTION" shall have the meaning assigned to it in Section 2.1 of
the Albuterol and Product Option Agreement.
"PRODUCT OPTION CLOSING DATE" shall have the meaning assigned to it in
Section 2.5 of the Albuterol and Product Option Agreement.
"PROGRAM TECHNOLOGY" shall mean the Core Technology and the Developed
Technology.
"PSS" shall mean the powder storage system developed and to be developed by
DURA for use with the DPI.
"PURCHASE AGREEMENT" shall mean the Purchase Agreement dated as of
__________, 1997, among DURA, Spiros Corp. II, Merrill Lynch & Co., and
Donaldson, Lufkin & Jenrette.
"PURCHASE OPTION" shall mean the option granted to the holder of Spiros
Corp. II's Special Common Stock to purchase all of the Spiros Corp. II Common
Stock as set forth in Article V of the Spiros Corp. II Charter.
"PURCHASE OPTION CLOSING DATE" shall have the meaning assigned to it in
Article V of the Spiros Corp. II Charter.
"PURCHASE OPTION EXERCISE PRICE" shall have the meaning assigned to it in
Article V of the Spiros Corp. II Charter
"REGISTRATION STATEMENT" shall mean the Registration Statement on Form
S-1/S-3 filed by Spiros Corp. II and DURA dated October 10, 1997 (No.
333-37673/333-37673-01), including all exhibits and any amendments thereof
and supplements thereto.
"RESEARCH FUNDS" shall mean the Available Funds, less (i) all general and
administrative expenses including, without limitation, those paid or payable
pursuant to the Development Agreement or the Services Agreement, and the
reasonable out-of-pocket expenses of Spiros Corp. II directors and reasonable
compensation for Spiros Corp. II's independent directors, less (ii) any amounts
paid to DURA under the Development Agreement or the Services Agreement, less
(iii) any costs and expenses incurred in the defense or settlement of any action
or claim or in respect of a judgment thereon, and less (iv) One Million Dollars
($1,000,000) to be retained by Spiros Corp. II as working capital in the event
DURA does not exercise the Purchase Option.
SCHEDULE 1.1
<PAGE>
"SALE(S)" or "SELL" shall mean the activity undertaken by a sales
representative during a sales call on physicians, physician assistants, nurses,
hospitals, clinics, health maintenance organizations, preferred provider
organizations and managed care companies (including all forms of communication
not involving face to face contact by such sales representatives), describing
the FDA-approved indicated uses, safety, effectiveness, contraindications, side
effects, warnings and other relevant characteristics of the Spiros Product, in a
fair and balanced manner consistent with the requirements of the Federal Food,
Drug, and Cosmetic Act, as amended (and the regulations thereunder).
"SPIROS CASSETTE SYSTEM" shall mean a DPI in which the PSS is in the form
of a cassette.
"SPIROS CORE TECHNOLOGY" shall mean (a) Technology owned or controlled by
Spiros Corp. as of the date of the closing of the Offering necessary or useful
to the development of the Spiros Products, and (b) the Spiros Corp. Patent
Rights; PROVIDED, HOWEVER, that Spiros Core Technology shall also include
Technology acquired by Spiros Corp. from a third party after the date of the
closing of the Offering necessary or useful to the development of the Spiros
Products, except to the extent that there are any limitations or restrictions on
Spiros Corp.'s ability to license or sublicense such Technology. "Owned or
controlled" shall include Technology that Spiros Corp. owns, or under which
Spiros Corp. is licensed and has the right to grant sublicenses and/or grant
immunity from suit.
"SPIROS CORP. INDEMNITEE" shall mean Spiros Corp., its successors and
assigns, and the directors, officers, employees, agents and counsel thereof.
"SPIROS CORP. PATENT RIGHTS" shall mean those certain inventions described
in claims of (a) the patent applications pending, filed by Spiros Corp. (or the
rights to which have been assigned to Spiros Corp.) as of the date of the
Technology Agreement relating to dry powder inhalers, powder storage systems
and/or formulation methods for dry powder inhalation, (b) any patent application
constituting an equivalent, counterpart, reissue, extension or continuation
(including, without limitation, a continuation in part or a subdivision) of any
of the foregoing patent applications and (c) any patent issued or issuing upon
any of the foregoing.
"SPIROS CORP. II CHARTER" shall mean Amended and Restated Certificate of
Spiros Development Corporation II, Inc. in effect as of the closing of the
Offering, as amended from time to time.
"SPIROS CORP. II COMMON STOCK" shall mean the Callable Common Stock of
Spiros Corp. II, $.001 par value.
"SPIROS CORP. II INDEMNITEE" shall mean Spiros Corp. II, its
SCHEDULE 1.1
<PAGE>
successors and assigns, and the directors, officers, employees, agents and
counsel thereof.
"SPIROS CORP. II PATENT RIGHTS" shall mean those certain inventions
described in claims of (a) any patent application having one or more claims
covering Developed Technology, (b) any patent application constituting an
equivalent, counterpart, reissue, extension or continuation (including, without
limitation, a continuation in part or a subdivision) of any of the foregoing
applications or (c) any patent issued or issuing upon any of the foregoing
applications.
"SPIROS PRODUCT(S)" shall mean (a) any System used with a formulation of
albuterol, beclomethasone, ipratropium, an albuterol-ipratropium combination,
budesonide or a Designated Compound developed, produced, manufactured or
marketed by DURA on behalf of Spiros Corp. II using the Program Technology.
"SPIROS PRODUCT PROGRAM ASSETS" shall have the meaning assigned to it in
Section 2.1 of the Albuterol and Product Option Agreement.
"SYSTEM" shall mean the DPI and the PSS when used together.
"TECHNOLOGY" shall mean, solely with respect to motor-driven dry powder
inhalers and powder storage systems for drugs for delivery through such
inhalers, the manufacture thereof, and formulations of drugs to be delivered
through such inhalers, public and nonpublic technical or other information,
trade secrets, know-how, processes, formulations, concepts, ideas, preclinical,
clinical, pharmacological or other data and testing results, experimental
methods, or results, assays, descriptions, business or scientific plans,
depictions, customer lists and any other written, printed or electronically
stored materials, pharmaceutical compounds or any other natural or man-made
pharmaceutical materials and any and all other intellectual property, including
patents and patent applications, of any nature whatsoever. The term
"Technology" shall include, without limitation, any of the foregoing as it
relates to enhancements of, substitutions for or improvements to the Core
Technology.
"TECHNOLOGY AGREEMENT" shall mean the Technology License Agreement dated as
of _______, 1997, among DURA, DDSI, Spiros Corp. and Spiros Corp. II, as
amended, modified or supplemented from time to time.
"TERRITORY" shall mean the entire world.
"UNDERWRITERS" shall have the meaning assigned to it in the Registration
Statement.
"UNITS" shall mean units, each consisting of one share of Spiros Corp. II
Common Stock and one warrant to purchase one-fourth of one share of DURA Common
Stock, all as described in the Registration Statement.
SCHEDULE 1.1
<PAGE>
"1993 ROYALTY AGREEMENT" shall have the meaning assigned to it in the
Registration Statement.
SCHEDULE 1.1
<PAGE>
EXHIBIT 10.2
DEVELOPMENT AGREEMENT
This DEVELOPMENT AGREEMENT (the "Agreement") is made as of __________,
1997, by and between DURA PHARMACEUTICALS, INC., a Delaware corporation
("DURA"), and SPIROS DEVELOPMENT CORPORATION II, INC., a Delaware corporation
("Spiros Corp. II").
RECITALS
WHEREAS, DURA and Spiros Corp. II are parties to the Technology Agreement,
the Manufacturing and Marketing Agreement, and the Albuterol and Product Option
Agreement (all capitalized terms shall have the respective meaning set forth in
Section 1 hereto).
WHEREAS DURA, Dura Delivery Systems, Inc., a Delaware corporation ("DDSI"),
and Spiros Development Corporation, a Delaware corporation ("Spiros Corp."),
have granted to Spiros Corp. II, and Spiros Corp. II has acquired from DURA,
DDSI and Spiros Corp., a license to certain technology for the purpose of
allowing Spiros Corp. II to further develop the Core Technology and to develop
and commercialize the Spiros Products.
WHEREAS, DURA has experience in the development of pharmaceutical products
and has the facilities, equipment, employees and other resources to accomplish
development activities, on behalf of Spiros Corp. II, with respect to such
rights and technology.
WHEREAS, Spiros Corp. II desires to engage DURA to perform such services in
connection with the Development, and DURA is willing to provide such services.
NOW, THEREFORE, in consideration of the mutual covenants set forth herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, and in order to induce DURA to enter into the
Agreements, DURA and Spiros Corp. II hereby agree as follows:
1. DEFINITIONS.
1.1 DEFINITIONS. All capitalized terms used herein and not otherwise
defined shall have the respective meanings, to the extent such terms are used
herein, set forth in SCHEDULE 1.1 attached hereto, which is incorporated by this
reference as though fully set forth herein.
1.2 SINGULAR AND PLURAL. Singular and plural forms, as the case may be,
of terms defined herein shall have correlative meanings.
2. DEVELOPMENT SERVICES.
2.1 DEVELOPMENT. Spiros Corp. II hereby engages DURA, and DURA hereby
accepts such engagement, to use commercially reasonable efforts to undertake the
Development. Such services shall be provided as follows:
<PAGE>
2.1.1 WORKPLAN AND BUDGET. As of the date of the closing of the
Offering, DURA shall have provided Spiros Corp. II with a workplan and budget
acceptable to the Board of Directors of Spiros Corp. II covering the period from
the closing through December 31, 1998, a copy of which is attached hereto as
SCHEDULE 2.1. Thereafter, DURA and Spiros Corp. II shall prepare an annual
workplan and budget in accordance with Section 3 hereof. DURA and Spiros Corp.
II may make changes in the annual workplan and budget from time to time as
approved in writing by an authorized representative of each party. Expenditures
made on behalf of Spiros Corp. II by DURA for which DURA is to be reimbursed
pursuant to Section 5.1 hereof, shall not exceed in any calendar year one
hundred twenty percent (120%) of the amount allocated in the annual workplan and
budget applicable to such year unless otherwise approved by the Board of
Directors of Spiros Corp. II. DURA shall report significant deviations from the
annual workplan and budget to Spiros Corp. II in a timely manner.
2.1.2 CONDUCT OF DEVELOPMENT. During the term of this Agreement,
DURA shall use commercially reasonable efforts to (a) conduct the Development on
behalf of Spiros Corp. II in a prudent and skillful manner in accordance, in all
material respects, with the annual workplan and budget then in effect and
applicable laws, ordinances, rules, regulations, orders, licenses and other
requirements now or hereafter in effect and (b) diligently execute such annual
workplan and budget and report to Spiros Corp. II any significant deviations
therefrom in a timely manner. Spiros Corp. II hereby appoints DURA its
exclusive agent, for the term of this Agreement, with the sole power and
authority to file and prosecute all necessary regulatory applications and
permits in DURA's name required to obtain FDA Approval and other regulatory
approvals for the Spiros Products. DURA shall, at Spiros Corp. II's expense as
described below, furnish all labor, supervision, services, supplies and
materials necessary to perform the Development in accordance with the annual
workplan and budget then in effect. In addition to its undertakings pursuant to
the Technology Agreement, DURA agrees to use commercially reasonable efforts, on
behalf of itself, DDSI and Spiros Corp., to attempt to obtain and to sublicense
to Spiros Corp. II subject to the terms and conditions of the Technology
Agreement, on behalf of and at the expense of Spiros Corp. II but in accordance
with Section 2.4 of the Technology Agreement, any patent or technology license
or sublicense from any Person, including DURA, DDSI or Spiros Corp., that DURA
reasonably determines to be necessary or useful to enable DURA to conduct the
Development under this Agreement.
2.1.3 SUBCONTRACTS. Spiros Corp. II acknowledges that DURA may elect
to subcontract to third parties a portion of the Development. Spiros Corp. II
acknowledges and agrees that in performing the Development, DURA may, and is
hereby authorized to, without the prior written consent of Spiros Corp. II,
engage or agree or otherwise collaborate with other Persons, including, without
limitation, Affiliates of DURA or institutions performing other development
activities for DURA, to provide assistance in carrying out the Development.
2.1.4 CHANGES TO THE WORKPLANS. If at any time Spiros Corp. II
determines, based on the reports furnished pursuant to Section 3 hereof, in its
reasonable business judgment and in consultation with DURA, or DURA determines
with Spiros Corp. II's consent (which consent shall not be withheld
unreasonably), that the Development should be discontinued with respect to the
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<PAGE>
further development of a particular Spiros Product because the continuance
thereof is unfeasible or uneconomic, or that the Development should be expanded
to include one or more Designated Compounds, then Spiros Corp. II and DURA shall
use all reasonable efforts to agree on the nature of further development and the
identity of such Designated Compounds.
2.1.5 SALE OF SPIROS PRODUCTS PRIOR TO REGULATORY APPROVAL.
Spiros Corp. II hereby appoints DURA as its exclusive agent for the
Manufacture and Sale of Spiros Products during the term of this Agreement for
the sole purpose of conducting the clinical testing required to obtain FDA
Approval or other regulatory approval to market such Spiros Products. DURA
shall charge Spiros Corp. II for all the costs (determined in accordance with
Section 6.5 hereof) relating to the Manufacture and Sale of such Spiros
Products prior to FDA Approval of such Spiros Products as Development Costs,
and shall remit to Spiros Corp. II any revenues received by it from the sale
of such Spiros Products. Spiros Corp. II agrees that all such revenues
received hereunder with respect to Spiros Products shall be considered
Available Funds.
2.1.6 MANUFACTURE AND SALE OF SPIROS PRODUCTS FOLLOWING
REGULATORY APPROVAL. Spiros Corp. II and DURA hereby agree that the
Manufacture and Sale of each Spiros Product during the term of this Agreement
following FDA Approval or other required regulatory approval to market such
Spiros Product shall be governed solely by the terms and conditions of the
Manufacturing and Marketing Agreement.
2.2 DISCLAIMER OF WARRANTIES. DURA cannot and does not guarantee that the
Development will be successful in whole or in part, that any Spiros Products
will be developed or that any developed Spiros Products will be successful in
the marketplace. To the extent that DURA has complied with Section 2.1.2
hereof, the failure of DURA to further develop successfully the Program
Technology or to discover, develop or commercialize any Spiros Product will not
in and of itself constitute a breach by DURA of any representation, warranty,
covenant or other obligation under the Agreements. In addition, neither DURA
nor Spiros Corp. II makes any representation or warranty or guaranty that the
Available Funds will be sufficient for the completion of the Development of any
or all of the Spiros Products or to begin commercialization with respect to any
Spiros Product.
2.3 RIGHTS TO PROPERTY. All right, title and interest to the Program
Technology acquired or developed pursuant to this Agreement including any
submissions or applications to the FDA or any foreign equivalent made by DURA in
its name on behalf of Spiros Corp. II shall be the exclusive property of Spiros
Corp. II; PROVIDED, HOWEVER, that such right, title and interest shall be
subject in all events to (a) the rights to Albuterol Program Assets obtained
from Spiros Corp. II pursuant to the exercise of the Albuterol Option or (b) the
rights to the Spiros Product Program Assets obtained from Spiros Corp. II
pursuant to the exercise of the Product Option. All matters relating to patents
and patent applications with respect to the Program Technology acquired or
developed pursuant to this Agreement shall be governed by Section 5.2 of the
License Agreement.
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<PAGE>
2.4 TERMINATION OF DEVELOPMENT UPON EXERCISE OF THE ALBUTEROL OPTION. If
the Albuterol Option is exercised, Development hereunder shall cease with
respect to the Albuterol Product. DURA and the Board of Directors of Spiros
Corp. II shall agree upon an allocation to one or more remaining Spiros Products
or to the Other Expenditures of the funds available as a result of the exercise
of the Albuterol Option.
2.5 TERMINATION OF DEVELOPMENT UPON EXERCISE OF THE PRODUCT OPTION. If
the Product Option is exercised, Development hereunder shall cease with respect
to the Option Product. DURA and the Board of Directors of Spiros Corp. II shall
agree upon an allocation to one or more remaining Spiros Products or to the
Other Expenditures of the funds available as a result of the exercise of the
Product Option.
3. REPORTS AND RECORDS. Within thirty (30) days after the end of each
calendar quarter during the term of this Agreement, DURA shall provide to the
Board of Directors of Spiros Corp. II a reasonably detailed report setting forth
in respect of such quarter (a) the total Development Costs incurred, (b) a
summary of the work performed hereunder by DURA and its employees and agents and
(c) a description of any material developments with respect to the Program
Technology. Prior to December 1 of each year (commencing with December 1, 1998)
during the term of this Agreement, DURA shall report to the Board of Directors
of Spiros Corp. II with respect to the progress of the Development, which report
shall include the proposed annual workplan and budget for the next calendar
year. Prior to January 1 of each year (commencing January 1, 1999), the Board
of Directors of Spiros Corp. II shall approve such annual workplan and budget
with such changes as it may, in the exercise of its reasonable business
judgment, deem necessary and as DURA may approve (which approval shall not be
unreasonably withheld); PROVIDED, that no annual workplan and budget shall be
deemed effective until approved by DURA and the Board of Directors of Spiros
Corp. II. DURA shall prepare a final report, within ninety (90) days after the
expiration or termination of this Agreement, setting forth in reasonable detail
a summary of the work performed since the last report provided to the Board of
Directors hereunder and the material developments with respect thereto and
containing a final statement of all costs billed to Spiros Corp. II hereunder.
DURA shall keep and maintain proper and complete records and books of account
documenting all of its expenses related to the Development, including those
allocated to and reimbursed by Spiros Corp. II hereunder. At Spiros Corp. II's
request and expense, DURA shall permit a certified independent public accountant
selected by Spiros Corp. II to have access, no more than once in each calendar
year during the term of this Agreement and each year for three (3) calendar
years following the termination hereof, during regular business hours and upon
reasonable notice to DURA, to such records and books for the sole purpose of
determining the appropriateness of Development Costs invoiced hereunder;
PROVIDED, HOWEVER, that if such certified independent public accountant
reasonably determines that such Development Costs have been, for any calendar
year, after adjustments herein provided for, overstated by DURA by an amount
equal to or greater than five percent (5%), DURA shall promptly refund any such
overpayment to Spiros Corp. II and pay all reasonable fees and disbursements of
such certified independent public accountant incurred in the course of making
such determination.
4. OTHER ACTIVITIES. During the term of this Agreement, DURA shall devote
such time and
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<PAGE>
effort to the performance of services pursuant to this Agreement as may be
necessary or appropriate to fulfill its duties under this Agreement;
PROVIDED, HOWEVER, it is specifically understood and agreed by Spiros Corp.
II that DURA shall not be required to devote itself, on a full-time basis, to
the provision of such services and that DURA shall have the right to engage
in its own development activities and in other business activities with other
Persons, and Spiros Corp. II shall not, by virtue of this Agreement, have any
right, title or interest in or to such independent activities or to the
income or profits derived therefrom and, without limiting DURA's obligation
to use commercially reasonable efforts to provide certain services hereunder,
nothing set forth in this Agreement shall limit or reduce the ability of DURA
to carry on such other activities.
5. PAYMENT FOR SERVICES; TIMING OF PAYMENTS.
5.1 PAYMENTS FOR DEVELOPMENT. In consideration of the Development
to be carried out by DURA during the term of this Agreement, Spiros Corp. II
shall reimburse DURA out of Available Funds for all of (a) the Direct
Development Costs plus a fee equal to twenty-five percent (25%) of all of
such costs (the "Management Fee"), PROVIDED that the cost to DURA of services
provided by Affiliates of DURA shall not exceed the cost to each Affiliate of
providing such services, and (b) the Indirect Development Costs plus a fee
equal to twenty percent (20%) of all such costs (the "Indirect Management
Fee"), invoiced to Spiros Corp. II by DURA. The amount to be paid to DURA
pursuant to this Agreement shall not exceed the amount of the Available
Funds. The Available Funds must be retained by Spiros Corp. II in an account
separate from all accounts containing any other funds. Spiros Corp. II agrees
to expend all Available Funds on Development and Other Expenditures pursuant
to this Agreement, except as otherwise set forth in the Agreements. In the
event that the cash and cash equivalents of Spiros Corp. II are reduced to
less than $5 million, DURA may, within thirty (30) days following notice from
Spiros Corp. II that such funds have been reduced to less than $5 million, at
its option (the "Funding Option"), provide additional funds sufficient in the
reasonable judgment of DURA and Spiros Corp. II to fund the continued
Development of Spiros Products for an additional twelve (12) months at a
level comparable to the level of funding provided during the prior twelve
(12) months, which funding shall be considered Available Funds. The Funding
Option may only be exercised one time and shall be irrevocable following
exercise. Payment to Spiros Corp. II of all amounts in respect of the Funding
Option must be made within thirty (30) days of its exercise.
5.2 CONTRIBUTIONS. Concurrently with the execution of this Agreement,
DURA will contribute Seventy-Five Million Dollars ($75,000,000) in cash to
Spiros Corp. II (the "Contribution").
5.3 DEVELOPMENT EXPENSES. Within five (5) business days of the closing of
the Offering and upon the receipt by Spiros Corp. II of an invoice therefor,
Spiros Corp. II shall reimburse DURA for all development services as set forth
on SCHEDULE 5.3 incurred by DURA through the date of the closing of the
Offering, estimated to be ____________________________ Dollars ($____________)
but which shall in no event exceed _________________________________ Dollars
($____________).
5.4 TIMING OF PAYMENTS. Spiros Corp. II shall pay to DURA monthly the
Development
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<PAGE>
Costs, plus the applicable Management Fee and Indirect Management Fee,
actually incurred in the prior month as shown on a statement delivered by
DURA to Spiros Corp. II. Spiros Corp. II shall make such payment within
fifteen (15) days after the delivery of such statement from DURA.
5.5 CALCULATION OF COSTS. Direct Development Costs shall be allocated on
a reasonable and consistent basis, and charged to Spiros Corp. II for services
performed by DURA on behalf of Spiros Corp. II hereunder. DURA's expenditures
and estimated expenditures for performing the Development hereunder shall be
determined using generally accepted accounting principles, consistent with
DURA's internal financial and accounting systems, allocated on a reasonable and
consistent basis. Allocation of all Indirect Development Costs shall be made by
DURA on a reasonable basis consistent with DURA's regular internal cost
accounting system.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS. The provisions of Section 3 of
the Technology Agreement with respect to DURA and Spiros Corp. II shall apply
with equal force and effect to this Agreement and are incorporated hereunder.
7. CONFIDENTIALITY. The provisions of Sections 4.3 and 4.4 of the Technology
Agreement shall apply with equal force and effect to this Agreement and are
incorporated hereunder.
8. DISCLAIMER OF WARRANTY; CONSEQUENTIAL DAMAGES. The provisions of Section
5.3 of the Technology Agreement shall apply with equal force and effect to this
Agreement and are incorporated hereunder.
9. INDEMNIFICATION AND INSURANCE.
9.1 INDEMNIFICATION. The provisions of Section 6 of the Technology
Agreement shall apply with equal force and effect to this Agreement and are
incorporated hereunder.
9.2 INSURANCE.
9.2.1 INSURANCE BY SPIROS CORP. II. To the extent Spiros Corp. II
develops or uses, or causes the development or use (except by DURA or its
Affiliates or subcontractors under this Agreement) of, the Spiros Products,
Spiros Corp. II shall, to the extent available at commercially reasonable rates,
maintain with insurers or underwriters of good repute such insurance relating to
the Development, and the sale and use of the Spiros Products, against such
risks, pursuant to such terms (including deductible limits or self-insured
retentions) and for such periods, as is customary for comparable businesses
undertaking the development, sale and use of products of a similar nature, and
shall, to the extent reasonably possible and not unreasonably expensive, cause
DURA, DDSI and Spiros Corp. to be named as additional insured parties on its
insurance policies. To the extent Spiros Corp. II is required to obtain
insurance under this Section 9.2.1 during the term of this Agreement, Spiros
Corp. II may use Available Funds to pay the premiums therefor.
9.2.2 INSURANCE BY DURA. DURA shall, to the extent available at
commercially
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reasonable rates, maintain, with insurers or underwriters of good repute such
insurance relating to the Development, against such risks and pursuant to
such terms (including deductible limits or self-insured retentions) as is
customary for comparable businesses undertaking research and development
programs of a similar nature, and shall, to the extent reasonably possible
and not unreasonably expensive, cause Spiros Corp. II to be named as an
additional insured party on its insurance policies.
10. TERM AND TERMINATION.
10.1 TERM. This Agreement shall be effective as of the date hereof and,
unless terminated earlier as provided in Sections 10.2, 10.3 and 10.4 hereof,
shall continue in full force and effect for the duration of the Development
Term.
10.2 TERMINATION BY MUTUAL AGREEMENT. By mutual agreement, the parties
hereto may at any time terminate this Agreement and the Development on mutually
acceptable terms.
10.3 EFFECT OF PURCHASE OPTION EXERCISES.
10.3.1 PURCHASE OPTION. In the event the Purchase Option is
exercised by DURA, this Agreement shall terminate, effective upon the Purchase
Option Closing Date, without any obligation to make payments pursuant to Section
7 of the Technology Agreement.
10.3.2 PARTIAL TERMINATION UPON EXERCISE OF ALBUTEROL OPTION. In
the event that the Albuterol Option is exercised as provided in the Albuterol
and Product Option Agreement, this Agreement shall terminate, effective on the
Albuterol Option Closing Date, with respect to the Albuterol Product, but shall
otherwise continue in full force and effect until terminated pursuant to this
Section 10.
10.3.3 PARTIAL TERMINATION UPON EXERCISE OF PRODUCT OPTION. In the
event that the Product Option is exercised as provided in the Albuterol and
Product Option Agreement, this Agreement shall terminate, effective on the
Product Option Closing Date, with respect to the Option Product but shall
otherwise continue in full force and effect until terminated pursuant to this
Section 10.
10.4 TERMINATION FOR EVENT OF DEFAULT. Either DURA or Spiros Corp. II
shall have the right to terminate this Agreement, effective as set forth in a
written notice to the othe party of the occurrence of an Event of Default with
respect to such other party.
10.5 EFFECT OF TERMINATION.
10.5.1 RETURN OF SPIROS PRODUCTS. In the event of the termination
of DURA's right to continue Development of one or more Spiros Products pursuant
to Section 10.4 as a result of an Event of Default by DURA, DURA shall within
thirty (30) days of the effective date of such termination, transfer to Spiros
Corp. II all Program Technology and all other data, records and materials in
DURA's possession or control which relate to such Spiros Products. DURA shall
also cooperate in the transfer of regulatory filings related to such Spiros
Products, and take such other
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actions and execute such other instruments, assignments and documents as may
be necessary to effect the transfer of such Development rights to Spiros
Corp. II.
10.5.2 CONTINUING OBLIGATION TO MAKE PAYMENTS. Termination of this
Agreement shall not relieve the parties hereto of any liability, including any
obligation to pay any amounts payable by any party to another party which
accrued prior to such termination, nor preclude any party from pursuing all
rights and remedies it may have hereunder or at law or equity with respect to
any breach of this Agreement nor prejudice any party's right to obtain
performance of any obligation.
11. MISCELLANEOUS.
11.1 NO IMPLIED WAIVERS; RIGHTS CUMULATIVE. No failure on the part of DURA
or Spiros Corp. II to exercise and no delay in exercising any right, power,
remedy or privilege under this Agreement or provided by statute or at law or in
equity or otherwise, including, without limitation, the right or power to
terminate this Agreement, shall impair, prejudice or constitute a waiver of any
such right, power, remedy or privilege or be construed as a waiver of any breach
of this Agreement or as an acquiescence therein, nor shall any single or partial
exercise of any such right, power, remedy or privilege preclude any other or
further exercise thereof or the exercise of any other right, power, remedy or
privilege.
11.2 FORCE MAJEURE. DURA and Spiros Corp. II shall each be excused for any
failure or delay in performing any of their respective obligations under this
Agreement, if such failure or delay is caused by Force Majeure.
11.3 RELATIONSHIP OF THE PARTIES. Nothing contained in this Agreement is
intended or is to be construed to constitute DURA and Spiros Corp. II as
partners or joint venturers or one party as an employee of any other party.
Except as expressly provided herein, no party hereto shall have any express or
implied right or authority to assume or create any obligations on behalf of or
in the name of any other party or to bind any other party to any contract,
agreement or undertaking with any third party.
11.4 NOTICES. All notices, requests and other communications to DURA or
Spiros Corp. II hereunder shall be in writing (including telecopy or similar
electronic transmissions), shall refer specifically to this Agreement and
shall be personally delivered or sent by telecopy or other electronic
facsimile transmission or by registered mail or certified mail, return
receipt requested and postage prepaid, or by reliable overnight courier
service, in each case to the respective address specified below (or to such
address as may be specified in writing to the other party hereto):
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<PAGE>
If to DURA, addressed to:
Dura Pharmaceuticals, Inc.
7475 Lusk Boulevard
San Diego, CA 92121
Attention: President
with a copy to the attention of General Counsel
If to Spiros Corp. II, addressed to:
Spiros Development Corporation II, Inc.
7475 Lusk Boulevard
San Diego, CA 92121
Attention: President
Any notice or communication given in conformity with this Section 12.4 shall be
deemed to be effective when received by the addressee, if delivered by hand,
telecopy or electronic transmission, three (3) days after mailing, if mailed and
one (1) business day after delivery to a reliable overnight courier service.
11.5 FURTHER ASSURANCES. Each of DURA and Spiros Corp. II hereby agrees to
duly execute and deliver, or cause to be duly executed and delivered, such
further instruments and do and cause to be done such further acts and things,
including, without limitation, the filing of such additional assignments,
agreements, documents and instruments, that may be necessary or as the other
party hereto may at any time and from time to time reasonably request in
connection with this Agreement or to carry out more effectively the provisions
and purposes of, or to better assure and confirm unto such other party its
rights and remedies under, this Agreement.
11.6 SUCCESSORS AND ASSIGNS. The terms and provisions of this Agreement
shall inure to the benefit of, and be binding upon, DURA, Spiros Corp. II, and
their respective successors and assigns; PROVIDED, HOWEVER, that DURA and Spiros
Corp. II may not assign or otherwise transfer any of their respective rights and
interests, nor delegate any of their respective obligations, hereunder,
including, without limitation, pursuant to a merger or consolidation, without
the prior written consent of the other party hereto; PROVIDED FURTHER, HOWEVER,
that DURA may fully assign its rights and interests, and delegate its
obligations, hereunder, effective upon written notice thereof (a) to an
Affiliate if such Affiliate assumes all of the obligations of DURA hereunder and
this Agreement remains binding upon DURA; or (b) to any Person that acquires all
or substantially all of the assets of DURA, or which is the surviving Person in
a merger or consolidation with DURA, if such Person assumes all the obligations
of DURA hereunder. Notwithstanding the foregoing, Spiros Corp. II shall have
the right to assign its rights and delegate its obligations hereunder following
expiration or termination (other than by exercise) of the Purchase Option.
Notwithstanding the foregoing, Spiros Corp. II shall have the right to assign
its rights and delegate its obligations hereunder following expiration or
termination (other than by exercise) of the Purchase Option. Any attempt to
assign or delegate any portion of this Agreement in violation of this Section
11.6 shall be null and void. Subject to the foregoing any reference to DURA or
Spiros Corp. II hereunder shall be deemed to include the successors thereto and
assigns thereof.
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<PAGE>
11.7 AMENDMENTS. No amendment, modification, waiver, termination or
discharge of any provision of this Agreement, nor consent by DURA or Spiros
Corp. II to any departure therefrom, shall in any event be effective unless the
same shall be in writing specifically identifying this Agreement and the
provision intended to be amended, modified, waived, terminated or discharged and
signed by DURA and Spiros Corp. II, and each amendment, modification, waiver,
termination or discharge shall be effective only in the specific instance and
for the specific purpose for which given. No provision of this Agreement shall
be varied, contradicted or explained by any other agreement, course of dealing
or performance or any other matter not set forth in an agreement in writing and
signed by DURA and Spiros Corp. II.
11.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, as applied to contracts
made and performed entirely within the State of California. Except as otherwise
provided herein, any claim or controversy arising out of or related to this
contract or any breach hereof shall be submitted to a court of competent
jurisdiction in the State of California, and the parties hereby consent to the
jurisdiction and venue of such court.
11.9 SEVERABILITY. If any provision hereof should be held invalid, illegal
or unenforceable in any respect in any jurisdiction, then, to the fullest extent
permitted by law, (a) all other provisions hereof shall remain in full force and
effect in such jurisdiction and shall be liberally construed in order to carry
out the intentions of the parties hereto as nearly as may be possible and (b)
such invalidity, illegality or unenforceability shall not affect the validity,
legality or enforceability of such provision in any other jurisdiction. To the
extent permitted by applicable law, DURA and Spiros Corp. II hereby waive any
provision of law that would render any provision hereof prohibited or
unenforceable in any respect.
11.10 HEADINGS. Headings used herein are for convenience only and shall
not in any way affect the construction of, or be taken into consideration in
interpreting, this Agreement.
11.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which counterparts, when so executed and delivered, shall
be deemed to be an original, and all of which counterparts, taken together,
shall constitute one and the same instrument.
11.12 ENTIRE AGREEMENT. This Agreement, together with any agreements
referenced herein, constitute, on and as of the date hereof, the entire
agreement of DURA and Spiros Corp. II with respect to the subject matter hereof,
and all prior or contemporaneous understandings or agreements, whether written
or oral, between DURA and Spiros Corp. II with respect to such subject matter
are hereby superseded in their entirety.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
DURA PHARMACEUTICALS, INC.
By_________________________________________
Cam L. Garner
President and Chief Executive Officer
SPIROS DEVELOPMENT CORPORATION II, INC.
By________________________________________
David S. Kabakoff
President and Chief Executive Officer
[SIGNATURE PAGE TO DEVELOPMENT AGREEMENT]
<PAGE>
SCHEDULE 1.1
GLOSSARY
SCHEDULE 1.1
<PAGE>
SCHEDULE 1.1
GLOSSARY
"AFFILIATE" of a person shall mean a Person that directly, or indirectly
through one or more intermediaries, controls, is controlled by or is under
common control with such Person. "Control" (and, with correlative meanings, the
terms "controlled by" and "under common control with") shall mean the possession
of the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting stock, by contract or
otherwise. In the case of a corporations, "control" shall mean, among other
things, the direct or indirect ownership of more than fifty percent (50%) of its
outstanding voting stock.
"AGREEMENTS" shall mean the Manufacturing and Marketing Agreement, the
Technology Agreement and the Development Agreement.
"ALBUTEROL OPTION" shall have the meaning assigned to it in Section 1.1 of
the Albuterol and Product Option Agreement.
"ALBUTEROL AND PRODUCT OPTION AGREEMENT" shall mean the Albuterol and
Product Option Agreement dated as of __________, 1997, between DURA and Spiros
Corp. II, as amended, modified or supplemented from time to time.
"ALBUTEROL OPTION CLOSING DATE" shall have the meaning assigned to it in
Section 1.5 of the Albuterol and Product Option Agreement.
"ALBUTEROL PROGRAM ASSETS" shall have the meaning assigned to it in Section
1.1 of the Albuterol and Product Option Agreement.
"ALBUTEROL PRODUCT" shall have the meaning assigned to it in Section 1.1 of
the Albuterol and Product Option Agreement.
"AVAILABLE FUNDS" shall mean the sum of (a) the net proceeds to Spiros
Corp. II from the sale of the Units in the Offering and the Contribution, (b)
all royalties or fees remitted to Spiros Corp. II by DURA (or its Affiliates)
from the Sale of Spiros Products or in consideration of license rights
granted pursuant to the Agreements, (c) the Option Proceeds, if any, (d) any
other amounts provided by DURA to Spiros Corp. II, if any and (e) interest or
other income earned through temporary investment of the amounts described in
clauses (a), (b), (c) or (d).
"BANKRUPTCY CODE" shall mean the United States Bankruptcy Code, as amended
from time to time.
"CLAIM" shall mean any and all liabilities, damages, losses, settlements,
claims, actions, suits, penalties, fines, costs or expenses (including, without
limitation, reasonable attorneys' fees).
SCHEDULE 1.1
<PAGE>
"CONFIDENTIAL INFORMATION" shall mean all Program Technology disclosed by
DURA (and its Affiliates) to Spiros Corp. II or by Spiros Corp. II to DURA
pursuant to the Agreements or the Services Agreement.
"CONTRIBUTION" shall have the meaning assigned in Section 5.2 of the
Development Agreement.
"CORE TECHNOLOGY" shall mean the DURA Core Technology, the DDSI Core
Technology and the Spiros Core Technology.
"DDSI CORE TECHNOLOGY" shall mean (a) Technology owned or controlled by
DDSI as of the date of the closing of the Offering necessary or useful to the
development of the Spiros Products, and (b) the DDSI Patent Rights; PROVIDED,
HOWEVER, that DDSI Core Technology shall also include Technology acquired by
DDSI from a third party after the date of the closing of the Offering necessary
or useful to the development of the Spiros Products, except to the extent that
there are any limitations or restrictions on DDSI's ability to license or
sublicense such Technology. "Owned or controlled" shall include Technology that
DDSI owns, or under which DDSI is licensed and has the right to grant
sublicenses and/or grant immunity from suit.
"DDSI INDEMNITEE" shall mean DDSI, its successors and assigns, and the
directors, officers, employees, agents and counsel thereof.
"DDSI PATENT RIGHTS" shall mean those certain inventions described in
claims of (a) the patent applications pending, filed by DDSI (or the rights to
which have been assigned to DDSI) as of the date of the Technology Agreement
relating to dry powder inhalers, powder storage systems and/or formulation
methods for dry powder inhalation, (b) any patent application constituting an
equivalent, counterpart, reissue, extension or continuation (including, without
limitation, a continuation in part or a subdivision) of any of the foregoing
patent applications and (c) any patent issued or issuing upon any of the
foregoing.
"DESIGNATED COMPOUND(S)" shall mean any compounds for delivery using the
System selected by Spiros Corp. II, and agreed to be developed by DURA.
"DEVELOPED TECHNOLOGY" shall mean any Technology including, without
limitation, any enhancements, substitutions or improvements to the Core
Technology that is (a) discovered, developed or otherwise acquired by DURA
pursuant to the terms of the Development Agreement or (b) otherwise acquired by
or on behalf of Spiros Corp. II during the term of the Development Agreement.
"DEVELOPMENT" shall mean the further development of the Program Technology
for the purpose of identifying, developing, manufacturing, marketing and
commercializing Spiros Products and
SCHEDULE 1.1
<PAGE>
the making of the Other Expenditures.
"DEVELOPMENT AGREEMENT" shall mean the Development Agreement dated as of
_____, 1997, between DURA and Spiros Corp., as amended, modified or supplemented
from time to time.
"DEVELOPMENT COSTS" shall mean the Direct Development Costs, the Indirect
Development Costs and the Other Expenditures.
"DEVELOPMENT TERM" shall mean the period commencing on the Closing Date and
ending on the earlier of (a) the Option Closing Date or (b) the date the Option
terminates or expires other than by exercise.
"DIRECT DEVELOPMENT COSTS" shall mean all costs incurred by DURA or its
Affiliates in respect of the Development, other than Indirect Development
Costs, determined in accordance with generally accepted accounting principles
consistent with DURA's internal accounting system, allocated on a reasonable
and consistent basis. Direct Development Costs shall consist primarily of
fully-burdened payroll costs (burdened to include benefits, payroll taxes and
an allocation of facilities and overhead costs) and any other such costs
generated internally by DURA in respect of the Development.
"DPI" shall mean the motor-driven dry powder inhaler (other than an inahler
designed to deliver a single dose of a drug) developed by DURA, DDSI and/or
Spiros Corp. and to be developed by DURA and/or Spiros Corp. II.
"DURA COMMON STOCK" shall mean the Common Stock of DURA, par value $.001
per share.
"DURA CORE TECHNOLOGY" shall mean (a) Technology owned or controlled by
DURA as of the date of the closing of the Offering necessary or useful to the
development of the Spiros Products, and (b) the DURA Patent Rights and DURA
Trademarks; PROVIDED, HOWEVER, that DURA Core Technology shall also include
Technology acquired by DURA from a third party after the date of the closing of
the Offering necessary or useful to the development of the Spiros Products,
except to the extent that there are any limitations or restrictions on DURA's
ability to license or sublicense such Technology. "Owned or controlled" shall
include Technology that DURA owns, or under which DURA is licensed and has the
right to grant sublicenses and/or grant immunity from suit.
"DURA INDEMNITEE" shall mean DURA, its successors and assigns, and the
directors, officers, employees, agents and counsel thereof.
"DURA PATENT RIGHTS" shall mean those certain inventions described in
claims of (a) the patent applications pending, filed by DURA (or the rights to
which have been assigned to DURA) as of the date of the Technology Agreement
relating to DPIs, PSSs and/or formulation methods for dry powder inhalation, (b)
any
SCHEDULE 1.1
<PAGE>
patent application constituting an equivalent, counterpart, reissue,
extension or continuation (including, without limitation, a continuation in
part or a subdivision) of any of the foregoing patent applications and (c)
any patent issued or issuing upon any of the foregoing.
"DURA TRADEMARKS" shall mean SpirosTM.
"EVENT OF DEFAULT" shall mean any of the following events: (a) at any
time, if DURA or Spiros Corp. II fails to perform or observe or otherwise
breaches any of its Material Obligations, and such failure or breach continues
unremedied for a period of sixty (60) days after receipt by of written notice
thereof from the other party; (b) at any time, effective as set forth in a
written notice from the other party if DURA or Spiros Corp. II shall (i) seek
the liquidation, reorganization, dissolution or winding-up of itself or the
composition or readjustment of its debts (other than pursuant to a merger with
an Affiliate), (ii) apply for or consent to the appointment of, or the taking
possession by, a receiver, custodian, trustee or liquidator for itself or of all
or a substantial part of its assets, (iii) make a general assignment for the
benefit of its creditors, (iv) commence a voluntary case under the Bankruptcy
Code, (v) file a petition seeking to take advantage of any other law relating to
bankruptcy, insolvency, reorganization, winding-up or composition or
readjustment of debts (other than pursuant to a merger with an Affiliate) or
(vi) adopt any resolution of its Board of Directors or shareholders for the
purpose of effecting any of the foregoing (other than pursuant to a merger with
an Affiliate); or (c) at any time, effective as set forth in a written notice
from the other party, if a proceeding or case shall be commenced without the
application or consent of DURA or Spiros Corp. II as applicable, and such
proceeding or case shall continue undismissed, or an order, judgment or decrees
approving or ordering any of the following shall be entered and continued
unstayed and in effect, for a period of sixty (60) days from and after the date
service of process is effected, seeking (i) DURA's or Spiros Corp. II's, as
applicable, liquidation, reorganization, dissolution or winding-up, or the
composition or readjustment of its debts, (ii) the appointment of a trustee,
receiver, custodian, liquidator or the like of DURA or Spiros Corp. II or for
all or any substantial part of its assets or (iii) similar relief in respect of
DURA or Spiros Corp. II under any law relating to bankruptcy, insolvency,
reorganization, winding-up or the composition or readjustment of debts.
"FDA" shall mean the United States Food and Drug Administration or any
successor agency or authority, the approval of which is required to market
health care products in the United States.
"FDA APPROVAL" shall mean the final regulatory approval of the FDA required
to commence commercial marketing of a health product.
SCHEDULE 1.1
<PAGE>
"FORCE MAJEURE" shall mean any act of God, any accident explosion, fire,
storm, earthquake, flood, drought, peril of the sea, riot, embargo, war or
foreign, federal, state or municipal order of general application, seizure,
requisition or allocation, any failure or delay of transportation, shortage of
or inability to obtain supplies, equipment, fuel or labor or any other
circumstance or event beyond the reasonable control of the party relying upon
such circumstance or event.
"INDIRECT DEVELOPMENT COSTS" shall mean all costs, fees and out-of-pocket
or other expenses, including the purchase of any capital equipment related to
the Development, incurred or paid by DURA to a third party, other than an
Affiliate of DURA, in respect of the Development, determined in accordance with
generally accepted accounting principles consistent with DURA's internal
accounting system, allocated on a reasonable and consistent basis.
"MANUFACTURING AND MARKETING AGREEMENT" shall mean the Manufacturing and
Marketing Agreement dated as of _______, 1997 between DURA and Spiros Corp. II,
as amended, modified or supplemented from time to time.
"MANUFACTURE" shall mean the manufacture and assembly of the Spiros
Products.
"MATERIAL OBLIGATION" shall mean the material obligations of a party under
the Technology Agreement, the Development Agreement or the Manufacturing and
Marketing Agreement.
"NET SALES" shall mean the gross amount invoiced for sales of Spiros
Products by DURA or its sublicensees, if any, to third parties less (i)
discounts actually allowed, (ii) credits for claims, allowances, retroactive
price reductions or returned Spiros Products, (iii) prepaid freight charges
incurred in transporting Spiros Products to customers, (iv) sales taxes and
other governmental charges actually paid in connection with the sales (but
excluding what is commonly known as income taxes) and (v) any royalty
obligations under the 1993 Royalty Agreement. Net Sales shall not include sales
between or among DURA, its Affiliates and its sublicensees unless such sales are
for end use rather than for purposes of resale.
"OFFERING" shall mean the underwritten public offering of the Units
pursuant to the Registration Statement.
"OPTION PROCEEDS" shall have the meaning assigned to it in Section 3 of the
Albuterol and Product Option Agreement.
"OPTION PRODUCT" shall have the meaning assigned to it in Section 2.1 of
the Albuterol and Product Option Agreement.
"OTHER EXPENDITURES" shall mean funds spent by Spiros Corp. II to acquire
capital equipment, develop a next generation inhaler system or to enhance the
System.
SCHEDULE 1.1
<PAGE>
"PATENT RIGHTS" shall mean any patents or patent applications within the
Spiros Corp. II Patent Rights, the DURA Patent Rights, the DDSI Patent Rights
and the Spiros Corp. Patent Rights.
"PERSON" shall mean any individual, partnership, corporation, firm,
association, unincorporated organization, joint venture, trust or other entity.
"PRODUCT OPTION" shall have the meaning assigned to it in Section 2.1 of
the Albuterol and Product Option Agreement.
"PRODUCT OPTION CLOSING DATE" shall have the meaning assigned to it in
Section 2.5 of the Albuterol and Product Option Agreement.
"PROGRAM TECHNOLOGY" shall mean the Core Technology and the Developed
Technology.
"PSS" shall mean the powder storage system developed and to be developed by
DURA for use with the DPI.
"PURCHASE AGREEMENT" shall mean the Purchase Agreement dated as of
__________, 1997, among DURA, Spiros Corp. II, Merrill Lynch & Co., and
Donaldson, Lufkin & Jenrette.
"PURCHASE OPTION" shall mean the option granted to the holder of Spiros
Corp. II's Special Common Stock to purchase all of the Spiros Corp. II Common
Stock as set forth in Article V of the Spiros Corp. II Charter.
"PURCHASE OPTION CLOSING DATE" shall have the meaning assigned to it in
Article V of the Spiros Corp. II Charter.
"PURCHASE OPTION EXERCISE PRICE" shall have the meaning assigned to it in
Article V of the Spiros Corp. II Charter
"REGISTRATION STATEMENT" shall mean the Registration Statement on Form S-
1/S-3 filed by Spiros Corp. II and DURA dated October 10, 1997 (No. 333-
__________/333-__________), including all exhibits and any amendments thereof
and supplements thereto.
"RESEARCH FUNDS" shall mean the Available Funds, less (i) all general and
administrative expenses including, without limitation, those paid or payable
pursuant to the Development Agreement or the Services Agreement, and the
reasonable out-of-pocket expenses of Spiros Corp. II directors and reasonable
compensation for Spiros Corp. II's independent directors, less (ii) any amounts
paid to DURA under the Development Agreement or the Services Agreement, less
(iii) any costs and expenses incurred in the defense or settlement of any action
or claim or in respect of a judgment thereon, and less (iv) One Million Dollars
($1,000,000) to be retained by Spiros Corp. II as working capital in the event
DURA does not exercise the Purchase Option.
SCHEDULE 1.1
<PAGE>
"SALE(S)" or "SELL" shall mean the activity undertaken by a sales
representative during a sales call on physicians, physician assistants, nurses,
hospitals, clinics, health maintenance organizations, preferred provider
organizations and managed care companies (including all forms of communication
not involving face to face contact by such sales representatives), describing
the FDA-approved indicated uses, safety, effectiveness, contraindications, side
effects, warnings and other relevant characteristics of the Spiros Product, in a
fair and balanced manner consistent with the requirements of the Federal Food,
Drug, and Cosmetic Act, as amended (and the regulations thereunder).
"SPIROS CASSETTE SYSTEM" shall mean a DPI in which the PSS is in the form
of a cassette.
"SPIROS CORE TECHNOLOGY" shall mean (a) Technology owned or controlled by
Spiros Corp. as of the date of the closing of the Offering necessary or useful
to the development of the Spiros Products, and (b) the Spiros Corp. Patent
Rights; PROVIDED, HOWEVER, that Spiros Core Technology shall also include
Technology acquired by Spiros Corp. from a third party after the date of the
closing of the Offering necessary or useful to the development of the Spiros
Products, except to the extent that there are any limitations or restrictions on
Spiros Corp.'s ability to license or sublicense such Technology. "Owned or
controlled" shall include Technology that Spiros Corp. owns, or under which
Spiros Corp. is licensed and has the right to grant sublicenses and/or grant
immunity from suit.
"SPIROS CORP. INDEMNITEE" shall mean Spiros Corp., its successors and
assigns, and the directors, officers, employees, agents and counsel thereof.
"SPIROS CORP. PATENT RIGHTS" shall mean those certain inventions described
in claims of (a) the patent applications pending, filed by Spiros Corp. (or the
rights to which have been assigned to Spiros Corp.) as of the date of the
Technology Agreement relating to dry powder inhalers, powder storage systems
and/or formulation methods for dry powder inhalation, (b) any patent application
constituting an equivalent, counterpart, reissue, extension or continuation
(including, without limitation, a continuation in part or a subdivision) of any
of the foregoing patent applications and (c) any patent issued or issuing upon
any of the foregoing.
"SPIROS CORP. II CHARTER" shall mean Amended and Restated Certificate of
Spiros Development Corporation II, Inc. in effect as of the closing of the
Offering, as amended from time to time.
"SPIROS CORP. II COMMON STOCK" shall mean the Callable Common Stock of
Spiros Corp. II, $.001 par value.
"SPIROS CORP. II INDEMNITEE" shall mean Spiros Corp. II, its
SCHEDULE 1.1
<PAGE>
successors and assigns, and the directors, officers, employees, agents and
counsel thereof.
"SPIROS CORP. II PATENT RIGHTS" shall mean those certain inventions
described in claims of (a) any patent application having one or more claims
covering Developed Technology, (b) any patent application constituting an
equivalent, counterpart, reissue, extension or continuation (including, without
limitation, a continuation in part or a subdivision) of any of the foregoing
applications or (c) any patent issued or issuing upon any of the foregoing
applications.
"SPIROS PRODUCT(S)" shall mean (a) any System used with a formulation of
albuterol, beclomethasone, ipratropium, an albuterol-ipratropium combination,
budesonide or a Designated Compound developed, produced, manufactured or
marketed by DURA on behalf of Spiros Corp. II using the Program Technology.
"SPIROS PRODUCT PROGRAM ASSETS" shall have the meaning assigned to it in
Section 2.1 of the Albuterol and Product Option Agreement.
"SYSTEM" shall mean the DPI and the PSS when used together.
"TECHNOLOGY" shall mean, solely with respect to motor-driven dry powder
inhalers and powder storage systems for drugs for delivery through such
inhalers, the manufacture thereof, and formulations of drugs to be delivered
through such inhalers, public and nonpublic technical or other information,
trade secrets, know-how, processes, formulations, concepts, ideas, preclinical,
clinical, pharmacological or other data and testing results, experimental
methods, or results, assays, descriptions, business or scientific plans,
depictions, customer lists and any other written, printed or electronically
stored materials, pharmaceutical compounds or any other natural or man-made
pharmaceutical materials and any and all other intellectual property, including
patents and patent applications, of any nature whatsoever. The term
"Technology" shall include, without limitation, any of the foregoing as it
relates to enhancements of, substitutions for or improvements to the Core
Technology.
"TECHNOLOGY AGREEMENT" shall mean the Technology License Agreement dated as
of _______, 1997, among DURA, DDSI, Spiros Corp. and Spiros Corp. II, as
amended, modified or supplemented from time to time.
"TERRITORY" shall mean the entire world.
"UNDERWRITERS" shall have the meaning assigned to it in the Registration
Statement.
"UNITS" shall mean units, each consisting of one share of Spiros Corp. II
Common Stock and one warrant to purchase one-fourth of one share of DURA Common
Stock, all as described in the Registration Statement.
SCHEDULE 1.1
<PAGE>
"1993 ROYALTY AGREEMENT" shall have the meaning assigned to it in the
Registration Statement.
<PAGE>
SCHEDULE 2.1
Workplan and Budget for duration of this Agreement
SCHEDULE 2.1
<PAGE>
SCHEDULE 5.3
Contracting for Development services through closing.
Dry powder inhaler and drug development costs through closing of the
Offering.
SCHEDULE 5.3
<PAGE>
Exibit 10.6
SPIROS DEVELOPMENT CORPORATION II, INC.
1997 STOCK OPTION PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1997 Stock Option Plan is intended to promote the interests of
Spiros Development Corporation II, Inc., a Delaware corporation, by providing
eligible persons with the opportunity to acquire a proprietary interest, or
otherwise increase their proprietary interest, in the Corporation as an
incentive for them to remain in the service of the Corporation.
Capitalized terms shall have the meanings assigned to such terms in
the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be comprised of a Discretionary Option Grant
Program under which eligible persons may, at the discretion of the Plan
Administrator, be granted options to purchase shares of Common Stock.
B. The Plan shall become effective on the date on which the Common
Stock in first registered under Section 12 of the 1934 Act (the "Plan Effective
Date"), and options may be granted at any time from and after the Plan Effective
Date until the date the Plan terminates in accordance with the provisions of
Section III of Article Three.
III. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have sole and exclusive authority to
administer the Discretionary Option Grant Program with respect to Section 16
Insiders. Administration of the Discretionary Option Grant Program with respect
to all other persons eligible to participate in those programs may, at the
Board's discretion, be vested in the Primary Committee or a Secondary Committee,
or the Board may retain the power to administer the program with respect to all
those other persons.
B. Members of the Primary Committee or any Secondary Committee shall
serve for such period of time as the Board may determine and may be removed by
the Board at any time. The Board may also at any time terminate the functions
of any Secondary Committee and reassume all powers and authority previously
delegated to such committee.
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C. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority (subject
to the provisions of the Plan) to establish such rules and regulations as it may
deem appropriate for proper administration of the Discretionary Option Grant
Program and to make such determinations under, and issue such interpretations
of, the provisions of such programs and any outstanding options or stock
issuances thereunder as it may deem necessary or advisable. Decisions of the
Plan Administrator within the scope of its administrative functions under the
Plan shall be final and binding on all parties who have an interest in the
Discretionary Option Grant Program under its jurisdiction or any outstanding
option thereunder.
D. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants or stock issuances under the
Plan.
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option
Grant Program are as follows:
(i) Employees,
(ii) non-employee members of the Board or the board of
directors of any Parent or Subsidiary, and
(iii) consultants and other independent advisors who
provide services to the Corporation (or any Parent or Subsidiary).
B. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority to determine,
which eligible persons are to receive option grants, the time or times when such
option grants are to be made, the number of shares to be covered by each such
grant, the status of the granted option as either an Incentive Option or a Non-
Statutory Option, the time or times when each option is to become exercisable
and the maximum term for which the option is to remain outstanding.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares
repurchased by the Corporation on the open market. The maximum number of
shares of Common Stock which may be issued over the term of the Plan shall
initially not exceed 700,000 shares (the "Overall Limitation").
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B. The Overall Limitation under the Plan shall automatically
increase on February 15 of each calendar year during the term of the Plan,
beginning with the 1998 calendar year, by that number of shares necessary to
cause the Overall Limitation to be equal to 15% of the then outstanding
shares of the Common Stock of the Company. No Incentive Options may be
granted on the basis of the additional shares of Common Stock resulting from
such annual increases.
C. No one person participating in the Plan may receive options,
separately exercisable stock appreciation rights and direct stock issuances
for more than 200,000 shares of Common Stock in the aggregate per calendar
year, beginning with the 1997 calendar year.
D. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent (i) the
options (including any options incorporated from the predecessor Plan) expire
or terminate for any reason prior to exercise in full or (ii) the options are
cancelled in accordance with the cancellation-regrant provisions of Article
Two. All shares issued under the Plan (including shares issued upon exercise
of options incorporated from the Predecessor Plan), whether or not those
shares are subsequently repurchased by the Corporation pursuant to its
repurchase rights under the Plan, shall reduce on a share-for-share basis the
number of shares of Common Stock available for subsequent issuance under the
Plan. In addition, should the exercise price of an option under the Plan
(including any option incorporated from the Predecessor Plan) be paid with
shares of Common Stock or should shares of Common Stock otherwise issuable
under the Plan be withheld by the Corporation in satisfaction of the
withholding taxes incurred in connection with the exercise of an option or
the vesting of a stock issuance under the Plan, then the number of shares of
Common Stock available for issuance under the Plan shall be reduced by the gross
number of shares for which the option is exercised or which vest under the
stock issuance, and not by the net number of shares of Common Stock issued to
the holder of such option or stock issuance.
E. Should any change be made to the Common Stock 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 the Corporation's receipt of consideration, appropriate
adjustments shall be made to (i) the maximum number and/or class of
securities issuable under the Plan, (ii) the maximum number and/or class of
securities for which the share reserve is to increase automatically each
year, (iii) the number and/or class of securities for which any one person
may be granted options, separately exercisable stock appreciation rights and
direct stock issuances per calendar year, (iv) the number and/or class of
securities for which automatic option grants are to be made subsequently per
Eligible Director under the Automatic Option Grant Program and (v) the number
and/or class of securities and the exercise price per share in effect under
each outstanding option (including any option incorporated from the
Predecessor Plan) in order to prevent the dilution or enlargement of benefits
thereunder. The adjustments determined by the Plan Administrator shall be
final, binding and conclusive.
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ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; PROVIDED, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall, subject to the provisions of Section I of
Article Three and the documents evidencing the option, be payable in one or more
of the forms specified below:
(i) cash or check made payable to the Corporation,
(ii) shares of Common Stock held for the requisite
period necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the
Exercise Date, or
(iii) through a special sale and remittance procedure
pursuant to which the Optionee shall concurrently provide irrevocable
instructions to (a) a Corporation-designated brokerage firm to effect
the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement
date, sufficient funds to cover the aggregate exercise price payable
for the purchased shares plus all applicable Federal, state and local
income and employment taxes required to be withheld by the Corporation
by reason of such exercise and (b) the Corporation to deliver the
certificates for the purchased shares directly to such brokerage firm
in order to complete the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
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B. EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable
at such time or times, during such period and for such number of shares as shall
be determined by the Plan Administrator and set forth in the documents
evidencing the option. However, no option shall have a term in excess of ten
(10) years measured from the option grant date.
C. EFFECT OF TERMINATION OF SERVICE.
1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the
Optionee's cessation of Service for any reason shall remain
exercisable for such period of time thereafter as shall be determined
by the Plan Administrator and set forth in the documents evidencing
the option, but no such option shall be exercisable after the
expiration of the option term.
(ii) Any option exercisable in whole or in part by the
Optionee at the time of death may be subsequently exercised 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.
(iii) Should the Optionee's Service be terminated for
Misconduct, then all outstanding options held by the Optionee shall
terminate immediately and cease to be outstanding.
(iv) During the applicable post-Service exercise
period, the option may not be exercised in the aggregate for more than
the number of vested shares for which the option is exercisable on the
date of the Optionee's cessation of Service. Upon the expiration of
the applicable exercise period or (if earlier) upon the expiration of
the option term, the option shall terminate and cease to be
outstanding for any otherwise exercisable shares for which the option
has not been exercised. However, the option shall, immediately upon
the Optionee's cessation of Service, terminate and cease to be
outstanding for any and all shares for the option is not otherwise at
that time exercisable.
2. The Plan Administrator shall have complete discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
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(i) extend the period of time for which the option is
to remain exercisable following the Optionee's cessation of Service
from the limited exercise period otherwise in effect for that option
to such greater period of time as the Plan Administrator shall deem
appropriate, but in no event beyond the expiration of the option term,
and/or
(ii) permit the option to be exercised, during the
applicable post-Service exercise period, not only with respect to the
number of vested shares of Common Stock for which such option is
exercisable at the time of the Optionee's cessation of Service but
also with respect to one or more additional installments for which the
option would have become exercisable had the Optionee continued in
Service.
D. STOCKHOLDER RIGHTS. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become the
record holder of the purchased shares.
E. 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-Statutory
Option may, in connection with the Optionee's estate plan, be assigned in whole
or in part during the Optionee's lifetime to one or more members of the
Optionee's immediate family or to a trust established exclusively for one or
more such family members. 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. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Seven shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options
when issued under the Plan shall NOT be subject to the terms of this Section II.
A. ELIGIBILITY. Incentive Options may only be granted to Employees.
B. DOLLAR LIMITATION. The aggregate Fair Market Value of the shares
of Common Stock (determined as of the respective date or dates of grant) for
which one or more options granted to any Employee under the Plan (or any other
option plan of the Corporation or any Parent or Subsidiary) may for the first
time become exercisable as Incentive Options during
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any one calendar year shall not exceed the sum of One Hundred Thousand
Dollars ($100,000). To the extent the Employee holds two (2) 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 Options shall be applied on the basis of the order in which such
options are granted.
C. 10% STOCKHOLDER. If any Employee to whom an Incentive Option is
granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date, and the option term shall not exceed five
(5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding
option shall automatically accelerate so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
exercisable for the total number of shares of Common Stock at the time subject
to such option and may be exercised for any or all of those shares as fully
vested shares. However, an outstanding option shall NOT become exercisable on
such an accelerated basis if and to the extent: (i) such option is, in
connection with the Corporate Transaction, to be assumed by the successor
corporation (or parent thereof) or (ii) such option is to be replaced with a
cash incentive program of the successor corporation which preserves the spread
existing at the time of the Corporate Transaction on any shares for which the
option is not otherwise at that time exercisable and provides for subsequent
payout in accordance with the same exercise/vesting schedule applicable to those
option shares or (iii) the acceleration of such option is subject to other
limitations imposed by the Plan Administrator at the time of the option grant.
B. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
C. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments to reflect such Corporate Transaction shall also be made
to (i) the exercise price payable per share under each outstanding option,
PROVIDED the aggregate exercise price payable for such securities shall remain
the same, (ii) the maximum number and/or class of securities available for
issuance over the remaining term of the Plan and (iii) the maximum number and/or
class of securities for which any one person may be granted stock options under
the Plan per calendar year.
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D. The Plan Administrator shall have the discretionary authority to
provide for the automatic acceleration of one or more outstanding options upon
the occurrence of a Corporate Transaction, whether or not those options are to
be assumed in the Corporate Transaction, so that each such option shall,
immediately prior to the effect date of such Corporate Transaction, become fully
exercisable for the total number of shares at the time subject to that option
and may be exercised for any or all of those shares as fully vested shares.
E. The Plan Administrator shall have full power and authority,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to provide for the automatic acceleration of one or
more outstanding options in the event the Optionee's Service is subsequently
terminated by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any
Corporate Transaction in which those options are assumed and do not otherwise
accelerate. Any options so accelerated shall remain exercisable for fully
vested shares until the EARLIER of (i) the expiration of the option term or (ii)
the expiration of the one (1) year period measured from the effective date of
the Involuntary Termination.
F. The Plan Administrator shall have the discretionary authority to
provide for the automatic acceleration of one or more outstanding options upon
the occurrence of a Change in Control so that each such option shall,
immediately prior to the effect date of such Change in Control, become fully
exercisable for the total number of shares at the time subject to that option
and may be exercised for any or all of those shares as fully vested shares.
Alternatively, the Plan Administrator may condition the automatic acceleration
of one or more outstanding options upon the subsequent termination of the
Optionee's Service by reason of an Involuntary Termination within a designated
period (not to exceed eighteen (18) months) following the effective date of such
Change in Control. Each option so accelerated shall remain exercisable for
fully vested shares until the EARLIER of (i) the expiration of the option term
or (ii) the expiration of the one (1) year period measured from the effective
date of Optionee's cessation of Service.
G. The portion of any Incentive Option accelerated in connection
with a Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
limitation is not exceeded. To the extent such dollar limitation is exceeded,
the accelerated portion of such option shall be exercisable as a Non-Statutory
Option under the Federal tax laws.
H. The outstanding options shall in no way affect the right of the
Corporation 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.
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IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Discretionary Option
Grant Program and to grant in substitution new options covering the same or
different number of shares of Common Stock but with an exercise price per share
based on the Fair Market Value per share of Common Stock on the new grant date.
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ARTICLE THREE
MISCELLANEOUS
I. INTENTIONALLY OMITTED
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of options under the Plan shall be subject to the satisfaction
of all applicable Federal, state and local income and employment tax withholding
requirements.
B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options under the Plan with the right to use shares of
Common Stock in satisfaction of all or part of the Taxes incurred by such
holders in connection with the exercise of those options. Such right may be
provided to any such holder in either or both of the following formats:
STOCK WITHHOLDING: The election to have the Corporation
withhold, from the shares of Common Stock otherwise issuable upon the exercise
of such Non-Statutory Option, a portion of those shares with an aggregate Fair
Market Value equal to the percentage of the Taxes (not to exceed one hundred
percent (100%)) designated by the holder.
STOCK DELIVERY: The election to deliver to the Corporation, at
the time the Non-Statutory Option is exercised, one or more shares of Common
Stock previously acquired by such holder (other than in connection with the
option exercise triggering the Taxes) with an aggregate Fair Market Value equal
to the percentage of the Taxes (not to exceed one hundred percent (100%))
designated by the holder.
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective immediately upon the Plan
Effective Date. Options may be granted under the Discretionary Option Grant
Program at any time on or after the Plan Effective Date. However, no options
granted under the Plan may be exercised, and no shares shall be issued under the
Plan, until the Plan is approved by the Corporation's
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stockholders. If such stockholder approval is not obtained within twelve
(12) months after the Plan Effective Date, then all options previously
granted under this Plan shall terminate and cease to be outstanding, and no
further options shall be granted and no shares shall be issued under the Plan.
B. The Plan shall terminate upon the EARLIEST of (i) October 31,
2007, (ii) the date on which all shares available for issuance under the Plan
shall have been issued as fully-vested shares or (iii) the termination of all
outstanding options in connection with a Corporate Transaction. Should the Plan
terminate on October 31, 2007, then all option grants outstanding at that time
shall thereafter continue to have force and effect in accordance with the
provisions of the documents evidencing those grants.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority
to amend or modify the Plan in any or all respects. However, no such amendment
or modification shall adversely affect the rights and obligations with respect
to stock options at the time outstanding under the Plan unless the Optionee
consents to such amendment or modification. In addition, certain amendments may
require stockholder approval pursuant to applicable laws or regulations.
B. Options to purchase shares of Common Stock may be granted under
the Discretionary Option Grant Program which in excess of the number of shares
then available for issuance under the Plan, provided those options shall not
become exercisable for any of the excess shares unless and until there is
obtained stockholder approval of an amendment sufficiently increasing the number
of shares of Common Stock available for issuance under the Plan. If such
stockholder approval is not obtained within twelve (12) months after the date
the first of such option grants is made, then all options with such excess
shares shall immediately terminate and cease to be exercisable with respect to
those excess shares.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
of Common Stock under the Plan shall be used for general corporate purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan or the granting of any stock
option under the Plan upon the exercise of any granted option shall be subject
to the Corporation's procurement of all approvals and permits required by
regulatory authorities having jurisdiction over the Plan, the stock options
granted under it and the shares of Common Stock issued pursuant to it.
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B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee any right to
continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any Parent or
Subsidiary employing or retaining such person) or of the Optionee, which rights
are hereby expressly reserved by each, to terminate such person's Service at any
time for any reason, with or without cause.
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APPENDIX
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
B. CHANGE IN CONTROL shall mean a change in ownership or control of the
Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly by any person
or related group of persons (other than the Corporation or a person
that directly or indirectly controls, is controlled by, or is under
common control with, the Corporation), of beneficial ownership (within
the meaning of Rule 13d-3 of the 1934 Act) of securities possessing
more than fifty percent (50%) of the total combined voting power of
the Corporation's outstanding securities pursuant to a tender or
exchange offer made directly to the Corporation's stockholders, or
(ii) a change in the composition of the Board over a period
of thirty-six (36) consecutive months or less such that a majority of
the Board members ceases, by reason of one or more contested elections
for Board membership, to be comprised of individuals who either (A)
have been Board members continuously since the beginning of such
period or (B) have been elected or nominated for election as Board
members during such period by at least a majority of the Board members
described in clause (A) who were still in office at the time the Board
approved such election or nomination.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following stockholder-
approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation
or dissolution of the Corporation.
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F. CORPORATION shall mean Spiros Development Corporation II, Inc., a
Delaware corporation, and its successors.
G. DISCRETIONARY OPTION GRANT PROGRAM shall mean the discretionary option
grant program in effect under the Plan.
H. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
I. EXERCISE DATE shall mean the date on which the Corporation shall have
received written notice of the option exercise.
J. FAIR MARKET VALUE per share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be deemed equal to
the closing selling price per share of Common Stock on the date in
question, as such price is reported on the Nasdaq National Market. If
there is no closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be deemed equal to the
closing selling price per share of Common Stock on the date in
question on the Stock Exchange determined by the Plan Administrator 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 closing selling price for the Common Stock
on the date in question, then the Fair Market Value shall be the
closing selling price on the last preceding date for which such
quotation exists.
K. INCENTIVE OPTION shall mean an option which satisfies the requirements
of Code Section 422.
L. INVOLUNTARY TERMINATION shall mean the termination of the Service of
any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by
the Corporation for reasons other than Misconduct, or
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(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially
reduces his or her duties and responsibilities or the level of
management to which he or she reports, (B) a reduction in his or her
level of compensation (including base salary, fringe benefits and
target bonus under any performance based bonus or incentive programs)
by more than fifteen percent (15%) or (C) a relocation of such
individual's place of employment by more than fifty (50) miles,
provided and only if such change, reduction or relocation is effected
by the Corporation without the individual's consent.
M. MISCONDUCT shall mean the commission of any act of fraud, embezzlement
or dishonesty by the Optionee, any unauthorized use or disclosure by such person
of confidential information or trade secrets of the Corporation (or any Parent
or Subsidiary), or any other intentional misconduct by such person adversely
affecting the business or affairs of the Corporation (or any Parent or
Subsidiary) in a material manner. The foregoing definition shall not be deemed
to be inclusive of all the acts or omissions which the Corporation (or any
Parent or Subsidiary) may consider as grounds for the dismissal or discharge of
any Optionee or other person in the Service of the Corporation (or any Parent or
Subsidiary).
N. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
O. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
requirements of Code Section 422.
P. OPTIONEE shall mean any person to whom an option is granted under the
Discretionary Option Grant Program.
Q. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
R. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the inability
of the Optionee or the Participant to engage in any substantial gainful activity
by reason of any medically determinable physical or mental impairment expected
to result in death or to be of continuous duration of twelve (12) months or
more.
S. PLAN shall mean the Corporation's 1997 Stock Option Plan, as set forth
in this document.
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T. PLAN ADMINISTRATOR shall mean the particular entity, whether the
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant Program with respect to one or more
classes of eligible persons, to the extent such entity is carrying out its
administrative functions under the programs with respect to the persons under
its jurisdiction.
U. PLAN EFFECTIVE DATE shall mean the date on which the Common Stock is
first registered under Section 12 of the 1934 Act.
V. PRIMARY COMMITTEE shall mean the committee of two (2) or more non-
employee Board members appointed by the Board to administer the Discretionary
Option Grant Program with respect to Section 16 Insiders.
W. SECONDARY COMMITTEE shall mean a committee of one (1) or more Board
members appointed by the Board to administer the Discretionary Option Grant
Program with respect to eligible persons other than Section 16 Insiders.
X. 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.
Y. SERVICE shall mean the performance of services for the Corporation (or
any Parent or Subsidiary) by a person in the capacity of an Employee, a non-
employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant or stock issuance.
Z. STOCK EXCHANGE shall mean either the American Stock Exchange or the
New York Stock Exchange.
AA. SUBSIDIARY shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
AB. TAXES shall mean the Federal, state and local income and employment
tax liabilities incurred by the holder of Non-Statutory Options in connection
with the exercise of those options.
AC. 10% STOCKHOLDER shall mean the owner of stock (as determined under
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
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INDEMNIFICATION AGREEMENT
(Directors)
THIS AGREEMENT is made and entered into this 10th day of October, 1997
between Spiros Development Corporation II, Inc., a Delaware corporation
("Corporation"), whose address is 7475 Lusk Blvd., San Diego, California 92121
and ________________("Director"), whose address is
______________________________________________.
RECITALS:
A. WHEREAS, Director, a member of the Board of Directors of Corporation,
performs a valuable service in such capacity for Corporation; and
B. WHEREAS, the Sole Stockholder of Corporation has authorized the
Corporation to enter into indemnification agreements with each of its Directors;
and
C. WHEREAS, the Board of Directors of Corporation have adopted Bylaws
(the "Bylaws") providing for the indemnification of the officers, directors,
agents and employees of Corporation to the maximum extent authorized by Section
145 of the Delaware General Corporation Law, as amended (the "Law"); and
D. WHEREAS, the Bylaws and the Law, as amended and in effect from time
to time or any successor or other statutes of Delaware having similar import and
effect, currently purports to be the controlling law governing Corporation with
respect to certain aspects of corporate law, including indemnification of
directors and officers; and
E. WHEREAS, in accordance with the authorization provided by the Law,
Corporation may from time to time purchase and maintain a policy or policies of
Directors and Officers Liability Insurance ("D & O Insurance"), covering certain
liabilities which may be incurred by its directors and officers in the
performance of services as directors and officers of Corporation; and
F. WHEREAS, as a result of developments affecting the terms, scope and
availability of D & O Insurance there exists general uncertainty as to the
extent and overall desirability of protection afforded members of the Board of
Directors by such D & O Insurance, if any, and by statutory and bylaw
indemnification provisions; and
G. WHEREAS, in order to induce Director to continue to serve as a member
of the Board of Directors of Corporation, Corporation has determined and agreed
to enter into this contract with Director.
NOW, THEREFORE, in consideration of Director's continued service as a
director after the date hereof, the parties hereto agree as follows:
1. CERTAIN DEFINITIONS. The following terms used in this Agreement shall
have the meanings set forth below. Other terms are defined where appropriate in
this Agreement.
(a) "Disinterested Director" shall mean a director of Corporation who
is not or was not a party to the Proceeding in respect of which indemnification
is being sought by Director.
<PAGE>
(b) "Expenses" shall include all direct and indirect costs
(including, without limitation, attorneys' fees, retainers, court costs,
transcripts, fees of experts, witness fees, travel expenses, duplicating costs,
printing and binding costs, telephone charges, postage, delivery service fees,
all other disbursements or out-of-pocket expenses and reasonable compensation
for time spent by Director for which he or she is otherwise not compensated by
Corporation) actually and reasonably incurred in connection with a Proceeding or
establishing or enforcing a right to indemnification under this Agreement,
applicable law or otherwise; provided, however, that "Expenses" shall not
include any Liabilities.
(c) "Final Adverse Determination" shall mean that a determination
that Director is not entitled to indemnification shall have been made pursuant
to Section 5 hereof and either (i) a final adjudication in a Delaware court or
decision of an arbitrator pursuant to Section 13(a) hereof shall have denied
Director's right to indemnification hereunder, or (ii) Director shall have
failed to file a complaint in a Delaware court or seek an arbitrator's award
pursuant to Section 13(a) for a period of one hundred twenty (120) days after
the determination made pursuant to Section 5 hereof.
(d) "Independent Legal Counsel" shall mean a law firm or member of a
law firm selected by Corporation and approved by Director (which approval shall
not be unreasonably withheld) and that neither is presently nor in the past five
years has been retained to represent: (i) Corporation, in any material matter,
or (ii) any other party to the Proceeding giving rise to a claim for
indemnification hereunder. Notwithstanding the foregoing, the term "Independent
Legal Counsel" shall not include any person who, under the applicable standards
of professional conduct then prevailing, would have a conflict of interest in
representing either Corporation or Director in an action to determine Director's
right to indemnification under this Agreement.
(e) "Liabilities" shall mean liabilities of any type whatsoever
including, but not limited to, any judgments, fines, ERISA excise taxes and
penalties, and penalties and amounts paid in settlement (including all interest
assessments and other charges paid or payable in connection with or in respect
of such judgments, fines, penalties or amounts paid in settlement) of any
proceeding.
(f) "Proceeding" shall mean any threatened, pending or completed
action, claim, suit, arbitration, alternative dispute resolution mechanism,
investigation, administrative hearing or any other proceeding whether civil,
criminal, administrative or investigative, including any appeal therefrom.
(g) "Change of Control" shall mean the occurrence of any of the
following events after the date of this Agreement:
(i) A change in the composition of the Board of Directors of
Corporation (the "Board"), as a result of which fewer than two-thirds (2/3) of
the incumbent directors are directors who either (1) had been directors of
Corporation twenty-four (24) months prior to such change or (2) were elected, or
nominated for election, to the Board with the affirmative votes of at least a
majority of the directors who had been directors of Corporation 24 months prior
to such change and who were still in office at the time of the election or
nomination; or
(ii) Any "person" (as such term is used in section 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended) through the
acquisition or aggregation of securities is or becomes the beneficial owner,
directly or indirectly, of securities of Corporation
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representing twenty percent (20%) or more of the combined voting power of
Corporation's then outstanding securities ordinarily (and apart from rights
accruing under special circumstances) having the right to vote at elections of
directors (the "Capital Stock"), except that any change in ownership of
Corporation's securities by any person resulting solely from a reduction in the
aggregate number of outstanding shares of Capital Stock, and any decrease
thereafter in such person's ownership of securities, shall be disregarded until
such person increases in any manner, directly or indirectly, such person's
beneficial ownership of any securities of Corporation.
(iii) Notwithstanding the above, the exercise by Dura
Pharmaceuticals, Inc. of its option to acquire all of the outstanding Callable
Common Stock of the Corporation shall not constitute a Change of Control for the
purposes of this Agreement.
2. INDEMNITY OF DIRECTOR. Corporation hereby agrees to hold harmless and
indemnify Director to the fullest extent authorized or permitted by the
provisions of the Law, as may be amended from time to time.
3. ADDITIONAL INDEMNITY. Subject only to the exclusions set forth in
Section 4 hereof, Corporation hereby further agrees to hold harmless and
indemnify Director:
(a) against any and all expenses (including attorneys' fees), witness
fees, judgments, fines and amounts paid in settlement actually and reasonably
incurred by Director in connection with any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (including an action by or in the right of Corporation) to which
Director is, was or at any time becomes a party, or is threatened to be made a
party, by reason of the fact that Director is, was or at any time becomes a
director, officer, employee or agent of Corporation, or is or was serving or at
any time serves at the request of Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise; and
(b) otherwise to the fullest extent as may be provided to Director by
Corporation under the non-exclusivity provisions of the Bylaws of Corporation
and the Law.
4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to Section
3 hereof shall be paid by Corporation:
(a) except to the extent the aggregate of losses to be indemnified
thereunder exceeds the sum of such losses for which the Director is indemnified
pursuant to Section 2 hereof or reimbursed pursuant to any D & O Insurance
purchased and maintained by Corporation;
(b) in respect of remuneration paid to Director if it shall be
determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
(c) on account of any action, suit or proceeding in which judgment is
rendered against Director for an accounting of profits made from the purchase or
sale by Director of securities of Corporation pursuant to the provisions of
Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or
similar provisions of any federal, state or local statutory law;
(d) on account of Director's conduct which is finally adjudged to
have been knowingly fraudulent or deliberately dishonest, or to constitute
willful misconduct if such conduct has been established by a judgment or other
final adjudication adverse to Director (an "Adverse Judgment");
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(e) provided there has been no Change of Control, on account of or
arising in response to any action, suit or proceeding (other than an action,
suit or proceeding referred to in Section 14(b) hereof) initiated by Director
or any of Director's affiliates against Corporation or any officer, director
or stockholder of Corporation unless such action, suit or proceeding was
authorized in the specific case by action of the Board of Directors of
Corporation; or
(f) if a final decision by a Court having jurisdiction in the matter
shall determine that such indemnification is not lawful.
5. PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION.
(a) Whenever Director believes that he or she is entitled to
indemnification pursuant to this Agreement, Director shall submit a written
request for indemnification to Corporation. Any request for indemnification
shall include sufficient documentation or information reasonably available to
Director to support his or her claim for indemnification. Director shall submit
his or her claim for indemnification within a reasonable time not to exceed five
years after any judgment, order, settlement, dismissal, arbitration award,
conviction, acceptance of a plea of nolo contendere or its equivalent, final
termination or other disposition or partial disposition of any Proceeding,
whichever is the later date for which Director requests indemnification. The
President or the Secretary or other appropriate officer shall, promptly upon
receipt of Director's request for indemnification, advise the Board of Directors
in writing that Director has made such a request. Determination of Director's
entitlement to indemnification shall be made not later than ninety (90) days
after Corporation's receipt of his or her written request for such
indemnification.
(b) The Director shall be entitled to select the forum in which
Director's request for indemnification will be heard, which selection shall be
included in the written request for indemnification required in Section 5(a).
This forum shall be any one of the following:
(i) The stockholders of Corporation;
(ii) A quorum of the Board of Directors consisting of
Disinterested Directors;
(iii) Independent Legal Counsel, who shall make the
determination in a written opinion; or
(iv) A panel of three arbitrators, one selected by Corporation,
another by Director and the third by the first two arbitrators selected. If for
any reason three arbitrators are not selected within thirty (30) days after the
appointment of the first arbitrator, then selection of additional arbitrators
shall be made by the American Arbitration Association. If any arbitrator
resigns or is unable to serve in such capacity for any reason, the American
Arbitration Association shall select his or her replacement. The arbitration
shall be conducted pursuant to the commercial arbitration rules of the American
Arbitration Association now in effect.
If Director fails to make such designation, his or her claim
shall be determined by the forum selected by Corporation.
6. PRESUMPTION AND EFFECT OF CERTAIN PROCEEDINGS. Upon making a request
for indemnification, Director shall be presumed to be entitled to
indemnification under this Agreement and Corporation shall have the burden of
proof to overcome that presumption in reaching any contrary determination. The
termination of any Proceeding by judgment, order,
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settlement, arbitration award or conviction, or upon a plea of nolo contendere
or its equivalent shall not affect this presumption or, except as may be
provided in Section 4 hereof, establish a presumption with regard to any factual
matter relevant to determining Director's rights to indemnification hereunder.
If the person or persons so empowered to make a determination pursuant to
Section 5(b) hereof shall have failed to make the requested determination within
thirty (30) days after any judgment, order, settlement, dismissal, arbitration
award, conviction, acceptance of a plea of nolo contendere or its equivalent, or
other disposition or partial disposition of any Proceeding or any other event
which could enable Corporation to determine Director's entitlement to
indemnification, the requisite determination that Director is entitled to
indemnification shall be deemed to have been made.
7. CONTRIBUTION. If the indemnification provided in Sections 2 and 3 is
unavailable and may not be paid to Director for any reason other than those set
forth in Section 4, then in respect of any threatened, pending or completed
action, suit or proceeding in which Corporation is or is alleged to be jointly
liable with Director (or would be if joined in such action, suit or proceeding),
Corporation shall contribute to the amount of expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred and paid or payable by Director in such proportion as is appropriate to
reflect (i) the relative benefits received by Corporation on the one hand and
Director on the other hand from the transaction from which such action, suit or
proceeding arose, and (ii) the relative fault of Corporation on the one hand and
of Director on the other hand in connection with the events which resulted in
such expenses, judgments, fines or settlement amounts, as well as any other
relevant equitable considerations. The relative fault of Corporation on the one
hand and of Director on the other shall be determined by reference to, among
other things, the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent the circumstances resulting in such expenses,
judgments, fines or settlement amounts. Corporation agrees that it would not be
just and equitable if contribution pursuant to this Section 7 were determined by
pro rata allocation or any other method of allocation which does not take
account of the foregoing equitable considerations.
8. INSURANCE AND FUNDING. Corporation hereby represents and warrants
that it shall purchase and maintain insurance to protect itself and/or Director
against any Expenses and Liabilities in connection with any Proceeding to the
fullest extent permitted by the Law. In the event of a Change of Control,
Corporation shall establish a letter of credit, as provided in Section 9, to
ensure the payment of such amounts as may be necessary to effect indemnification
or advancement of Expenses as provided in this Agreement.
9. LETTER OF CREDIT.
(a) In order to secure the obligations of Corporation to indemnify
and advance Expenses to Director pursuant to this Agreement, Corporation shall
obtain at the time of any Change of Control, upon request of any director, an
irrevocable standby letter of credit naming the directors of the Corporation in
office at the time of a Change of Control as joint beneficiaries (the "Letter of
Credit"). The Letter of Credit shall be in an appropriate amount not less than
two million dollars ($2,000,000), shall be issued by a commercial bank
headquartered in the United States having assets in excess of $10 billion and
capital according to its most recent published reports equal to or greater than
the then applicable minimum capital standards promulgated by such bank's primary
federal regulator and shall contain terms and conditions reasonably acceptable
to all directors. The Letter of Credit shall provide that Director may from
time to time draw certain amounts thereunder, upon written certification by
Director to the issuer of the Letter of Credit that (i) Director has made
written request upon Corporation for an amount not less than the amount he or
she is drawing under the Letter of Credit and that Corporation has failed or
refused to provide him with such amount in full within thirty (30) days after
receipt of the request, and (ii) Director believes that he or she is entitled
under the terms of this Agreement to
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<PAGE>
the amount which he or she is drawing upon under the Letter of Credit. The
issuance of the Letter of Credit shall not, in any way, diminish Corporation's
obligation to indemnify Director against Expenses and Liabilities to the full
extent required by this Agreement.
(b) Once Corporation has obtained the Letter of Credit, Corporation
shall maintain and renew the Letter of Credit or substitute letter of credit
meeting the criteria of Section 9(a) during the term of this Agreement so that
the Letter of Credit shall have an initial term of five years, be renewed for
successive five-year terms, and always have at least one year of its term
remaining.
10. CONTINUATION OF OBLIGATIONS. All agreements and obligations of
Corporation contained herein shall continue during the period Director is a
director, officer, employee or agent of Corporation (or is or was serving at the
request of Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise) and shall continue thereafter so long as Director shall be subject
to any possible claim or threatened, pending or completed action, suit or
proceeding, whether civil, criminal or investigative, by reason of the fact that
Director was serving Corporation or such other entity in any capacity referred
to herein.
11. NOTIFICATION AND DEFENSE OF CLAIM. Promptly after receipt by Director
of notice of the commencement of any action, suit or proceeding, Director will,
if a claim in respect thereof is to be made against Corporation under this
Agreement, notify Corporation of the commencement thereof; but the omission so
to notify Corporation will not relieve it from any liability which it may have
to Director otherwise than under this Agreement. With respect to any such
action, suit or proceeding as to which Director notifies Corporation of the
commencement thereof:
(a) Corporation will be entitled to participate therein at its own
expense;
(b) Except as otherwise provided below, to the extent that it may
wish, Corporation jointly with any other indemnifying party similarly notified
will be entitled to assume the defense thereof, with counsel reasonably
satisfactory to Director. After notice from Corporation to Director of its
election to assume the defense thereof, Corporation will not be liable to
Director under this Agreement for any legal or other expenses subsequently
incurred by Director in connection with the defense thereof other than
reasonable costs of investigation or as otherwise provided below. Director
shall have the right to employ his or her own counsel in such action, suit or
proceeding but the fees and expenses of such counsel incurred after notice from
Corporation of its assumption of the defense thereof shall be at the expense of
Director unless (i) the employment of counsel by Director has been authorized by
Corporation, (ii) Director shall have reasonably concluded that there may be a
conflict of interest between Corporation and Director in the conduct of the
defense of such action or (iii) Corporation shall not in fact have employed
counsel to assume the defense of such action, in each of which cases the fees
and expenses of Director's separate counsel shall be at the expense of
Corporation. Corporation shall not be entitled to assume the defense of any
action, suit or proceeding brought by or on behalf of Corporation or as to which
Director shall have made the conclusion provided for in (ii) above; and
(c) Provided there has been no Change of Control, Corporation shall
not be liable to indemnify Director under this Agreement for any amounts paid in
settlement of any action or claim effected without its written consent, which
consent shall not be unreasonably withheld. Corporation shall be permitted to
settle any action except that it shall not settle any action or claim in any
manner which would impose any penalty, out-of-pocket liability, or limitation on
Director without Director's written consent.
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12. ADVANCEMENT AND REPAYMENT OF EXPENSES.
(a) In the event that Director employs his or her own counsel
pursuant to Section 11(b)(i) through (iii) above, Corporation shall advance to
Director, prior to any final disposition of any threatened or pending action,
suit or proceeding, whether civil, criminal, administrative or investigative,
any and all reasonable expenses (including legal fees and expenses) incurred in
investigating or defending any such action, suit or proceeding within ten (10)
days after receiving copies of invoices presented to Director for such expenses.
(b) Director agrees that Director will reimburse Corporation for all
reasonable expenses paid by Corporation in defending any civil or criminal
action, suit or proceeding against Director in the event and only to the extent
it shall be ultimately determined by a final judicial decision (from which there
is no right of appeal) that Director is not entitled, under the provisions of
the Law, the Bylaws, this Agreement or otherwise, to be indemnified by
Corporation for such expenses.
13. REMEDIES OF DIRECTOR.
(a) In the event that (i) a determination pursuant to Section 5
hereof is made that Director is not entitled to indemnification, (ii) advances
of Expenses are not made pursuant to this Agreement, (iii) payment has not been
timely made following a determination of entitlement to indemnification pursuant
to this Agreement, or (iv) Director otherwise seeks enforcement of this
Agreement, Director shall be entitled to a final adjudication in an appropriate
court of his or her rights. Alternatively, Director at his or her option may
seek an award in arbitration to be conducted by a single arbitrator pursuant to
the commercial arbitration rules of the American Arbitration Association now in
effect, whose decision is to be made within ninety (90) days following the
filing of the demand for arbitration. The Corporation shall not oppose
Director's right to seek any such adjudication or arbitration award.
(b) In the event that a determination that Director is not entitled
to indemnification, in whole or in part, has been made pursuant to Section 5
hereof, the decision in the judicial proceeding or arbitration provided in
paragraph (a) of this Section 13 shall be made de novo and Director shall not be
prejudiced by reason of a determination that he or she is not entitled to
indemnification.
(c) If a determination that Director is entitled to indemnification
has been made pursuant to Section 5 hereof or otherwise pursuant to the terms of
this Agreement, Corporation shall be bound by such determination in the absence
of (i) a misrepresentation of a material fact by Director or (ii) a specific
finding (which has become final) by an appropriate court that all or any part of
such indemnification is expressly prohibited by law.
(d) In any court proceeding pursuant to this Section 13, Corporation
shall be precluded from asserting that the procedures and presumptions of this
Agreement are not valid, binding and enforceable. The Corporation shall
stipulate in any such court or before any such arbitrator that Corporation is
bound by all the provisions of this Agreement and is precluded from making any
assertion to the contrary.
(e) Expenses reasonably incurred by Director in connection with his
or her request for indemnification under this Agreement, meeting enforcement of
this Agreement or to recover damages for breach of this Agreement shall be borne
by Corporation.
(f) Corporation and Director agree herein that a monetary remedy for
breach of this Agreement, at some later date, will be inadequate, impracticable
and difficult of proof,
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and further agree that such breach would cause Director irreparable harm.
Accordingly, Corporation and Director agree that Director shall be entitled to
temporary and permanent injunctive relief to enforce this Agreement without the
necessity of proving actual damages or irreparable harm. The Corporation and
Director further agree that Director shall be entitled to such injunctive
relief, including temporary restraining orders, preliminary injunctions and
permanent injunctions, without the necessity of posting bond or other
undertaking in connection therewith. Any such requirement of bond or
undertaking is hereby waived by Corporation, and Corporation acknowledges that
in the absence of such a waiver, a bond or undertaking may be required by the
court.
14. ENFORCEMENT.
(a) Corporation expressly confirms and agrees that it has entered
into this Agreement and assumed the obligations imposed on Corporation hereby in
order to induce Director to continue as a director of Corporation, and
acknowledges that Director is relying upon this Agreement in continuing in such
capacity.
(b) In the event Director is required to bring any action to enforce
rights or to collect moneys due under this Agreement and is successful in such
action, the Corporation shall reimburse Director for all Director's reasonable
fees and expenses in bringing and pursuing such action.
15. SEPARABILITY. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others, so that if any or all of
the provisions hereof shall be held to be invalid or unenforceable to any extent
for any reason, such invalidity or unenforceability shall not affect the
validity or enforceability of the other provisions hereof, or the obligation of
the Corporation to indemnify the Director to the full extent provided by the
Bylaws or the Law, and the affected provision shall be construed and enforced so
as to effectuate the parties' intent to the maximum extent possible.
16. GOVERNING LAW. This Agreement shall be governed by and interpreted
and enforced in accordance with the internal laws of the State of Delaware.
17. CONSENT TO JURISDICTION. The Corporation and Director each
irrevocably consent to jurisdiction of the courts of the State of Delaware for
all purposes in connection with any action or proceeding which arises out of or
relates to this Agreement and agree that any action instituted under this
Agreement shall be brought only in the state courts of the State of Delaware.
18. BINDING EFFECT. This Agreement shall be binding upon Director and
upon Corporation, its successors and assigns, and shall inure to the benefit of
Director, his or her heirs, executors, administrators, personal representatives
and assigns and to the benefit of Corporation, its successors and assigns.
19. ENTIRE AGREEMENT. This Agreement represents the entire agreement
between the parties hereto and there are no other agreements, contracts or
understandings between the parties hereto with respect to the subject matter of
this Agreement, except as specifically referred to herein. This Agreement
supersedes any and all agreements regarding indemnification heretofore entered
into by the parties.
20. AMENDMENT AND TERMINATION. No amendment, modification, waiver,
termination or cancellation of this Agreement shall be effective for any purpose
unless set forth in writing signed by both parties hereto.
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21. SUBROGATION. In the event of payment under this Agreement,
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Director, who shall execute all documents required and
shall do all acts that may be necessary to secure such rights and to enable
Corporation effectively to bring suit to enforce such rights.
22. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Director by this
Agreement shall not be exclusive of any other right which Director may have or
hereafter acquire under any statute, provision of Corporation's Certificate of
Incorporation or Bylaws, agreement, vote of stockholders or directors, or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding office.
23. SURVIVAL OF RIGHTS. The rights conferred on Director by this
Agreement shall continue after Director has ceased to be a director, officer,
employee or other agent of Corporation or such other entity and shall inure to
the benefit of Director's heirs, executors and administrators.
24. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be addressed to Director or to
Corporation, as the case may be, at the address shown on page 1 of this
Agreement, or to such other address as may have been furnished by either party
to the other, and shall be deemed to have been duly given if (i) delivered by
hand and receipted for by the party to whom said notice or other communication
shall have been directed, or (ii) mailed by certified or registered mail with
postage prepaid, on the third business day after the date on which it is so
mailed.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the day and year first above written.
DIRECTOR: CORPORATION:
SPIROS DEVELOPMENT CORPORATION II, INC.
By:
- ------------------ ---------------------------------------------
(Signature) (Signature)
David S. Kabakoff, Chairman, President & CEO
- ------------------ ------------------------------------------------
Printed Name Printed Name and Title
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INDEMNIFICATION AGREEMENT
(Officers)
THIS AGREEMENT is made and entered into this 10th day of October, 1997
between Spiros Development Corporation II, Inc., a Delaware corporation
("Corporation"), whose address is 7475 Lusk Blvd., San Diego, California 92121
and _____________________ ("Officer"), whose address is
____________________________.
RECITALS:
A. WHEREAS, Officer is an officer of Corporation and performs a valuable
service in such capacity for Corporation; and
B. WHEREAS, the Sole Stockholder of Corporation has authorized the
Corporation to enter into indemnification agreements with each of its officers;
and
C. WHEREAS, the Board of Directors of Corporation have adopted Bylaws
(the "Bylaws") providing for the indemnification of the officers, directors,
agents and employees of Corporation to the maximum extent authorized by Section
145 of the Delaware General Corporation Law, as amended (the "Law"); and
D. WHEREAS, the Bylaws and the Law, as amended and in effect from time
to time or any successor or other statutes of Delaware having similar import and
effect, currently purports to be the controlling law governing Corporation with
respect to certain aspects of corporate law, including indemnification of
directors and officers; and
E. WHEREAS, in accordance with the authorization provided by the Law,
Corporation may from time to time purchase and maintain a policy or policies of
Directors and Officers Liability Insurance ("D & O Insurance"), covering certain
liabilities which may be incurred by its directors and officers in the
performance of services as directors and officers of Corporation; and
F. WHEREAS, as a result of developments affecting the terms, scope and
availability of D & O Insurance there exists general uncertainty as to the
extent and overall desirability of protection afforded officers by such D & O
Insurance, if any, and by statutory and bylaw indemnification provisions; and
G. WHEREAS, in order to induce Officer to continue to serve as an officer
of Corporation, Corporation has determined and agreed to enter into this
contract with Officer.
NOW, THEREFORE, in consideration of Officer's continued service as an
officer after the date hereof, the parties hereto agree as follows:
1. CERTAIN DEFINITIONS. The following terms used in this Agreement shall
have the meanings set forth below. Other terms are defined where appropriate in
this Agreement.
(a) "Disinterested Director" shall mean a director of Corporation who
is not or was not a party to the Proceeding in respect of which indemnification
is being sought by Officer.
<PAGE>
(b) "Expenses" shall include all direct and indirect costs
(including, without limitation, attorneys' fees, retainers, court costs,
transcripts, fees of experts, witness fees, travel expenses, duplicating costs,
printing and binding costs, telephone charges, postage, delivery service fees,
all other disbursements or out-of-pocket expenses and reasonable compensation
for time spent by Officer for which he or she is otherwise not compensated by
Corporation) actually and reasonably incurred in connection with a Proceeding or
establishing or enforcing a right to indemnification under this Agreement,
applicable law or otherwise; provided, however, that "Expenses" shall not
include any Liabilities.
(c) "Final Adverse Determination" shall mean that a determination
that Officer is not entitled to indemnification shall have been made pursuant to
Section 5 hereof and either (i) a final adjudication in a Delaware court or
decision of an arbitrator pursuant to Section 13(a) hereof shall have denied
Officer's right to indemnification hereunder, or (ii) Officer shall have failed
to file a complaint in a Delaware court or seek an arbitrator's award pursuant
to Section 13(a) for a period of one hundred twenty (120) days after the
determination made pursuant to Section 5 hereof.
(d) "Independent Legal Counsel" shall mean a law firm or member of a
law firm selected by Corporation and approved by Officer (which approval shall
not be unreasonably withheld) and that neither is presently nor in the past five
years has been retained to represent: (i) Corporation, in any material matter,
or (ii) any other party to the Proceeding giving rise to a claim for
indemnification hereunder. Notwithstanding the foregoing, the term "Independent
Legal Counsel" shall not include any person who, under the applicable standards
of professional conduct then prevailing, would have a conflict of interest in
representing either Corporation or Officer in an action to determine Officer's
right to indemnification under this Agreement.
(e) "Liabilities" shall mean liabilities of any type whatsoever
including, but not limited to, any judgments, fines, ERISA excise taxes and
penalties, and penalties and amounts paid in settlement (including all interest
assessments and other charges paid or payable in connection with or in respect
of such judgments, fines, penalties or amounts paid in settlement) of any
proceeding.
(f) "Proceeding" shall mean any threatened, pending or completed
action, claim, suit, arbitration, alternative dispute resolution mechanism,
investigation, administrative hearing or any other proceeding whether civil,
criminal, administrative or investigative, including any appeal therefrom.
(g) "Change of Control" shall mean the occurrence of any of the
following events after the date of this Agreement:
(i) A change in the composition of the Board of Directors of
Corporation (the "Board"), as a result of which fewer than two-thirds (2/3) of
the incumbent directors are directors who either (1) had been directors of
Corporation twenty-four (24) months prior to such change or (2) were elected, or
nominated for election, to the Board with the affirmative votes of at least a
majority of the directors who had been directors of Corporation 24 months prior
to such change and who were still in office at the time of the election or
nomination; or
(ii) Any "person" (as such term is used in section 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended) through the
acquisition or aggregation of securities is or becomes the beneficial owner,
directly or indirectly, of securities of Corporation representing twenty percent
(20%) or more of the combined voting power of Corporation's then
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outstanding securities ordinarily (and apart from rights accruing under special
circumstances) having the right to vote at elections of directors (the "Capital
Stock"), except that any change in ownership of Corporation's securities by any
person resulting solely from a reduction in the aggregate number of outstanding
shares of Capital Stock, and any decrease thereafter in such person's ownership
of securities, shall be disregarded until such person increases in any manner,
directly or indirectly, such person's beneficial ownership of any securities of
Corporation.
(iii) Notwithstanding the above, the exercise by Dura
Pharmaceuticals, Inc. of its option to acquire all of the outstanding Callable
Common Stock of the Corporation shall not constitute a Change of Control for the
purposes of this Agreement.
2. INDEMNITY OF OFFICER. Corporation hereby agrees to hold harmless and
indemnify Officer to the fullest extent authorized or permitted by the
provisions of the Law, as may be amended from time to time.
3. ADDITIONAL INDEMNITY. Subject only to the exclusions set forth in
Section 4 hereof, Corporation hereby further agrees to hold harmless and
indemnify Officer:
(a) against any and all legal expenses (including attorneys' fees),
witness fees, judgments, fines and amounts paid in settlement actually and
reasonably incurred by Officer in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (including an action by or in the right of Corporation) to which
Officer is, was or at any time becomes a party, or is threatened to be made a
party, by reason of the fact that Officer is, was or at any time becomes a
director, officer, employee or agent of Corporation, or is or was serving or at
any time serves at the request of Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise; and
(b) otherwise to the fullest extent as may be provided to Officer by
Corporation under the non-exclusivity provisions of the Bylaws of Corporation
and the Law.
4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to Section
3 hereof shall be paid by Corporation:
(a) except to the extent the aggregate of losses to be indemnified
thereunder exceeds the sum of such losses for which the Officer is indemnified
pursuant to Section 2 hereof or reimbursed pursuant to any D & O Insurance
purchased and maintained by Corporation;
(b) in respect of remuneration paid to Officer if it shall be
determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
(c) on account of any action, suit or proceeding in which judgment is
rendered against Officer for an accounting of profits made from the purchase or
sale by Officer of securities of Corporation pursuant to the provisions of
Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or
similar provisions of any federal, state or local statutory law;
(d) on account of Officer's conduct which is finally adjudged to have
been knowingly fraudulent or deliberately dishonest, or to constitute willful
misconduct if such conduct has been established by a judgment or other final
adjudication adverse to Officer (an "Adverse Judgment");
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(e) provided there has been no Change of Control, on account of or
arising in response to any action, suit or proceeding (other than an action,
suit or proceeding referred to in Section 14(b) hereof) initiated by Officer or
any of Officer's affiliates against Corporation or any officer, director or
stockholder of Corporation unless such action, suit or proceeding was authorized
in the specific case by action of the Board of Directors of Corporation; or
(f) if a final decision by a Court having jurisdiction in the matter
shall determine that such indemnification is not lawful.
5. PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION.
(a) Whenever Officer believes that he or she is entitled to
indemnification pursuant to this Agreement, Officer shall submit a written
request for indemnification to Corporation. Any request for indemnification
shall include sufficient documentation or information reasonably available to
Officer to support his or her claim for indemnification. Officer shall submit
his or her claim for indemnification within a reasonable time not to exceed five
years after any judgment, order, settlement, dismissal, arbitration award,
conviction, acceptance of a plea of nolo contendere or its equivalent, final
termination or other disposition or partial disposition of any Proceeding,
whichever is the later date for which Officer requests indemnification. The
President or the Secretary or other appropriate officer shall, promptly upon
receipt of Officer's request for indemnification, advise the Board of Directors
in writing that Officer has made such a request. Determination of Officer's
entitlement to indemnification shall be made not later than ninety (90) days
after Corporation's receipt of his or her written request for such
indemnification.
(b) The Officer shall be entitled to select the forum in which
Officer's request for indemnification will be heard, which selection shall be
included in the written request for indemnification required in Section 5(a).
This forum shall be any one of the following:
(i) The stockholders of Corporation;
(ii) A quorum of the Board of Directors consisting of
Disinterested Directors;
(iii) Independent Legal Counsel, who shall make the
determination in a written opinion; or
(iv) A panel of three arbitrators, one selected by Corporation,
another by Officer and the third by the first two arbitrators selected. If for
any reason three arbitrators are not selected within thirty (30) days after the
appointment of the first arbitrator, then selection of additional arbitrators
shall be made by the American Arbitration Association. If any arbitrator
resigns or is unable to serve in such capacity for any reason, the American
Arbitration Association shall select his or her replacement. The arbitration
shall be conducted pursuant to the commercial arbitration rules of the American
Arbitration Association now in effect.
If Officer fails to make such designation, his or her claim shall
be determined by the forum selected by Corporation.
6. PRESUMPTION AND EFFECT OF CERTAIN PROCEEDINGS. Upon making a request
for indemnification, Officer shall be presumed to be entitled to indemnification
under this Agreement and Corporation shall have the burden of proof to overcome
that presumption in reaching any contrary determination. The termination of any
Proceeding by judgment, order,
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settlement, arbitration award or conviction, or upon a plea of nolo contendere
or its equivalent shall not affect this presumption or, except as may be
provided in Section 4 hereof, establish a presumption with regard to any factual
matter relevant to determining Officer's rights to indemnification hereunder.
If the person or persons so empowered to make a determination pursuant to
Section 5(b) hereof shall have failed to make the requested determination within
thirty (30) days after any judgment, order, settlement, dismissal, arbitration
award, conviction, acceptance of a plea of nolo contendere or its equivalent, or
other disposition or partial disposition of any Proceeding or any other event
which could enable Corporation to determine Officer's entitlement to
indemnification, the requisite determination that Officer is entitled to
indemnification shall be deemed to have been made.
7. CONTRIBUTION. If the indemnification provided in Sections 2 and 3 is
unavailable and may not be paid to Officer for any reason other than those set
forth in Section 4, then in respect of any threatened, pending or completed
action, suit or proceeding in which Corporation is or is alleged to be jointly
liable with Officer (or would be if joined in such action, suit or proceeding),
Corporation shall contribute to the amount of expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred and paid or payable by Officer in such proportion as is appropriate to
reflect (i) the relative benefits received by Corporation on the one hand and
Officer on the other hand from the transaction from which such action, suit or
proceeding arose, and (ii) the relative fault of Corporation on the one hand and
of Officer on the other hand in connection with the events which resulted in
such expenses, judgments, fines or settlement amounts, as well as any other
relevant equitable considerations. The relative fault of Corporation on the one
hand and of Officer on the other hand shall be determined by reference to, among
other things, the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent the circumstances resulting in such expenses,
judgments, fines or settlement amounts. Corporation agrees that it would not be
just and equitable if contribution pursuant to this Section 7 were determined by
pro rata allocation or any other method of allocation which does not take
account of the foregoing equitable considerations.
8. INSURANCE AND FUNDING. Corporation hereby represents and warrants
that it shall purchase and maintain insurance to protect itself and/or Officer
against any Expenses and Liabilities in connection with any Proceeding to the
fullest extent permitted by the Law. In the event of a Change of Control,
Corporation shall establish a letter of credit, as provided in Section 9, to
ensure the payment of such amounts as may be necessary to effect indemnification
or advancement of Expenses as provided in this Agreement.
9. LETTER OF CREDIT.
(a) In order to secure the obligations of Corporation to indemnify
and advance Expenses to Officer pursuant to this Agreement, Corporation shall
obtain at the time of any Change of Control, upon request of any Officer, an
irrevocable standby letter of credit naming the Officers of the Corporation in
office at the time of a Change of Control as joint beneficiaries (the "Letter of
Credit"). The Letter of Credit shall be in an appropriate amount not less than
one million dollars ($1,000,000), shall be issued by a commercial bank
headquartered in the United States having assets in excess of $10 billion and
capital according to its most recent published reports equal to or greater than
the then applicable minimum capital standards promulgated by such bank's primary
federal regulator and shall contain terms and conditions reasonably acceptable
to all Officers. The Letter of Credit shall provide that Officer may from time
to time draw certain amounts thereunder, upon written certification by Officer
to the issuer of the Letter of Credit that (i) Officer has made written request
upon Corporation for an amount not less than the amount he or she is drawing
under the Letter of Credit and that Corporation has failed or refused to provide
him with such amount in full within thirty (30) days after receipt of the
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request, and (ii) Officer believes that he or she is entitled under the terms of
this Agreement to the amount which he or she is drawing upon under the Letter of
Credit. The issuance of the Letter of Credit shall not, in any way, diminish
Corporation's obligation to indemnify Officer against Expenses and Liabilities
to the full extent required by this Agreement.
(b) Once Corporation has obtained the Letter of Credit, Corporation
shall maintain and renew the Letter of Credit or substitute letter of credit
meeting the criteria of Section 9(a) during the term of this Agreement so that
the Letter of Credit shall have an initial term of five years, be renewed for
successive five-year terms, and always have at least one year of its term
remaining.
10. CONTINUATION OF OBLIGATIONS. All agreements and obligations of
Corporation contained herein shall continue during the period Officer is a
director, officer, employee or agent of Corporation (or is or was serving at the
request of Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise) and shall continue thereafter so long as Officer shall be subject to
any possible claim or threatened, pending or completed action, suit or
proceeding, whether civil, criminal or investigative, by reason of the fact that
Officer was serving Corporation or such other entity in any capacity referred to
herein.
11. NOTIFICATION AND DEFENSE OF CLAIM. Promptly after receipt by Officer
of notice of the commencement of any action, suit or proceeding, Officer will,
if a claim in respect thereof is to be made against Corporation under this
Agreement, notify Corporation of the commencement thereof; but the omission so
to notify Corporation will not relieve it from any liability which it may have
to Officer otherwise than under this Agreement. With respect to any such action,
suit or proceeding as to which Officer notifies Corporation of the commencement
thereof:
(a) Corporation will be entitled to participate therein at its own
expense;
(b) Except as otherwise provided below, to the extent that it may
wish, Corporation jointly with any other indemnifying party similarly notified
will be entitled to assume the defense thereof, with counsel reasonably
satisfactory to Officer. After notice from Corporation to Officer of its
election to assume the defense thereof, Corporation will not be liable to
Officer under this Agreement for any legal or other expenses subsequently
incurred by Officer in connection with the defense thereof other than reasonable
costs of investigation or as otherwise provided below. Officer shall have the
right to employ his or her own counsel in such action, suit or proceeding but
the fees and expenses of such counsel incurred after notice from Corporation of
its assumption of the defense thereof shall be at the expense of Officer unless
(i) the employment of counsel by Officer has been authorized by Corporation,
(ii) Officer shall have reasonably concluded that there may be a conflict of
interest between Corporation and Officer in the conduct of the defense of such
action or (iii) Corporation shall not in fact have employed counsel to assume
the defense of such action, in each of which cases the fees and expenses of
Officer's separate counsel shall be at the expense of Corporation. Corporation
shall not be entitled to assume the defense of any action, suit or proceeding
brought by or on behalf of Corporation or as to which Officer shall have made
the conclusion provided for in (ii) above; and
(c) Provided there has been no Change of Control, Corporation shall
not be liable to indemnify Officer under this Agreement for any amounts paid in
settlement of any action or claim effected without its written consent, which
consent shall not be unreasonably withheld. Corporation shall be permitted to
settle any action except that it shall not settle any action or claim in any
manner which would impose any penalty, out-of-pocket liability, or limitation on
Officer without Officer's written consent.
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12. ADVANCEMENT AND REPAYMENT OF EXPENSES.
(a) In the event that Officer employs his or her own counsel pursuant
to Section 11(b)(i) through (iii) above, Corporation shall advance to Officer,
prior to any final disposition of any threatened or pending action, suit or
proceeding, whether civil, criminal, administrative or investigative, any and
all reasonable expenses (including legal fees and expenses) incurred in
investigating or defending any such action, suit or proceeding within ten (10)
days after receiving copies of invoices presented to Officer for such expenses.
(b) Officer agrees that Officer will reimburse Corporation for all
reasonable expenses paid by Corporation in defending any civil or criminal
action, suit or proceeding against Officer in the event and only to the extent
it shall be ultimately determined by a final judicial decision (from which there
is no right of appeal) that Officer is not entitled, under the provisions of the
Law, the Bylaws, this Agreement or otherwise, to be indemnified by Corporation
for such expenses.
13. REMEDIES OF OFFICER.
(a) In the event that (i) a determination pursuant to Section 5
hereof is made that Officer is not entitled to indemnification, (ii) advances of
Expenses are not made pursuant to this Agreement, (iii) payment has not been
timely made following a determination of entitlement to indemnification pursuant
to this Agreement, or (iv) Officer otherwise seeks enforcement of this
Agreement, Officer shall be entitled to a final adjudication in an appropriate
court of his or her rights. Alternatively, Officer at his or her option may
seek an award in arbitration to be conducted by a single arbitrator pursuant to
the commercial arbitration rules of the American Arbitration Association now in
effect, whose decision is to be made within ninety (90) days following the
filing of the demand for arbitration. The Corporation shall not oppose
Officer's right to seek any such adjudication or arbitration award.
(b) In the event that a determination that Officer is not entitled to
indemnification, in whole or in part, has been made pursuant to Section 5
hereof, the decision in the judicial proceeding or arbitration provided in
paragraph (a) of this Section 13 shall be made de novo and Officer shall not be
prejudiced by reason of a determination that he or she is not entitled to
indemnification.
(c) If a determination that Officer is entitled to indemnification
has been made pursuant to Section 5 hereof or otherwise pursuant to the terms of
this Agreement, Corporation shall be bound by such determination in the absence
of (i) a misrepresentation of a material fact by Officer or (ii) a specific
finding (which has become final) by an appropriate court that all or any part of
such indemnification is expressly prohibited by law.
(d) In any court proceeding pursuant to this Section 13, Corporation
shall be precluded from asserting that the procedures and presumptions of this
Agreement are not valid, binding and enforceable. The Corporation shall
stipulate in any such court or before any such arbitrator that Corporation is
bound by all the provisions of this Agreement and is precluded from making any
assertion to the contrary.
(e) Expenses reasonably incurred by Officer in connection with his or
her request for indemnification under this Agreement, meeting enforcement of
this Agreement or to recover damages for breach of this Agreement shall be borne
by Corporation.
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(f) Corporation and Officer agree herein that a monetary remedy for
breach of this Agreement, at some later date, will be inadequate, impracticable
and difficult of proof, and further agree that such breach would cause Officer
irreparable harm. Accordingly, Corporation and Officer agree that Officer shall
be entitled to temporary and permanent injunctive relief to enforce this
Agreement without the necessity of proving actual damages or irreparable harm.
The Corporation and Officer further agree that Officer shall be entitled to such
injunctive relief, including temporary restraining orders, preliminary
injunctions and permanent injunctions, without the necessity of posting bond or
other undertaking in connection therewith. Any such requirement of bond or
undertaking is hereby waived by Corporation, and Corporation acknowledges that
in the absence of such a waiver, a bond or undertaking may be required by the
court.
14. ENFORCEMENT.
(a) Corporation expressly confirms and agrees that it has entered
into this Agreement and assumed the obligations imposed on Corporation hereby in
order to induce Officer to continue as an officer of Corporation, and
acknowledges that Officer is relying upon this Agreement in continuing in such
capacity.
(b) In the event Officer is required to bring any action to enforce
rights or to collect moneys due under this Agreement and is successful in such
action, Corporation shall reimburse Officer for all of Officer's reasonable fees
and expenses in bringing and pursuing such action.
15. SEPARABILITY. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others, so that if any or all of
the provisions hereof shall be held to be invalid or unenforceable to any extent
for any reason, such invalidity or unenforceability shall not affect the
validity or enforceability of the other provisions hereof, or the obligation of
the Corporation to indemnify the Officer to the full extent provided by the
Bylaws or the Law, and the affected provision shall be construed and enforced so
as to effectuate the parties' intent to the maximum extent possible.
16. GOVERNING LAW. This Agreement shall be governed by and interpreted
and enforced in accordance with the internal laws of the State of Delaware.
17. CONSENT TO JURISDICTION. The Corporation and Officer each irrevocably
consent to jurisdiction of the courts of the State of Delaware for all purposes
in connection with any action or proceeding which arises out of or relates to
this Agreement and agree that any action instituted under this Agreement shall
be brought only in the state courts of the State of Delaware.
18. BINDING EFFECT. This Agreement shall be binding upon Officer and upon
Corporation, its successors and assigns, and shall inure to the benefit of
Officer, his or her heirs, executors, administrators, personal representatives
and assigns and to the benefit of Corporation, its successors and assigns.
19. ENTIRE AGREEMENT. This Agreement represents the entire agreement
between the parties hereto and there are no other agreements, contracts or
understandings between the parties hereto with respect to the subject matter of
this Agreement, except as specifically referred to herein. This Agreement
supersedes any and all agreements regarding indemnification heretofore entered
into by the parties.
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20. AMENDMENT AND TERMINATION. No amendment, modification, waiver,
termination or cancellation of this Agreement shall be effective for any purpose
unless set forth in writing signed by both parties hereto.
21. SUBROGATION. In the event of payment under this Agreement,
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Officer, who shall execute all documents required and
shall do all acts that may be necessary to secure such rights and to enable
Corporation effectively to bring suit to enforce such rights.
22. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Officer by this
Agreement shall not be exclusive of any other right which Officer may have or
hereafter acquire under any statute, provision of Corporation's Certificate of
Incorporation or Bylaws, agreement, vote of stockholders or directors, or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding office.
23. SURVIVAL OF RIGHTS. The rights conferred on Officer by this Agreement
shall continue after Officer has ceased to be a director, officer, employee or
other agent of Corporation or such other entity and shall inure to the benefit
of Officer's heirs, executors and administrators.
24. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be addressed to Officer or to
Corporation, as the case may be, at the address shown on page 1 of this
Agreement, or to such other address as may have been furnished by either party
to the other, and shall be deemed to have been duly given if (i) delivered by
hand and receipted for by the party to whom said notice or other communication
shall have been directed, or (ii) mailed by certified or registered mail with
postage prepaid, on the third business day after the date on which it is so
mailed.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the day and year first above written.
OFFICER: CORPORATION:
SPIROS DEVELOPMENT CORPORATION II, INC.
By:
- --------------- ---------------------------------------------
(Signature) (Signature)
David S. Kabakoff, Chairman, President & CEO
- --------------- ------------------------------------------------
Printed Name Printed Name and Title
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EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 4 to
Registration Statement No. 333-37673 of Spiros Development Corporation II, Inc.
on Form S-1 and to Amendment No. 4 to Registration Statement No. 333-37673-01 of
Dura Pharmaceuticals, Inc. on Form S-3 (collectively, the "Registration
Statement") of our report dated January 20, 1997, relating to the consolidated
financial statements of Dura Pharmaceuticals, Inc., incorporated by reference in
the Annual Report on Form 10-K of Dura Pharmaceuticals, Inc. for the year ended
December 31, 1996.
We also consent to the incorporation by reference in this Registration
Statement of our report dated March 21, 1997 (November 6, 1997 as to Note 7),
relating to the financial statements of Spiros Development Corporation (a
development stage enterprise) as of December 31, 1995 and 1996 and for the
periods then ended appearing in the Current Report of Dura Pharmaceuticals, Inc.
on Form 8-K filed on October 10, 1997, as amended. We also consent to the use of
our report dated October 9, 1997, relating to the balance sheet of Spiros
Development Corporation II, Inc. (a development stage enterprise) as of
September 30, 1997 appearing in this Registration Statement.
We also consent to the references to us under the heading "Experts" in the
Prospectus, which is a part of this Registration Statement.
DELOITTE & TOUCHE LLP
San Diego, California
December 16, 1997
<PAGE>
[KLEINFELD, KAPLAN AND BEACKER LETTERHEAD]
EXHIBIT 23.3
CONSENT FORM
The undersigned hereby consent to the use of our name and the statement
with respect to us that appears under the heading "Experts" contained in the
Registration Statement on Forms S-1/S-3 and related Prospectus of Spiros
Development Corporation II Inc. and Dura Pharmaceuticals, Inc.
KLEINFELD, KAPLAN AND BECKER
/s/ Richard S. Morey
----------------------
Richard S. Morey
Dated December 16, 1997
