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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --------- EXCHANGE ACT OF 1934
For fiscal year ended December 31, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- --------- SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ________ to ________.
COMMISSION FILE NUMBER: 000-19809
DURA PHARMACEUTICALS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-3645543
(State or other jurisdiction (I.R.S. Employer
or incorporation or organization) Identification No.)
7475 LUSK BLVD., SAN DIEGO, CALIFORNIA 92121
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (858) 457-2553
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.001 PER SHARE,
PREFERRED STOCK PURCHASE RIGHTS, PAR VALUE $.001 PER SHARE,
WARRANTS TO PURCHASE ONE-FOURTH OF ONE SHARE OF COMMON STOCK, PAR VALUE $.001
PER SHARE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [X].
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The aggregate market value of the voting common stock held by
non-affiliates of the registrant as of March 15, 2000 was $602.8 million. For
the purposes of this calculation, shares owned by officers, directors (and
their affiliates) and 10% or greater shareholders known to the registrant
have been excluded. This exclusion is not intended, nor shall it be deemed,
to be an admission that such persons are affiliates of the Registrant.
The number of shares of the Registrant's common stock outstanding as of
March 15, 2000 was 44,333,113.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Proxy Statement for the 2000 Annual Meeting of
Shareholders (the "Proxy Statement") are incorporated in Part III.
Certain exhibits filed with the Registrant's prior registration
statements and Forms 10-K and 10-Q are incorporated in Part IV.
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INDEX [OPEN FOR FINAL PAGES]
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Part I:
Item 1. Business....................................................................1
Item 2. Properties.................................................................19
Item 3. Legal Proceedings..........................................................20
Item 4. Submission of Matters to a Vote of Security Holders........................20
Part II:
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters........................................................20
Item 6. Selected Financial Data....................................................21
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................................22
Item 7A. Quantitative and Qualitative Disclosures about Market Risk ................26
Item 8. Financial Statements and Supplementary Data................................26
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure........................................26
Part III:
Item 10. Directors and Executive Officers of the Registrant.........................26
Item 11. Executive Compensation.....................................................27
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................................27
Item 13. Certain Relationships and Related Transactions.............................27
Part IV:
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............27
Signatures.................................................................32
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PART I
ITEM 1. BUSINESS
The discussion of our business contained in this Annual Report on Form 10-K may
contain projections, estimates and other forward-looking statements that involve
many risks and uncertainties. For a discussion of factors which may affect the
outcome projected in these statements, see "Risks and Uncertainties" on pages 16
through 19 of this Annual Report on Form 10-K. While this outlook represents our
current judgment on the future direction of our business, these risks and
uncertainties could cause our actual results to differ materially from any
projected future performance described below. We undertake no obligation to
release publicly the results of any revisions to these forward-looking
statements to reflect events or circumstances arising after the date of this
Annual Report on Form 10-K.
OVERVIEW
We are a specialty pharmaceutical company that develops, markets and sells
prescription products that treat respiratory conditions and infectious diseases.
We have built an effective sales and marketing organization that includes
approximately 475 territories and focuses on the high prescribing physician
groups in our target markets. We currently market a portfolio of 12 patent
protected and/or branded prescription products. Our proprietary
Spiros-Registered Trademark- pulmonary drug delivery system, which we are
developing to improve the delivery of inhaled medications, represents a
significant opportunity for us and is an essential component of our future
growth. Leveraging both our sales and marketing organization by
opportunistically acquiring products and late-stage product development
candidates and our Spiros platform technology by developing products for
delivery through Spiros are essential to our future growth.
We target the respiratory and infectious diseases markets because they are large
and growing. The U.S. market for products that treat respiratory conditions
totaled approximately $9.1 billion in 1999, an increase of 21% over 1998. The
market for infectious disease products in the U.S. was also substantial,
totaling approximately $11.1 billion in 1999, an increase of 14% over 1998.
These markets are also attractive to us because identifiable groups of
physicians write a large majority of the total prescriptions in these markets.
This concentration of high volume prescribers enables us to effectively promote
our products with a smaller and more focused sales and marketing organization
than would be required for other markets.
Our sales and marketing organization is composed of approximately 600 people and
includes a field sales force and a hospital sales force. The field sales force
includes approximately 325 territories and our hospital sales force includes
approximately 150 territories, all of which are located in the U.S. The field
sales representatives principally call on primary care physicians, allergists,
ear, nose and throat specialists, pulmonologists and a selected subset of
pediatricians. These physicians collectively write a majority of the total
prescriptions for the products our field sales force promotes. These physicians
also treat a large number of asthma patients, the target of our first two Spiros
products currently under development. The hospital sales representatives call on
pulmonologists, infectious disease specialists, surgeons, internal medicine
physicians, hematologists and oncologists. These physicians write a significant
portion of the total prescriptions for injectable antibiotics, while
pulmonologists will also be important to the launch of our Spiros respiratory
products.
Leveraging our sales and marketing organization by acquiring rights to market
prescription pharmaceutical products and late-stage product development
candidates is a foundation of our growth strategy. We have historically focused
on products that we judged to have significant commercial potential but were
underpromoted or had not been launched at the time of our acquisition. We have
also focused on increasing the number of patented and/or branded products in our
portfolio. Sales of these products represented 74% of our total pharmaceutical
sales in 1999, a substantial increase from 1995 when these products represented
only 13% of our total pharmaceutical sales. Our product portfolio includes the
following products and product development candidates:
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PRODUCT/PRODUCT CANDIDATE INDICATION STATUS TARGET PHYSICIAN GROUPS
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RESPIRATORY CONDITIONS
ALLERGY
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Nasarel-Registered Trademark-/
Nasalide-Registered Trademark- Allergic rhinitis Approved Allergy, Primary Care
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Alocril-TM- Itch associated Approved Allergy, Primary Care
with allergic
conjunctivitis
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Entex-Registered Trademark- Symptoms of nasal Approved Allergy, Primary Care
congestion
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ASTHMA
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Beclomethasone Spiros-TM- Asthma Phase III Allergy, Pulmonology, Primary
Care
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Budesonide Spiros-TM- Asthma Phase II Allergy, Pulmonology, Primary
Care
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INFECTIOUS DISEASES
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Ceclor-Registered Trademark- CD Bacterial Approved Primary Care, ENT
infections
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Maxipime-Registered Trademark- Bacterial Approved Infectious Disease,
infections Pulmonology,
Hematology, Oncology
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Azactam-Registered Trademark- Bacterial Approved Surgery, Infectious Disease,
infections Internal Medicine
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Tuberculosis products Tuberculosis Approved Infectious Disease
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Furadantin-Registered Trademark- Urinary tract Approved Primary Care
infections
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DIABETES
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Inhaled insulin Diabetes Not disclosed Marketing rights held by Eli
Lilly*
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The following words used in the table above have the following
meanings:
- "Approved" indicates the product is approved for marketing and
sale in the U.S.
- "Phase III" indicates the product candidate is being evaluated
for safety and efficacy in large-scale clinical trials.
- "Phase II" indicates the product candidate is being evaluated
for preliminary indications of safety and therapeutic response
in clinical trials or for establishing dosing for new dosage
forms.
Our exclusive rights to market and sell Alocril are limited to the
primary care and respiratory market segments for a multi-year period.
Allergan, Inc., or Allergan, has retained all other rights to Alocril.
We are developing insulin for delivery through our Spiros drug delivery
system in collaboration with Eli Lilly and Company, or Lilly. Under our
collaboration agreement, we receive research and development and
progress payments during development as well as revenues from the
supply of and royalties from the sale of commercial products. Lilly
holds all rights to market and sell the commercial product.
Our sales and marketing organization has established a track record of
effectively marketing and selling our products. For example, Ceclor CD was first
in its class and Nasarel was second in its class in percentage growth of total
prescriptions during 1999. Total prescriptions of Ceclor CD were 31% higher in
1999 than in 1998, and total prescriptions of Nasarel during 1999 were 57%
higher than during 1998. Maxipime (cefepime hydrochloride) for Injection was the
fastest growing injectable antibiotic in the U.S. during 1999, with sales 158%
higher than in 1998.
We plan to continue to leverage our sales and marketing organization by
opportunistically acquiring products and late-stage product development
candidates that are prescribed by our target physician groups. For example, in
February 2000 we entered into a multi-year, multi-product agreement with
Allergan Sales, Inc. to market and promote selected Allergan products in the
U.S. primary care and respiratory markets. Under this agreement, we co-launched
Alocril,
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Allergan's patented product for the treatment of eye itch associated with
allergic conjunctivitis, in March 2000. The agreement also includes a commitment
to launch a second product to the same market segments at an unspecified date
and a joint structure to evaluate additional opportunities for us to promote
specific product candidates Allergan is developing.
We believe our hospital sales force also provides new growth opportunities for
us. Many product classes are prescribed by identifiable physician groups that
practice primarily in the hospital. Our sales and marketing presence in the
hospital enables us to further expand our business by selectively acquiring
products and product development candidates in these product classes.
Another cornerstone of our growth strategy is to develop our proprietary Spiros
pulmonary drug delivery system. Spiros is designed to aerosolize pharmaceuticals
in dry powder formulations for delivery to and through the lungs. We believe
that Spiros, if approved by the FDA, may provide advantages over other currently
available pulmonary drug delivery systems for respiratory products and could
also provide a significant benefit to patients being treated with
biopharmaceuticals, which today are delivered primarily by injection. We plan to
continue to leverage our Spiros platform technology by:
- Developing Spiros for the local delivery of pharmaceuticals to the lungs
to treat respiratory conditions, for our own account and in collaboration
with third parties, and
- Developing Spiros, generally in collaboration with third parties, for the
systemic delivery of biopharmaceuticals, including proteins and peptides,
through the lungs to treat non-respiratory conditions as an alternative
to current invasive delivery techniques.
We are currently developing beclomethasone and budesonide, two inhaled steroids
frequently prescribed to treat asthma, for use in Spiros on behalf of Spiros
Development Corporation II, Inc., or Spiros Corp. II. Beclomethasone Spiros is
in Phase III clinical trials, and we plan to initiate Phase III clinical trials
for Budesonide Spiros in 2000. We are collaborating with Lilly to develop
inhaled insulin in our Spiros delivery system. The size of the inhaled insulin
opportunity is significant and strategically important to our collaboration. We
are also conducting feasibility studies for our own account and with several
companies to assess the effectiveness of Spiros in delivering other drugs.
In March 2000 we entered into a merger agreement to acquire Spiros Corp. II.
Under the agreement, for each share of callable common stock Spiros Corp. II
shareholders will receive $13.25 in cash and one five-year warrant to
purchase a fractional share of our common stock at $17.94 per share, which
represents a 25% premium over the average closing price of our common stock
for the 10 trading days prior to the date of the merger agreement. The exact
fraction of a share of our common stock purchasable under the warrant will be
determined based on the average closing price of our common stock for the 10
trading days prior to the vote of the Spiros Corp. II shareholders on the
merger and will result in a calculated Black-Scholes value for each warrant
of between $3.22 and $1.81. The total consideration for the merger as of the
date of the merger agreement was calculated to be $100.8 million, or $15.75
per share of callable common stock. Closing of the transaction is subject to
Hart-Scott-Rodino clearance, effectiveness of the registration statement for
our warrants, and Spiros Corp. II stockholder approval. We have received
voting agreements in favor of the merger from holders of approximately 22% of
Spiros Corp. II's outstanding callable common stock. A special committee of
independent members of the Spiros Corp. II board, formed in December 1999 to
evaluate strategic alternatives for Spiros Corp. II, Inc, has approved the
merger agreement and is recommending that the Spiros Corp. II shareholders
approve the merger.
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STRATEGY
Our objective is to be a leader in developing, marketing and selling
pharmaceutical products that treat respiratory conditions and infectious
diseases. Our strategy to achieve this objective includes the following
elements:
- LEVERAGING OUR FOCUSED SALES AND MARKETING ORGANIZATION. We have built
an effective sales and marketing organization that targets the high
prescribing physician groups that treat respiratory conditions and
infectious diseases. We believe the concentration of high volume
prescribers in our target markets enables us to effectively promote
our products with a smaller and more focused sales and marketing
organization than would be required for other markets. We intend to
acquire or in-license products and late-stage product development
candidates and to develop products in Spiros that will leverage the
capacity of our sales and marketing organization as well as the
relationships we have established with our target physician groups.
- ACQUIRING OR IN-LICENSING APPROVED PHARMACEUTICALS. We have
historically grown our business by acquiring or in-licensing rights to
market and sell prescription pharmaceuticals and we intend to continue
to grow in this manner. We are particularly focused on products that
treat respiratory conditions or infectious diseases and that are
underpromoted by large pharmaceutical companies. We believe the
significant consolidation that is occurring in the pharmaceutical
industry continues to raise the threshold for products that large
pharmaceutical companies can promote effectively and should create
attractive opportunities for us to acquire additional products. We are
actively pursuing the acquisition of rights to market and sell
additional products which, if successful, may require the use of
substantial capital resources.
- ACQUIRING OR IN-LICENSING LATE-STAGE PRODUCT DEVELOPMENT CANDIDATES.
We also selectively seek to acquire or in-license late-stage product
development candidates. We are focused on product development
candidates that are ready for or have already entered Phase III
clinical trials and should therefore present less development risk
than product candidates at an earlier stage of development. We focus
on product development candidates that would be prescribed by our
target physician groups or by other identifiable physician groups that
practice primarily in the hospital. We believe that our established
sales and marketing organization and our strong cash position make us
an attractive commercialization partner for many biotechnology
companies with late-stage product development candidates. We are
actively pursuing the acquisition of rights to product development
candidates which, if successful, may require the use of substantial
capital resources.
- DEVELOPING SPIROS. Our Spiros platform technology is an essential
component of our future growth. We plan to continue to leverage our
Spiros platform technology by developing Spiros for the local delivery
of pharmaceuticals to the lungs to treat respiratory conditions, for
our own account and in collaboration with third parties, and by
developing Spiros for the systemic delivery of biopharmaceuticals,
including proteins and peptides, through the lungs to treat
non-respiratory conditions as an alternative to current invasive
delivery techniques, generally in collaboration with third parties. We
believe our Spiros technology platform, including recently developed
motorless Spiros systems, offers significant long-term value for our
shareholders, and we intend to continue to develop it aggressively.
PRODUCT PORTFOLIO
We are focused on developing, marketing and selling pharmaceutical products that
treat respiratory conditions and infectious diseases.
RESPIRATORY CONDITIONS
The market for products that treat respiratory conditions is significant and
growing. The U.S. market for these products was approximately $9.1 billion in
1999, an increase of 21% over 1998. Major segments in this market include
allergy, asthma, chronic obstructive pulmonary disease and cough, cold.
ALLERGY. While the causes of allergies, which can be seasonal or
perennial, vary, nasal congestion, sneezing and eye itch are common symptoms of
many allergies. The U.S. market for therapeutic drugs to treat allergies was
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approximately $4.2 billion in 1999. Antihistamines and
antihistamine/decongestant combinations are the most widely used forms of
therapy and represent the largest portion of the allergy market in the U.S.
Additional products for allergies include intranasal steroids, which are
increasingly being prescribed for allergic rhinitis, and products that treat eye
allergies. The U.S. market for intranasal steroids was approximately $1.2
billion in 1999, an increase of 19% over 1998. The U.S. market for products that
treat eye allergies was approximately $210 million in 1999, an increase of 27%
over 1998.
We promote three products that treat the causes and/or symptoms of allergies:
Nasarel, Nasalide and Alocril. Nasarel and Nasalide are intranasal steroids, and
Alocril is approved for the treatment of eye itch associated with allergic
conjunctivitis.
Nasarel and Nasalide are used to treat the underlying cause and symptoms of
seasonal and perennial allergic rhinitis, including runny nose, nasal congestion
and sneezing. The active ingredient in Nasarel and Nasalide is flunisolide
hemihydrate, a synthetic steroid that reduces inflammation in allergic
reactions. Allergists and primary care physicians write the majority of
prescriptions for Nasarel and Nasalide. We acquired exclusive U.S.
rights to market and promote Nasarel and Nasalide in 1997.
Alocril is a mast cell stabilizer developed by Allergan and is approved for the
treatment of eye itch associated with allergic conjunctivitis. In the primary
care and respiratory markets, allergists and primary care physicians write the
majority of prescriptions for Alocril. We acquired exclusive U.S. rights to
market and promote Alocril to primary care and respiratory physicians in
February 2000. We launched Alocril with Allergan in March 2000.
ASTHMA. 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. The market for therapeutic drugs to treat asthma was approximately $7.7
billion in the major countries of the world in 1999. The U.S. market represented
approximately $3.5 billion of this total. These drugs include beta-agonists,
like albuterol, which are typically used to provide rapid symptomatic relief of
reversible bronchospasm, steroids, like beclomethasone and budesonide, which are
increasingly used as maintenance therapy to treat the inflammatory component of
asthma, and anticholinergic bronchodilators, like ipratropium, which are
commonly prescribed for patients that do not respond well to beta-agonists.
Physicians are increasingly prescribing oral inhaled steroids as maintenance
therapy to treat the inflammatory component of asthma in an effort to prevent
acute attacks. The market for oral inhaled steroids in the major countries of
the world was approximately $2.7 billion in 1998 and grew at a rate of 13% per
year from 1994 through 1998.
We are developing, on behalf of Spiros Corp. II, beclomethasone and budesonide
for use in our proprietary Spiros pulmonary drug delivery system. Beclomethasone
is a steroid used to treat the inflammatory component of asthma and selected
symptoms of chronic obstructive pulmonary disease. Sales of beclomethasone in
1998 in the major countries of the world were approximately $700 million.
Budesonide is a new generation steroid used to treat the inflammatory component
of asthma. Sales of budesonide in 1998 in the major countries of the world were
approximately $720 million.
Beclomethasone Spiros is currently in Phase III clinical trials, and we plan to
initiate Phase III clinical trials for Budesonide Spiros in 2000. The status of
our development programs for these two products and our relationship with Spiros
Corp. II are described in greater detail below under "SPIROS--DEVELOPMENT
PROGRAMS" and "--RELATIONSHIP WITH SPIROS CORP. II."
INFECTIOUS DISEASES
The market for products that treat infectious diseases is also large and
growing. The U.S. market for these products was approximately $11.1 billion in
1999, an increase of 14% over 1998. Major segments in this market include
respiratory infections, hospital-acquired bacterial infections and fungal
infections.
RESPIRATORY INFECTIONS. Respiratory infections caused by a variety of
bacteria can affect either the nasal cavity, the sinuses and throat or the
lungs. The resulting diagnoses include sinusitis, tonsillitis and bronchitis.
These
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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 U.S.
market for these classes is very large, totaling $6.6 billion in 1999 for the
oral forms alone. The cephalosporin class accounted for approximately $824
million of this total.
Ceclor CD is an oral cephalosporin antibiotic used primarily for the treatment
of bronchitis. It is prescribed predominantly by primary care physicians and
ear, nose and throat specialists. It is approved for the treatment of bacterial
bronchitis, uncomplicated skin and skin structure infections, pharyngitis and
tonsillitis. We acquired exclusive U.S. rights to market and promote Ceclor CD
in 1996.
HOSPITAL-ACQUIRED BACTERIAL INFECTIONS. Bacterial infections pose a
threat to seriously ill patients in the hospital and long-term care settings.
These infections are associated with increased hospital stays, more intensive
therapy and high mortality. Increasing bacterial resistance among both Gram
positive and Gram negative organisms further complicates treatment. Therapy is
most often initiated with broad-spectrum injectable antibiotics, including third
and fourth generation cephalosporins, extended spectrum penicillins,
carbapenems, quinolones and aminoglycosides, either alone or in combination. The
U.S. market for all injectable antibiotics was approximately $2.4 billion during
1999, and the U.S. market for broad-spectrum injectable antibiotics totaled
approximately $1.7 billion in 1999.
Maxipime and Azactam (aztreonam) for Injection are both injectable antibiotics.
Maxipime is a fourth-generation cephalosporin antibiotic used to treat patients
with life-threatening infections. Pulmonologists, infectious disease
specialists, internal medicine physicians, hematologists and oncologists
prescribe Maxipime for patients with severe hospital-based respiratory and
non-respiratory conditions such as pneumonia, urinary tract infection and
febrile neutropenia. An important attribute of Maxipime is its broad spectrum of
activity, including activity against many pathogens resistant to other
antibiotics. Azactam is a monobactam and is principally used by surgeons,
infectious disease specialists and internal medicine physicians to treat
pneumonia, post-surgical infections and septicemia and has an excellent safety
profile. We acquired exclusive U.S. rights to both products in late 1998 and
have significantly increased sales of Maxipime since that time.
TUBERCULOSIS. Tuberculosis is a highly infectious, airborne disease
caused by the bacterium MYCOBACTERIUM TUBERCULOSIS. The clinical symptoms of
tuberculosis vary, but generally include weight loss, fatigue, and weakness.
Pulmonary tuberculosis is the most common form of the active disease, leading to
progressive destruction of the infected lung. Standard treatment of the disease,
as outlined by the American Lung Association, includes a dosing regimen of four
antibiotic drugs administered over a six-month period. Some patients are
infected with resistant strains of MYCOBACTERIUM TUBERCULOSIS and do not respond
to first-line treatment with the traditional oral antibiotic drug therapies.
These patients must be treated more intensively with stronger antibiotics,
including injectable products.
We market three products for the treatment of tuberculosis: Myambutol-Registered
Trademark-, Capastat-Registered Trademark- and Seromycin-Registered Trademark-.
Myambutol is an oral tablet and is one of the four antibiotics typically used as
first-line therapy for all patients diagnosed with tuberculosis during the
initial treatment period. Capastat and Seromycin are antibiotics approved for
the treatment of multiple drug resistant tuberculosis. We believe the
tuberculosis market is an attractive segment of the infectious disease market
because treatment protocols are firmly established and the products require
minimal promotional effort.
SALES AND MARKETING ORGANIZATION
Our sales and marketing organization is composed of approximately 600 people,
and includes a field sales force, a hospital sales force and a managed markets
sales and marketing group.
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FIELD SALES FORCE
Our field sales force includes approximately 325 territories, all of which are
located in the U.S. The field sales representatives principally call on primary
care physicians, allergists, ear, nose and throat specialists, pulmonologists
and a selected subset of pediatricians. These physicians collectively write a
majority of the total prescriptions for the respiratory infection and allergy
products that our field sales force promotes. These physicians also treat a
large number of asthma patients, the target of our first two Spiros products
currently under development.
HOSPITAL SALES FORCE
Our hospital sales force includes approximately 150 territories, all of which
are located in the U.S. The hospital sales representatives call principally on
hospital-based pulmonologists, infectious disease specialists, surgeons,
internal medicine physicians, hematologists and oncologists. These physicians
write a significant portion of the total prescriptions for injectable
antibiotics, while pulmonologists will also be important to the launch of our
Spiros respiratory products.
MANAGED MARKETS SALES AND MARKETING GROUP
We have also established a dedicated managed markets sales and marketing group
that focuses on sales to large regional and national managed care organizations
and retail pharmacy chains. These organizations include health maintenance
organizations, group purchasing organizations, long-term care providers,
wholesale distributors and retail chains and mail order pharmacies. A primary
goal of the managed markets sales and marketing group is to place our products
on approved formulary lists of health maintenance organizations, group
purchasing organizations and long-term care providers.
SPIROS
Spiros is our proprietary pulmonary drug delivery system that we are developing
to aerosolize pharmaceuticals in dry powder formulations for delivery to the
lungs. Our program for Spiros includes developing Spiros both for the local
delivery of pharmaceuticals to the lungs for the treatment of respiratory
conditions and for the systemic delivery of biopharmaceuticals, including
proteins and peptides, through the lungs as an alternative to current invasive
delivery techniques.
SPIROS MARKET OPPORTUNITY
There are currently many approved products for the delivery of medication to the
lungs, primarily for the treatment of respiratory conditions.
Biopharmaceuticals, in contrast, are primarily delivered orally or by injection.
We believe Spiros has the opportunity to significantly improve the delivery of
medication for both local delivery to the lungs and systemic delivery through
the lungs.
INHALATION DEVICES
Most currently-approved inhalation devices are one of the following three types:
- METERED DOSE INHALERS. Metered dose inhalers, also known as MDIs, are
currently the most widely used inhalation delivery system due to their
relative convenience and portability. MDIs consist of a suspension or
solution of drug filled into a canister, sealed with a metering valve
and pressurized using a propellant, most commonly a chloroflorcarbon
or CFC. Unfortunately, it is estimated that only 10% to 20% of the
dose from an MDI actually reaches the lung, with the remainder of the
drug being deposited in the mouth and throat or the stomach where it
has no therapeutic effect and may cause unwanted side effects. The
limited amount of drug that reaches the lung is caused primarily by
the inability of most patients to coordinate their inhalation with the
initiation of the delivery system and the resulting high velocity of
the propellant-driven aerosol. To increase the amount of drug that
actually reaches the lung, patients are sometimes prescribed spacers
to use with their MDIs, thereby increasing the complexity and reducing
the portability of the device.
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- 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 much larger than other inhalation delivery systems and,
because of their size, are primarily used to deliver aerosol to
hospitalized patients, patients with acute asthma and patients unable
to coordinate the use of other inhalation delivery devices. Jet
nebulizers are generally considered to be less convenient and less
portable because of their size and the complexity of use.
- DRY POWDER INHALERS. Dry powder inhalers represent a significant
advancement in the development of inhalation delivery systems. Dry
powder inhalers are relatively convenient and portable, and are
CFC-free. They are breath actuated, so they eliminate the need for the
press-and-breathe coordination associated with MDIs. Although dry
powder inhalers overcome the need to coordinate inhalation with the
initiation of the device, currently marketed dry powder inhalers
require high inspiratory flow rates, making the ultimate dose
delivered to the patient dependent on the patient's inspiratory
effort. This high inspiratory flow rate is difficult to achieve for
children, the elderly and patients with breathing difficulties.
We believe the development of respiratory drugs for delivery through Spiros is a
significant opportunity for us. We anticipate that dry powder inhalers like
Spiros will gradually replace MDIs as the leading pulmonary delivery systems,
due primarily to the phasing out of CFC propellants and coordination problems
associated with many MDIs. Some companies are studying alternative propellants,
such as hydrofluorocarbons, for use in MDIs. We believe, however, that any
product using an alternative propellant 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. In Europe,
where several pharmaceutical companies have marketed dry powder inhalers for a
number of years, sales of dry powder inhalers had increased to 27% of the total
sales of inhaled asthma products in 1999.
DELIVERY OF BIOPHARMACEUTICALS
Genetically engineered drugs or biopharmaceuticals are relatively new treatments
in the field of medicine. The first genetically engineered drug approved by the
FDA was human insulin, which was approved in 1982. Since then, the FDA has
approved over 55 biopharmaceuticals and many more are currently being developed.
Analysts estimate that the U.S. market for these drugs in 1999 exceeded $13
billion. Most of these drugs are currently delivered by injection. Injections
are invasive and not widely accepted by patients due to inconvenience,
discomfort and the possibility of infection. To date, alternative methods of
delivery such as oral, nasal and transdermal have not been commercially
attractive due to the relatively low amount of drug that reaches the blood.
Initial work suggests that inhalation may be an attractive alternative to
injection for select biopharmaceuticals.
We believe our Spiros drug delivery system also represents a significant
opportunity for improving the delivery of biopharmaceuticals. The lung has long
been used for the delivery of respiratory products where a local lung effect is
desired and for the systemic administration of drugs (both conventional small
molecules and biopharmaceuticals). Depending upon the formulation, the aerosol
can be directed to the larger more central airways or to the smaller airways in
the deep lung. The lung provides a large surface area for absorption and is in
close proximity to the blood supply. Pulmonary delivery bypasses
gastrointestinal degradation and hepatic metabolism, which typically destroy
biopharmaceuticals delivered orally. Delivery of medications through the lung is
also patient friendly and non-invasive and could expand the market for
biopharmaceuticals by increasing patient acceptance and providing new
therapeutic indications.
POTENTIAL ADVANTAGES OF SPIROS
We believe Spiros, if approved by the FDA, may provide advantages over other
currently available pulmonary drug delivery systems and could provide a
significant benefit to patients being treated with biopharmaceuticals:
- INSPIRATORY FLOW RATE INDEPENDENCE AND LOW FLOW RATE CAPABILITY.
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, age, effort or physical abilities.
Tests of Spiros on human subjects have shown a relatively
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consistent amount of drug deposition throughout the clinically
relevant inspiratory range. Existing dry powder inhalers can vary
significantly in their level of drug deposition depending on the
patient's inspiratory flow rate. Many of them also require high
inspiratory flow rates for the patient to obtain the labeled dose of
the drug. Therefore, they may deliver significantly less drug at the
lower flow rates typically associated with compromised pulmonary
function. For many proteins and peptides, accurate dosing is critical,
and a pulmonary delivery system such as Spiros, which is designed to
provide relatively consistent dosing over a variety of inspiratory
flow ranges, may better meet the requirements for optimal pulmonary
delivery of biopharmaceuticals.
- 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 users to coordinate
their breathing with initiation 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.
- PATIENT CONVENIENCE. Spiros is designed to be convenient for patients,
with features such as breath actuation and portability due to its
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 alerts the patient of the need to
replace Spiros prior to the end of its useful life. Many
biopharmaceuticals that currently must be administered by injection
could be delivered by Spiros, thereby significantly improving patient
convenience and potentially improving compliance.
- FREE OF CHLOROFLUOROCARBON PROPELLANTS. Spiros does not use CFCs while
most MDIs, currently the most popular form of aerosol drug delivery,
use CFCs. CFC propellants have ozone destructive characteristics.
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, we believe that DPIs will become a leading method
for pulmonary drug delivery.
THE SPIROS PULMONARY DRUG DELIVERY SYSTEM
Spiros uses electromechanical energy to aerosolize pharmaceuticals in dry powder
formulations for delivery to the lungs while providing advantages over
traditional pulmonary delivery systems. The Spiros system is appropriate for use
both with respiratory medications for topical delivery to the lung and with
biopharmaceuticals, which are delivered to the deep lung for systemic
administration.
CORE TECHNOLOGY
The core technology contained in the Spiros system 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 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. This technology controls both the powder
dispersion to form the aerosol and allows for patient-actuated inhalation,
making the drug delivery independent of the inspiratory force generated by the
patient. Virtually the same dose is delivered at low and high inspiratory
efforts, making the system relatively flow rate independent.
Products are currently under development in two separate Spiros systems, a
cassette system and a blisterdisk system, both using the same core technology
with different powder storage systems. 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, we believe that our cassette and
blisterdisk systems will provide flexibility for delivery of many different
types of drugs.
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CASSETTE SYSTEM. The cassette system was the first Spiros system
developed. The powder storage device in this system is a 30-dose plastic
cassette packed in a foil pouch. To use the cassette system, a patient first
removes the cassette from the pouch and 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. An impeller is located within the dosing
chamber. When the patient inhales through the mouthpiece, the impeller is
automatically activated at a relatively low flow rate. The action of the
impeller on the powder in the chamber generates the aerosol, which the patient
inhales. When the cassette is empty, the patient opens the lid, removes the
empty cassette and loads a new cassette.
BLISTERDISK SYSTEM. Although many drugs and powder formulations are
sufficiently stable using the cassette system, some drugs, including many
biopharmaceuticals, are sensitive to relative humidity. We have developed a
blisterdisk system for drugs that require a barrier against moisture or light.
This system uses powder-filled sealed foil blisters, which prevent moisture
contact with the powder. The powder storage device in this system is a 16-dose
blisterdisk and is sufficiently flexible to accommodate a wide variety of drugs.
To use the blisterdisk system, a patient opens the mouthpiece cover, pushes a
button to open the blister and inhales 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. When the blisterdisk is
empty, the patient opens the lid, removes the empty blisterdisk and loads a new
blisterdisk.
SPIROS DEVELOPMENT PROGRAM
Our development program for Spiros consists of two principal components. The
first component entails developing for ourselves or third parties drugs that are
currently used to treat respiratory conditions for delivery in Spiros. The
second component entails developing Spiros for the systemic delivery of
biopharmaceuticals, including proteins and peptides, through the lungs as an
alternative to current invasive delivery techniques, generally in collaboration
with third parties.
RESPIRATORY PRODUCTS
We are currently developing beclomethasone and budesonide, two drugs frequently
prescribed to treat asthma, for use in Spiros on behalf of Spiros Corp. II.
BECLOMETHASONE. In the first quarter of 1997, we completed dose ranging
studies for one dosage strength of beclomethasone in the Spiros cassette system
under an investigational new drug application. In the fourth quarter of 1997, we
commenced a late-stage 12-week trial in humans to demonstrate safety and
efficacy. Enrollment of patients was completed by the second quarter of 1998.
The study demonstrated that Beclomethasone Spiros provided improved potency and
comparable safety and efficacy to the approved MDI product to which it was
compared. After receiving feedback from the FDA, we reformulated Beclomethasone
Spiros and finalized the commercial Spiros inhaler design. In the fourth quarter
of 1999, we initiated the first in a new series of pivotal clinical studies for
Beclomethasone Spiros. An important objective of these studies is to demonstrate
the reliability of the Spiros system, to confirm the results of the earlier
trials and to demonstrate that comparable efficacy and potentially improved
safety may be achieved with Beclomethasone Spiros using lower dosages than
currently approved MDI formulations. If the clinical trials are successful , we
currently plan to file a new drug application for Beclomethasone Spiros in late
2000 or early 2001 and, if the product is approved by the FDA, to launch the
product in late 2001 or 2002.
BUDESONIDE. We completed a dose-targeting study for Budesonide Spiros
in the first quarter of 2000 and plan to begin a pivotal clinical program in the
second half of 2000. If the clinical trials are successful, we currently plan to
file a new drug application for Budesonide Spiros in late 2002 and, if the
product is approved by the FDA, to launch the product in 2003.
INHALED INSULIN
Approximately 15.7 million Americans, or 5.9% of the U.S. population, have
diabetes. It is estimated that 10.3 million Americans have been diagnosed and
the remaining 5.4 million people are not aware that they have the disease.
Diabetes is a disorder of metabolism--it occurs when a person's pancreas either
produces little or no insulin, or the body cells do not respond to the insulin
that is produced. As a result, glucose collects in the blood
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and is not delivered to the body's cells to use for growth and energy. Instead,
glucose overflows into the urine and passes out of the body, thereby eliminating
the body's main source of fuel. Over time, high levels of blood glucose can lead
to debilitating complications, such as retinopathy, neuropathy, cardiovascular
disease, and end-stage renal disease.
There are two types of diabetes: Type 1, or insulin-dependent diabetes mellitus,
and Type 2, or non-insulin dependent diabetes mellitus. Type 1 patients, all of
whom require insulin therapy, account for between 5% and 10% of the U.S.
diabetes population. Their diabetes is usually managed most effectively with an
insulin regimen that combines a long-acting insulin with a rapid-onset insulin,
administered multiple times throughout the day to cover glucose peaks that occur
after meals. Type 2 patients comprise the remaining 90% to 95% of diagnosed
diabetes patients in the U.S. Although some Type 2 diabetes may be managed with
a careful regimen of diet and exercise, most Type 2 patients progress through
various stages of therapy from oral diabetes medications to insulin therapy.
This insulin therapy may mimic the regimen that Type 1 patients utilize--long
acting insulin to provide a basal level of insulin, with multiple injections of
rapid-onset insulin. Although insulin may be the final option for controlling
diabetes, most Type 2 patients try to avoid initiation of insulin therapy,
predominantly due to the fear and inconvenience of injections.
We are collaborating with Lilly to develop an inhaled form of insulin with our
Spiros drug delivery system. Under this collaboration, we supply the inhaler and
formulate and manufacture the insulin, which is supplied by Lilly, using our
proprietary protein and peptide pulmonary delivery technology. We also receive
research and development and progress payments during development and revenues
and royalties from supply of commercial product. Lilly conducts the clinical
trial program and holds worldwide marketing rights to the inhaled insulin
product.
We believe the Spiros inhaled insulin program represents a significant
opportunity to improve insulin therapy for diabetes patients. Spiros for inhaled
insulin incorporates many of the same features displayed in the Beclomethasone
Spiros and Budesonide Spiros systems: portability, simple operation, breath
actuation, multi-dose capability. And, perhaps more importantly, Spiros for
inhaled insulin eliminates the inconvenience and fear associated with insulin
injections.
This collaboration also represents an important opportunity for us and a
substantial recognition of the potential of the Spiros technology platform and
its application to systemic delivery of biopharmaceuticals.
NEXT GENERATION INHALERS
Our scientists have recently invented new technologies for forming and
delivering aerosols from powder formulations. The technologies are based on
earlier developments with Spiros and could provide excellent aerosol delivery
using a motorless inhaler system. The technologies could utilize either our
existing powder storage systems or new unit dose systems. Broad patent coverage
is being sought for these new technologies which we plan to develop by ourselves
and with potential partners.
RELATIONSHIP WITH SPIROS CORP. II
In late 1997, Spiros Corp. II completed a $101 million public offering. Under
agreements with us, the net proceeds of $94 million from the offering and a $75
million contribution from us were targeted to develop Spiros and Spiros
applications for use with the drugs albuterol, beclomethasone, budesonide,
ipratropium, an albuterol-ipratropium combination and additional designated
compounds. The offering consisted of 6,325,000 units sold at $16.00 per unit.
Each unit consisted of one share of Spiros Corp. II callable common stock and a
warrant to purchase one-fourth of one share of our common stock. These warrants
are exercisable from January 1, 2000 through December 31, 2002 at an exercise
price of $54.84 per share. In consideration for the warrants and the $75 million
contribution, we have the right through December 31, 2002 to purchase all, but
not less than all, of the then outstanding callable common stock of Spiros Corp.
II at predetermined prices. We also have an option, through specified dates, to
acquire Spiros Corp. II's exclusive rights for the use of Spiros with albuterol
and for the use of Spiros with a second product other than albuterol. The
purchase price for the stock purchase option may be paid, at our
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option, in cash, shares of our common stock, or any combination of the two. The
purchase price for the product options may only be paid in cash.
In March 2000 we entered into a merger agreement to acquire Spiros Corp. II.
Under the agreement, for each share of callable common stock Spiros Corp. II
shareholders will receive $13.25 in cash and one five-year warrant to purchase a
fractional share of our common stock at $17.94 per share. The total
consideration for the merger as of the date of the merger agreement was
calculated to be $100.8 million, or $15.75 per share of callable common stock.
Closing of the transaction is subject to standard conditions. We have received
voting agreements in favor of the merger from holders of approximately 22% of
Spiros Corp. II's outstanding callable common stock. A special committee of
independent members of the Spiros Corp. II board has approved the merger
agreement and is recommending that the Spiros Corp. II shareholders approve the
merger.
In connection with our agreement to acquire Spiros Corp. II, we announced that
upon successful completion of the acquisition we would discontinue development
activities on albuterol in the existing Spiros cassette system. Albuterol was
the first product developed in the Spiros system. We filed a new drug
application for Albuterol Spiros in 1997, and in November 1998 we received a
complete response letter from the FDA. The response letter indicated that the
new drug application would not be approved unless specified deficiencies were
addressed. The FDA requested that we resolve several chemistry, manufacturing,
and control issues, as well as specified electromechanical reliability issues.
After several meetings with the FDA, we identified the requirements that would
address the issues raised by the FDA and support a resubmission of the Albuterol
Spiros new drug application. We were addressing the chemistry, manufacturing and
control issues for Albuterol Spiros at the time we made our decision to
discontinue development activities. Our decision was based largely on market
considerations, including an evaluation of the potential market for and the
potential return on the investment required to complete development of the
product.
In connection with the Spiros Corp. II initial public offering, we also entered
into the following additional agreements with Spiros Corp. II:
TECHNOLOGY LICENSE AGREEMENT. Under this agreement, we granted to
Spiros Corp. II, subject to existing agreements, an exclusive,
worldwide, perpetual, royalty-bearing license to use Spiros in
connection with the designated compounds.
ALBUTEROL AND PRODUCT OPTION AGREEMENT. Under this agreement, we have
the option to acquire the rights to use Spiros with albuterol and a
second product other than albuterol.
DEVELOPMENT AGREEMENT. Under this agreement, Spiros Corp. II engaged
us to develop the Spiros products and provide general management
services.
MANUFACTURING AND MARKETING AGREEMENT. Under this agreement, Spiros
Corp. II granted to us an exclusive worldwide license to manufacture
and market the Spiros products in exchange for a royalty of 7% on net
product sales, as defined in the agreement.
HEALTHSCRIPT
HealthScript is a mail service pharmacy specializing in dispensing
respiratory pharmaceuticals that we acquired in 1995. Mail order services are
particularly well suited for respiratory patients who are long-term, chronic
users of certain pharmaceuticals and to whom the convenience of mail order is
appealing. HealthScript currently dispenses approximately 100 respiratory
medications manufactured by third parties. HealthScript is focused on working
with doctors, home healthcare providers and patients to coordinate
respiratory medication services and patients management programs.
HealthScript markets its services through specialty field sales
representatives and telemarketing. The patient base is maintained by
telephone contact to monitor compliance with their doctors' prescriptions.
HealthScript is also developing Internet capabilities that will provide a
convenient, value oriented shopping experience offering consumers a wide
range of information and products designed to promote healthy lifestyles.
HealthScript will feature a comprehensive range of personal healthcare
products at competitive prices, a full-
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service, licensed pharmacy, along with an extensive range of health-related
information and other tools designed to help our customers make informed
purchasing decisions.
COMPETITION
Many companies, including large pharmaceutical firms with financial and
marketing resources and development capabilities substantially greater than
ours, are engaged in developing, marketing and selling products that compete
with those we offer or plan to offer. We believe that competition among both
prescription pharmaceuticals aimed at the markets for respiratory conditions and
infectious diseases and pulmonary drug delivery systems will be based on, among
other things, product efficacy, safety, reliability, availability and price. As
the respiratory and infectious disease markets continue to evolve, there will be
numerous products and devices that will continue to offer competitive advantages
to already existing products and devices in the market place.
There are at least 25 other companies in the U.S. that are developing, marketing
and selling pharmaceuticals to treat respiratory conditions and infectious
diseases. Additionally, there are at least 10 companies currently developing,
marketing or selling single and/or multiple dose dry powder pulmonary drug
delivery systems, many of which are major pharmaceutical companies.
There are currently at least two other companies developing inhaled insulin
delivery systems, Aradigm Corporation and Inhale Therapeutic Systems, Inc. In
1998, Aradigm announced a collaboration with Novo Nordisk for inhaled insulin.
In 1999, Inhale announced that it is in Phase III clinical trials in its
collaboration with Pfizer for inhaled insulin.
PATENTS AND PROPRIETARY RIGHTS
We presently hold 12 U.S. patents and 13 U.S. patent applications relating to
the Spiros technology. 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. We have also filed selected 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 for specified uses under our technology
license agreement.
Our scientists have recently invented new technologies for forming and
delivering aerosols from powder formulations. The technologies are based on
earlier developments with Spiros and could provide excellent aerosol delivery
using a motorless inhaler system. The technologies could utilize either our
existing powder storage systems or new unit dose systems. Broad patent coverage
is being sought for these new technologies which we plan to develop by ourselves
and with potential partners.
We consider the protection of discoveries in connection with our development
activities important to our business. We intend to seek patent protection in the
U.S. and selected foreign countries where deemed appropriate. We also rely on
trade secrets, unpatented proprietary know-how and continuing technological
innovation to develop our competitive position. We enter into confidentiality
agreements with some of our employees under which these employees agree to
assign to us any inventions relating to our business made by them while in our
employ.
In connection with one of the patents described above, in 1993 we entered into
an agreement with the principal inventor of the Spiros technology which, among
other things, provides compensation to the inventor over the life of the patent
which is linked to annual sales of products related 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 annual compensation of $6 million.
The Alocril, Ceclor CD, Nasarel, Nasalide, Maxipime and Azactam products or
processes to make such products are covered by patents that expire between 2004
and 2008. For a discussion of risks related to our intellectual property, please
see "Risks and Uncertainties" below.
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GOVERNMENT REGULATION
The manufacturing and marketing of our products are subject to regulation by
various Federal and state government authorities. 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 our 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, we must conduct each of
the following and possibly other steps:
- laboratory and possibly animal tests,
- the submission to the FDA of an investigational new drug application,
which must become effective before human testing may commence,
- adequate and well-controlled human testing to establish safety and
efficacy,
- the submission of a new drug application to the FDA for marketing
approval, and
- FDA approval of the new drug application prior to any commercial sale
or shipment.
The new drug application 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
regulatory 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 current good
manufacturing practice for both drugs and devices. To supply products for use in
the U.S., foreign manufacturing establishments must comply with current good
manufacturing practice 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 investigational new
drug 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 at the
institution at which the study is conducted. The review board 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 and 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.
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The results of the preclinical and clinical trials for pharmaceutical drug
products such as those currently marketed or being developed by us are submitted
to the FDA in the form of a new drug application 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 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, we believe, 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. Although the safety and efficacy of the
compounds being developed on behalf of Spiros Corp. II in Spiros have already
been established in currently marketed formulations and delivery mechanisms, the
approved requirements for new pulmonary delivery systems such as Spiros are
quite rigorous.
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 us.
HealthScript is subject to regulation by state regulatory authorities,
principally state boards of pharmacy. In addition, HealthScript 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. For a description of the risks related to government
regulation, please see "Risks and Uncertainties" below.
MANUFACTURING
Our manufacturing facility is located near our headquarters in San Diego,
California. The facility initially will be used to formulate, mill, blend and
manufacture drugs to be used with Spiros, pending regulatory approval. Our
manufacturing facility must be registered with and licensed by various
regulatory authorities and must comply with current good manufacturing practice
requirements prescribed by the FDA and other governmental authorities. We will
need to significantly scale up our current manufacturing operations from
clinical supply scale to commercial scale and comply with 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. 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 our ability to
manufacture products in connection with Spiros.
We do not have the capability to manufacture the pharmaceutical products we
currently sell. As a result, we are dependent on third-party contract
manufacturers for the supply of all of our products. These products are supplied
under short-term and long-term supply agreements. If these manufacturers were
unable to supply product, it could be difficult for us to secure alternative
sources of supply in a timely manner. This would impair our ability to ship
product to our customers and could have an adverse effect on our business and
results of operations.
HUMAN RESOURCES
We had 1,022 employees as of December 31, 1999, consisting of 565 people in
sales and marketing, 119 in corporate services, 245 in clinical, regulatory and
research and development and 93 at Health Script. None of our employees are
represented by a labor union, and we believe we maintain positive relations with
both field and corporate personnel.
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RISKS AND UNCERTAINTIES
WE FACE RISKS ASSOCIATED WITH OUR OPERATIONS.
BEFORE WE CAN MARKET ANY SPIROS PRODUCT, WE WILL HAVE TO OBTAIN REQUIRED
GOVERNMENTAL APPROVALS, WHICH IS NOT ASSURED.
The development, testing, manufacturing and marketing of pharmaceutical products
are subject to extensive regulation by governmental authorities, including the
FDA. The FDA must approve each Spiros product before that product can be
manufactured or marketed for commercial sale. The review and approval process
mandated by the FDA is very rigorous, requiring extensive preclinical and
clinical testing as well as determining manufacturing capability and product
performance. The FDA may never approve any of the Spiros products currently in
development by us or in collaboration with third parties. Failure to obtain any
such approval would have an adverse effect on our business and results of
operations.
ALTERNATIVE SUPPLIERS TO OUR THIRD-PARTY MANUFACTURERS MAY NOT BE AVAILABLE ON A
TIMELY BASIS WHICH WOULD HAVE AN ADVERSE EFFECT ON OUR BUSINESS.
We do not have the capability to manufacture the pharmaceutical products we
currently sell. As a result, we are dependent on third-party contract
manufacturers for the supply of all of our products. These products are supplied
under short-term and long-term supply agreements. If these manufacturers were
unable to supply product, it could be difficult for us to secure alternative
sources of supply in a timely manner. This would impair our ability to ship
product to our customers and could have an adverse effect on our business and
results of operations.
WE INTEND TO CONTINUE TO PURSUE OUR STRATEGY OF ACQUIRING COMPLEMENTARY PRODUCTS
AND LATE-STAGE PRODUCT DEVELOPMENT CANDIDATES, WHICH COULD RESULT IN SIGNIFICANT
CHARGES TO EARNINGS AND REQUIRE THE USE OF CAPITAL RESOURCES.
As part of our business strategy, we intend to continue to pursue the
acquisition of complementary products and late-stage product development
candidates. Such acquisitions could result in significant charges to earnings in
the related period as well as require the use of a large amount of our available
capital resources. Depending on the acquisition opportunities available and our
use of existing funds to satisfy existing capital and operating needs, we may
need to raise additional funds to finance such transactions. If adequate funds
are not available when needed on terms acceptable to us, our ability to complete
acquisitions could be limited. We may not have sufficient funds to develop any
late-stage product development candidates that we may acquire, any development
we conduct may not be successful and any funds we spend on product development
may reduce our earnings below the levels expected by securities analysts.
Further, reimbursement may not be available to enable us to achieve market
acceptance of any products we may acquire or develop or to maintain price levels
sufficient to realize an appropriate return on our investment in these products.
WE WILL NEED TO SIGNIFICANTLY EXPAND OUR MANUFACTURING CAPABILITY AND COMPLY
WITH GOVERNMENT REGULATIONS BEFORE WE CAN MANUFACTURE ANY SPIROS PRODUCTS.
We will need to significantly expand our current manufacturing operations and
comply with regulations prescribed by various regulatory agencies to achieve the
quality and required levels of production of our Spiros products to obtain
marketing approval. In addition, our manufacturing facility must be registered
with and licensed by various regulatory authorities and must comply with current
good manufacturing practice requirements prescribed by the FDA and other
governmental authorities. We intend to utilize third parties to produce
components of and assemble the Spiros inhaler. Such third parties have only
produced limited quantities of components and assembled limited numbers of
inhalers. These third parties will be required to significantly scale up their
activities and to produce components which meet applicable specifications on a
timely and consistent basis. Such third parties may not be successful in
attaining acceptable service levels or meeting regulatory requirements which
would have an adverse effect on our ability to commercialize the Spiros
products.
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<PAGE>
IF WE LOSE KEY PERSONNEL OR ARE UNABLE TO ATTRACT AND RETAIN QUALIFIED PERSONNEL
AS NECESSARY, IT COULD IMPAIR OUR SALES AND MARKETING ORGANIZATION AND DELAY OUR
PRODUCT DEVELOPMENT PROGRAMS.
Our success depends on the principal members of our scientific and management
staff. If we lose the services of one or more of these people, we may be unable
to achieve our development objectives.
None of our employees, other than Mr. Garner, Mr. Whitehead and Dr. Kabakoff, is
currently employed under an employment contract. Mr. Garner, Mr. Whitehead and
Dr. Kabakoff are employed under separate letter agreements, which are
automatically extended for successive one-year periods.
We may not be able to recruit and retain management and qualified scientific
personnel to perform research and development work in the future due to intense
competition for such personnel among pharmaceutical and other technology-based
businesses, universities and research institutions, particularly in the San
Diego area.
WE MAY NOT BE ABLE TO EFFECTIVELY MARKET MAXIPIME AND AZACTAM.
Effective January 1, 1999, we acquired the rights to Maxipime and Azactam, our
first acquisition of products used in hospitals. Under a co-promotion agreement
with Bristol-Myers Squibb Company, their hospital sales force promoted the
products during 1999, while we built our hospital sales force. Beginning in
2000, we assumed full responsibility for promoting these products. We may not be
able to effectively promote these products solely through our own hospital sales
force.
WE MAY HAVE TO REFINANCE OUR $287.5 MILLION OF OUTSTANDING NOTES ON TERMS THAT
MAY NOT BE ATTRACTIVE TO US.
We issued $287.5 million principal amount of 3 1/2% convertible subordinated
notes due 2002. We may desire to refinance the notes at a time when we are not
able to do so or on terms that are not attractive to us. Any inability to
refinance the notes on attractive terms could have a material adverse effect on
us and the market value of our common stock.
SEASONALITY AND THE TIMING AND SEVERITY OF THE WINTER COLD AND FLU SEASON CAN
HAVE AN ADVERSE EFFECT ON OUR OPERATING 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 our results of operations in the past and may influence them again in
the future.
WE COMPETE WITH MANY COMPANIES FOR THE ACQUISITION OF RIGHTS TO NEW PRODUCTS AND
TECHNOLOGIES.
Our strategy for growth is dependent, in part, on our ability to continue to
acquire rights to new products and technologies. The failure to successfully
acquire, develop or market new products or technologies would have an adverse
effect on our business, including our ability to achieve our targeted growth
rates. Other companies, including those with substantially greater resources,
are competing with us for the rights to such products. We may not be able to
acquire additional products or technologies on acceptable terms, or at all.
GROSS MARGINS ON PHARMACEUTICAL PRODUCTS MAY DECREASE AS A RESULT OF COMPETITIVE
PRESSURES.
We do not have proprietary protection for several of the products we sell, and
other pharmaceutical companies sell substitutes for such products. In addition,
the average selling prices for many of our products may decline over time due to
competitive and reimbursement pressures. We may not be successful in any efforts
we take to mitigate the effect of a decline in average selling prices. Our
commercial success will depend in part on the price that third-party healthcare
payors, such as government and private health insurers and managed care
organizations, are willing to pay for our products. Third-party payors
continually challenge the pricing of medical products and services. Many managed
care organizations limit the number of pharmaceutical products they approve for
reimbursement. The
17
<PAGE>
competition between pharmaceutical companies to get their products approved for
reimbursement may also result in downward pricing pressure in the industry. Any
of these factors causing a decline in our average selling prices would also
reduce the gross margins we achieve and negatively impact our business.
OUR ABILITY TO OBTAIN PATENTS AND PROTECT OUR PROPRIETARY RIGHTS IS UNCERTAIN
AND COULD HAVE AN ADVERSE EFFECT ON OUR BUSINESS.
Our ability to obtain patents on current or future products or technologies,
defend our patents, maintain trade secrets and operate without infringing upon
the proprietary rights of others both in the U.S. and abroad is uncertain.
Patents may never issue from the applications we have filed. Even if issued or
licensed to us, patents may not be enforceable, provide substantial protection
from competition or be of commercial benefit to us. Even if all these are true,
we may not possess the financial resources necessary to enforce or defend any
patent rights we obtain. Our commercial success will also depend upon avoiding
the infringement of patents issued to competitors and upon maintaining the
technology licenses upon which certain of our products are based. Litigation,
which is costly, may be necessary to enforce our patent and license rights or to
determine the scope and validity of proprietary rights of third parties. If any
of our products or technologies are found to infringe upon patents or other
rights owned by third parties, we could be required to obtain a license to
continue to manufacture or market such products or technologies. Licenses to
such patent rights may not be available to us on commercially reasonable terms,
or at all. If we do not obtain such licenses, we could encounter delays in
marketing affected products or technologies or we could find that the
development, manufacture or sale of products requiring such licenses is not
possible.
WE ARE INVOLVED IN A LAWSUIT AND CANNOT PREDICT ITS OUTCOME.
We are involved in shareholder litigation as described in Note 13 of the
consolidated financial statements. The outcome of this lawsuit and any other
suits in which we may become involved cannot be predicted. An adverse outcome in
any of these actions could have an adverse effect on our business or results of
operations.
OUR PRODUCTS MAY CAUSE PRODUCT LIABILITY CLAIMS OR MAY NEED TO BE RECALLED,
EITHER OF WHICH WOULD HAVE AN ADVERSE EFFECT ON OUR BUSINESS.
We face an inherent business risk of exposure to product liability claims in the
event that the use of our products or technologies is alleged to have resulted
in adverse effects. The level or breadth of any insurance coverage we currently
maintain may not be sufficient to fully cover potential claims. Adequate
insurance coverage may not be available in the future at acceptable costs, if at
all.
WE FACE RISKS ASSOCIATED WITH THE PENDING ACQUISITION OF SPIROS CORP. II.
THE FAILURE TO COMPLETE THE ACQUISITION MAY RESULT IN A DECREASE IN THE MARKET
VALUE OF OUR COMMON STOCK.
The acquisition is subject to a number of contingencies, including approval by
the shareholders of Spiros Corp. II and other customary closing conditions. As a
result, the acquisition may not be completed. If the acquisition is not
completed for any reason, the trading price of our common stock may fall.
THE MERGER WILL SIGNIFICANTLY REDUCE OUR CONTRACT REVENUES AND WILL LIKELY
RESULT IN A MATERIAL CHARGE TO OUR EARNINGS IN THE PERIOD IN WHICH THE EVENT
OCCURS.
We record contract revenue for payments from Spiros Corp. II for development
costs we incur on Spiros Corp. II's behalf and for technology access fees.
Contract revenues from Spiros Corp. II totaled $55.5 million for the year ended
December 31, 1999. The merger will likely result in a significant reduction of
contract revenue to us. In addition, we expect that a material charge for
acquired in-process technology will likely be recorded in the period in which
the acquisition is effected.
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<PAGE>
WE FACE RISKS ASSOCIATED WITH OUR MARKET.
THE PHARMACEUTICAL INDUSTRY IS EXTREMELY COMPETITIVE.
Many companies, including large pharmaceutical firms with financial and
marketing resources and development capabilities substantially greater than
ours, are engaged in developing, marketing and selling products that compete
with those that we offer or plan to offer. Our failure to effectively respond to
the competitive pressures of our industry would have an adverse effect on our
business and results of operations. 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 our current or future
products. The industry is characterized by rapid technological change, and
competitors may develop their products more rapidly than we do. Competitors may
also be able to complete the regulatory process sooner, and therefore, may begin
to market their products in advance of our products.
SOME OF OUR CHARTER AND OTHER CONTRACTUAL PROVISIONS MAY PREVENT A CHANGE OF
CONTROL WHICH COULD BE BENEFICIAL TO OUR SHAREHOLDERS.
Certain provisions of our charter documents, outstanding securities (including
certain warrants, options and our notes), certain contracts (including the
executive severance agreements), and our shareholder rights plan may have the
effect of delaying, deferring or preventing a change in control. This could
deprive you of an opportunity to receive a premium for your shares of common
stock.
OUR STOCK PRICE IS VOLATILE.
The market prices for securities of emerging companies, including ours, have
historically been highly volatile. Future announcements concerning us or our
competitors may have a significant impact on the market price of our common
stock. Such announcements might include:
- - financial results,
- - the results of clinical testing of our or our competitors' products,
- - regulatory developments,
- - technological innovations,
- - new commercial products,
- - changes to government regulations,
- - regulatory decisions on commercialization of products,
- - developments concerning proprietary rights,
- - litigation or public concern as to safety of our products, or
- - our failure to achieve securities analysts' expectations concerning our
earnings per share or revenues.
ITEM 2. PROPERTIES
We own and occupy our campus in San Diego, California consisting of a 77,000
square foot headquarters facility and a 155,000 square foot research and
development facility which we completed in January 1999. We own two other
buildings that are situated on another parcel of land near our headquarters. One
building, consisting of approximately 34,000 square feet, is partially occupied
and is being used for manufacturing purposes. The second building, consisting of
approximately 49,000 square feet, contains our manufacturing facility that will
be used to formulate, mill, blend and fill drugs to be used with Spiros and is
also used for warehouse space.
We also lease approximately 28,560 square feet of space in Denver, Colorado and
4,375 square feet of space in Rainsville, Alabama, which comprise the operations
of Health Script's mail service pharmacy. The lease terms expire in January 2003
and January 2001, respectively.
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<PAGE>
ITEM 2. PROPERTIES
We own and occupy our campus in San Diego, California consisting of a 77,000
square foot headquarters facility and a 155,000 square foot research and
development facility which we completed in January 1999. We own two other
buildings that are situated on another parcel of land near our headquarters. One
building, consisting of approximately 34,000 square feet, is partially occupied
and is being used for manufacturing purposes. The second building, consisting of
approximately 49,000 square feet, contains our manufacturing facility that will
be used to formulate, mill, blend and fill drugs to be used with Spiros and is
also used for warehouse space.
We also lease approximately 28,560 square feet of space in Denver, Colorado and
4,375 square feet of space in Rainsville, Alabama, which comprise the operations
of Health Script's mail service pharmacy. The lease terms expire in January 2003
and January 2001, respectively.
We consider our facilities adequate for our current needs and believe that
additional space can be obtained in the future, if necessary.
ITEM 3. LEGAL PROCEEDINGS
SETTLEMENT OF THE TERMINATION OF MERGER AGREEMENT WITH SCANDIPHARM, INC.- On
December 1, 1997, we terminated a merger agreement with Scandipharm, Inc.
entered into on October 20, 1997. On January 16, 1998, Scandipharm filed suit
against us for breach of contract. On January 20, 1998, we filed suit against
Scandipharm seeking a declaratory judgment that our termination of the merger
agreement did not breach the agreement and damages against Scandipharm. On
October 4, 1999, we settled all litigation with Scandipharm. Under the terms of
the settlement, we paid $3.5 million to Scandipharm, and the parties dismissed
all lawsuits filed against one another. The $3.5 million charge was included
with other expense in the accompanying consolidated statements of operations for
the year ended December 31, 1999.
SHAREHOLDER CLASS ACTION LITIGATION - Commencing on January 27, 1999, several
class action suits were filed against us and a number of current or former
officers and directors of the Company in the United States District Court for
the Southern District of California. The lawsuits, which have been consolidated
into one action, allege violations of the federal securities laws, and purport
to seek damages on behalf of a class of shareholders who purchased our common
stock during a defined period. We believe that the claims in the lawsuit are
without merit and intend to defend against them vigorously.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Our common stock is traded on the Nasdaq National Market under the symbol
"DURA." The following table sets forth the high and low sale prices of our
common stock as reported on Nasdaq, without retail mark-up, mark-down or
commissions, during each quarter in 1998 and 1999:
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<PAGE>
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
1998
First quarter $48.625 $20.75
Second quarter $29.00 $21.375
Third quarter $26.875 $ 9.938
Fourth quarter $15.625 $ 8.000
1999
First quarter $17.688 $12.625
Second quarter $15.00 $10.063
Third quarter $15.063 $ 9.75
Fourth quarter $14.813 $11.875
</TABLE>
On March 15, 2000 the closing price of our common stock was $13.625. At March
15, 2000 there were approximately 620 holders of record of our common stock.
No cash dividends were declared or paid in 1998 or 1999.
We currently intend to retain all available funds for use in our business, and
do not anticipate paying any cash dividends in the foreseeable future. Any
future determination relating to our dividend policy will be made at the
discretion of our board of directors and will depend on a number of factors,
including future earnings, capital requirements, financial condition and future
prospects and other factors the board of directors may deem relevant.
ITEM 6. SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1999 1998 1997 1996 1995
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA (1)
Total revenues $ 301,426 $ 199,152 $ 181,323 $104,119 $ 51,502
Net income (loss) (2) $ 30,004 $ 2,733 $ (84,692) $ 24,328 $(35,778)
Net income (loss) per share (2):
Basic $ 0.68 $ 0.06 $ (1.93) $ 0.68 $ (1.53)
Diluted $ 0.66 $ 0.06 $ (1.93) $ 0.60 $ (1.53)
BALANCE SHEET DATA (1)
Cash, cash equivalents and
short-term investments $ 274,413 $ 269,412 $ 385,221 $ 240,345 $ 67,820
Working capital $ 255,925 $ 248,237 $ 392,870 $ 219,864 $ 59,105
Total assets $ 883,474 $ 825,459 $ 774,880 $ 504,670 $143,997
Long-term obligations $ 354,154 $ 352,839 $ 297,064 $ 6,670 $ 15,427
Shareholders' equity $ 441,739 $ 410,372 $ 429,277 $ 443,577 $109,097
</TABLE>
(1) Selected Consolidated Financial Data reflect various product rights and
company acquisitions, including Maxipime and Azactam (1999), Myambutol
(1998), Nasarel and Nasalide (1997), the Entex
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product line, Ceclor CD and Keftab-Registered Trademark- (1996), and
HealthScript (1995). See note 4 of the notes to consolidated financial
statements.
(2) In 1999, Dura incurred a $3.5 million charge for the settlement of the
Scandipharm litigation (see note 13 of the notes to the consolidated
financial statements). In 1998, 1997 and 1995, Dura incurred charges
for acquired in-process technology, purchase options and other
nonrecurring items totaling $29.3 million, $137.6 million and $43.8
million, respectively, as described in note 12 of the notes to
consolidated financial statements. In addition, the nonrecurring
consolidation of DJ Pharma, Inc.'s operations in 1998 reduced net
income by $4.9 million. If these charges were excluded, Dura would have
reported net income of $32.4 million, or $0.73 per share (basic) and
$0.71 per share (diluted) for 1999, net income of $25.5 million, or
$0.55 per share (basic) and $0.53 per share (diluted) for 1998, net
income of $47.4 million, or $1.08 per share (basic) and $0.99 per share
(diluted) for 1997, and $8.0 million, or $0.34 per share (basic) and
$0.28 per share (diluted) for 1995.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following comments should be read in conjunction with the consolidated
financial statements and notes contained elsewhere in this annual report. See
"Risks and Uncertainties" for trends and uncertainties known to us that could
cause reported financial information not to be necessarily indicative of future
results.
OVERVIEW
We are engaged in developing and marketing prescription pharmaceutical
products for the treatment of respiratory conditions and infectious diseases.
We execute our business strategy by (1) acquiring currently marketed or
late-stage development products, and companies developing or marketing such
pharmaceuticals, to support our presence in high-prescribing physicians'
offices and the hospital market, and (2) developing Spiros-Registered
Trademark-, a pulmonary drug delivery system for both topical anD systemic
delivery of medications. We currently sell 10 prescription product lines and
also own a separate mail service pharmacy, Health Script Pharmacy Services,
Inc., which dispenses respiratory pharmaceuticals. Our operations are divided
into two business segments: (1) Pharmaceutical Products and (2) Research and
Development. The Pharmaceutical Products segment markets prescription
pharmaceutical products for the treatment of respiratory conditions and
infectious diseases. The Research and Development segment manages the
development of Spiros. Each of the Company's segments operates solely within
the United States.
The following table summarizes total revenues and operating income (loss) by
segment for 1999, 1998, and 1997 (in thousands):
<TABLE>
<CAPTION>
PHARMACEUTICAL RESEARCH AND
PRODUCTS DEVELOPMENT CONSOLIDATED
<S> <C> <C> <C> <C>
Total revenues 1999 $ 232,589 $ 68,837 $ 301,426
1998 $ 138,025 $ 61,127 $ 199,152
1997 $ 151,850 $ 29,473 $ 181,323
Operating income (loss) 1999 $ 37,458 $ 11,599 $ 49,057
1998 $ (20,600) $ 13,191 $ (7,409)
1997 $ 43,965 $(121,982) $ (78,017)
</TABLE>
During 1998, we made significant acquisitions of product rights and licenses
that impact the comparability of the Company's operations for the years ended
December 31, 1999, 1998 and 1997. On December 31, 1998, we acquired exclusive
U.S. distribution rights for the patented hospital antibiotic products
Maxipime (cefepime
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hydrochloride) for Injection and Azactam (aztreonam) for Injection from
Bristol-Myers Squibb Company. The Company began selling these products
effective January 1, 1999. In August 1998, we acquired from an affiliate of
American Home Products exclusive U.S. marketing rights to the single-source
tuberculosis drug Myambutol (ethambutol hydrochloride).
RESULTS OF OPERATIONS
The following table summarizes our results of operations for 1999, 1998, and
1997 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Total revenues $ 301,426 $ 199,152 $ 181,323
Operating income (loss) 49,057 (7,409) (78,017)
Net income (loss) 30,004 2,733 (84,692)
Earnings (loss) per share (diluted) 0.66 0.06 (1.93)
</TABLE>
NET INCOME
Net income for 1999 was $30 million, or $0.66 per diluted share, which
included a $3.5 million pre-tax charge in other expense for settling all
litigation with Scandipharm, Inc. Net income for 1998 was $2.7 million, or
$0.06 per diluted share, which included a pre-tax charge totaling $29.3
million for the write-down of product rights whose values we deemed impaired,
as well as the $4.9 million after-tax impact of consolidating the operations
of DJ Pharma. Net loss for 1997 was $84.7 million, or $1.93 per diluted
share, which included pre-tax charges totaling $137.6 million for acquired
in-process technology, purchase options and other nonrecurring items. If
these charges were excluded, we would have reported net income of $32.4
million, or $0.71 per diluted share, for 1999, net income of $25.5 million,
or $0.53 per diluted share, for 1998, and net income of $47.4 million, or
$0.99 per diluted share, for 1997. See notes 6, 11 and 12 of the notes to the
consolidated financial statements for further discussion of these charges.
Other factors that affected net income are discussed below.
SALES AND GROSS PROFIT
Sales for 1999 increased $95.6 million, or 70%, over 1998. This increase is
due primarily to sales of Maxipime and Azactam, which we acquired in
December 1998 and began selling effective January 1999, as well as increases
in the sales of our promoted products Ceclor CD and Nasarel. Gross profit, or
sales less cost of sales, for 1999 increased $79 million, or 74%, over 1998
as a result of thie increase in sales in 1999. Gross profit as a percentage
of sales increased to 80% in 1999 compared to 79% in 1998 and 1997. Sales in
1998 decreased $14.3 million, or 9%, from 1997 due primarily to a decline in
sales of some of our cough, cold and allergy products, partially offset by an
increase in sales of Myambutol, acquired in August 1998. Gross profit for
1998 decreased $11.5 million, or 10%, from 1997 as a result of the decrease
in sales in 1998.
CONTRACT REVENUE
Contract revenue relates primarily to amounts received by us for development
work we perform on our Spiros pulmonary drug delivery system, as well as
milestone and technology access payments, under agreements with Spiros Corp.
II and Lilly. Contract revenues for 1999 were $69.7 million, of which $55.5
million was from Spiros Corp. II, as compared to $63 million, of which $47.8
million was from Spiros Corp. II, for 1998. Contract revenues for 1998
increased $32.1 million, or 104%, over 1997 due to increased development
activity conducted under the agreements discussed above. Contract revenues
totaled $25.9 million from Spiros Development Corporation and Spiros Corp. II
in 1997. Contract revenues may fluctuate from period to period based on the
level of research funding received as well as the achievement of milestones
and receipt of technology access payments from our partners. See "Liquidity
and Capital Resources" below and note 6 of the notes to the
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<PAGE>
consolidated financial statements for discussion of the Company's March 2000
definitive merger agreement with Spiros Corp. II. The merger with Spiros
Corp. II, if completed, will likely result in a significant reduction of our
contract revenue even though we will continue to incur the related
development costs.
CLINICAL, DEVELOPMENT AND REGULATORY EXPENSES
Clinical, development and regulatory expenses increased $9.1 million, or 21%,
from 1998 to 1999 and increased $18.6 million, or 74% from 1997 to 1998 due
to increased development activity conducted under the agreements covering the
use of various compounds with Spiros as discussed above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for 1999 increased $42 million, or
46%, over 1998 but decreased as a percentage of total revenues from 46% in 1998
to 44% in 1999. The dollar increase is primarily due to costs incurred to expand
our field sales force (increase of $41.9 million), higher marketing costs
relating to our recently acquired products (increase of $3.4 million) and costs
related to general corporate activities (increase of $2.9 million). The
increases were offset by the $6 million impact of the consolidation of DJ Pharma
into our 1998 financial statements as described in note 11 of the notes to the
consolidated financial statements. Selling, general and administrative expenses
for 1998 increased $38.6 million, or 73%, over 1997 and increased as a
percentage of total revenues to 46% for 1998 from 29% for 1997. The dollar and
percentage increases are primarily due to costs incurred to expand our field
sales force (increase of $27.6 million), costs related to general corporate
activities (increase of $4.2 million) and the consolidation of DJ Pharma into
our 1998 financial statements (increase of $6 million). For both 1999 and
1998, the expansion of our sales force was in response to the acquisition of
distribution rights to new products as well as to increase the promotion of
certain existing products in our portfolio.
PRODUCT RIGHTS AMORTIZATION
Product rights amortization for 1999 increased $7.4 million, or 58%, over
1998, and increased as a percentage of total revenues from 6% in 1998 to 7%
in 1999. The dollar and percentage increases are due to the purchase of
Myambutol in August 1998, as well as the purchases of Maxipime and Azactam on
December 31, 1998. Product rights amortization for 1998 increased $1.2
million, or 10%, over 1997, and remained consistent as a percentage of total
revenues at 6% in 1997 and 1998. The dollar increase is due to the purchase
of Myambutol in August 1998 and the purchases of Nasarel and Nasalide in May
1997.
INTEREST INCOME
Interest income for 1999 decreased $4.4 million, or 20%, from 1998 due to lower
balances of cash, cash equivalents and short-term investments during 1999
resulting from the acquisition of product rights and the repurchase of shares of
our common stock in the second half of 1998. Interest income for 1998 increased
$3.8 million, or 21%, over 1997. The increase is due to higher balances of cash,
cash equivalents and short-term investments during 1998 resulting primarily from
the investment of the net proceeds of our notes offering completed in the third
quarter of 1997.
INTEREST EXPENSE
Interest expense for 1999 increased $6.1 million, or 51%, over 1998 due to
interest on obligations incurred in connection with the acquisition of product
rights completed in the second half of 1998. Interest expense for 1998 increased
$6.2 million, or 107%, over 1997 due to interest expense on our notes offering
which we completed in the third quarter of 1997.
PROVISION FOR INCOME TAXES
Our effective tax rate was 32% for 1999, as compared to a tax benefit of
$907,000 on pre-tax income of $1.8 million for 1998. The 1999 effective tax rate
is mainly attributable to the realization of research and development credits
and the utilization of net operating loss carryforwards. The primary reason for
recognizing a
24
<PAGE>
tax benefit in 1998 in spite of achieving pre-tax earnings was the
availability of federal research and development and other tax credits. A
significant portion of the nonrecurring charges incurred in 1997 was not
deductible for tax purposes. As such, an $18.8 million tax provision was
recorded despite incurring a pre-tax loss. Excluding the impact of
nonrecurring charges, our effective tax rate for 1997 was 34%.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and short-term investments increased by $5 million from
$269.4 million at December 31, 1998 to $274.4 million at December 31, 1999.
Working capital increased by $7.7 million from $248.2 million at December 31,
1998 to $255.9 million at December 31, 1999.
We have outstanding $287.5 million principal amount of notes due July 15, 2002
with interest payable semiannually at a coupon rate of 3.5%. The notes are
convertible, at the option of the holder, into shares of common stock at any
time prior to maturity or redemption at a conversion price of $50.635 per share.
In addition to the notes, as of December 31, 1999, we had outstanding an
aggregate of $68.5 million in current and other long-term obligations related
to our product acquisitions, of which $1.9 million is to be paid during the
next 12 months. As of December 31, 1999, additional payments totaling
approximately $140 million, estimated based on historical sales levels of the
related products, are contingent upon the levels of future sales of certain
products, and approximately $70 million are contingent upon the continued
absence of competing formulations of certain products as defined in the
respective agreements. Such contingent amounts are payable through 2004,
including approximately $48 million contingently due within the next 12
months.
We have entered into various agreements with Spiros Corp. II for the development
of Spiros with certain compounds including beclomethasone and budesonide. In
1997, we licensed the use of these and other compounds with Spiros to Spiros
Corp. II on an exclusive basis. We have the right to purchase all, but not less
than all, of the then outstanding shares of Spiros Corp. II callable common
stock at predetermined prices. In addition, we have the right to acquire from
Spiros Corp. II the exclusive rights for the use of Spiros with albuterol and
for the use of Spiros with a second product other than albuterol. Both the stock
purchase option and the product purchase option expire the earlier of December
31, 2002 or upon the use of substantially all of Spiros Corp. II's funds.
Spiros Corp. II has engaged us to develop the Spiros products under license from
us. We record contract revenue for payments from Spiros Corp. II for development
costs we incur on its behalf and for technology access fees. Contract revenues
from Spiros Corp. II totaled $55.5 million for the year ended December 31, 1999.
Based on the current development plan of Spiros Corp. II, we expect that it will
expend all of its existing cash during the second half of 2000. Further, we do
not believe that Spiros Corp. II's existing funds will be sufficient to complete
the development of any Spiros product.
In March 2000 we entered into a merger agreement to acquire Spiros Corp. II.
Under the agreement, for each share of callable common stock Spiros Corp. II
shareholders will receive $13.25 in cash and one five-year warrant to purchase a
fractional share of our common stock at $17.94 per share, which represents a 25%
premium over the average closing price of our common stock for the ten trading
days prior to the date of the merger agreement. The exact fraction of a share of
our common stock purchasable under the warrant will be determined based on the
average closing price of our common stock for the ten trading days prior to the
vote of the Spiros Corp. II shareholders on the merger and will result in a
calculated Black-Scholes value for each warrant of between $3.22 and $1.81. The
total consideration for the merger as of the date of the merger agreement was
calculated to be $100.8 million, or $15.75 per share of callable common stock.
Closing of the transaction is subject to Hart-Scott-Rodino clearance,
effectiveness of the registration statement for our warrants, and Spiros Corp.
II shareholder approval. We have received voting agreements in favor of the
merger from holders of approximately 22% of Spiros Corp. II's outstanding
callable common stock. A special committee of independent members of the Spiros
Corp. II's board, formed in December 1999 to evaluate strategic alternatives for
Spiros Corp. II, has approved the merger agreement and is recommending that the
Spiros Corp. II shareholders approve the merger.
25
<PAGE>
The discontinuation of contract revenue from Spiros Corp. II due to the
acquisition of its stock by us would significantly reduce our earnings as
well as cash generated from operating activities. In addition, we expect that
a charge for acquired in-process technology will be recovered in the period
in which the merger is effected.
We anticipate that our existing capital resources and cash generated from
operations will be sufficient to finance our operations through at least the
next 12 months. Product or company acquisitions or in-licensing opportunities,
however, may require significant additional capital resources. Such additional
capital resources may not be available when needed or on terms acceptable to us.
We are actively pursuing the acquisition of rights to products and/or companies
that may require the use of substantial capital resources; however, there are no
present agreements or commitments for any such acquisitions.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We invest our excess cash and short-term investments in U.S. government and
corporate debt securities with high quality credit ratings and maturities of
less than two years. These investments are not held for trading or other
speculative purposes. Changes in interest rates affect the investment income we
earn on our investments and, therefore, impact our cash flows and results of
operations. At December 31, 1999, we had outstanding subordinated notes totaling
$287.5 million, which mature in July 2002. The notes have a fixed interest rate
of 3 1/2 percent. Accordingly, while changEs in interest rates may affect the
fair market value of the notes, they do not impact our cash flows or results of
operations. As of December 31, 1999, the notes had a fair market value of $234.3
million. We are not exposed to risks for changes in foreign currency exchange
rates, commodity prices, or any other market rates.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Index to consolidated financial statements below for a list of the
financial statements included in this Form 10-K.
26
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Identification of Directors. The information under the caption "Election of
Directors," appearing in the Proxy Statement to be filed for our 2000 Annual
Meeting of Shareholders, is incorporated herein by reference.
(b) Identification of Executive Officers. The information under the caption
"Executive Officers," appearing in the Proxy Statement to be filed for our 2000
Annual Meeting of Shareholders, is incorporated herein by reference.
(c) Compliance with Section 16(a) of the Exchange Act. The information under the
caption "Section 16(a) Beneficial Ownership Reporting Compliance," appearing in
the Proxy Statement to be filed for our 2000 Annual Meeting of Shareholders, is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information under the heading "Executive Compensation and Other Information"
appearing in the Proxy Statement to be filed for our 2000 Annual Meeting of
Shareholders, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the headings "Principal Stockholders" and "Security
Ownership of Management," appearing in the Proxy Statement to be filed for our
2000 Annual Meeting of Shareholders, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the headings "Election of Directors," "Executive
Compensation and Other Information" and "Certain Relationships and Related
Transactions," appearing in the Proxy Statement to be filed for our 2000 Annual
Meeting of Shareholders, is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
27
<PAGE>
See attached Index to Consolidated Financial Statements.
(a) 2. INDEX TO FINANCIAL STATEMENT SCHEDULES
Financial statement schedules are omitted because they are not required, are not
applicable, or the information is included in the consolidated financial
statements or notes included in this Form 10-K.
(a) 3. EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
---------- -----------
<S> <C>
11) 3.1 Certificate of Incorporation.
17) 3.2 Certificate of Amendment of Certificate of Incorporation,
effective May 21, 1998.
17) 3.3 Certificate of Designation of Series A Junior Participating
Preferred Stock.
11) 3.4 Bylaws.
18) 4.1 Specimen Common Stock Certificate.
12) 4.2 Indenture, including form of Note, dated July 30,
1997, between the Company and Chase Manhattan Bank
and Trust Company, successor to Chase Trust Company
of California, as trustee, with respect to the 3 1/2%
Convertible Subordinated Notes due 2002.
12) 4.3 Form of 3 1/2% Convertible Subordinated Note
(included in Exhibit 4.2).
13) 4.4 Warrant Agreement dated December 22, 1997 between the
Company and ChaseMellon Shareholder Services, L.L.C.,
as warrant agent, including form of SDCII Warrant.
3) 4.5 Form of Series W Warrant.
6) 4.6 Form of Series S Warrant.
16) 4.7 Rights Agreement, dated as of May 21, 1998, between
the Company and ChaseMellon Shareholder Services,
L.L.C., which includes the form of Certificate of
Designation for the Series A Junior Participating
Preferred Stock as Exhibit A, the form of Rights
Certificate as Exhibit B and the Summary of Rights to
Purchase Series A Junior Preferred Stock as Exhibit
C.
22) 4.8 First Amendment to the Rights Agreement dated
December 10, 1998 between the Company and ChaseMellon
Shareholder Services, L.L.C.
4.9 Specimen SDCII Warrant.
1) 10.1 License Agreement dated June 1, 1990 between the
Company and Mark B. Mecikalski, M.D. (with certain
confidential portions omitted).
12) + 10.2 Form of Indemnification Agreement between the Company
and each of its directors.
12) + 10.3 Form of Indemnification Agreement between the Company
and each of its officers.
</TABLE>
28
<PAGE>
<TABLE>
<S> <C>
18) + 10.4 1992 Stock Option Plan, as amended and restated.
14) + 10.5 Form of Notice of Grant of Stock Option.
14) + 10.6 Form of Stock Option Agreement.
2) + 10.7 Employment letter agreement dated May 7, 1990 between
the Company and Cam L. Garner.
4) 10.8 Assignment Agreement dated March 12, 1993 between the
Company and Mark B. Mecikalski, M.D. (with certain
confidential portions omitted).
5) 10.9 Technology Access License and Royalty Agreement dated
September 5, 1994 between Elan Corporation, plc and the
Company (with certain confidential portions omitted).
6) 10.10 Investors' Rights Agreement dated December 29, 1995
between the Company and the investors listed on
Schedule A thereto.
7) 10.11 Agreement for Purchase and Sale of Assets dated June
17, 1996 between the Company and Procter & Gamble
Pharmaceuticals, Inc. (with certain confidential portions
omitted) re: Entex-Registered Trademark-.
8) 10.12 Licensing Agreement dated August 21, 1996
between the Company and Eli Lilly and
Company (with certain confidential portions
omitted) re: Ceclor-Registered Trademark-CD
and Keftab-Registered Trademark-.
9) 10.13 Manufacturing Agreement dated August 21, 1996
between the Company and Eli Lilly and Company (with
certain confidential portions omitted) re:
Ceclor-Registered Trademark- CD and Keftab-Registered
Trademark-.
11) 10.14 Business Loan Agreement dated April 14, 1997 between
the Company and Bank of America National Trust and
Savings Association.
10) 10.15 Syntex Asset Purchase Agreement dated March 27, 1997
between the Company and Syntex (USA), Inc. re:
Nasarel-Registered Trademark-and Nasalide-Registered
Trademark-.
10) 10.16 SPIL Asset Purchase Agreement dated March 27, 1997
between the Company and Syntex Pharmaceuticals
International Limited re: Nasarel-Registered
Trademark-and Nasalide-Registered Trademark-.
12) 10.17 Amendment No. 1 to Business Loan Agreement dated May
8, 1997 between the Company and Bank of America
National Trust and Savings Association.
12) 10.18 Amendment No. 2 to Business Loan Agreement dated July
30, 1997 between the Company and Bank of America
National Trust and Savings Association.
15) 10.19 Amendment No. 3 to Business Loan Agreement dated
October 28, 1997 between the Company and Bank of
America National Trust and Savings Association.
15) + 10.20 Deferred Compensation Plan.
13) 10.21 Technology License Agreement dated December 22, 1997
between the Company, Dura Delivery Systems, Inc., Spiros
Development Corporation and Spiros Development Corporation
II, Inc.
13) 10.22 Development Agreement dated December 22, 1997 between
the Company and Spiros Development Corporation II,
Inc.
</TABLE>
29
<PAGE>
<TABLE>
<S> <C>
13) 10.23 Albuterol and Product Option Agreement dated December
22, 1997 between the Company and Spiros Development
Corporation II, Inc.
13) 10.24 Manufacturing and Marketing Agreement dated December
22, 1997 between the Company and Spiros Development
Corporation II, Inc.
13) 10.25 Services Agreement dated December 22, 1997 between
the Company and Spiros Development Corporation II,
Inc.
15) + 10.26 Employment letter agreement dated May 1, 1996 between
the Company and David S. Kabakoff.
18) 10.27 Amendment No. 4 to Business Loan Agreement dated June
25, 1998 between the Company and Bank of America
National Trust and Savings Association.
19) 10.28 Amendment No. 5 to Business Loan Agreement dated
October 12, 1998 between the Company and Bank of
America National Trust and Savings Association.
19) 10.29 Amendment No. 6 to Business Loan Agreement dated
November 13, 1998 between the Company and Bank of
America National Trust and Savings Association.
19) + 10.30 Employment letter agreement dated July 1, 1998
between the Company and Robert S. Whitehead.
19) + 10.31 Notice of Grant of Stock Option dated July 10, 1998
between the Company and Robert S. Whitehead.
20) 10.32 Distribution Agreement for Maxipime-Registered
Trademark- and Azactam-Registered Trademark- dated
December 21, 1998 between the Company and
Bristol-Myers Squibb Company (with certain
confidential portions omitted).
20) 10.33 Supply Agreement for Maxipime-Registered
Trademark-and Azactam-Registered Trademark-dated
December 21, 1998 between the Company and
Bristol-Myers Squibb Company (with certain
confidential portions omitted).
21) 10.34 Amendment No. 7 to Business Loan Agreement dated
December 31, 1998 between the Company and Bank of
America National Trust and Savings Association.
10.35 Amendment No. 8 to Business Loan Agreement dated
April 30, 1999 between the Company and Bank of
America National Trust and Savings Association.
10.36 Amendment No. 9 to Business Loan Agreement dated June
30, 1999 between the Company and Bank of America
National Trust and Savings Association.
10.37 Amended and Restated Purchase & License Agreement
dated January 25, 1999 between the Company, DJ
Pharma, Inc., and Dura (Bermuda) Trading Company Ltd.
re: Keftab-Registered Trademark-, Rondec-Registered
Trademark-, & CCA products * (with certain
confidential portions omitted).
10.38 Amendment No. 1 to Amended and Restated Purchase &
License Agreement dated December 30, 1999 between the
Company, DJ Pharma, Inc., and Dura (Bermuda) Trading
Company Ltd. * (with certain confidential portions
omitted).
+ 10.39 Board of Directors Deferred Compensation Plan
</TABLE>
30
<PAGE>
<TABLE>
<S> <C>
10.40 Form of Executive Change of Control Severance
Agreement dated January 1, 2000 between the Company
and each of its officers.
11 Statements Re Computations of Net Income (Loss) Per Share.
21 Subsidiaries of the Registrant
23 Independent Auditors' Consent.
24 Power of Attorney (See signature page).
27 Financial Data Schedule for the year ended December 31, 1999.
</TABLE>
1) Incorporated by reference to the Company's Registration Statement on Form
S-1 (No. 33-44525), filed December 13, 1991, as amended.
2) Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1992, as amended.
3) Incorporated by reference to the Company's Registration Statement on Form
S-3 (No. 33-71798), filed December 13, 1993.
4) Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1993, as amended.
5) Incorporated by reference to the Company's Form 10-Q for the quarter ended
September 30, 1994, as amended.
6) Incorporated by reference to the Company's Form 8-K, dated December 29,
1995, as amended.
7) Incorporated by reference to the Company's Form 8-K, dated July 3, 1996.
8) Incorporated by reference to the Company's Form 8-K, dated September 5,
1996, as amended.
9) Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1996.
10) Incorporated by reference to the Company's Form 8-K, dated May 7, 1997.
11) Incorporated by reference to the Company's Form 10-Q for the quarter ended
June 30, 1997.
12) Incorporated by reference to the Company's Form 10-Q for the quarter ended
September 30, 1997.
13) Incorporated by reference to the Company's Form 8-K, dated December 19,
1997.
14) Incorporated by reference to the Company's Registration Statement on Form
S-8 (No. 333-34551), filed August 28, 1997.
15) Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1997.
16) Incorporated by reference to the Company's Form 8-K, dated May 21, 1998.
17) Incorporated by reference to the Company's Registration Statement on Form
8-A, filed May 22, 1998.
18) Incorporated by reference to the Company's Form 10-Q for the quarter ended
June 30, 1998.
19) Incorporated by reference to the Company's Form 10-Q for the quarter ended
September 30, 1998.
20) Incorporated by reference to the Company's Form 8-K, dated January 1, 1999.
21) Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1998.
22) Incorporated by reference to the Company's Form 8-A/A, dated December 10,
1998.
+ Management contract or compensation plan or arrangement.
* Certain confidential portions of this Exhibit were omitted by means of
marking such portions with an asterisk (the "Mark"). This Exhibit has been
filed with the Secretary of the Commission without the Mark pursuant to the
Company's application requesting confidential treatment under Rule 24b-2
under the Securities Exchange Act of 1934, as amended.
31
<PAGE>
(b) REPORTS ON FORM 8-K
None.
SUPPLEMENTAL INFORMATION
No Annual Report to Shareholders or Proxy materials have been sent to
shareholders as of the date of this report. The Annual Report to Shareholders
and Proxy material will be furnished to the Company's shareholders subsequent to
the filing of this report and the Company will furnish such material to the
Securities and Exchange Commission at that time.
32
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form
10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: MARCH 28, 2000 DURA PHARMACEUTICALS, INC.
By: /s/ Cam L. Garner
------------------------------------
Cam L. Garner,
Chairman and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Cam L. Garner and Michael T. Borer, or either of them,
as his true and lawful attorneys-in-fact and agents, with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Annual Report on Form 10-K,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in connection
therewith as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitute or substitutes may lawfully do or cause to be done
by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS ANNUAL REPORT ON FORM 10-K HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS
ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Cam L. Garner Chairman and MARCH 28, 2000
- ---------------------------------------- Chief Executive Officer
(Cam L. Garner) (Principal Executive Officer)
/s/ Michael T. Borer Senior Vice President and MARCH 28, 2000
- ---------------------------------------- Chief Financial Officer
(Michael T. Borer) (Principal Financial and Accounting Officer)
/s/ James C. Blair, PH.D. Director MARCH 28, 2000
- ----------------------------------------
(James C. Blair, Ph.D.)
/s/ Herbert J. Conrad Director MARCH 28, 2000
- ----------------------------------------
(Herbert J. Conrad)
/s/ Joseph C. Cook, Jr. Director MARCH 28, 2000
- ----------------------------------------
(Joseph C. Cook, Jr.)
/s/ David F. Hale Director MARCH 28, 2000
- ----------------------------------------
(David F. Hale)
/s/ F. Richard Nichol, Ph.D. Director MARCH 28, 2000
- ----------------------------------------
(F. Richard Nichol, Ph.D.)
/s/ Gordon V. Ramseier Director MARCH 28, 2000
- ----------------------------------------
(Gordon V. Ramseier)
/s/ Charles G. Smith, Ph.D. Director MARCH 28, 2000
- ----------------------------------------
(Charles G. Smith, Ph.D.)
</TABLE>
33
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Consolidated Balance Sheets...............................................F-1
Consolidated Statements of Operations.....................................F-2
Consolidated Statements of Cash Flows.....................................F-3
Consolidated Statements of Shareholders' Equity...........................F-4
Notes to Consolidated Financial Statements................................F-5
Independent Auditors' Report ............................................F-20
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
DURA PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1999 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 63,631 $ 31,113
Short-term investments 210,782 238,299
Accounts and other receivables 44,632 24,627
Inventory 12,938 9,006
Other current assets 11,523 7,440
- -----------------------------------------------------------------------------------------------------------------------
Total current assets 343,506 310,485
License agreements and product rights 389,631 377,250
Property 93,333 85,374
Other assets 57,004 52,350
- -----------------------------------------------------------------------------------------------------------------------
Total $ 883,474 $ 825,459
===============================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,411 $ 8,893
Accrued liabilities 74,305 46,557
Current portion of long-term obligations 1,865 6,798
- -----------------------------------------------------------------------------------------------------------------------
Total current liabilities 87,581 62,248
Convertible subordinated notes 287,500 287,500
Other long-term obligations 66,654 65,339
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities 441,735 415,087
- -----------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 4, 6, 8 and 13)
Shareholders' equity:
Preferred stock, par value $.001, shares authorized - 5,000,000;
no shares issued or outstanding
Common stock, par value $.001, shares authorized - 200,000,000;
issued and outstanding - 44,239,660 (1999) and 44,083,652 (1998) 44 44
Additional paid-in capital 579,929 580,210
Accumulated other comprehensive income (loss) (1,230) 454
Warrant subscriptions receivable (6,057) (9,385)
Accumulated deficit (130,947) (160,951)
- -----------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 441,739 410,372
- -----------------------------------------------------------------------------------------------------------------------
Total $ 883,474 $ 825,459
===============================
</TABLE>
See accompanying notes to consolidated financial statements.
F-1
<PAGE>
- --------------------------------------------------------------------------------
DURA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Sales $ 231,776 $ 136,193 $ 150,476
Contract 69,650 62,959 30,847
- ------------------------------------------------------------------------------------------------------------------------
Total revenues 301,426 199,152 181,323
- ------------------------------------------------------------------------------------------------------------------------
Operating costs and expenses:
Cost of sales 45,839 29,263 32,081
Clinical, development and regulatory 52,977 43,876 25,288
Selling, general and administrative 133,311 91,283 52,728
Product rights amortization 20,242 12,807 11,604
Charges for acquired in-process technology, purchase
options and other nonrecurring items (Note 12) 29,332 137,639
- ------------------------------------------------------------------------------------------------------------------------
Total operating costs and expenses 252,369 206,561 259,340
- ------------------------------------------------------------------------------------------------------------------------
Operating income (loss) 49,057 (7,409) (78,017)
- ------------------------------------------------------------------------------------------------------------------------
Other:
Interest income 17,363 21,780 17,960
Interest expense (18,175) (12,059) (5,816)
Other - net (3,797) (486) (14)
- ------------------------------------------------------------------------------------------------------------------------
Total other (4,609) 9,235 12,130
- ------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 44,448 1,826 (65,887)
Provision (benefit) for income taxes 14,444 (907) 18,805
- ------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 30,004 $ 2,733 $ (84,692)
===============================================
Net income (loss) per share:
Basic $ 0.68 $ 0.06 $ (1.93)
Diluted $ 0.66 $ 0.06 $ (1.93)
Weighted average number of common shares:
Basic 44,132 46,028 43,828
Diluted 45,672 47,809 43,828
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
- --------------------------------------------------------------------------------
DURA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income (loss) $ 30,004 $ 2,733 $ (84,692)
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation and amortization 32,058 20,454 15,209
Noncash portion of charges for acquired in-process
technology, purchase options and other 29,332 49,146
Changes in assets and liabilities:
Accounts and other receivables (20,005) 16,360 (16,040)
Inventory (3,758) 6,195 (7,739)
Other assets 7,254 (21,776) (5,215)
Accounts payable and accrued liabilities 27,952 9,956 35,574
- -----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) operating activities 73,505 63,254 (13,757)
- -----------------------------------------------------------------------------------------------------------------------------
Investing activities:
Sales and maturities of short-term investments 300,110 385,570 177,367
Purchases of short-term investments (274,277) (310,374) (381,127)
Capital expenditures (17,420) (42,201) (24,079)
Company and product acquisitions (40,557) (107,827) (76,973)
Other (5,531) (6,250) (1,514)
- -----------------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (37,675) (81,082) (306,326)
- -----------------------------------------------------------------------------------------------------------------------------
Financing activities:
Issuance of common stock and warrants 4,519 7,164 9,310
Issuance of convertible subordinated notes - net 278,175
Repurchase of common stock (831) (27,226)
Principal payments on long-term obligations (7,000) (3,000) (26,500)
- -----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities (3,312) (23,062) 260,985
- -----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 32,518 (40,890) (59,098)
Cash and cash equivalents at beginning of year 31,113 72,003 131,101
- -----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 63,631 $ 31,113 $ 72,003
===================================================
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest (net of amounts capitalized) $ 10,140 $ 9,706
Income taxes $ 4,506 $ 7,418 $ 6,578
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
- --------------------------------------------------------------------------------
DURA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL ACCUMULATED
------------------------ PAID-IN COMPREHENSIVE OTHER COMP.
SHARES AMOUNT CAPITAL INCOME INCOME
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997 43,184 $ 525,350 $ (38)
Exercise of stock options and warrants 1,527 6,028 $ 1,444
Issuance of par value $.001 common stock in connection with
reincorporation (531,333) 531,333
Issuance of common stock in connection with the purchase of
Spiros Corp. callable common stock 897 1 43,728
Collections on warrant subscriptions receivable
Issuance of common stock warrants 15,130
Income tax benefit from stock options exercised 13,356
Comprehensive loss:
Net loss $ (84,692)
Other comprehensive income:
Unrealized gain on available-for-sale short-term investments 214 214
---------
Comprehensive loss $ (84,478)
- ----------------------------------------------------------------------------------------------------- ========= ---------------
Balance, December 31, 1997 45,608 46 604,991 176
Collections on warrant subscriptions receivable
Exercise of stock options and warrants 803 4,306
Repurchase of common stock (2,327) (2) (27,226)
Income tax effect from stock options exercised and collections
on warrant subscriptions receivable (1,861)
Comprehensive income:
Net income $ 2,733
Other comprehensive income:
Unrealized gain on available-for-sale short-term investments 278 278
Comprehensive income $ 3,011
- ----------------------------------------------------------------------------------------------------- ========= ---------------
Balance, December 31, 1998 44,084 44 580,210 454
Collections on warrant subscriptions receivable
Exercise of stock options and warrants 231 1,191
Repurchase of common stock (75) (831)
Income tax effect from stock options exercised and collections
on warrant subscriptions receivable (641)
Comprehensive income:
Net income $ 30,004
Other comprehensive loss:
Unrealized loss on available-for-sale short-term investments (1,684) (1,684)
---------
Comprehensive income $ 28,320
- ----------------------------------------------------------------------------------------------------- ========= ---------------
Balance, December 31, 1999 44,240 $ 44 $ 579,929 $ (1,230)
===================================== ===============
</TABLE>
<TABLE>
<CAPTION>
WARRANT
SUBSCRIPTIONS ACCUMULATED
RECEIVABLE DEFICIT TOTAL
------------------------------------
<S> <C> <C> <C>
Balance, January 1, 1997 $ (2,743) $ (78,992) $ 443,577
Exercise of stock options and warrants 7,472
Issuance of par value $.001 common stock in connection with
reincorporation
Issuance of common stock in connection with the purchase of
Spiros Corp. callable common stock 43,729
Collections on warrant subscriptions receivable 3,141 3,141
Issuance of common stock warrants (12,650) 2,480
Income tax benefit from stock options exercised 13,356
Comprehensive loss:
Net loss (84,692) (84,692)
Other comprehensive income:
Unrealized gain on available-for-sale short-term investments 214
Comprehensive loss
- -------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 (12,252) (163,684) 429,277
Collections on warrant subscriptions receivable 2,867 2,867
Exercise of stock options and warrants 4,306
Repurchase of common stock (27,228)
Income tax effect from stock options exercised and collections
on warrant subscriptions receivable (1,861)
Comprehensive income:
Net income 2,733 2,733
Other comprehensive income:
Unrealized gain on available-for-sale short-term investments 278
Comprehensive income
- -------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 (9,385) (160,951) 410,372
Collections on warrant subscriptions receivable 3,328 3,328
Exercise of stock options and warrants 1,191
Repurchase of common stock (831)
Income tax effect from stock options exercised and collections
on warrant subscriptions receivable (641)
Comprehensive income:
Net income 30,004 30,004
Other comprehensive loss:
Unrealized loss on available-for-sale short-term investments (1,684)
Comprehensive income
- -------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 $ (6,057) $ (130,947) $ 441,739
==================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND ITS BUSINESS
ORGANIZATION - Dura Pharmaceuticals, Inc. ("Dura" or the "Company") is engaged
in developing and marketing prescription pharmaceutical products for the
treatment of respiratory conditions and infectious diseases. The Company
executes its business strategy by (1) acquiring currently-marketed or late-stage
development products, and companies developing or marketing such
pharmaceuticals, to support its presence in high-prescribing physicians' offices
and the hospital market, and (2) developing Spiros(R), a pulmonary drug delivery
system for both topical and systemic delivery of medications.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of Dura and its wholly owned subsidiaries. In addition, the 1998
financial statements include the accounts of DJ Pharma, Inc. (see Note 11). All
intercompany transactions and balances are eliminated in consolidation. Certain
reclassifications have been made to amounts included in the prior years'
financial statements to conform to the presentation for the year ended December
31, 1999.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported in the consolidated financial
statements and related notes. Changes in those estimates may affect amounts
reported in future periods.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS - The Company considers cash
equivalents to include only highly liquid securities with an original maturity
of three months or less. Investments with an original maturity of more than
three months are considered short-term investments and have been classified by
management as available-for-sale. Such investments are carried at fair value,
with unrealized gains and losses included with accumulated other comprehensive
income as a separate component of shareholders' equity.
CONCENTRATION OF CREDIT RISK - The Company invests its excess cash in U.S.
government securities and debt instruments of financial institutions and
corporations with strong credit ratings. The Company has established guidelines
to diversify its cash investments and their maturities that are designed to
maintain safety and liquidity. These guidelines are periodically reviewed and
modified to take advantage of trends in yields and interest rates. The Company
has not experienced any significant losses on its cash equivalents or short-term
investments.
The Company extends credit on an uncollateralized basis primarily to wholesale
drug distributors and retail pharmacy chains throughout the United States.
Historically, the Company has not experienced significant credit losses on its
customer accounts.
INVENTORY - Inventory is stated at the lower of cost (first-in, first-out
method) or market and is comprised primarily of finished goods and samples.
PROPERTY - Property is stated at cost and depreciated using the straight-line
method over the estimated useful lives of the assets as follows:
<TABLE>
<CAPTION>
Description Lives
------------------------------------------------------ ----------------
<S> <C>
Buildings 7-40 years
Machinery and equipment 3-10 years
Furniture and fixtures 5-7 years
</TABLE>
F-5
<PAGE>
LICENSE AGREEMENTS AND PRODUCT RIGHTS - The cost of license agreements and
product rights are capitalized and amortized on a straight-line basis over the
periods estimated to be benefited, ranging from 6 to 25 years.
EVALUATION OF LICENSE AGREEMENTS, PRODUCT RIGHTS AND OTHER INTANGIBLE ASSETS -
The Company continually evaluates the carrying value of the unamortized balances
of license agreements, product rights and other intangible assets to determine
whether any impairment of these assets has occurred or whether any revision to
the related amortization periods should be made. This evaluation is based on
management's projections of the undiscounted future cash flows associated with
each product or underlying business. If management's evaluation were to indicate
that the carrying values of these intangible assets were impaired, such
impairment would be recognized by a write down of the applicable asset to its
estimated fair market value (see Note 12).
In connection with the acquisition of certain product rights and licenses, the
Company made initial payments at the closing of the related transactions and is
required to make additional payments, the amount of which is contingent upon
future events. Such payments, if any, are recorded by the Company as adjustments
to the cost of the product rights as of the date the contingency is resolved.
REVENUE RECOGNITION - Revenues from product sales are recognized upon shipment,
net of allowances for returns, rebates and chargebacks. The Company is obligated
to accept from customers the return of pharmaceuticals which have reached their
expiration date. Contract revenue is recognized on a basis consistent with the
performance requirements of the contract. Payments received in advance of
performance are recorded as deferred revenue.
CLINICAL, DEVELOPMENT AND REGULATORY EXPENSES - Clinical, development and
regulatory costs are expensed as incurred.
NET INCOME (LOSS) PER SHARE - The Company presents basic and diluted earnings
per share amounts. Basic earnings per share is calculated based on the weighted
average number of shares outstanding during the year, while diluted earnings per
share also gives effect to all potential dilutive common shares outstanding
during each year such as options, warrants, convertible securities and
contingently issuable shares. The Company incurred a net loss in 1997 and, as
such, the weighted average number of shares used for diluted earnings per share
do not include potential dilutive common shares as their inclusion would be
antidilutive.
ACCOUNTING FOR STOCK-BASED COMPENSATION - As permitted by Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," the Company accounts for costs of stock-based compensation in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees." Accordingly, the Company discloses the pro forma
effect on net income (loss) and related per share amounts using the fair
value-based method to account for its stock-based compensation (see Note 9).
F-6
<PAGE>
3. SHORT-TERM INVESTMENTS
The following is a summary of short-term investments as of December 31, 1999 and
1998 (in thousands):
<TABLE>
<CAPTION>
UNREALIZED ESTIMATED
COST GAINS/(LOSSES) FAIR VALUE
<S> <C> <C> <C>
December 31, 1999:
U.S. government securities $111,324 $ (964) $110,360
U.S. corporate debt securities 100,688 (266) 100,422
-------- ------- --------
Total $212,012 $(1,230) $210,782
======== ======= ========
December 31, 1998:
U.S. government securities $ 60,818 $ 142 $ 60,960
U.S. corporate debt securities 177,027 312 177,339
-------- ------- --------
Total $237,845 $ 454 $238,299
======== ======= ========
</TABLE>
The following is a summary of the amortized cost and estimated fair value of
short-term investments by contractual maturity at December 31, 1999 (in
thousands):
<TABLE>
<CAPTION>
Estimated
Cost Fair Value
<S> <C> <C>
Due in one year or less $ 134,650 $ 134,195
Due after one year through two years 77,362 76,587
--------- ---------
Total $ 212,012 $ 210,782
========= =========
</TABLE>
4. LICENSE AGREEMENTS AND PRODUCT RIGHTS
The Company has acquired or in-licensed various prescription pharmaceuticals.
The following is a summary of license agreements and product rights as of
December 31, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
AMORTIZATION
1999 1998 PERIOD
<S> <C> <C> <C>
Products - at cost:
Maxipime-Registered Trademark-/
Azactam-Registered Trademark- $ 130,860 $ 113,909 25 years
Ceclor-Registered Trademark- CD 94,377 79,377 25 years
Nasarel-Registered Trademark-/
Nasalide-Registered Trademark- 85,298 85,298 25 years
Myambutol-Registered Trademark- 57,657 44,584 20 years
Entex-Registered Trademark- products 44,655 44,655 15 years
Other 21,940 34,423 6-25 years
--------- ---------
434,787 402,246
Less accumulated amortization (45,156) (24,996)
--------- ---------
License agreements and product rights $ 389,631 $ 377,250
========= =========
</TABLE>
F-7
<PAGE>
MAXIPIME/AZACTAM - On December 31, 1998, the Company acquired from
Bristol-Myers Squibb Company ("BMS") the exclusive U.S. distribution rights
for the patented hospital antibiotic products Maxipime (cefepime
hydrochloride) for Injection and Azactam (aztreonam) for Injection. The
purchase price consisted of $60 million paid in cash at closing, payments
totaling $4 million due in 1999 and a payment of $70 million due in 2003,
plus additional contingent payments due from 1999 through 2003 based on sales
of Maxipime and Azactam during that period. Contingent payments totaling
$10.6 million were made in 1999. Based on historical sales data, the Company
estimates that future contingent payments could approximate $100 million in
the aggregate.
CECLOR CD - On September 5, 1996, the Company acquired from Eli Lilly and
Company exclusive U.S. marketing rights to the patented antibiotics Ceclor CD
(cefaclor extended release tablets) and Keftab-Registered Trademark-
(cephalexin hydrochloride). The purchase price consisted of $100 million paid
in cash at closing. Additional future contingent payments of $15 million per
year starting in 1999 and ending in 2003 are subject to Ceclor CD remaining
available by prescription only with no competing forms of extended release
cefaclor, as defined in the licensing agreement. Keftab, included in "Other"
above, was licensed to DJ Pharma in January 1999 (see Note 11).
NASAREL/NASALIDE - On May 7, 1997, the Company acquired from Syntex (USA),
Inc. and other members of the Roche Group exclusive U.S. rights to the
intranasal steroid products Nasarel and Nasalide (flunisolide) Nasal
Solutions 0.025% for $70 million, which was paid in cash at closing. Pursuant
to the purchase agreement, contingent payments totaling $5 million in 1997
and $10 million in 1998 were made as the products remained without a
competing nasal formulation of flunisolide.
MYAMBUTOL - On August 3, 1998, the Company acquired from an affiliate of
American Home Products exclusive U.S. marketing rights to the single-source
tuberculosis drug Myambutol. The purchase price consisted of a $33.5 million
cash payment made at closing, plus additional payments due through August
2002 contingent upon the amount of net sales of Myambutol during that period.
Contingent payments totaling $13.7 million and $4.3 million were made in 1999
and 1998, respectively. Based on historical sales data, the Company estimates
that future contingent payments could approximate $40 million in the
aggregate.
ENTEX PRODUCTS - On July 3, 1996, the Company acquired from Procter & Gamble
Pharmaceuticals, Inc. the worldwide rights to the Entex products, consisting
of four prescription upper respiratory drugs. The purchase price of $45
million consisted of $25 million paid in cash at closing and $20 million paid
in cash in July 1997.
5. PROPERTY
The following is a summary of property as of December 31, 1999 and 1998 (in
thousands):
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Property - at cost:
Land $ 4,912 $ 4,912
Buildings 42,759 15,882
Machinery and equipment 39,872 26,082
Furniture and fixtures 4,496 3,059
Construction-in-progress 21,470 46,444
-------- --------
113,509 96,379
Less accumulated depreciation and amortization (20,176) (11,005)
-------- --------
Property $ 93,333 $ 85,374
======== ========
</TABLE>
The Company is currently constructing a manufacturing facility that will be used
to formulate, mill, blend and fill drugs to be used with the Company's Spiros
system, pending regulatory approval of Spiros products. Capital expenditures of
$19.3 million relating to the facility are included in construction-in-progress
at December 31, 1999. The Company completed the construction of a research and
development facility in January 1999. Capital
F-8
<PAGE>
expenditures of $25.5 million relating to this facility were included in
construction-in-progress at December 31, 1998.
6. DEVELOPMENT AGREEMENTS
The Company has a worldwide license from a private inventor to the Spiros
system. This system uses a device to aerosolize pharmaceuticals in dry powder
formulations for intrapulmonary and intranasal administration. The Company is
required to pay the inventor royalties on future sales, if any, of this device.
The Company has entered into various arrangements with third parties for the
development of Spiros as described below.
SPIROS DEVELOPMENT CORPORATION ("SPIROS CORP.") - On December 29, 1995, Spiros
Corp. completed a $28 million private placement to fund the development of
Spiros for use with certain compounds. The private placement consisted of
933,334 units comprised of one share of Spiros Corp. callable common stock and a
Series S warrant (see Note 8) to purchase 2.4 shares of the Company's common
stock. In connection with the private placement, the Company made a $13 million
contribution to Spiros Corp. In exchange for the Series S warrants and the $13
million contribution, the Company received the right to purchase all of the
Spiros Corp. callable common stock. Spiros Corp. engaged the Company to develop
the Spiros Corp. products and provide general management services. During 1997,
Dura recorded contract revenues for development and administrative services
provided for with Spiros Corp. of $19.3 million.
On December 19, 1997, the Company acquired all of the outstanding callable
common stock and options of Spiros Corp. The purchase price of $45.7 million
consisted of 896,606 shares of the Company's common stock and a cash payment
of $2 million. The net assets acquired included cash of $1 million and
in-process technology. The Company concluded, based on an assessment of the
additional development, testing and regulatory approvals required, that the
commercial viability of the technology had not yet been established. In
addition, no alternative future uses of the technology that would not require
regulatory approval have been established. As a result of this assessment,
the acquired in-process technology of $44.7 million was expensed as a charge
in 1997 (see Note 12). Such acquired in-process technology was licensed to
Spiros Corp. II upon its formation (see "Spiros Development Corporation II,
Inc." below).
SPIROS DEVELOPMENT CORPORATION II, INC. - On December 22, 1997, Spiros Corp.
II completed a $101 million public offering of units ("Offering"). Under
agreements described below, Spiros Corp. II is using the net proceeds of $94
million from the Offering and a $75 million contribution from Dura to develop
Spiros and Spiros applications for use with the drugs albuterol,
beclomethasone, budesonide and additional designated compounds ("Compounds").
The Offering consisted of 6,325,000 units sold at $16.00 per unit. Each unit
consisted of one share of Spiros Corp. II callable common stock and a warrant
("SDCII warrants") to purchase one-fourth of one share of the Company's
common stock. The SDCII warrants are exercisable from January 1, 2000 through
December 31, 2002 at an exercise price of $54.84 per share of Dura common
stock. As holder of 100% of Spiros Corp. II's special common stock, the
Company has the right ("Stock Purchase Option") through December 31, 2002 to
purchase all, but not less than all, of the then outstanding shares of Spiros
Corp. II callable common stock at predetermined prices. However, the Company
is not obligated to purchase such shares of Spiros Corp. II. The purchase
price was $24.01 per share (an aggregate of $151.9 million) through December
31, 1999 and increases on a quarterly basis thereafter to a maximum of $45.95
per share (an aggregate of $290.6 million) on December 31, 2002. Such
purchase price may be paid, at the Company's option, in cash, shares of the
Company's common stock, or any combination of the two. In addition, Dura
received an option, through specified dates, to acquire Spiros Corp. II's
exclusive rights for the use of Spiros with albuterol and with a second
product other than albuterol. A purchase option expense of $75 million,
representing the cash contributed to Spiros Corp. II, was recorded in 1997.
In 1997, the Company also recorded a warrant subscriptions receivable and
corresponding increase in additional paid-in capital of $12.7 million
representing the estimated fair market value of the SDCII warrants. At
December 31, 1999, the Company had a remaining SDCII warrant subscriptions
receivable of $6.1 million.
F-9
<PAGE>
In connection with the Offering, the Company also entered into certain
agreements with Spiros Corp. II which are summarized as follows:
TECHNOLOGY LICENSE AGREEMENT - Under this agreement, the Company
granted to Spiros Corp. II, subject to existing agreements, an
exclusive, worldwide, perpetual, royalty-bearing license to use Spiros
in connection with the Compounds. In consideration for this license,
the Company will receive an annual technology access fee from Spiros
Corp. II equal to the greater of 5% of the net sales of Spiros
products, or $2 million. Such agreement expires upon the exercise of
the Stock Purchase Option.
ALBUTEROL AND PRODUCT OPTION AGREEMENT - Under this agreement, the
Company has the right to acquire from Spiros Corp. II for specified
time periods the exclusive rights for the use of Spiros with albuterol
and for the use of Spiros with a second product other than albuterol
("Product Options"). The formula for determining the purchase price for
each of the products is set forth in the agreement and is based, in
part, on the costs and expenses incurred by Spiros Corp. II developing
the products.
MANUFACTURING AND MARKETING AGREEMENT - Under this agreement, Spiros
Corp. II granted to the Company an exclusive worldwide license to
manufacture and market the Spiros products in exchange for a royalty of
7% on net product sales, as defined. Such agreement expires upon the
exercise or expiration of the Stock Purchase Option. In the event Dura
exercises its rights under the Product Options, the Manufacturing and
Marketing Agreement will terminate with respect to the related product.
DEVELOPMENT AGREEMENT - Under this agreement, Spiros Corp. II has
engaged the Company to develop the Spiros products and provide general
management services to Spiros Corp. II. Dura records contract revenues
equal to the amounts due from Spiros Corp. II for services provided
less a pro rata amount allocated to the SDCII warrant subscriptions
receivable.
During 1999, 1998 and 1997, Dura recorded contract revenues of $55.5 million,
$47.8 million and $6.6 million for services provided under the agreements with
Spiros Corp. II, for which Dura had a receivable totaling $6.8 million and $4.6
million at December 31, 1999 and 1998, respectively.
In March 2000 the Company entered into a merger agreement to acquire Spiros
Corp. II. Under the agreement, for each share of callable common stock Spiros
Corp. II shareholders will receive $13.25 in cash and one five-year warrant
to purchase a fractional share of Dura's common stock at $17.94 per share,
which represents a 25% premium over the average closing price of Dura's
common stock for the ten trading days prior to the date of the merger
agreement. The exact fraction of a share of Dura's common stock purchasable
under the warrant will be determined based on the average closing price of
Dura's common stock for the ten trading days prior to the vote of the Spiros
Corp. II shareholders on the merger and will result in a calculated
Black-Scholes value for each warrant of between $3.22 and $1.81. The total
consideration for the merger as of the date of the merger agreement was
calculated to be $100.8 million, or $15.75 per share of callable common
stock. Closing of the transaction is subject to Hart-Scott-Rodino clearance,
effectiveness of the registration statement for Dura's warrants, and Spiros
Corp. II shareholder approval. The Company has received voting agreements in
favor of the merger from holders of approximately 22% of Spiros Corp. II's
outstanding callable common stock. A special committee of independent members
of the Spiros Corp. II's board, formed in December 1999 to evaluate strategic
alternatives for Spiros Corp. II, has approved the merger agreement and is
recommending that the Spiros Corp. II shareholders approve the merger.
The merger is to be accounted for as a purchase and, if completed, will
likely result in a significant reduction of contract revenue even though the
Company will continue to incur the related development costs. In addition,
the Company expects that a charge for acquired in-process technology will be
recorded in the period in which the merger is effected.
ELI LILLY AND COMPANY ("LILLY") - On September 23, 1998, the Company announced
its agreement with Lilly to develop pulmonary delivery technology for insulin.
The product under development is based on the Company's Spiros system for
proteins and peptides. Under the terms of the agreement, the Company received an
up-front payment and will receive funding for research as well as additional
payments if defined milestones are achieved. In
F-10
<PAGE>
addition, the Company will receive royalties and manufacturing payments on
products, if any, that reach the market. Lilly received worldwide
commercialization rights for any resulting inhaled insulin products.
7. CONVERTIBLE SUBORDINATED NOTES AND OTHER LONG-TERM OBLIGATIONS
CONVERTIBLE SUBORDINATED NOTES - In 1997, the Company issued $287.5 million
principal amount of 3 1/2% Convertible Subordinated Notes (the "Notes") due July
15, 2002 with interest payable semiannually. The Notes are convertible, at the
option of the holder, into shares of the Company'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 Company cannot redeem the
Notes prior to July 15, 2000. Thereafter, the Company can redeem the Notes from
time to time, in whole or in part, at specified redemption prices. The Notes are
unsecured and subordinated to all existing and future senior indebtedness of the
Company. The indenture governing the Notes does not restrict the incurrence of
senior indebtedness or other indebtedness by the Company. Based on quoted market
prices, the fair value of the Notes at December 31, 1999 and 1998 was $234.3
million and $211.3 million, respectively.
OTHER LONG-TERM OBLIGATIONS - Other long-term obligations include $57.5 million
(net of current portion of $1.9 million) which relates to the acquisition of
license agreements and product rights. Also, as discussed in Note 4, in
connection with the acquisition of certain product rights and licenses, the
Company may be obligated to make additional payments through 2004 for such
products, the amount of which is contingent upon future events. Based on
historical sales information on the products and assuming the other events that
trigger the payment of additional consideration occur, the total of these future
contingent payments could approximate $210 million, including approximately $48
million in 2000.
8. CAPITAL STOCK
SHAREHOLDER RIGHTS PLAN - In May 1998, the Company adopted a Shareholder Rights
Plan in which Preferred Stock purchase rights ("Rights") were distributed as a
dividend at the rate of one Right for each share of common stock held as of the
close of business on June 5, 1998. Each Right entitles stockholders to buy, upon
certain events, one one-thousandth of a share of a new series of junior
participating Preferred Stock of the Company at an exercise price of $175.00.
The Rights are designed to guard against partial tender offers and other abusive
tactics that might be used in an attempt to gain control of the Company or to
deprive stockholders of their interest in the long-term value of the Company.
The Rights are exercisable only if a person or group acquires 15% or more of the
Company's common stock or announces a tender offer of which the consummation
would result in ownership by a person or group of 15% or more of the Company's
common stock. The Rights are redeemable for one cent per Right at the option of
the Board of Directors prior to this event occurring. The Rights expire on June
5, 2008.
TREASURY STOCK - In October 1998, the Board of Directors authorized the Company
to purchase up to $50 million of the Company's common stock. At December 31,
1999, the Company had purchased 2,402,500 shares of its common stock at a cost
of $28.1 million and reduced its additional paid in capital accordingly.
COMMON STOCK WARRANTS - The following table summarizes common stock warrants
outstanding at December 31, 1999 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
WARRANTS SHARES COVERED EXERCISE PRICE EXPIRATION
WARRANT DESCRIPTION OUTSTANDING BY WARRANTS PER SHARE DATE
<S> <C> <C> <C> <C>
Series W warrants 240 672 $ 2.38 September 2000
Series S warrants 700 1,680 $19.47 December 2000
SDCII warrants 6,325 1,581 $54.84 December 2002
Other 200 200 $45.12 December 2002
--------- ----------
Total outstanding 7,465 4,133
========= ==========
</TABLE>
F-11
<PAGE>
9. STOCK OPTIONS
The Company's 1992 stock option plan (the "Plan") provides for the grant of
options to officers and other key employees of the Company, and to certain
directors, consultants and independent contractors of the Company, to purchase
up to 10,107,360 shares of the Company's common stock. The Plan provides for the
automatic issuance of options to purchase 6,000 and 15,000 shares of the
Company's common stock to non-employee Board members at the date of each annual
shareholders' meeting and upon initial election to the Board of Directors,
respectively. Generally, options are to be granted at prices equal to at least
100% of the fair market value of the stock at the date of grant, expire not
later than ten years from the date of grant and become exercisable ratably over
a four-year period following the date of grant.
The Plan provides that in the event of a corporate transaction, as defined, all
outstanding options shall become fully exercisable immediately prior to the
effective date of such transaction and shall terminate upon such effective date.
The Board of Directors may also grant officers of the Company limited stock
appreciation rights in tandem with their outstanding options. In addition,
limited stock appreciation rights are granted in connection with all automatic
option grants under the Plan. Upon the occurrence of a hostile takeover, as
defined, each outstanding option with such a limited stock appreciation right in
effect for at least six months will automatically be canceled in return for a
cash distribution from the Company in an amount equal to the excess of the
takeover price, as defined, over the aggregate exercise price. As of December
31, 1999 and 1998, options to purchase 369,000 and 264,000 shares of common
stock, respectively, were outstanding with limited stock appreciation rights.
The following table summarizes stock option activity under the Plan:
<TABLE>
<CAPTION>
SHARES
------------------------------------- WEIGHTED AVERAGE
OPTIONS OPTIONS AVAILABLE EXERCISE PRICE
OUTSTANDING FOR GRANT PER SHARE
<S> <C> <C> <C>
Balance, January 1, 1997 3,384,510 344,618 $15.52
Options authorized 1,600,000
Options granted 1,935,175 (1,935,175) $36.42
Options exercised (745,020) $ 6.40
Options canceled (805,478) 805,478 $35.71
---------- -----------
Balance, December 31, 1997 3,769,187 814,921 $22.67
Options authorized 1,000,000
Options granted 3,458,013 (3,458,013) $14.90
Options exercised (310,466) $ 6.55
Options canceled (3,146,620) 3,146,620 $30.02
---------- -----------
Balance, December 31, 1998 3,770,114 1,503,528 $10.53
Options authorized 1,500,000
Options granted 1,880,475 (1,880,475) $12.72
Options exercised (158,354) $ 7.29
Options canceled (242,251) 242,251 $10.57
---------- -----------
Balance, December 31, 1999 5,249,984 1,365,304 $11.80
========== ===========
Exercisable, December 31, 1997 1,386,911 $12.61
==========
Exercisable, December 31, 1998 1,325,347 $10.77
==========
Exercisable, December 31, 1999 2,016,146 $11.49
==========
</TABLE>
F-12
<PAGE>
Separately during 1998, the Company granted 192,308 options (54,889 exercisable
at December 31, 1999) to a newly-hired executive officer pursuant to a stock
option agreement. The options have an exercise price of $10.31 per share, vest
ratably over a four-year period, and expire ten years from the date of grant.
The following table summarizes information concerning all outstanding and
exercisable options as of December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ -------------------------------
Weighted average Weighted Weighted
Range of Number remaining contractual average Number average
exercise prices Outstanding life (years) exercise price exercisable exercise price
<S> <C> <C> <C> <C> <C>
$ 0.25 - $ 5.00 256,050 3.6 $ 3.60 256,050 $ 3.57
$ 5.01 - $10.00 1,225,198 7.7 $ 8.21 622,662 $ 7.56
$ 10.01 - $20.00 3,777,665 8.9 $11.97 1,020,786 $12.44
$ 20.01 - $30.00 129,379 7.4 $27.76 118,211 $28.03
$ 30.01 - $39.94 54,000 7.4 $39.43 53,326 $39.49
- -----------------------------------------------------------------------------------------------------------
5,442,292 8.3 $11.38 2,071,035 $11.46
======================================================================================
</TABLE>
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." In accordance with the provisions of
SFAS No. 123, the Company applies Accounting Principles Board Opinion No. 25 and
related interpretations in accounting for its stock option plans and,
accordingly, no compensation cost has been recognized for stock options granted
to employees in 1999, 1998 or 1997. If the Company had elected to recognize
compensation cost based on the fair value of the options granted at grant date
as prescribed by SFAS No. 123, net income for the year ended December 31,
1999 would have been reduced by $4.4 million ($0.10 per share, basic and
diluted), net income for the year ended December 31, 1998 would have been
reduced by $3.6 million ($0.08 per share, basic and diluted), and net loss for
the year ended December 31, 1997 would have been increased by $5.9 million
($0.14 per share, basic and diluted). Pro forma calculations exclude the effect
of stock options granted prior to 1995. Accordingly, the 1999, 1998 and 1997 pro
forma adjustments are not indicative of future period pro forma adjustments when
the calculation will reflect all applicable stock options. The estimated
weighted average fair value at grant date for the options granted during 1999,
1998 and 1997 were $5.61, $5.86 and $14.30 per option, respectively. The fair
value of options at date of grant was estimated using the Black-Scholes
option-pricing model with the following assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Expected dividend yield None None None
Expected stock price volatility 40% 45% 40%
Risk-free interest rate 5.6% 5.2% 6.1%
Expected life of options 5 years 5 years 5 years
</TABLE>
F-13
<PAGE>
10. INCOME TAXES
The provision (benefit) for income taxes consisted of the following components
(in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Current:
Federal $ 12,633 $ 12,843 $ 21,617
State 340 1,007 2,833
-------- -------- ---------
Total 12,973 13,850 24,450
-------- -------- ---------
Deferred:
Federal 2,079 (14,448) (5,424)
State (608) (309) (221)
-------- -------- ---------
Total 1,471 (14,757) (5,645)
-------- -------- ---------
Provision (benefit) for income taxes $ 14,444 $ (907) $ 18,805
======== ======== =========
</TABLE>
A reconciliation of the income tax provision (benefit) based on federal
statutory rates and income (loss) before income taxes to the provision (benefit)
for income taxes as reported is as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Provision (benefit) at statutory rates $ 15,557 $ 639 $ (23,060)
Charges not deductible or recognizable
for tax purposes 43,351
State income tax expense (benefit), net (340) 326 1,779
Change in beginning of year deferred tax valuation
allowance (652) (1,545)
Impact of foreign income taxed at different rates (722) (260) (364)
NOL carryforwards utilized (515) (1,015)
Research and development tax credits (325) (583)
Federal alternative minimum tax (credit) (235)
Other 926 (279) (341)
-------- ------ ---------
Provision (benefit) for income taxes $ 14,444 $ (907) $ 18,805
======== ====== =========
</TABLE>
F-14
<PAGE>
Deferred tax assets and liabilities reflect the impact of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts recognized for income tax purposes. Significant
components of the Company's deferred tax assets and liabilities as of December
31, 1999 and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 17,189 $ 18,227
Capitalized research and development 6,990 6,990
Research and development credit carryforwards 1,036
Reserves and accruals not currently deductible 22,661 21,851
Other 388 593
--------- ---------
Total deferred tax assets 48,264 47,661
Deferred tax liabilities:
Depreciation and amortization (4,458) (1,732)
Valuation allowance for deferred tax assets (25,610) (26,262)
--------- ----------
Total deferred tax liabilities (30,068) (27,994)
--------- ----------
Net deferred tax assets $ 18,196 $ 19,667
========= ==========
</TABLE>
The Company has provided a valuation allowance against deferred tax assets based
on management's assessment of the likelihood of realizing those assets.
Realization of deferred tax assets is dependent upon having sufficient taxable
income during the period that temporary differences and carryforwards are
expected to be available to reduce taxable income. During the year ended
December 31, 1999, the balance of the beginning of year valuation allowance was
reduced by approximately $650,000 due to a change in management's judgment about
the Company's ability to realize deferred tax assets relating to net operating
loss carryforwards.
At December 31, 1999, the Company had federal net operating loss ("NOL")
carryforwards of approximately $49.4 million, which begin expiring in 2003. This
amount includes NOL carryforwards totaling approximately $21.5 million acquired
in connection with the Company's purchase of the callable common stock of Spiros
Corp. The availability of the NOL carryforwards is subject to annual limitations
pursuant to the "change in ownership" provisions of Section 382 of the Internal
Revenue Code.
The Company does not provide for income taxes which would be payable if
undistributed earnings of its foreign subsidiaries were remitted because the
Company considers these earnings to be invested indefinitely. Tax benefits
realized from the exercise of stock options are credited directly to
shareholders' equity and are reflected on the consolidated statements of
shareholders' equity.
11. DJ PHARMA, INC.
In July 1998, the Company entered into a series of agreements with a
newly-formed, privately held company, DJ Pharma, Inc. ("DJ Pharma"), for the
co-promotion of the Company's Keftab, Rondec(R), and certain cough, cold and
allergy product lines. DJ Pharma also received an option to license from the
Company the exclusive U.S. marketing and distribution rights to these products
which it exercised on October 1, 1998. The book value of these product rights
was $18.8 million as of December 31, 1998. In exchange for the licensing of the
products, Dura received interest-bearing notes receivable totaling $20 million
and will receive a percentage of the sales of such products by DJ Pharma over a
four-year period. Up to $8 million of the notes is subject to forgiveness in the
event that the licensed cough, cold and allergy products cannot be sold on a
prescription-only basis through December 31, 2006.
In July 1998, the Company provided DJ Pharma with $5 million in financing in the
form of an interest-bearing
F-15
<PAGE>
promissory note, which represented DJ Pharma's sole source of capital until it
completed an independent private equity offering in January 1999. Through this
offering, DJ Pharma raised $25 million, including $3.6 million from the Company.
Subsequent to the offering, Dura holds approximately 10 percent of DJ Pharma's
outstanding voting securities.
As DJ Pharma had not secured financing independent of the Company's $5 million
loan as of December 31, 1998, the accounts of DJ Pharma were included in the
Company's 1998 consolidated financial statements. All transactions between the
Company and DJ Pharma have been eliminated. Accordingly, the licensing of
product rights to DJ Pharma discussed above is not reflected in the accompanying
1998 financial statements and was recorded by the Company in January 1999 after
DJ Pharma secured independent financing. No gain or loss was recorded on the
licensing of these product rights. The primary effect of including DJ Pharma's
activity in the Company's 1998 financial statements was to increase selling,
general and administrative expenses by $6 million and to reduce net income by
$4.9 million ($0.10 per diluted share).
12. CHARGES FOR ACQUIRED IN-PROCESS TECHNOLOGY, PURCHASE OPTIONS AND OTHER
NONRECURRING ITEMS
Charges for acquired in-process technology, purchase options and other
nonrecurring items in 1998 and 1997 consisted of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Impairment of long-term assets $29,332 $ 2,870
Acquired in-process technology 45,989
Acquired purchase options 75,000
Buy-out of royalty agreement 13,780
------------- -------------
Total $29,332 $137,639
============= =============
</TABLE>
IMPAIRMENT OF LONG-TERM ASSETS - The Company periodically evaluates its ability
to recover the carrying value of its long-term assets. In the fourth quarter of
1998, management concluded that the Company would not recover the carrying value
of the Rondec product line and, accordingly, recorded a nonrecurring charge of
$29.3 million. This conclusion was based on a discounted cash flow forecast for
the Rondec products and takes into consideration the terms of the licensing of
the marketing and distribution rights of these products to DJ Pharma (see Note
11). Sales of the Rondec products declined significantly beginning in 1998 as
the Company focused its promotion efforts away from its branded generic products
such as Rondec and toward Dura's patent protected and proprietary products.
In 1997, management concluded that the decline in the fair value of an
investment in equity securities was "other than temporary" and, accordingly,
recorded a charge of $2.9 million to write down the investment to its estimated
fair value, which was determined based on quoted market prices.
ACQUIRED IN-PROCESS TECHNOLOGY - The charge for acquired in-process technology
in 1997 relates to the Company's acquisition of Spiros Corp. (see Note 6). The
Company concluded that due to the additional development and testing to be
performed and regulatory approvals required, the commercial viability of the
technology acquired in this acquisition had not yet been established. As such, a
charge to earnings was recorded for the portion of the purchase price allocated
to in-process technology. Such acquired in-process technology was licensed to
Spiros Corp. II upon its formation (see Note 6).
ACQUIRED PURCHASE OPTIONS - In connection with the formation of Spiros Corp. II
in 1997, the Company contributed $75 million as consideration for the options to
acquire the rights to certain products from Spiros Corp. II (see Note 6). The
Company concurrently recorded charges for this purchase option for the amount of
cash contributed to Spiros Corp. II.
F-16
<PAGE>
BUY-OUT OF ROYALTY AGREEMENT - In December 1997, the Company terminated a
ten-year royalty agreement which the Company entered into in 1994. The
agreement required the Company to make quarterly royalty payments based on
sales in specified sales territories. As consideration for terminating the
agreement, the Company made a cash payment of $11.3 million (paid in January
1998) and issued a warrant to purchase 200,000 shares of the Company's common
stock for $45.12 per share. The estimated fair value of the warrant at
issuance was $2.5 million which, when combined with the cash payment,
resulted in a nonrecurring charge in 1997 of $13.8 million.
13. COMMITMENTS AND CONTINGENCIES
EMPLOYEE SAVINGS PLANS - The Company has a 401(k) plan that allows participating
employees to contribute up to 15% of their salary, subject to annual limits. The
Board may, at its sole discretion, approve Company contributions. The Company
made contributions to the plan totaling $1.9 million, $1.1 million and $867,000
in 1999, 1998 and 1997, respectively.
The Company has a non-qualified deferred compensation plan that allows eligible
employees to defer up to 100% of their compensation. As of December 31, 1999,
$9.2 million has been deferred under this plan which is included in other assets
and other long-term obligations. The amounts deferred under this plan are
transferred to a trust and managed by an investment manager. Included in the
trust investments at December 31, 1999 are 156,250 shares of Spiros Corp. II
callable common stock (see Note 6).
OPERATING LEASES - In 1999, the Company began a car lease program for its field
sales force. Pursuant to non-cancelable lease agreements, the vehicles have a
lease term that expires after the earlier of 45 months or 60,000 miles. Rent
expense totaled $2.4 million for the fleet car program in 1999. As of December
31, 1999, the Company has future minimum lease payments for 2000, 2001, 2002,
and 2003 of $3 million, $2.8 million, $2.7 million, and $590,000, respectively.
SETTLEMENT OF THE TERMINATION OF MERGER AGREEMENT WITH SCANDIPHARM, INC. - On
December 1, 1997, the Company terminated a merger agreement with Scandipharm,
Inc. entered into on October 20, 1997. On January 16, 1998, Scandipharm filed
suit against the Company for breach of contract. On January 20, 1998, the
Company filed suit against Scandipharm seeking a declaratory judgment that
Dura's termination of the merger agreement did not breach the agreement and
damages against Scandipharm. On October 4, 1999, the Company settled all
litigation with Scandipharm. Under the terms of the settlement, the Company paid
$3.5 million to Scandipharm, and the parties dismissed all lawsuits filed
against one another. The $3.5 million charge was included with other expense in
the accompanying consolidated statements of operations for the year ended
December 31, 1999.
SHAREHOLDER CLASS ACTION LITIGATION - Commencing on January 27, 1999, several
class action suits were filed against the Company and a number of current or
former officers and directors of the Company in the United States District Court
for the Southern District of California. The lawsuits, which have been
consolidated into one action, allege violations of the federal securities laws,
and purport to seek damages on behalf of a class of shareholders who purchased
Dura common stock during a defined period. The Company believes that the claims
in the lawsuit are without merit and intends to defend against them vigorously.
14. SEGMENT INFORMATION
The Company operates in two business segments: (1) Pharmaceutical Products and
(2) Research and Development. The Pharmaceutical Products segment markets
prescription pharmaceutical products for the treatment of respiratory conditions
and infectious diseases. The Research and Development segment manages the
development of Spiros. Each of the Company's segments operates solely within the
United States.
Three wholesale customers accounted for 17%, 13%, and 13%, respectively, of 1999
sales. Two wholesale customers accounted for 13% and 11%, respectively, of 1998
sales, and two wholesale customers each individually accounted for 11% of 1997
sales.
F-17
<PAGE>
The following table summarizes information about the Company's operating
segments for the years ended December 31, 1999, 1998, and 1997 (in thousands):
<TABLE>
<CAPTION>
PHARMACEUTICAL RESEARCH AND
PRODUCTS DEVELOPMENT CORPORATE CONSOLIDATED
<S> <C> <C> <C> <C> <C>
Total revenues 1999 $ 232,589 $ 68,837 $ 301,426
1998 $ 138,025 $ 61,127 $ 199,152
1997 $ 151,850 $ 29,473 $ 181,323
Operating income (loss) (1) 1999 $ 37,458 $ 11,599 $ 49,057
1998 $ (20,600) $ 13,191 $ (7,409)
1997 $ 43,965 $(121,982) $ (78,017)
Identifiable assets 1999 $ 449,832 $ 58,330 $ 375,312 $ 883,474
1998 $ 413,565 $ 75,990 $ 335,904 $ 825,459
Capital expenditures 1999 $ 7,964 $ 8,921 $ 535 $ 17,420
1998 $ 1,266 $ 40,513 $ 422 $ 42,201
1997 $ 578 $ 8,437 $ 15,064 $ 24,079
Depreciation and amortization 1999 $ 23,215 $ 6,978 $ 1,865 $ 32,058
1998 $ 14,290 $ 4,288 $ 1,876 $ 20,454
1997 $ 11,906 $ 2,516 $ 787 $ 15,209
</TABLE>
(1) The 1998 operating loss for the Pharmaceutical Products segment was
increased by $36.8 million for the write-off of the carrying value of the
Rondec product rights (see Note 12) and for the impact of consolidating DJ
Pharma (see Note 11). The 1997 operating income for the Research and
Development segment was decreased by $123.8 million for (1) the in-process
technology acquired in connection with our acquisition of Spiros Corp. (see
Note 6), (2) the purchase option charge resulting from the cash
contribution to Spiros Corp. II (see Note 6) and (3) the write-off of the
carrying value of a long-term investment (see Note 12). The 1997 operating
income for the Pharmaceutical Products segment was decreased by $13.8
million resulting from the termination of a ten-year royalty agreement (see
Note 12).
F-18
<PAGE>
15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of unaudited quarterly results of operations for the
years ended December 31, 1999 and 1998 (in thousands, except per share amounts).
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1999 QUARTER QUARTER QUARTER QUARTER
<S> <C> <C> <C> <C>
Total revenues $ 71,247 $ 68,006 $ 71,560 $ 90,613
Gross profit 44,590 40,942 43,804 56,601
Operating income 11,975 11,566 8,850 16,666
Net income 7,766 7,583 3,536 11,119
Net income per share - basic 0.18 0.17 0.08 0.25
Net income per share - diluted 0.17 0.17 0.08 0.24
1998
Total revenues $ 48,766 $ 51,938 $ 43,363 $ 55,085
Gross profit 27,792 27,455 19,163 32,520
Operating income (loss) 8,569 10,047 1,043 (27,068)
Net income (loss) 7,164 8,177 2,424 (15,032)
Net income (loss) per share - basic 0.16 0.18 0.05 (0.33)
Net income (loss) per share - diluted 0.15 0.17 0.05 (0.33)
</TABLE>
See Notes 4, 6, and 12 for discussions of transactions that occurred during 1999
and 1998 that affect the comparability of the Company's quarterly results of
operations.
F-19
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders of Dura Pharmaceuticals, Inc.:
We have audited the accompanying consolidated balance sheets of Dura
Pharmaceuticals, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Dura Pharmaceuticals, Inc. and
subsidiaries as of December 31, 1999 and 1998 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
San Diego, California
January 24, 2000, (March 20, 2000 as to the merger agreement
with Spiros Development Corporation II, Inc. described in Note 6)
F-20
<PAGE>
EXHIBIT 4.9
VOID AFTER 5:00 P.M., Warrant No. 1
NEW YORK CITY TIME, ON Warrants: 6,325,000
DECEMBER 31, 2002
DURA PHARMACEUTICALS, INC.
WARRANTS TO PURCHASE SHARES OF COMMON STOCK
CUSIP 26632S 11 7
THIS CERTIFIES THAT, FOR VALUE RECEIVED, Cede & Co., 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-fourth of 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-fourth of one fully paid and nonassessable share of Common Stock (a "Warrant
Share") at an exercise price (the "Exercise Price") of $54.84 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 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
FOLLOWING PAGES, 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: January 1, 2000 DURA PHARMACEUTICALS, INC.
By:
-----------------------------------------
Robert S. Whitehead
President and Chief Operating Officer
By:
-----------------------------------------
John R. Cook
Vice President, Associate General Counsel
and Secretary
Countersigned:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
as Warrant Agent
By:
----------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
<PAGE>
THIS WARRANT CERTIFICATE IS SUBJECT TO ALL OF THE TERMS AND CONDITIONS OF THE
WARRANT AGREEMENT, DATED ON OR ABOUT DECEMBER 22, 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 AT 400 S. HOPE ST., 4TH FLOOR, LOS ANGELES, CA
90071
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.
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. 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 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.
<PAGE>
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.
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:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants
in common
UNIF GIFT MIN ACT Custodian
---------------- -----------------------------------
(Cust) (Minor)
under Uniform Gifts to Minors Act
-------------------------
(State)
UNIF TRF MIN ACT Custodian (until age )
---------------- ---------------------
(Cust)
under Uniform Transfers
---------------------------------
(Minor)
to Minors Act
--------------------------------------------
(State)
Additional abbreviations may also be used though not in the above list.
<PAGE>
ELECTION TO PURCHASE
(TO BE EXECUTED UPON EXERCISE OF WARRANT)
The undersigned hereby irrevocably exercises this warrant to purchase _____
shares of Common Stock of Dura Pharmaceuticals, Inc. ("Dura") 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:
Dated: , 200__
-----------------
------------------------------------------
Signature
------------------------------------------
Signature
Signature(s) Guaranteed:
By:
--------------------------------------------
The signature must be guaranteed by an eligible
guarantor institution (banks, stockbrokers, savings
and loan associations and credit unions with member-
ship in an approved signature guarantee medallion
program), pursuant to S.E.C. Rule 17Ad-15.
Name:
---------------------------------------------------------------------------
(Please Print)
Address:
------------------------------------------------------------------------
City, State and Zip Code:
-------------------------------------------------------
Taxpayer's Identification or Social Security Number:
----------------------------
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:
----------------------------
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sell, assign and transfer 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 _______________ attorney to
transfer said Warrant on behalf of Dura Pharmaceuticals, Inc., with full power
of substitution in the premises.
Dated: __________, 200__
-------------------------------------------
Signature
-------------------------------------------
Signature
Notice: The signature(s) to this assignment
must correspond with the name as written
upon the face of the Warrant, in every
particular, without alteration or
enlargement, or any change whatever.
Signature(s) Guaranteed:
By:
------------------------------------------
The signature must be guaranteed by an eligible
guarantor institution (banks, stockbrokers, savings
and loan associations and credit unions with member-
ship in an approved signature guarantee medallion
program), pursuant to S.E.C. Rule 17Ad-15.
<PAGE>
Exhibit 10.35
- --------------------------------------------------------------------------------
AMENDMENT NO. 8 TO BUSINESS LOAN AGREEMENT
This Amendment No. 8 (the "Amendment") dated as of April 30,
1999, is between Bank of America, N.A. (the "Bank") and Dura
Pharmaceuticals, Inc. (the "Borrower").
RECITALS
A. The Bank and the Borrower entered into a certain Business Loan
Agreement dated as of April 14, 1997, as previously amended (the
"Agreement").
B. The Bank and the Borrower desire to further amend the Agreement.
AGREEMENT
1 DEFINITIONS. Capitalized terms used but not defined in this Amendment
shall have the meaning given to them in the Agreement.
2 AMENDMENTS. The Agreement is hereby amended as follows:
2.1 In Paragraph 1.2 of the Agreement, the date "AUGUST 1,
1999" is substituted for the date "MAY 1 ,1999".
2.1 In Paragraph 6.24 of the Agreement, the date "AUGUST 1,
1999" is substituted for the date "MAY 1, 1999".
3 REPRESENTATIONS AND WARRANTIES. When the Borrower signs this
Amendment, the Borrower represents and warrants to the Bank that: (a)
there is no event which is, or with notice or lapse of time or both
would be, a default under the Agreement except those events, if any,
that have been disclosed in writing to the Bank or waived in writing by
the Bank, (b) the representations and warranties in the Agreement are
true as of the date of this Amendment as if made on the date of this
Amendment, (c) this Amendment is within the Borrower's powers, has been
duly authorized, and does not conflict with any of the Borrower's
organizational papers, and (d) this Amendment does not conflict with
any law, agreement, or obligation by which the Borrower is bound.
4 CONDITIONS. This Amendment will be effective when the Bank receives
the following items, in form and content acceptable to the Bank:
4.1 A Fifteen Thousand Dollar ($15,000) amendment fee due upon
execution of this Amendment.
5 EFFECT OF AMENDMENT. Except as provided in this Amendment, all of the
terms and conditions of the Agreement shall remain in full force and
effect.
This Amendment is executed as of the date stated at the beginning of
this Amendment.
BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION
/s/ Susan J. Pepping
-------------------------------------------
By: Susan J. Pepping, Vice President
DURA PHARMACEUTICALS, INC.
/s/ Erle T. Mast
- ------------------------------- ---------------------------------
By: Erle T. Mast
Vice President, Finance
/s/ Mitchell R. Woodbury
- ------------------------------- ---------------------------------
By: Mitchell R. Woodbury
Senior Vice President and General
Counsel
- --------------------------------------------------------------------------------
<PAGE>
Exhibit 10.36
- --------------------------------------------------------------------------------
AMENDMENT NO. 9 TO BUSINESS LOAN AGREEMENT
This Amendment No. 9 (the "Amendment") dated as of June 30, 1999, is
between Bank of America National Trust and Savings Association (the
"Bank") and Dura Pharmaceuticals, Inc. (the "Borrower").
RECITALS
A. The Bank and the Borrower entered into a certain Business Loan
Agreement dated as of April 14, 1997, as previously amended (the
"Agreement").
B. The Bank and the Borrower desire to further amend the Agreement.
AGREEMENT
1 DEFINITIONS. Capitalized terms used but not defined in this Amendment
shall have the meaning given to them in the Agreement.
2 AMENDMENTS. The Agreement is hereby amended as follows:
2.1 In Paragraph 6.4 of the Agreement, the ratio "5.50
TO 1.00" is substituted for the ratio "1.75 TO 1.00".
2.2 In Paragraph 6.12 of the Agreement, the amount "TWO
HUNDRED SIXTEEN MILLION DOLLARS ($216,000,000)" is
substituted in the amount "ONE HUNDRED NINETY MILLION
DOLLARS ($190,000,000)".
2.3 A new Paragraph 6.25 is added to the Agreement,
which reads in its entirety as follows:
"6.25 LIQUIDITY. To maintain on an unconsolidated
basis unencumbered liquid assets equal to at least
Seventy Five Million Dollars ($75,000,000).
(a) Liquid Assets: means the following:
(i)cash and certificates of deposit;
(ii)U.S. treasury bills and other
obligations of the federal government;
(iii)readily marketable securities
(including commercial paper, but excluding
restricted stock and stock subject to the
provisions of Rule 144 of the Securities
and Exchange Commission)."
3 REPRESENTATIONS AND WARRANTIES. When the Borrower signs this
Amendment, the Borrower represents and warrants to the Bank that: (a)
there is no event which is, or with notice or lapse of time or both
would be, a default under the Agreement except those events, if any,
that have been disclosed in writing to the Bank or waived in writing by
the Bank, (b) the representations and warranties in the Agreement are
true as of the date of this Amendment as if made on the date of this
Amendment, (c) this Amendment is within the Borrower's powers, has been
duly authorized, and does not conflict with any of the Borrower's
organizational papers, and (d) this Amendment does not conflict with
any law, agreement, or obligation by which the Borrower is bound.
4 EFFECT OF AMENDMENT. Except as provided in this Amendment, all of the
terms and conditions of the Agreement shall remain in full force and
effect.
This Amendment is executed as of the date stated at the beginning of
this Amendment.
- --------------------------------------------------------------------------------
<PAGE>
BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION
/s/ Susan J. Pepping
--------------------------------
By: Susan J. Pepping, Vice President
DURA PHARMACEUTICALS, INC.
/s/ Erle T. Mast
-------------------------------- ---------------------------------
By: Erle T. Mast
Vice President, Finance
/s/ Mitchell R. Woodbury
-------------------------------- ---------------------------------
By: Mitchell R. Woodbury
Senior Vice President and General
Counsel
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 10.37
AMENDED AND RESTATED PURCHASE AND LICENSE AGREEMENT
This Amended and Restated Purchase and License Agreement (the
"Agreement") is made and entered into as of January 25, 1999, and is effective
as of October 1, 1998, by and between Dura Pharmaceuticals, Inc. ("Dura"), a
Delaware corporation, DJ Pharma, Inc., a Delaware corporation ("DJ Pharma") and
Dura (Bermuda) Trading Company LTD., a Bermuda corporation ("Dura Bermuda")
(solely with respect to the Keftab Products (as hereinafter defined)) with
reference to the following facts:
RECITALS
A. WHEREAS Dura, Dura Bermuda and DJ Pharma are executing this
Agreement for the purpose of amending and restating in its entirety that certain
Purchase and License Agreement by and between the parties hereto dated October
1, 1998;
B. WHEREAS, Dura markets a line of drugs under the trademark "Rondec"
("Rondec Products") whose active ingredients are primarily carbinoxamine maleate
and pseudoephedrine hydrochloride, which products are set forth on Exhibit "A"
attached hereto and incorporated herein by this reference, and which Rondec
Products were acquired from Abbott Laboratories ("Abbott") pursuant to that
certain Purchase Agreement between Abbott Laboratories, Ross Products Division
and Dura, dated June 14, 1995 (the "Abbott Purchase Agreement") and that certain
Supply Agreement between Abbott and Dura, dated June 14, 1995 (the "Abbott
Supply Agreement");
C. WHEREAS, Dura produces certain cough, cold and allergy products
marketed by Dura under the CCA Trademarks (as hereinafter defined) (the "CCA
Products"), and Dura Bermuda has certain license rights with respect to products
sold by Dura under the trademark "Keftab" (the "Keftab Products"), which
products are set forth, together with the CCA Products, on Exhibit "B" attached
hereto and incorporated herein by this reference;
D. WHEREAS, DJ Pharma wishes to acquire certain licensing rights to the
Rondec Products and CCA Products and sublicensing rights with respect to the
Keftab Products through December 31, 2002 (the "Licensing Term") and upon the
expiration of such period to, if permitted pursuant and subject to the terms and
conditions set forth in this Agreement, (i) acquire all of Dura's assets,
rights, title and interests relating to the Rondec Products in the "Rondec
Territory," which includes the continental U.S., Hawaii, Alaska and all U.S.
military bases wherever located and specifically excludes territories,
commonwealths (including Puerto Rico) and possessions of the U.S., and to
assume, other than payment obligations under Section 5.1 of the Abbott Purchase
Agreement, all of Dura's rights and obligations under the Abbott Purchase
Agreement and the Abbott Supply Agreement (as hereinafter defined) pursuant to
an Assignment and Assumption Agreement in the form attached hereto as Exhibit
"C" and incorporated herein by this reference (the "Assignment"), (ii) acquire
all of Dura's assets, rights, title and interests relating to the CCA Products
and the CCA Trademarks, and (iii) assume and acquire all of Dura Bermuda's
assets, rights, title, interests and obligations related to the Keftab Products
(the
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<PAGE>
"Keftab Rights"), including the Keftab trademark set forth on Exhibit "D"
attached hereto and incorporated herein by this reference (the "Keftab
Trademark") under that certain Licensing Agreement, as amended (the "Licensing
Agreement") and that certain Manufacturing Agreement, as amended (the
"Manufacturing Agreement"), each of which is by and between Eli Lilly and
Company, an Indiana corporation ("Lilly") and Dura, dated August 21, 1996,
pursuant to the Assignment; and
E. WHEREAS, Dura and Dura Bermuda wish to sell or assign their
respective assets, rights, title, interests and obligations to DJ Pharma, as the
case may be;
NOW, THEREFORE, in consideration of the foregoing premises, the
respective representations, warranties, covenants and agreements set forth
herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereby agree as follows:
1. LICENSING AND PURCHASING ARRANGEMENTS WITH RESPECT TO RONDEC PRODUCTS, CCA
PRODUCTS AND KEFTAB PRODUCTS
1.1 RIGHTS GRANTED; DISCLOSURE OF KNOW-HOW WITH RESPECT TO THE RONDEC
PRODUCTS AND CCA PRODUCTS DURING LICENSING PERIOD (AS HEREINAFTER DEFINED). For
a period commencing as of the date of the Closing (as hereinafter defined) and
expiring upon the earlier of (i) a termination of this Agreement by Dura
pursuant to Section 6 below due to a breach or default by DJ Pharma and (ii) the
end of the Licensing Term (the "Licensing Period"), Dura hereby grants the
following rights and discloses the following Know-How (as hereinafter defined)
to DJ Pharma upon the following terms with respect to the Rondec Products and
CCA Products:
(a) LICENSE OF KNOW-HOW AND REGULATORY APPROVALS WITH RESPECT
TO RONDEC PRODUCTS AND CCA PRODUCTS. Subject to the terms and conditions
contained in this Agreement, Dura, as of the Closing and through the Licensing
Period, hereby grants to DJ Pharma an exclusive license (except as set forth in
Section 1.1 (d) hereof, exclusive even as to Dura) under the Know-How (as
hereinafter defined) and Regulatory Approvals (as hereinafter defined), to use,
market, distribute, promote, offer for sale and sell the Rondec Products in the
Rondec Territory and the CCA Products worldwide (the "CCA Territory"). DJ Pharma
accepts all the obligations set forth in this Agreement and agrees to use the
Know-How and Regulatory Approvals only in connection with the manufacture, sale,
distribution, offering for sale, and promotion of the Rondec Products in the
Rondec Territory and the CCA Products in the CCA Territory, only for so long as
the licenses granted in this Section 1.1(a) remain in effect.
For purposes of this Agreement, "Know-How" shall mean all
proprietary technical and clinical information, data and know-how relating to
the Rondec Products and the CCA Products, whether or not patentable, owned or
licensed by Dura with the right to grant sublicenses as of the Closing or
acquired during the Licensing Period by either party or their affiliates (with
the right to have or disclose). Know-How shall include, without limitation, all
processes, formulas, discoveries, information and inventions whether relating to
biological, chemical, pharmacological, toxicological, pharmaceutical, physical
and analytical safety, quality control and clinical data, including, without
limitation, phase IV clinical study data. Know-How shall also include relevant
medical information relating to any of the Rondec Products or CCA Products (such
as customer questions, responses thereto and adverse drug event (ADE) history)
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<PAGE>
in Dura's possession. The term Know-How, however, shall not include (a) any
know-how, processes, information and data which is, as of the Closing or later
becomes, generally available to the public or (b) any general manufacturing
know-how not reasonably required by DJ Pharma to exercise the rights granted
under this Agreement to the Rondec Products or CCA Products.
For purposes of this Agreement, "Regulatory Approvals" shall
mean all authorizations by the appropriate domestic governmental regulatory
authorities which are required for the marketing, promotion, pricing,
distribution and sale of the Rondec Products in the Rondec Territory and the CCA
Products in the CCA Territory, each of which are owned by Dura.
(b) LICENSE OF TRADEMARKS. Subject to the terms and conditions
contained in this Agreement, Dura, as of the Closing and through the end of the
Licensing Period, hereby grants to DJ Pharma an exclusive license (exclusive
even as to Dura) to use the trademarks associated with the Rondec Products and
CCA Products, as set forth on Exhibit "D" attached hereto and incorporated
herein by this reference (the "Rondec Trademarks" and the "CCA Trademarks",
respectively) only in connection with the manufacture, sale, distribution,
offering for sale, and promotion of the Rondec Products in the Rondec Territory
and the CCA Products in the CCA Territory. DJ Pharma accepts all the obligations
set forth in this Agreement and agrees to use the Rondec Trademarks in the
Rondec Territory and the CCA Trademarks in the CCA Territory, only for so long
as the license granted under this Section 1.1(b) remains in effect.
(c) SUBLICENSING. Prior to the expiration of the Licensing
Period, DJ Pharma shall not sublicense or assign any of the rights granted to it
under this Section 1.1, without the prior written consent of Dura, which consent
may be provided or withheld in Dura's sole discretion.
(d) RETAINED RIGHTS. Notwithstanding the licenses granted to
DJ Pharma under this Section 1.1, after the Closing and through the end of the
Licensing Period (except as otherwise indicated), Dura shall retain ownership of
all rights to (a) the current NDC numbers it uses for each of the Rondec
Products and CCA Products (retained (to the extent required by applicable laws
and regulations) through and after the Second Closing (as defined below)), (b)
the real and personal property (including, without limitation, all equipment)
and general manufacturing know-how used by Dura in manufacturing the Rondec
Products or CCA Products (either before, during or after the Licensing Period)
other than Know-How (retained through and after the Second Closing), (c) all
accounts receivable from sales of the Rondec Products and CCA Products by or on
behalf of Dura prior to the Closing, and (d) all inventories of the Rondec
Products or CCA Products that have not otherwise been purchased by DJ Pharma
pursuant to the Dura Supply Agreement. In addition, Dura retains ownership of
and the right to use the Know-How to manufacture Rondec Products and CCA
Products for DJ Pharma under the Dura Supply Agreement until the end of the
Licensing Period.
(e) DURA SUPPLY AGREEMENT. By the date of Closing (as
hereinafter defined), Dura, Dura Bermuda, and DJ Pharma shall enter into a Dura
Supply Agreement (the "Dura Supply Agreement") which shall set forth the
respective rights and obligations of the parties regarding Rondec Products and
CCA Products to be supplied by Dura for DJ Pharma pursuant to the terms of the
Dura Supply Agreement.
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<PAGE>
(f) PROMOTION, MARKETING AND SALE OF PRODUCTS.
(i) REFERRALS. As of the Closing and through the
Licensing Period, Dura shall refer to DJ Pharma any sales inquiry received from
a third party in the Rondec Territory with respect to the Rondec Products or
from a third party in the CCA Territory with respect to the CCA Products.
(ii) MATERIALS AND PROMOTIONAL CLAIMS. For so long as
the Rondec Products are sold in the Rondec Territory and the CCA Products are
sold in the CCA Territory and prior to the expiration of the Licensing Period,
DJ Pharma shall not distribute any written materials or make any promotional
claims regarding the Rondec Products or the CCA Products, respectively, unless
such written materials or promotional claims have first been reviewed and
approved by Dura, such approval not to be unreasonably withheld. Dura agrees to
provide DJ Pharma with its approval or rejection of such written materials and
promotional claims within thirty (30) days of receipt by Dura. Notwithstanding
the foregoing, DJ Pharma at all times shall be solely responsible for complying
with all applicable laws and regulations in its promotion and marketing of the
Rondec Products and CCA Products.
(g) USE OF TRADEMARKS. Prior to the expiration of the
Licensing Period, DJ Pharma agrees to use the Rondec Trademarks only in
connection with the Rondec Products and the CCA Trademarks only in connection
with the CCA Products and in the manner and style which shall have the prior
written approval of Dura, which shall not be unreasonably withheld. DJ Pharma
shall submit to Dura samples of all commercial material containing any of the
Rondec Trademarks or CCA Trademarks. Dura, within thirty (30) days of its
receipt of such materials, shall have the right to reasonably comment on the
usage of the Rondec Trademarks or CCA Trademarks in such materials and DJ
Pharma, at its own cost and expense, will promptly correct any improper usage of
the Rondec Trademarks or CCA Trademarks. Prior to the time Dura assigns such
Rondec Trademarks or CCA Trademarks to DJ Pharma pursuant to this Agreement, DJ
Pharma agrees not to claim or to assert any right of ownership in or to such
Rondec Trademarks or CCA Trademarks or the goodwill associated therewith and
shall take no action intended to destroy, damage or materially impair in any way
the ownership or rights of Dura in and to such Rondec Trademarks or CCA
Trademarks. Prior to the time Dura assigns such CCA Trademarks or Rondec
Trademarks to DJ Pharma pursuant to this Agreement, DJ Pharma shall not register
anywhere in the world in its own name or on behalf of any other person or
entity, any trademark, trade dress, brands, labeling, designs or other indicia
of ownership identical to, or confusingly similar to, the Rondec Trademarks or
CCA Trademarks, and shall not associate the Rondec Trademarks or CCA Trademarks
with any articles other than the Rondec Products or CCA Products, respectively
and shall, at the request of Dura, do all such acts and things and execute all
such documents as Dura shall in its reasonable discretion consider necessary or
proper to register or maintain the registration of the Rondec Trademarks and CCA
Trademarks in the Rondec Territory or any country of the CCA Territory,
respectively. Should usage of the Rondec Trademarks or CCA Trademarks in any
country vest title thereto in DJ Pharma prior to the time Dura assigns the
Rondec Trademarks or CCA Trademarks, respectively, pursuant to Section 1.3(a)
hereof, then DJ Pharma shall, at Dura's request, immediately assign and transfer
such title to Dura.
(h) QUALITY CONTROL. DJ Pharma will not permit the quality of
the Rondec Products or CCA Products to deteriorate while such Products are in
its possession so as to
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<PAGE>
adversely affect the goodwill associated with the Rondec Trademarks or CCA
Trademarks, respectively. DJ Pharma shall, upon request of Dura, from time to
time furnish Dura, without charge, specifications and samples of Rondec Products
or CCA Products for quality review by Dura. Dura or an authorized representative
thereof shall have the right, at all reasonable times, to inspect the finished
goods in relation to which the Rondec Trademarks or CCA Trademarks are to be
used, as part of appropriate quality control.
(i) INFRINGEMENT OF TRADEMARKS. In the event that, during the
term of the license granted to DJ Pharma under Section 1.1 hereof, either DJ
Pharma or Dura learn that any of the Rondec Trademarks or CCA Trademarks is
being infringed in any territory by any other party, it shall promptly notify
the other of such infringement. In such event both DJ Pharma and Dura shall have
the right, but not the obligation to act jointly to terminate any such third
party infringement, including, without limitation, prosecuting a lawsuit or
other legal proceeding at both Dura's and DJ Pharma's joint expense to be shared
equally between Dura and DJ Pharma. Any recovery received as a result of such
joint action to terminate an infringement of the Rondec Trademarks or CCA
Trademarks, less the reimbursement of each Dura and DJ Pharma for the
out-of-pocket expenses incurred in taking, joining and prosecuting such action,
shall be shared equally between Dura and DJ Pharma. In the event either DJ
Pharma or Dura elects to not take any action to terminate such third party
infringement (the "Non-Acting Party") within sixty (60) days following notice
from the other of a claim of infringement, such other party (the "Acting Party")
shall have the right, but not the obligation, to act to terminate any such third
party infringement, including, without limitation, prosecuting a lawsuit or
other legal proceeding, at the Acting Party's own expense; and the Acting Party
may retain any recovery it may receive as a result of its actions to terminate
such infringement. Notwithstanding the foregoing, the Non-Acting Party shall
fully cooperate with the Acting Party in any action the Acting Party takes to
terminate such infringement and, to the extent the Acting Party recovers damages
from such third party, through settlement or otherwise, the Non-Acting Party
shall be reimbursed by the Acting Party for all reasonable expenses, if any,
incurred in connection therewith.
1.2 RIGHTS GRANTED WITH RESPECT TO THE KEFTAB PRODUCTS FOR THE
LICENSING PERIOD. For the duration of the Licensing Period and subject to the
terms and conditions set forth in this Agreement and the Licensing Agreement,
except as set forth in Section 1.2(b) hereof, Dura Bermuda hereby exclusively
(even as to Dura Bermuda) sublicenses to DJ Pharma the Keftab Rights under the
Licensing Agreement in the fifty (50) states and the District of Columbia
comprising the United States (the "Keftab Territory"). In addition to the terms
and conditions set forth in the Licensing Agreement with respect to the Keftab
Products, DJ Pharma agrees to the following terms with respect to its use of the
Keftab Products during the Licensing Period:
(a) SUBLICENSING. Prior to the expiration of the Licensing
Period, DJ Pharma shall not assign or sublicense any of the rights granted to it
under this Section 1.2, without the prior written consent of Dura Bermuda, which
consent may be provided or withheld in Dura Bermuda's sole discretion.
(b) RETAINED RIGHTS. Notwithstanding the licenses granted to
DJ Pharma under this Section 1.2, after the Closing and through the end of the
Licensing Period (except as otherwise indicated), Dura Bermuda shall retain
ownership of all rights to (a) the current NDC numbers it uses for each of the
Keftab Products (retained (to the extent required by applicable laws and
regulations) through and after the Second Closing), (b) all accounts receivable
from
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<PAGE>
sales of the Keftab Products by or on behalf of Dura Bermuda prior to the
Closing, and (c) all inventories of the Keftab Products that have not otherwise
been purchased by DJ Pharma pursuant to the Dura Supply Agreement.
(c) REFERRALS. As of the Closing and through the Licensing
Period, Dura and Dura Bermuda shall refer to DJ Pharma any sales inquiry
received from a third party in the Keftab Territory with respect to the Keftab
Products.
(d) MATERIALS AND PROMOTIONAL CLAIMS. For so long as the
Keftab Products are sold in the Keftab Territory and prior to the expiration of
the Licensing Period, DJ Pharma shall not distribute any written materials or
make any promotional claims regarding the Keftab Products, unless such written
materials or promotional claims have first been reviewed and approved by Dura
Bermuda, such approval not to be unreasonably withheld. Dura Bermuda agrees to
provide DJ Pharma with its approval or rejection of such written materials and
promotional claims within thirty (30) days of receipt by Dura Bermuda.
Notwithstanding the foregoing, DJ Pharma at all times shall be solely
responsible for complying with all applicable laws and regulations in its
promotion and marketing of the Keftab Products.
(e) QUALITY CONTROL. DJ Pharma will not permit the quality of
the Keftab Products to deteriorate while such Products are in its possession so
as to adversely affect the goodwill associated with the Keftab Trademark. DJ
Pharma shall, upon request of Dura Bermuda, from time to time furnish Dura
Bermuda, without charge, specifications and samples of Keftab Products for
quality review by Dura Bermuda. Dura Bermuda or an authorized representative
thereof shall have the right, at all reasonable times, to inspect the finished
goods in relation to which the Keftab Trademark is to be used, as part of
appropriate quality control.
(f) DURA SUPPLY AGREEMENT. By the date of Closing, Dura, Dura
Bermuda, and DJ Pharma shall enter into the Dura Supply Agreement.
(g) USE OF TRADEMARKS. Prior to the expiration of the
Licensing Period, DJ Pharma agrees to use the Keftab Trademark only in
connection with the Keftab Products and in the manner and style which shall have
the prior written approval of Dura Bermuda, which shall not be unreasonably
withheld. DJ Pharma shall submit to Dura Bermuda samples of all commercial
material intended for use by DJ Pharma containing the Keftab Trademark. Dura
Bermuda, within thirty (30) days of its receipt of such materials, shall have
the right to reasonably comment on the usage of the Keftab Trademark in such
materials and DJ Pharma, at its own cost and expense, will promptly correct any
improper usage of the Keftab Trademark . Prior to the time Dura Bermuda assigns
such Keftab Trademark to DJ Pharma pursuant to Section 1.4 of this Agreement, DJ
Pharma agrees not to claim or to assert any right of ownership in or to such
Keftab Trademark or the goodwill associated therewith and shall take no action
which may destroy, damage or materially impair in any way the ownership or
rights of Dura in and to such Keftab Trademark. DJ Pharma shall not register at
anytime anywhere in the world, except in the Keftab Territory pursuant to the
terms of the Licensing Agreement following assignment of the Keftab Trademark
under this Agreement, in its own name or on behalf of any other person or
entity, any trademark, trade dress, brands, labeling, designs or other indicia
of ownership identical to, or confusingly similar to, the Keftab Trademark.
Prior to the time Dura Bermuda assigns such Keftab Trademark to DJ Pharma
pursuant to this Agreement, DJ Pharma shall not associate the Keftab Trademark
with any articles other than the Keftab Products and
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<PAGE>
shall, at the request of Dura Bermuda, do all such acts and things and execute
all such documents as Dura Bermuda shall in its reasonable discretion consider
necessary or proper to register or maintain the registration of the Keftab
Trademark in the Keftab Territory. Should usage of the Keftab Trademark in any
country vest title thereto in DJ Pharma prior to the time Dura Bermuda assigns
the Keftab Trademark pursuant to this Agreement, then DJ Pharma shall, at Dura
Bermuda's request, immediately assign and transfer such title to Dura Bermuda.
Upon Dura Bermuda's assignment of Keftab Trademark to DJ Pharma pursuant to this
Agreement, DJ Pharma understands and agrees that its use of the Keftab Trademark
will be subject to the terms and conditions of the Licensing Agreement.
(h) INFRINGEMENT OF TRADEMARKS. In the event that, during the
term of the license granted to DJ Pharma under Section 1.2 hereof, either DJ
Pharma or Dura Bermuda learn that the Keftab Trademark is being infringed in any
territory by any other party, it shall promptly notify the other of such
infringement. In such event both DJ Pharma and Dura Bermuda shall have the
right, but not the obligation to act jointly to terminate any such third party
infringement, including, without limitation, prosecuting a lawsuit or other
legal proceeding at both Dura Bermuda's and DJ Pharma's joint expense to be
shared equally between Dura Bermuda and DJ Pharma. Any recovery received as a
result of such joint action to terminate an infringement of the Keftab
Trademark, less the reimbursement of each Dura Bermuda and DJ Pharma for the
out-of-pocket expenses incurred in taking, joining and prosecuting such action,
shall be shared equally between Dura Bermuda and DJ Pharma. In the event either
DJ Pharma or Dura Bermuda elects to not take any action to terminate such third
party infringement (the "Non-Acting Entity") within sixty (60) days following
notice from the other of a claim of infringement, such other party (the "Acting
Entity") shall have the right, but not the obligation, to act to terminate any
such third party infringement, including, without limitation, prosecuting a
lawsuit or other legal proceeding, at the Acting Entity's own expense; and the
Acting Entity may retain any recovery it may receive as a result of its actions
to terminate such infringement. Notwithstanding the foregoing, the Non-Acting
Entity shall fully cooperate with the Acting Entity in any action the Acting
Entity takes to terminate such infringement and, to the extent the Acting Entity
recovers damages from such third party, through settlement or otherwise, the
Non-Acting Entity shall be reimbursed by the Acting Entity for all reasonable
expenses, if any, incurred in connection therewith.
1.3 PURCHASE AND SALE OF THE RONDEC PURCHASED ASSETS (AS HEREINAFTER
DEFINED) AND THE CCA PURCHASED ASSETS (AS HEREINAFTER DEFINED).
(a) UPON EXPIRATION OF THE LICENSING PERIOD. Subject to the
terms and conditions of this Agreement, at the expiration of the Licensing Term,
(x) Dura shall, without further consideration (except as otherwise set forth
herein), transfer, assign and deliver to DJ Pharma the following assets of Dura
relating to each of the Rondec Products in the Rondec Territory (the "Rondec
Purchased Assets") and to each of the CCA Products in the CCA Territory (the
"CCA Purchased Assets") and (y) DJ Pharma shall additionally have a fully-paid,
irrevocable license and right under the rights granted in Section 1.1 above:
(i) TRADEMARKS. All of the Rondec Trademarks and CCA
Trademarks.
-7-
<PAGE>
(ii) REGULATORY HISTORY. A copy of all documents
pertaining to the Rondec Products' and CCA Products' regulatory history
including any existing correspondence with the FDA.
(iii) FORMULATIONS. All formulations including copies
of all documentation for the Rondec Products and CCA Products and the medical
information set forth in Exhibit "E" attached hereto and incorporated herein by
this reference.
(iv) MANUFACTURING INFORMATION; BOOKS AND RECORDS.
Copies of all relevant manufacturing information and technology for the Rondec
Products and CCA Products including, but not limited to, suppliers, production
costs and specifications. Copies of all files and records of Dura specifically
relating to the Rondec Products and CCA Products, whether in hard copy or
magnetic form including without limitation, all research and development files,
including, without limitation, FDA and other governmental agency or
instrumentality files pertaining to the Rondec Products, CCA Products or
registrations thereto, market studies, copies of consumer complaint files,
response letters, adverse event reports, manufacturing worksheets, copies of
manufacturing quality records and assurance information, packaging information,
sales histories, files, reports, operating records and quality control histories
with respect to the Rondec Products and CCA Products.
(v) MARKETING INFORMATION. All marketing and sales
material and information for the Rondec Products, CCA Products and all
copyrights and moral rights thereto.
(vi) TRADEMARK LICENSES. The Rondec Products, the CCA
Products, the Rondec Trademarks and the CCA Trademarks on the existing
respective Rondec and CCA inventory packaging, except for the trade names Dura
and Dura Pharmaceuticals, Inc., which DJ Pharma acquires from Dura under this
Section 1 and the right to continue to use such Rondec Trademarks, CCA
Trademarks and other information on Rondec Product and CCA Product labels as
used thereon by Dura prior to the Second Closing, until DJ Pharma files
appropriate drug listings with the FDA which include representative labeling,
but no later than one hundred eighty (180) days from the Second Closing or such
period of time permitted by applicable law.
(vii) KNOW-HOW AND REGULATORY APPROVALS. All of the
Know-How and Regulatory Approvals as set forth in Section 1.1(a) hereof.
(viii) OTHER RIGHTS. All other intellectual property,
proprietary or other rights owned by Dura solely with respect to the Rondec
Products or CCA Products, including without limitation such intellectual
property set forth on Exhibit "D" attached hereto and incorporated herein by
this reference.
(b) EXCLUDED ASSETS. Notwithstanding the foregoing, Dura is
not selling, and DJ Pharma is not purchasing, pursuant to this Agreement any
tangible or intangible assets, properties or rights of Dura not expressly
included in the Rondec Purchased Assets or CCA Purchased Assets. Except for the
Rondec Trademarks and CCA Trademarks set forth in Section 1.3 hereof, DJ Pharma
is not purchasing or licensing any rights to the trade names Dura or Dura
Pharmaceuticals, Inc. or any logo associated with them.
-8-
<PAGE>
1.4 ASSIGNMENT AND ASSUMPTION OF LICENSE AGREEMENT WITH
RESPECT TO KEFTAB PRODUCTS UPON EXPIRATION OF LICENSING PERIOD. Subject to the
terms and conditions of this Agreement and the Assignment, at the expiration of
the Licensing Term, (i) Dura Bermuda shall without further consideration (except
as otherwise provided herein), transfer, assign and deliver to DJ Pharma the
Keftab Rights and (ii) DJ Pharma shall additionally have a fully-paid,
irrevocable license and right under the Keftab Rights.
2. PAYMENTS
2.1 FOR PURCHASE AND LICENSING RIGHTS WITH RESPECT TO THE PRODUCTS. In
consideration for the purchase and licensing rights as set forth in Section 1
hereof, DJ Pharma shall (i) * hereinafter defined) and (ii) pay to Dura with
respect to the Rondec Products and CCA Products and to Dura Bermuda with respect
to the Keftab Rights the following licensing fees during the Licensing Period:
(a) for * (as hereinafter defined) * (as hereinafter defined)
of the Products during such *;
(b) for * (as hereinafter defined) * during such *;
(c) * during each * in the *;
(d) * during each * in the *; and
(e) * during each * in the * and the *.
Notwithstanding the foregoing, * under Sections 2.1(a)-(e) hereof * (all of
which are exclusive of the costs of inventory and product supply under the Dura
Supply Agreement) during the respective calendar year: (i) * (ii) * (iii) * and
(iv) *. Notwithstanding the foregoing, * (collectively, the " * ") in any way *,
including, without limitation, *.
-9-
*Certain confidential portions of this Exhibit were omitted by means of marking
such portions with an asterisk (the "Mark"). This Exhibit has been filed with
the Secretary of the Commission without the Mark pursuant to the Company's
application requesting confidential treatment under Rule 24b-2 under the
Securities Exchange Act of 1934, as amended.
<PAGE>
For purposes of this Agreement: (A) a "Contract Quarter" shall mean each quarter
in the Contract Year commencing October 1, 1998 and ending September 30, 1999;
(B) the first "Contract Year" shall mean the period of twelve (12) consecutive
months commencing on October 1, 1998, and each subsequent Contract Year shall
begin on the respective anniversary thereof; and (C) "Net Sales" shall mean (i)
the gross amount of sales invoiced to third parties by DJ Pharma less the
reasonable and customary accrual-basis deductions from such gross amounts
including: (a) normal and customary trade and quantity discounts, allowances and
credits actually allowed or paid; (b) credits or allowances given or made for
return of previously sold products; (c) sales or excise taxes, as adjusted for
rebates and refunds; and (d) chargeback payments and rebates granted to managed
health care organizations, employer groups or to federal, state and local
governments, their agencies, purchasers and reimbursers or to trade customers,
including, but not limited to, wholesalers and chain and pharmacy buying groups,
which are specifically identified to the sale of the Products by DJ Pharma. All
amounts under this Section shall be determined from the books and records of DJ
Pharma which shall be maintained in accordance with GAAP.
2.2 REDUCTION OF PAYMENTS. Each monthly payment due under Section 2.1
of this Agreement for each Rondec Product, CCA Product and Keftab Product sold
by DJ Pharma during such month shall be reduced by the unit Supply Price (as
defined in the Dura Supply Agreement) multiplied by the number of units of each
such Product sold by DJ Pharma during such month (such reduced amount defined
herein as the "Net Royalty Payments").
2.3 PAYMENTS. For each calendar month in which DJ Pharma is obligated
to make payments to Dura with respect to sales pursuant to Section 2.1 hereof,
DJ Pharma shall, within thirty (30) days following the close of each such
calendar month, furnish to Dura a written report for the calendar month showing
(i) the number of units of each Rondec Product, CCA Product or Keftab Product,
as the case may be, sold by DJ Pharma during such calendar month, (ii) the Net
Sales of Rondec Products, CCA Products and Keftab Products sold by DJ Pharma
during such calendar month, and (iii) the amounts payable under this Section 2
for such calendar month. Simultaneously with the submission of the written
report, DJ Pharma shall pay to Dura , for the account of DJ Pharma, a sum equal
to the aggregate amount due for such calendar month calculated in accordance
with this Agreement. Payments due hereunder shall be paid by wire transfer to a
bank account as designated from time to time by Dura.
2.4 MAINTENANCE OF RECORDS BY DJ PHARMA; AUDITS.
(a) RECORDKEEPING BY DJ PHARMA. DJ Pharma shall keep accurate
books and accounts of record in connection with the sale by DJ Pharma of the
Products in sufficient detail to (i) permit accurate determination of all
figures necessary for verification of payments or refunds required to be paid
hereunder and (ii) verify compliance with Section 2.6 hereof. Records pursuant
to this Section 2.4(a) shall be maintained for a period of three (3) years after
the end of the year in which they were generated.
(b) AUDIT BY DURA. Dura, through an independent certified
public accountant, shall have the right to access such books and records of DJ
Pharma one time per year unless permitted more frequently pursuant to this
Section 2.4(b): (a) to verify the accuracy of the reports and all payments or
refunds made hereunder and (b) to verify compliance with the provisions of
Section 2.6 hereof. Notwithstanding the foregoing should an audit by Dura
pursuant to this
-10-
<PAGE>
Section 2.4(b) show a Material Underpayment (as hereinafter defined) by DJ
Pharma, Dura shall be permitted to conduct audits pursuant to this Section
2.4(b) as many times in any year as Dura may deem reasonably necessary. Dura's
right to have such books and records examined shall survive termination or
expiration of this Agreement for a period of six months following such
termination or expiration.
(c) UNDERPAYMENTS/OVERPAYMENTS. If such independent certified
public accountant's report shows any underpayment, DJ Pharma shall remit to Dura
within thirty (30) days after DJ Pharma's receipt of such report (i) the amount
of such underpayment to Dura and (ii) if such underpayment to Dura exceeds five
percent (5%) of the total amount owed for the calendar year then being audited
("Material Underpayment"), the reasonable fees and expenses of such independent
certified public accountant performing the audit. Any overpayments, less the
reasonable fees and expenses of such independent certified public accountant,
shall be fully creditable against amounts payable in subsequent payment periods,
if any. If no amounts are payable in subsequent periods, Dura shall credit any
overpayments, less the reasonable fees and expenses of such independent
certified public accounting firm, to principal outstanding under the
Subordinated Product Acquisition Notes.
(d) ADDITIONAL AUDIT REQUIREMENTS UNDER THE LICENSING
AGREEMENT. In addition to the audit requirements set forth above, DJ Pharma
understands and agrees that with respect to the Keftab Products it shall also be
subject to audit by Lilly and such other audit requirements as set forth in the
Licensing Agreement.
2.5 TAXES AND WITHHOLDING. All taxes, assessments and fees of any
nature levied or incurred on account of any payments from DJ Pharma to Dura
accruing under this Agreement, by national, state or local governments, will be
assumed and paid by DJ Pharma, except taxes levied thereon as income to Dura,
and if such taxes are required to be withheld by DJ Pharma they will be deducted
from payments due to Dura and will be timely paid by DJ Pharma to the proper
taxing authority for the account of Dura, and a receipt or other proof of
payment therefor secured and sent to Dura as soon as practicable.
2.6 TIMING OF SALES. DJ Pharma agrees that it shall not, by any
artifice, or unreasonable action or omission cause sales of any of the Rondec
Products, CCA Products or Keftab Products to occur later than they would
otherwise have occurred. Such actions or acts of omission may include, without
limitation, announcing or implementing changes in the price of the Products in
such a way as to delay the filling of orders from one Contract Quarter or
Contract Year to the next. If DJ Pharma has taken any such actions or committed
any such act of omission then for all purposes of payment of amounts under
Section 2 hereof such sales shall be treated as if made during the period they
would have been made were it not for the act or omission on the part of DJ
Pharma.
2.7 ADJUSTMENT OF PAYMENTS RELATED TO RONDEC PRODUCTS OR CCA PRODUCTS.
In the event of the occurrence of an * (as hereinafter defined) at any time up
to and through *, DJ Pharma's future payment obligations to Dura or Dura Bermuda
as of the * (as hereinafter defined) shall be adjusted as follows:
-11-
*Certain confidential portions of this Exhibit were omitted by means of marking
such portions with an asterisk (the "Mark"). This Exhibit has been filed with
the Secretary of the Commission without the Mark pursuant to the Company's
application requesting confidential treatment under Rule 24b-2 under the
Securities Exchange Act of 1934, as amended.
<PAGE>
(a) * EXCEED ADJUSTED NET SALES AMOUNT. In the event that the * (as
hereinafter defined) for a * (as hereinafter defined) or * (as hereinafter
defined), as the case may be, * by DJ Pharma of such * or * (the "Adjusted Net
Sales Amount") as of the *, then DJ Pharma (i) may * for the Products as of the
* and (ii) may * (as hereinafter defined) * (x) * (such * to be determined
assuming * of the *, as the case may be, for the * immediately preceding the *
to total * (the " * ") and (y) *.
(b) ADJUSTED NET SALES EXCEED *.
(i) DURING PERIOD COMMENCING AS OF THE CLOSING AND ENDING AS
OF *. In the event that at any time in the period commencing as of the Closing
and ending *, the Adjusted Net Sales Amount exceeds the *, then DJ Pharma's *
may be * (x) * (such * to be determined assuming * and (y) the *.
(ii) DURING PERIOD COMMENCING AS OF * AND ENDING AS OF *. In
the event that at any time in the period commencing * and ending *, the Adjusted
Net Sales Amount exceeds the *, then DJ Pharma's * shall be * (i) * (x) * (such
* to be determined assuming *) and (y) * (ii) the amount by which the *.
(c) ADJUSTMENT TO *. In addition to the adjustments set forth in
Sections 2.7 (a) and (b) hereof, the * (as hereinafter defined) will be * in
effect for the respective period * of the respective *, as the case may be, for
the * immediately preceding
-12-
*Certain confidential portions of this Exhibit were omitted by means of marking
such portions with an asterisk (the "Mark"). This Exhibit has been filed with
the Secretary of the Commission without the Mark pursuant to the Company's
application requesting confidential treatment under Rule 24b-2 under the
Securities Exchange Act of 1934, as amended.
<PAGE>
the * to total Net Sales of the Products for the * months immediately preceding
the *. Any * will * for any remaining period ratably based upon the * for such
period immediately prior to such reduction. In the event of an adjustment of
payments pursuant to this Section 2.7 *. In addition, *.
Attached as Exhibit H are examples of the calculations set forth in Sections 2.7
(a)-(c) above, based on select hypothetical scenarios.
For purposes of this Section 2.7 the " * " shall equal the * of (i) the result
of (a) the * (b) the total Net Sales of the Rondec Products and CCA Products for
the * (ii) the *.
For purposes of this Section 2.7 an " * " shall be deemed to have occurred at
such time as the *, or other * as a result of any such action by DJ Pharma, and
which (a) *, or (b) *, or (c) *. Any of the * impacted as set forth in
subsections (a)-(c) of this paragraph by the * are defined herein as the *.
For purposes of this Section 2.7 the " * " shall be, except as set forth herein,
the date upon which * of the occurrence of any or all of the foregoing events.
With respect to the * as set forth in subsection (a) of the foregoing paragraph,
the * shall be on the *.
For purposes of this Section 2.7 " * " shall * (i) the result of (a) * (b) *
-13-
*Certain confidential portions of this Exhibit were omitted by means of marking
such portions with an asterisk (the "Mark"). This Exhibit has been filed with
the Secretary of the Commission without the Mark pursuant to the Company's
application requesting confidential treatment under Rule 24b-2 under the
Securities Exchange Act of 1934, as amended.
<PAGE>
* (ii) * immediately follow *; in each case after giving effect to any previous
* pursuant to this Section 2.7 or Section 7.2(h).
3. CLOSING AND SECOND CLOSING
3.1 TIME AND PLACE OF THE CLOSING. The closing shall occur on January
25, 1999 (the "Closing"), and all such transactions shall be effective as of
8:00 a.m. pacific standard time on January 25, 1999.
3.2 ACTIONS TO BE TAKEN AT THE CLOSING. At the Closing, the following
actions shall be deemed to have occurred simultaneously and shall be effective
as of 8:00 a.m. pacific standard time on January 25, 1999:
(a) Except as otherwise indicated, at the Closing, Dura and
Dura Bermuda (where applicable) shall deliver to DJ Pharma the following:
(i) an executed original of this Agreement;
(ii) an executed original of the Dura Supply
Agreement;
(iii) executed originals of all investment documents
related to that certain DJ Pharma, Inc. * Agreement by and among DJ Pharma, the
* (as defined therein) and the * (as defined therein), dated January 25, 1998
(collectively, the "* Documents");
(iv) * pursuant to the * Agreement (as hereinafter
defined) in the amount of *;
(v) * by Dura and Dura Bermuda in connection with
Dura or Dura Bermuda's * pursuant to the DJ Pharma * Agreements; and
(vi) such other documents as may be required or
necessary to fully effectuate the transactions contemplated herein.
(b) At the Closing (except as otherwise indicated below), DJ
Pharma shall deliver to Dura and to Dura Bermuda (where applicable) the
following:
(i) an executed original of this Agreement;
(ii) an executed original of the Dura Supply
Agreement;
(iii) an executed original of the * and of the *,
which together with the * is collectively referred to herein as the *
-14-
*Certain confidential portions of this Exhibit were omitted by means of marking
such portions with an asterisk (the "Mark"). This Exhibit has been filed with
the Secretary of the Commission without the Mark pursuant to the Company's
application requesting confidential treatment under Rule 24b-2 under the
Securities Exchange Act of 1934, as amended.
<PAGE>
*, both of which are attached hereto as Exhibit F and incorporated herein by
this reference;
(iv) an executed original of the * attached hereto as
Exhibit G and incorporated herein by this reference;
(v) executed originals of the * Documents;
(vi) Certificate of Incorporation and By-Laws of DJ
Pharma certified as of the date of Closing;
(vii) full payment of fees to Dura (up to an amount
not to exceed * ) as set forth in Section 7A of that certain * Agreement by and
among DJ Pharma and the * (as defined therein), dated January 25, 1998 (the "*
Agreement"), as set forth on an estimated statement provided by Dura to DJ
Pharma as of the Closing. In connection with the foregoing, DJ Pharma
understands and agrees that such amount may be increased following final
computations by Dura of * and DJ Pharma agrees to pay such increased amount (up
to an aggregate amount of * under this Section 3.2 (b)(vii) promptly following
Dura's submission to DJ Pharma of such final computation; and
(viii) full payment of all outstanding obligations
due and payable pursuant to section 2.2 of the * Agreement by and between Dura
and DJ Pharma; and
(ix) such other documents as may be required or
necessary to fully effectuate the transactions contemplated herein.
(c) At the Closing, each party shall provide to the other
party copies, certified (as appropriate) by the Secretary, Assistant Secretary
or other appropriate officer of the party, of resolutions of the party's Board
of Directors authorizing the execution, delivery and performance of this
Agreement and all other agreements, documents and instruments relating hereto,
and the consummation of the transactions contemplated hereby.
(d) Effective as of the Closing the following documents and
all exhibits thereto shall be deemed terminated and of no further force and
effect:
(i) that certain * and the * between the parties
hereto, each dated October 1, 1998;
(ii) the * by and between DJ Pharma and Dura, dated
October 1, 1998;
(iii) the * by and between DJ Pharma and Dura, dated
July 28, 1998 and October 1, 1998 (the " * ");
(iv) the * by and between Dura and DJ Pharma and all
exhibits thereto;
-15-
*Certain confidential portions of this Exhibit were omitted by means of marking
such portions with an asterisk (the "Mark"). This Exhibit has been filed with
the Secretary of the Commission without the Mark pursuant to the Company's
application requesting confidential treatment under Rule 24b-2 under the
Securities Exchange Act of 1934, as amended.
<PAGE>
(v) the *, dated July 28, 1998, *;
(vi) the *, dated July 28, 1998, *;
(vii) the Assignment of the Abbott Purchase Agreement
and Abbott Supply Agreement; and
(viii) the * Agreement by and between Dura, Dura
Bermuda and DJ Pharma, dated December 31, 1998.
3.3 TIME AND PLACE OF THE SECOND CLOSING. The closing of the transfer
of the rights and obligations of Dura in and to the Rondec Products and CCA
Products and Dura and/or Dura Bermuda in and to the Keftab Products (the "Second
Closing") shall occur on * (or at such other date as may be mutually agreed upon
by the parties), and all such transactions shall be effective as of the close of
business on the date of the Second Closing.
3.4 ACTIONS TO BE TAKEN AT THE SECOND CLOSING. At the Second Closing,
the parties shall deliver to each other an executed original of an assignment of
the Abbott Purchase Agreement, the Abbott Supply Agreement, the Licensing
Agreement and the Manufacturing Agreement to be assigned in the form of the
Assignment and such other assignments or documents as may be required or
necessary to fully effectuate the transactions contemplated herein.
3.5 NOTIFICATION CONCERNING TRANSFER OF PRODUCTS AND RIGHTS. Promptly
after the Second Closing, DJ Pharma will, to the extent required by applicable
laws and regulations, notify customers of the Products that DJ Pharma has
purchased the Rondec Products, the CCA Products, and has licensed the Keftab
Rights.
3.6 CONDITIONS TO CLOSINGS.
(a) DJ PHARMA CONDITIONS TO CLOSINGS. The representations and
warranties of Dura and Dura Bermuda contained in this Agreement will in all
material respects be true as of the date of the Closing and the Second Closing
with the same effect as though made at the respective closing; and Dura and Dura
Bermuda will have delivered to DJ Pharma a certificate, dated as of the
respective closing thereof and signed by its President or a Vice President, to
such effect.
(b) DURA AND DURA BERMUDA CONDITIONS TO CLOSINGS. The
representations and warranties of DJ Pharma contained in this Agreement will in
all material respects be true as of the Closing and the Second Closing with the
same effect as though made at the respective closing; and DJ Pharma will have
delivered to Dura and Dura Bermuda a certificate, dated as of the respective
closing thereof and signed by its President or a Vice President, to such effect.
4. INDEMNIFICATION
4.1 INDEMNIFICATION.
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*Certain confidential portions of this Exhibit were omitted by means of marking
such portions with an asterisk (the "Mark"). This Exhibit has been filed with
the Secretary of the Commission without the Mark pursuant to the Company's
application requesting confidential treatment under Rule 24b-2 under the
Securities Exchange Act of 1934, as amended.
<PAGE>
(a) Dura and Dura Bermuda shall indemnify, defend and hold DJ
Pharma and its directors, officers, employees, agents and representatives
(collectively the "DJ Pharma Parties") harmless from and against any and all
costs, losses, claims, liabilities, fines, penalties, damages and expenses,
court costs, and reasonable fees and disbursements of counsel, consultants and
expert witnesses (including interest which may be imposed in connection with any
of the foregoing) (collectively, "Damages") incurred or suffered by the DJ
Pharma Parties excluding incidental or consequential damages suffered or
incurred by the DJ Pharma Parties directly (as opposed to incidental or
consequential Damages suffered or incurred by third parties who are, in turn,
seeking the same from the DJ Pharma Parties, which shall be covered by the
indemnity set forth herein) as a consequence of:
(i) any breach of any representation or warranty made
by Dura or Dura Bermuda in this Agreement, provided that notice of a claim based
upon any such breach is received by Dura or Dura Bermuda prior to the expiration
of such representation and warranty pursuant to Section 11.9;
(ii) any failure to perform duly and punctually any
covenant, agreement or undertaking on the part of Dura or Dura Bermuda contained
in this Agreement;
(iii) any material misrepresentation in or material
omission from any agreement, instrument or document delivered by Dura or Dura
Bermuda pursuant to the terms of this Agreement;
(iv) any activity conducted or liability incurred by
Dura or Dura Bermuda in respect to the marketing, sale, and distribution of the
Products prior to the Closing; provided, however, that such indemnity shall not
apply to the extent such liability results from any act or omission by DJ
Pharma, under that certain Co-Promotion Agreement between the parties hereto,
dated July 28, 1998, or otherwise; or
(v) any other liability of Dura not specifically
assumed by DJ Pharma pursuant to this Agreement.
(b) The DJ Pharma Parties shall indemnify, defend and hold
Dura and Dura Bermuda, and each of their respective directors, officers,
employees, agents and representatives (collectively the "Dura Parties") harmless
from and against any and all Damages incurred or suffered by the Dura Parties
(excluding incidental or consequential Damages suffered or incurred by Dura
directly (as opposed to incidental or consequential Damages suffered or incurred
by third parties who are, in turn, seeking the same from Dura, which shall be
covered by the indemnity set forth herein) as a consequence of:
(i) any breach of any representation or warranty made
by DJ Pharma in this Agreement, provided that notice of a claim based upon any
such breach is received by DJ Pharma prior to the expiration of such
representation and warranty pursuant to Section 11.9;
(ii) any failure to perform duly and punctually any
covenant, agreement or undertaking on the part of DJ Pharma contained in this
Agreement;
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<PAGE>
(iii) any material misrepresentation in or material
omission from any agreement, instrument or document delivered by DJ Pharma
pursuant to the terms of this Agreement; or
(iv) any and all liabilities and obligations relating
to the CCA Products, the Rondec Products and the Keftab Products or Rights which
are hereby expressly assumed by DJ Pharma as set forth in Section 8.3 hereof.
4.2 NOTICE AND OPPORTUNITY TO DEFEND. Promptly after receipt by a party
hereto of notice of any claim which could give rise to a right to
indemnification pursuant to Section 4.1, such party (the "Indemnified Party")
shall give the other party (the "Indemnifying Party") written notice describing
the claim in reasonable detail. The failure of an Indemnified Party to give
notice in the manner provided herein shall not relieve the Indemnifying Party of
its obligations under this Section , except to the extent that such failure to
give notice materially prejudices the Indemnifying Party's ability to defend
such claim. The Indemnifying Party shall have the right, at its option, to
compromise or defend, at its own expense and by its own counsel, any such matter
involving the asserted liability of the party seeking such indemnification. If
the Indemnifying Party shall undertake to compromise or defend any such asserted
liability, it shall promptly (and in any event not less than ten (10) days after
receipt of the Indemnified Party's original notice) notify the Indemnified Party
in writing of its intention to do so, and the Indemnified Party agrees to
cooperate fully with the Indemnifying Party and its counsel in the compromise or
defense against any such asserted liability. All reasonable costs and expenses
incurred in connection with such cooperation shall be borne by the Indemnifying
Party. If the Indemnifying Party elects not to compromise or defend the asserted
liability, fails to notify the Indemnified Party of its election to compromise
or defend as herein provided, fails to admit its obligation to indemnify under
this Agreement with respect to the claim, or, if in the reasonable opinion of
the Indemnified Party, the claim could result in the Indemnified Party becoming
subject to injunctive relief or relief other than the payment of money damages
that could materially adversely affect the ongoing business of the Indemnified
Party in any manner, the Indemnified Party shall have the right, at its option,
to pay, compromise or defend such asserted liability by its own counsel and its
reasonable costs and expenses shall be included as part of the indemnification
obligation of the Indemnifying Party hereunder. Notwithstanding the foregoing,
neither the Indemnifying Party nor the Indemnified Party may settle or
compromise any claim over the objection of the other; provided, however, that
consent to settlement or compromise shall not be unreasonably withheld. In any
event, the Indemnified Party and the Indemnifying Party may participate, at
their own expense, in the defense of such asserted liability. If the
Indemnifying Party chooses to defend any claim, the Indemnified Party shall make
available to the Indemnifying Party any books, records or other documents within
its control that are necessary or appropriate for such defense. Notwithstanding
anything to the contrary in this Section 4.2, the party conducting the defense
of a claim shall (a) keep the other party informed on a reasonable and timely
basis as to the status of the defense of such claim (but only to the extent such
other party is not participating jointly in the defense of such claim), and (b)
conduct the defense of such claim in a prudent manner, and the Indemnifying
Party shall not cease to defend, settle or otherwise dispose of any claim
without the prior written consent of the Indemnified Party (which consent shall
not be unreasonably withheld).
-18-
<PAGE>
4.3 INDEMNIFICATION PAYMENT OBLIGATION. No Indemnifying Party will have
any obligations under Sections 4.l(a) or 4.1(b) until the cumulative aggregate
amount of Damages incurred or suffered by the Indemnified Party which the
Indemnifying Party is otherwise subject to under this Agreement exceeds * at
which time the entire cumulative aggregate amount of such Damages shall be
covered. The provisions of this Section 4.3 shall not limit or otherwise affect
the obligations of any Indemnifying Party under any other Section of this
Agreement.
4.4 INDEMNIFICATION PAYMENT; ADJUSTMENTS. The amount of any Damages for
which indemnification is provided under this Section 4 shall be reduced to take
account of any net tax benefit and shall be increased to take account of any net
tax detriment arising from the incurrence or payment of any such Damages or from
the receipt of any such indemnification payment and shall be reduced by the
insurance proceeds received and any other amount recovered, if any, by the
Indemnified Party with respect to any Damages; provided, however, that an
Indemnified Party shall not be subject to an obligation to pursue an insurance
claim relating to any Damages for which indemnification is sought hereunder if
pursuing such claim is reasonably likely to result in increased premiums or
materially and adversely affect a party's insurability. If any Indemnified Party
shall have received any payment pursuant to this Section 4 with respect to any
Damages and shall subsequently have received insurance proceeds or other amounts
with respect to such Damages, then such Indemnified Party shall pay to the
Indemnifying Party an amount equal to the difference (if any) between (i) the
sum of the amount of those insurance proceeds or other amounts received and the
amount of the payment by such Indemnifying Party pursuant to this Section 4 with
respect to such Damages and (ii) the amount necessary to fully and completely
indemnify and hold harmless such Indemnified Party from and against such
Damages; provided, however, in no event will such Indemnified Party have any
obligation pursuant to this sentence to pay to such Indemnifying Party an amount
greater than the amount of the payment by such Indemnifying Party pursuant to
this Section 4 with respect to such Damages.
4.5 INDEMNIFICATION PAYMENT. Upon the final determination of liability
and the amount of the indemnification payment under this Section 4, the
appropriate party shall pay to the other, as the case may be, within ten (10)
business days after such determination, the amount of any claim for
indemnification made hereunder.
4.6 INSURANCE. DJ Pharma shall obtain and maintain at all times during
the term of this Agreement, Commercial General Liability Insurance, including
Products Liability Insurance, with reputable and financially secure insurance
carriers to cover its indemnification obligations under this Section 4, with
limits of not less than * per occurrence and in the aggregate for general
liability insurance and * per occurrence and in the aggregate for products
liability insurance. DJ Pharma shall provide Dura with a Certificate of
Insurance evidencing this coverage within fifteen (15) days after the Closing.
Such products liability insurance policy shall name Dura as an additional
insured and DJ Pharma shall use its commercially reasonable efforts to ensure
that such insurance policy contains a provision requiring thirty (30) day
advance notice to Dura in the event of its cancellation or termination. During
the Licensing Period, Dura and Dura Bermuda shall each maintain insurance with
third parties sufficient to cover its obligations under Section 4.
5. DISPUTE RESOLUTION
-19-
*Certain confidential portions of this Exhibit were omitted by means of marking
such portions with an asterisk (the "Mark"). This Exhibit has been filed with
the Secretary of the Commission without the Mark pursuant to the Company's
application requesting confidential treatment under Rule 24b-2 under the
Securities Exchange Act of 1934, as amended.
<PAGE>
5.1 GOOD FAITH DISCUSSION; ADR PROCESS. Except as set forth in Section
10, the parties shall attempt to resolve through good faith discussions any
dispute which arises under this Agreement. If they are unable to resolve the
dispute within thirty (30) calendar days after delivery of written notice of the
dispute from one party to the other, either party may seek to resolve it by
initiating an Alternative Dispute Resolution Arbitration ("ADR") in which the
American Arbitration Association (the "AAA") shall select the neutral
("Neutral") as provided herein. Notwithstanding the foregoing, the parties
hereto may seek legal channels other than ADR to the extent necessary to enforce
the terms of Section 10 herein. The ADR shall be conducted in accordance with
the Commercial Arbitration Rules of the AAA, except as otherwise provided below.
5.2 ADR ISSUES: SELECTION OF NEUTRAL. An ADR shall be initiated by a
party by sending written notice thereof to the other party and the AAA, which
notice shall state the issues to be resolved. Within ten (10) business days
after receipt of such notice, the other party may, by sending written notice to
the initiating party and the AAA, add issues to be resolved. Within twenty (20)
business days after the date of the original ADR notice, the AAA shall nominate
to the parties at least five (5) qualified nominees from the AAA's Panel of
distinguished Neutrals. The parties shall have five (5) business days after the
receipt of such nominations to agree on a Neutral or, failing to agree, to
rank-order their preferences with the most preferred being given the lowest
number, and mail the rank-order to the AAA. The AAA shall notify the parties of
their selection. If all nominees are unacceptable to a party, the procedure
shall be repeated and, if the parties cannot select a neutral the second time,
the AAA shall select the Neutral.
5.3 NEUTRAL WITH SPECIAL EXPERTISE. In the event of a dispute between
the parties relating to the calculation of any commissions or the amount of
other consideration payable under this Agreement (including, without limitation,
the results of any audit conducted on behalf of a party pursuant to this
Agreement), then, in addition to the procedure set forth in Section 5.2 above,
the Neutral shall be a partner or full member of an internationally recognized
certified public accounting firm which is not an auditing firm for either party
and has not provided material services to either party during the last two (2)
year period prior to the date of ADR initiation.
5.4 ADR HEARING. The Neutral shall hold a hearing to resolve the issues
within one hundred twenty (120) business days after selection in San Diego,
California. Each party may be represented by counsel. Prior to the hearing the
parties shall be entitled to engage in discovery under procedures of the Federal
Rules of Civil Procedure; PROVIDED, HOWEVER, that a party may not submit more
than fifty (50) written interrogatories or take more than four (4) depositions.
There shall not be any, and the Neutral shall not permit, any discovery within
thirty (30) days of the hearing. The Neutral shall have sole discretion
regarding the admissibility of evidence and conduct of the hearing. At least
five (5) business days prior to the hearing, each party shall submit to the
other party and the Neutral a copy of all exhibits on which such party intends
to rely at the hearing, a pre-hearing brief (up to 5 pages), and a proposed
disposition of the dispute (up to 5 pages). The proposed disposition shall be
limited to proposed rulings and remedies on each issue, and shall contain no
argument on or analysis of the facts or issues; PROVIDED, however, that the
parties will not present proposed monetary remedies. Within five (5) business
-20-
<PAGE>
days after close of the hearing, each party may submit a post-hearing brief (up
to 5 pages) to the Neutral.
5.5 ADR RULING; FEES AND EXPENSES. The Neutral shall render a
disposition on the proposed rulings as expeditiously as possible after the
hearing, but not later than fifteen (15) business days after the conclusion of
the hearing. The Neutral shall rule on each issue and shall adopt in its
entirety the proposed ruling of one of the parties on each issue. In the
circumstance where the Neutral rules for a party on a claim in the form of a
claim for monetary damages, the parties will then submit a proposed remedy
within ten (10) days of notice of the ruling. The proposed remedy may be
accompanied by a brief in support of the remedy not to exceed five (5) pages.
The Neutral will rule on and adopt one of the proposed remedies within ten (10)
days of their submission. The Neutral's disposition shall be final and not
appealable, except that either party shall have the right to appeal such
disposition on the basis it was affected by fraud or bad faith in connection
with the ADR proceedings. A judgement on the Neutral's disposition may be
entered in any court having jurisdiction over the parties. The prevailing party
shall be entitled to recover from the non-prevailing party the reasonable fees
and expenses of the Neutral, as well as the standard charges of the AAA for its
assistance.
6. TERMINATION OF AGREEMENT
6.1 TERMINATION FOR CAUSE - BOTH PARTIES. Notwithstanding anything to
the contrary in this Agreement, this Agreement may be terminated prior to the
Second Closing by written notice at any time prior to the Second Closing:
(a) by Dura or Dura Bermuda for material breach by DJ Pharma
or by DJ Pharma for material breach by Dura or Dura Bermuda, which breach
remains uncured for thirty (30) days in the case of nonpayment of any amount due
and unless otherwise set forth herein, ninety (90) days for all other breaches,
each measured from the date written notice of such breach is given to the
breaching party or, if such breach is not susceptible of cure within such ninety
(90) day period and the breaching party uses diligent good faith efforts to cure
such breach, for one hundred eighty (180) days after written notice to the
breaching party. Notwithstanding the foregoing, in the event of a payment
default by DJ Pharma as a result of * (as hereinafter defined) at any one time
during the term of this Agreement, DJ Pharma shall be afforded the opportunity
to cure such payment default (as well as any other payment default occurring
within 150 days thereafter) for a period of one hundred fifty (150) days
following written notice by Dura to DJ Pharma of the initial payment breach,
provided that the following conditions have been met:
(i) DJ Pharma has not previously breached any payment
requirements under this Agreement;
(ii) During such 150 day cure period DJ Pharma uses
diligent good faith efforts to cure such breach;
(iii) any nonpayment breaches or events warranting
termination under this Agreement which occur during such 150 day cure period
shall be cured by the expiration of such 150 day cure period (or earlier if the
applicable cure period described in this Section 6 expires earlier than the 150
day cure period);
-21-
*Certain confidential portions of this Exhibit were omitted by means of marking
such portions with an asterisk (the "Mark"). This Exhibit has been filed with
the Secretary of the Commission without the Mark pursuant to the Company's
application requesting confidential treatment under Rule 24b-2 under the
Securities Exchange Act of 1934, as amended.
<PAGE>
(iv) During such 150 day cure period DJ Pharma does
not * ;
(v) *; and
(vi) upon termination of such cure period, DJ Pharma
agrees to pay Dura all outstanding amounts due plus interest accrued as of the
date the amounts became overdue at a rate equal to the Prime Rate in effect at
the time of default (as published by the Wall Street Journal) plus six percent
(6%) per annum (or the highest amount allowed by law, if such lawful amount is
lower than the foregoing).
(b) by Dura or Dura Bermuda or by DJ Pharma immediately upon
the filing or institution of bankruptcy, reorganization, liquidation or
receivership proceedings, or upon an assignment of a substantial portion of the
assets for the benefit of creditors by the other party, or in the event a
receiver or custodian is appointed for such party's business, or if a
substantial portion of such party's business is subject to attachment or similar
process; provided, however, in the case of any involuntary bankruptcy proceeding
such right to terminate shall only become effective if the proceedings are not
dismissed within ninety (90) days after the filing thereof.
6.2 TERMINATION FOR CAUSE - DURA AND DURA BERMUDA. Prior to Dura's
transfer to DJ Pharma of the Rondec Purchased Assets and the CCA Purchased
Assets and Dura and/or Dura Bermuda's assignment, as the case may be, of the
Keftab Rights, this Agreement may be terminated by Dura and Dura Bermuda, at
their option and discretion, if the Dura Supply Agreement is terminated prior to
its natural expiration due to a material, uncured breach by DJ Pharma.
6.3 TERMINATION FOR CAUSE - DJ PHARMA. Prior to Dura's transfer to DJ
Pharma of the Rondec Purchased Assets and the CCA Purchased Assets and Dura
and/or Dura Bermuda's assignment of the Keftab Rights, as the case may be, this
Agreement may be terminated by DJ Pharma, at its option and discretion, if the
Dura Supply Agreement is terminated prior to its natural expiration due to a
material, uncured breach by Dura or Dura Bermuda. Notwithstanding the foregoing,
DJ Pharma understands and agrees that while Dura shall use commercially
reasonable efforts to supply Products to DJ Pharma, Dura cannot guarantee
supplies from third party manufacturers and that any failure of third party
manufacturers to supply Products to or on behalf of DJ Pharma shall in no event
result in a right of termination of this Agreement by DJ Pharma.
6.4 EFFECT OF TERMINATION.
(a) In the event of termination by Dura or Dura Bermuda, DJ
Pharma shall return all Dura documents in its possession within fourteen (14)
days of any such termination.
(b) In the event of termination by DJ Pharma as a result of a
material breach by Dura or Dura Bermuda, DJ Pharma shall have any and all
remedies available at law or equity.
-22-
*Certain confidential portions of this Exhibit were omitted by means of marking
such portions with an asterisk (the "Mark"). This Exhibit has been filed with
the Secretary of the Commission without the Mark pursuant to the Company's
application requesting confidential treatment under Rule 24b-2 under the
Securities Exchange Act of 1934, as amended.
<PAGE>
(c) In the event of termination by Dura or Dura Bermuda as a
result of a material breach by DJ Pharma prior to the expiration of the
Licensing Term, Dura may at its option terminate the purchase and license rights
set forth in Section 1 hereof with respect to the Products. In the event of
termination by Dura or Dura Bermuda at any time as a result of material breach
by DJ Pharma, Dura or Dura Bermuda shall in addition to the remedies set forth
in this Section 6.4(c) have any and all remedies available at law or equity;
Notwithstanding the foregoing in the event Dura terminates the purchase and
license rights with respect to the Products following DJ Pharma's failure to
cure a payment default within the 150 day cure period following such default *
as of the * pursuant to Section 2 hereof * (x) the amount of * and (y) *.
(d) Expiration or termination of this Agreement shall not
relieve the parties of any obligation accruing prior to such expiration or
termination.
7. REPRESENTATIONS, WARRANTIES AND COVENANTS
7.1 REPRESENTATIONS, WARRANTIES AND COVENANTS OF DURA WITH RESPECT TO
THE CCA PRODUCTS AND THE RONDEC PRODUCTS. As of the date of this Agreement and
as of the Second Closing, Dura hereby represents, warrants and covenants to DJ
Pharma the following, all with respect to the CCA Products in the CCA Territory
and the Rondec Products in the Rondec Territory (collectively, the "CCA/Rondec
Products") only:
(a) AUTHORITY. Dura has the necessary corporate power and
authority to enter into and deliver this Agreement and to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby by Dura have been duly authorized by Dura. This
Agreement constitutes the legal, valid and binding obligation of Dura,
enforceable in accordance with its terms (except as such enforcement may be
limited by applicable bankruptcy, insolvency, moratorium, or similar laws
affecting the rights of creditors generally or by general principles of equity).
Neither the execution, delivery or performance of this Agreement by Dura, nor
the consummation of the transactions contemplated hereby nor compliance by Dura
with the terms and provisions of this Agreement will result in a violation or
breach of any term or provision of Dura's Certificate of Incorporation or
By-laws, or of any statute, rule or regulation applicable to Dura, nor conflict
with or constitute a default under any agreement to which Dura is a party or to
which its assets are subject, or any instrument, judgment, decree, writ, or
other restriction to which Dura is a party or by which its assets are bound.
(b) TITLE TO ASSETS, LIENS AND ENCUMBRANCES. Except as set
forth in Schedule 7.1(b) hereof, Dura has good title to the CCA/Rondec Products
and the inventory of Rondec Products and CCA Products and any inventions,
know-how, trade secrets, intellectual property rights and technology necessary
to transfer, assign and deliver the Rondec Purchased Assets and CCA Purchased
Assets and has the right to grant the rights in connection with the CCA/Rondec
Products to DJ Pharma as set forth herein, free and clear of all security
interests, liens, claims, restrictions, royalty obligations and encumbrances
whatsoever other than any of the
-23-
*Certain confidential portions of this Exhibit were omitted by means of marking
such portions with an asterisk (the "Mark"). This Exhibit has been filed with
the Secretary of the Commission without the Mark pursuant to the Company's
application requesting confidential treatment under Rule 24b-2 under the
Securities Exchange Act of 1934, as amended.
<PAGE>
foregoing which will not interfere with DJ Pharma's rights to manufacture or
have manufactured, distribute, offer for sale, market and sell the CCA/Rondec
Products. Such rights licensed, assigned, transferred or delivered to DJ Pharma
represent all of the rights which Dura owns or has with respect to the
CCA/Rondec Products and constitute all of the rights necessary for DJ Pharma to
market, distribute, offer for sale, promote and sell each of the CCA/Rondec
Products (and manufacture the Rondec Products and CCA Products). Dura is the
non-exclusive licensee of the Rondec Patent in the Rondec Territory and has
exclusive rights to the U.S. trademarks RONDEC-Registered Trademark- and
RONDEC-TR-Registered Trademark- for medicine and pharmaceutical preparations in
the Rondec Territory. No other unrelated party has been granted a license or
other permission to use the trademarks RONDEC-Registered Trademark- and
RONDEC-TR-Registered Trademark- in the Rondec Territory for medicine and
pharmaceutical preparations, and upon the Closing, with the exception of the
supply and manufacture of the Rondec Products under the Abbott Supply Agreement,
DJ Pharma will have the sole right to use the trademarks RONDEC-Registered
Trademark- and RONDEC-TR-Registered Trademark- in the Rondec Territory for
medicine and pharmaceutical preparations. Dura is the sole owner of the CCA
Trademarks. No other party has been granted a license or other permission to use
the CCA Trademarks, and upon the Closing, with the exception of the supply and
manufacture of the CCA Products under the Dura Supply Agreement, DJ Pharma will
have the sole right to use the CCA Trademarks.
(c) CLAIMS; LITIGATION. Dura is not aware of any claim, suit,
action, arbitration, governmental investigation or other proceeding, nor any
order, decree or judgment pending or in effect, or threatened by, against or
relating to the CCA/Rondec Products, the CCA Trademarks, the Rondec Patent or
the trademark Rondec which if determined adversely would have an adverse effect
on DJ Pharma's rights to manufacture or have manufactured, market, distribute,
offer for sale and sell the CCA/Rondec Products.
(d) COMPLIANCE WITH LAWS. Dura is currently in compliance with
all laws, ordinances, treaties and governmental rules, orders and regulations
applicable to it with respect to the CCA/Rondec Products, the CCA Trademarks and
the trademarks RONDEC-Registered Trademark- and RONDEC-TR-Registered Trademark-.
(e) INTELLECTUAL PROPERTY. Exhibit D hereof sets forth a true
and correct list of all material patents, trademarks, service marks, trade
names, copyrights and applications for registration and registrations thereof,
owned or licensed by Dura, and used with respect to the CCA/Rondec Products
(collectively, the "Intellectual Property"). Other than the Intellectual
Property, to the best of Dura's knowledge, there are no patents, trademarks,
service marks, trade names, copyrights, applications for registration or
registrations thereof necessary for manufacture, marketing or sale of CCA
Products or the Rondec Products as currently manufactured, marketed and sold by
Dura. Dura has good and marketable title to, or other legal right to use, the
Intellectual Property, free and clear of any license, royalty arrangement, lien,
claim or encumbrance of any nature whatsoever other than any of the foregoing
which will not interfere with DJ Pharma's rights to manufacture, distribute,
offer for sale, market and sell the CCA/Rondec Products.
(f) CONTRACTS. Schedule 7.1(f) sets forth a true and complete
list of the entities with whom Dura has contracts as of the Closing relating to
the CCA/Rondec Products, and copies of such contracts or relevant portions of
contracts have been made or will be made available to DJ Pharma for inspection
prior to the Closing. Such contracts constitute the only written contracts,
arrangements, commitments and agreements, currently in force and used by
-24-
<PAGE>
Dura with respect to the manufacture, marketing, distribution, offering for sale
or sale of the Products in the applicable territories. Such contracts are valid
and binding, enforceable by or against Dura in accordance with their respective
terms and are in full force and effect. Neither Dura nor, to Dura's best
knowledge, any other party thereto, is in breach of any provision of or in
default under any term of any such contract, and there exists no condition or
event which after lapse of time or notice (or both) would constitute any such
breach or default or result in any right to accelerate or any loss of rights.
(g) [Intentionally Omitted.]
(h) COMPLIANCE WITH CONTRACT OBLIGATIONS. Dura is in
compliance and shall at all times remain in compliance with any and all contract
obligations with DJ Pharma, including without limitation, under this Agreement,
the ongoing covenants and representations herein, any outstanding notes or
contracts currently or hereinafter in effect and with other parties to the
extent related to the subject matter hereof, including, without limitation,
obligations under the Abbott Purchase Agreement or the Abbott Supply Agreement
which are not expressly assumed by DJ Pharma. In the event of a breach of
payment terms by Dura under the Abbott Purchase Agreement or the Abbott Supply
Agreement which results in DJ Pharma's inability to acquire, market and sell the
Rondec Products as contemplated herein, DJ Pharma shall have the right to cure
such breach by making such payment and offsetting it against an equal amount of
Net Royalty Payments for the Products not yet due by DJ Pharma to Dura or under
the Subordinated Product Acquisition Notes.
(i) ACCESS TO BOOKS AND RECORDS. Subsequent to the Second
Closing (for the Rondec Products and CCA Products), each party agrees that they
will grant to each other and each other's agents reasonable access during normal
business hours upon reasonable notice to any books and records then in their
possession or in the possession of their respective affiliates to the extent of
information contained in such books or records that relates to Dura's operation
of the Rondec Purchased Assets and the CCA Purchased Assets prior to the Second
Closing, and is shown to be needed for tax, operations, regulatory or accounting
purposes.
7.2 REPRESENTATIONS, WARRANTIES AND COVENANTS OF DURA BERMUDA WITH
RESPECT TO THE KEFTAB PRODUCTS. As of the date of this Agreement and as of the
Second Closing, Dura and Dura Bermuda hereby represent, warrant and covenant to
DJ Pharma the following, all with respect to the Keftab Products in the Keftab
Territory only:
(a) AUTHORITY. Dura Bermuda has the necessary corporate power
and authority to enter into and deliver this Agreement and to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby by Dura Bermuda have been duly authorized by
Dura Bermuda. This Agreement constitutes the legal, valid and binding obligation
of Dura Bermuda, enforceable in accordance with its terms (except as such
enforcement may be limited by applicable bankruptcy, insolvency, moratorium, or
similar laws affecting the rights of creditors generally or by general
principles of equity). Neither the execution, delivery or performance of this
Agreement by Dura Bermuda, nor the consummation of the transactions contemplated
hereby nor compliance by Dura Bermuda with the terms and provisions of this
Agreement will result in a violation or breach of any term or provision of Dura
Bermuda's Certificate of Incorporation and Memorandum of Association of Company
Limited
-25-
<PAGE>
by Shares or Bye-laws, or of any statute, rule or regulation applicable to Dura
Bermuda, nor conflict with or constitute a default under any agreement to which
Dura Bermuda is a party or to which its assets are subject, or any instrument,
judgment, decree, writ, or other restriction to which Dura Bermuda is a party or
by which its assets are bound.
(b) TITLE TO ASSETS, LIENS AND ENCUMBRANCES. Except as set
forth in Schedule 7.2(b) hereof, Dura Bermuda has good title to the Keftab
Products and any inventions, know-how, trade secrets, intellectual property
rights and technology necessary to assign, transfer and deliver the Keftab
Rights, and Dura Bermuda has the right to grant the rights to the Keftab
Products to DJ Pharma as set forth herein, free and clear of all security
interests, liens, claims, restrictions, royalty obligations and encumbrances
whatsoever other than any of the foregoing which will not interfere with DJ
Pharma's rights to manufacture or have manufactured, market, distribute, offer
for sale and sell the Keftab Products. In connection with Dura's security
interest with respect to the Keftab Products pursuant to the terms of the Dura
Bermuda Security Agreement (as defined in Schedule 7.2(b) hereof), Dura hereby
covenants that should Dura exercise its rights at any time during the Licensing
Period with respect to its security interest in the Keftab Products under the
Dura Bermuda Security Agreement, Dura shall assume all of Dura Bermuda's
obligations to DJ Pharma with respect to the Keftab Products under this
Agreement. Notwithstanding the foregoing, Dura hereby covenants that should the
Keftab Rights be transferred to DJ Pharma pursant to Section 1.4 hereof, and if
as of such time Dura has not exercised its rights under the Dura Bermuda
Security Agreement with respect to the Keftab Products, Dura shall as of the
Second Closing release its security interest under the Dura Bermuda Security
Agreement with respect to the Keftab Products. Such rights licensed, assigned,
delivered or transferred to DJ Pharma under this Agreement and the Assignment
(at Second Closing) represent all of the rights which Dura Bermuda owns or has
with respect to the Keftab Products and constitute all of the rights necessary
for DJ Pharma to market, promote, distribute, offer for sale, and sell each of
the Keftab Products. Dura Bermuda has the right to grant the rights to the
Keftab Rights under the Assignment (by Second Closing) and to the Keftab
Trademark and as set forth under the Licensing Agreement.
(c) CLAIMS; LITIGATION. Neither Dura nor Dura Bermuda is aware
of any claim, suit, action, arbitration, governmental investigation or other
proceeding, nor any order, decree or judgment pending or in effect, or
threatened by, against or relating to the Keftab Products or the Keftab
Trademark in the Keftab Territory, which if determined adversely would have an
adverse effect on DJ Pharma's rights to manufacture or have manufactured, market
and sell the Keftab Products.
(d) COMPLIANCE WITH LAWS. Dura Bermuda is currently in
compliance with all material laws, ordinances, treaties and governmental rules,
orders and regulations applicable to it with respect to the Keftab Products and
the Keftab Trademark.
(e) INTELLECTUAL PROPERTY. Exhibit D hereof sets forth a true
and correct list of all material patents, trademarks, service marks, trade
names, copyrights and applications for registration and registrations thereof,
owned or licensed by Dura Bermuda subject to the terms of the License Agreement,
and used with respect to the Keftab Products in the Keftab Territory
(collectively, the "Keftab Intellectual Property"). Other than the Keftab
Intellectual Property, to the best of Dura Bermuda's knowledge, there are no
material patents, trademarks, service marks, trade names, copyrights,
applications for registration or registrations thereof necessary for
-26-
<PAGE>
manufacture, marketing or sale of the Keftab Products as currently manufactured,
marketed and sold by Dura Bermuda. Dura Bermuda has good and marketable title
to, or other legal right to use, the Keftab Intellectual Property, free and
clear of any license, royalty arrangement, lien, claim or encumbrance of any
nature whatsoever other than any of the foregoing which will not interfere with
DJ Pharma's rights to manufacture, market, distribute, offer for sale and sell
the Keftab Products.
(f) CONTRACTS. Schedule 7.2(f) sets forth a true and complete
list of the entities with whom Dura Bermuda has contracts as of Closing relating
to the Keftab Products, and copies of such contracts or relevant portions of
contracts have been made or will be made available to DJ Pharma for inspection
prior to the Closing. Such contracts constitute the only written contracts,
arrangements, commitments and agreements, currently in force and used by Dura
Bermuda with respect to the manufacture, marketing, distribution, offering for
sale, or sale of the Keftab Products in the Keftab Territory. Such contracts are
valid and binding, enforceable by or against Dura Bermuda in accordance with
their respective terms and are in full force and effect. Neither Dura Bermuda
nor, to Dura Bermuda's best knowledge, any other party thereto, is in breach of
any provision of or in default under any term of any such contract, and there
exists no condition or event which after lapse of time or notice (or both) would
constitute any such breach or default or result in any right to accelerate or
any loss of rights.
(g) INVENTORY. [Intentionally Omitted.]
(h) COMPLIANCE WITH LICENSING AGREEMENT. Dura Bermuda shall
comply from and after the Closing and through the Second Closing in all respects
with the terms and conditions of the Licensing Agreement and the Manufacturing
Agreement. In the event * (x) *, respectively, and which is *, results in * or
(y) Dura or Dura Bermuda receive during the Licensing Period any * and are * as
a result of a * pursuant to Section 2.1 hereof will be * (Net Sales of Rondec
Products and CCA Products for the * contemplated by this Section 7.2(h) *
pursuant to this Section 7.2(h) *. Any * will * for such period immediately
prior to *. In addition, DJ Pharma's payment obligations to Dura or Dura Bermuda
* with respect to the Products may be *, with such * applying during the
Licensing Period * and upon termination of the Licensing Term *
-27-
*Certain confidential portions of this Exhibit were omitted by means of marking
such portions with an asterisk (the "Mark"). This Exhibit has been filed with
the Secretary of the Commission without the Mark pursuant to the Company's
application requesting confidential treatment under Rule 24b-2 under the
Securities Exchange Act of 1934, as amended.
<PAGE>
*. For purposes of applying the foregoing reduction only, * shall be
recalculated as if the *. The foregoing adjustments shall not in any way impact
or lessen any other obligations of DJ Pharma to Dura including, without
limitation, continuing obligations under the Dura Supply Agreement *. Further
upon any adjustments pursuant to this Section 7.2(h), the right, title and
interest to the Keftab Products or Keftab Rights shall immediately vest in Dura
or Dura Bermuda and DJ Pharma shall have no further right, title or interest
with respect to such Keftab Products or Keftab Rights. In addition all
documentation and materials related to the Keftab Products and Keftab Rights
shall be immediately returned by DJ Pharma to Dura Bermuda.
For purposes of this Section 7.2(h) " * " shall equal the * (i) the result of
(a) * including the * (b) * including * (ii) * remaining in the Licensing Period
which immediately follow * which includes the *; in each case after giving
effect to any previous adjustment in *.
(i) COMPLIANCE WITH DJ PHARMA CONTRACT OBLIGATIONS. Dura
Bermuda is in compliance and shall at all times remain in compliance with any
and all contract obligations with DJ Pharma, including without limitation, under
this Agreement, the ongoing covenants and representations herein, any
outstanding notes or contracts currently or hereinafter in effect.
(j) ACCESS TO BOOKS AND RECORDS. Subsequent to the Second
Closing, each party agrees that they will grant to each other and each other's
agents reasonable access during normal business hours upon reasonable notice to
any books and records then in their possession or in the possession of their
respective affiliates to the extent of information contained in such books or
records that related to Dura's or Dura Bermuda's operation of the Keftab Rights
or the Keftab Products prior to the Second Closing, respectively and is shown to
be needed for tax, operations, regulatory or accounting purposes.
8. REPRESENTATIONS, WARRANTIES AND COVENANTS OF DJ PHARMA. As of the date of
this Agreement and as of the Closing, DJ Pharma hereby represents, warrants and
covenants to Dura as follows:
8.1 AUTHORITY. DJ Pharma has the necessary corporate power and
authority to enter into and deliver this Agreement and to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby by DJ Pharma has been duly authorized by DJ
Pharma. This Agreement constitutes the legal, valid and binding obligation of DJ
Pharma, enforceable in accordance with its terms (except as such enforcement may
be limited by applicable bankruptcy, insolvency, moratorium or similar laws
affecting the rights of creditors generally or by general principles of equity).
Neither the execution, delivery or performance of this Agreement by DJ Pharma,
nor the consummation of the transactions contemplated hereby nor compliance by
DJ Pharma with the terms and provisions of this Agreement will result in a
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*Certain confidential portions of this Exhibit were omitted by means of marking
such portions with an asterisk (the "Mark"). This Exhibit has been filed with
the Secretary of the Commission without the Mark pursuant to the Company's
application requesting confidential treatment under Rule 24b-2 under the
Securities Exchange Act of 1934, as amended.
<PAGE>
violation or breach of any term or provision of DJ Pharma's Certificate of
Incorporation or by-laws, or of any statute, rule or regulation applicable to DJ
Pharma, nor conflict with or constitute a default under any agreement to which
DJ Pharma is a party or to which its asserts are subject, or any instrument,
judgment, decree, writ, or other restriction to which DJ Pharma is a party or by
which its assets are bound.
8.2 COMPLIANCE WITH LAWS. DJ Pharma is in compliance with all
governmental laws, rules and regulations applicable to its business and it shall
at all times comply with all applicable laws regulating its activities under
this Agreement.
8.3 ASSUMPTION OF LIABILITIES AND OBLIGATIONS; COMPLIANCE WITH DURA
CONTRACT OBLIGATIONS. Except as set forth herein, DJ Pharma hereby expressly
assumes all Assumed Liabilities (as defined in the Licensing Agreement) and any
and all other liabilities and obligations relating to the Products, including
without limitation all such liabilities and obligations with respect to the
Products as set forth under the Abbott Purchase Agreement, the Abbott Supply
Agreement, the Licensing Agreement and the Manufacturing Agreement
(collectively, the "Product Agreements"). In this regard, DJ Pharma hereby
assumes and agrees to bear and be responsible for and to perform and satisfy all
responsibilities, duties (including, without limitation, compliance with all
applicable laws and regulations), obligations, claims, Damages, liabilities,
burdens and problems of any nature whatsoever (collectively, the "Obligations")
associated directly or indirectly with DJ Pharma's ownership, Activities or
other use of the Products, from and after the Closing, including, without
limitation, all recalls, rebates, returns, reimbursements, chargebacks, minimum
purchase requirements under the Manufacturing Agreement or Abbott Supply
Agreement, all warranty claims and all product liability claims (without regard
to the nature of the causes of action alleged or theories of recovery asserted)
arising in connection with any of the Products sold or Keftab Rights exercised
on or after the Closing, except for those Obligations, Activities or Damages
with respect to which Dura is providing indemnification pursuant to the
provisions of Section 4 of this Agreement. Notwithstanding the foregoing, DJ
Pharma shall not be liable and does not assume (i) payment obligations under
Sections 3 and 5 of the Licensing Agreement and Abbott Purchase Agreement, (ii)
any obligations under the Product Agreements which do not relate to any of the
Products, (iii) any obligations under the Product Agreements which accrued prior
to October 1, 1998, or (iv) any obligations expressly assumed by Dura under the
Dura Supply Agreement or required in order to fulfill its obligations as a
facilitator of supplies pursuant to the terms of the Dura Supply Agreement. DJ
Pharma is in compliance and shall at all times remain in compliance with any and
all contract obligations, to the extent specified in this Section 8.3 under this
Agreement, the Licensing Agreement, the Manufacturing Agreement, the Abbott
Purchase Agreement, the Abbott Supply Agreement, the Dura Supply Agreement, and
*. In the event of an event of * during such time as *, Dura or Dura Bermuda
shall have all rights and remedies available at law or equity under the terms of
*, but such *.
8.4 PROMOTIONAL AND MARKETING EFFORTS. DJ Pharma hereby covenants to
use its commercially reasonable efforts to diligently and actively market and
promote the Products
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*Certain confidential portions of this Exhibit were omitted by means of marking
such portions with an asterisk (the "Mark"). This Exhibit has been filed with
the Secretary of the Commission without the Mark pursuant to the Company's
application requesting confidential treatment under Rule 24b-2 under the
Securities Exchange Act of 1934, as amended.
<PAGE>
during the Licensing Period and hereby agrees to establish and spend the
following * sales and marketing budget in connection with the diligent promotion
of such Products (the "Marketing Budget") during the Licensing Period: (i) *,
the Marketing Budget must * (x) * for the respective period as set forth in
Section 2.1 hereof * in the * calendar year and (y) * for the respective period
as set forth in * hereof * (ii) From * the Marketing Budget must * (x) * in the
* calendar year and (y) *.
9. NO IMPLIED WARRANTIES. EXCEPT AS EXPRESSLY PROVIDED IN SECTION 7 HEREOF,
NEITHER DURA NOR DURA BERMUDA MAKE ANY REPRESENTATION OR WARRANTY AS TO THE CCA
PRODUCTS, RONDEC PRODUCTS, THE KEFTAB PRODUCTS OR KEFTAB RIGHTS OR THE
MANUFACTURING, MARKETING AND SALE OF SUCH PRODUCTS OR OTHER ACTIVITIES WITH
RESPECT TO SUCH RIGHTS (COLLECTIVELY, THE "ACTIVITIES"), EXPRESS OR IMPLIED,
EITHER IN FACT OR BY OPERATION OF LAW, BY STATUTE OR OTHERWISE, AND DURA AND
DURA BERMUDA SPECIFICALLY DISCLAIM ANY AND ALL IMPLIED OR STATUTORY WARRANTIES.
WITHOUT LIMITING THE FOREGOING, DJ PHARMA ACKNOWLEDGES THAT IT HAS NO AND IS NOT
RELYING UPON AN IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE OR OTHERWISE, OR UPON ANY REPRESENTATION OR WARRANTY WHATSOEVER AS TO
THE PROSPECTS (FINANCIAL, REGULATORY OR OTHERWISE), OR THE VALIDITY OR
LIKELIHOOD OF SUCCESS OF THE ACTIVITIES AFTER THE CLOSING OR THE SECOND CLOSING,
AS APPLICABLE.
10. CONFIDENTIALITY
10.1 CONFIDENTIALITY. Each party (the "Receiving Party") recognizes
that certain information of the other Party (the "Disclosing Party") and its
affiliates (or other third party to whom the Disclosing Party has an obligation
of confidentiality) disclosed to the Receiving Party in connection with this
Agreement and the transactions contemplated herein, including without limitation
Know-How, is of proprietary value and is to be considered highly confidential
("Confidential Information"). The Receiving Party and its respective affiliates
agree not to disclose such Confidential Information to others, or use it for the
benefit of others, except to or for those third parties permitted under the
terms of this Agreement who reasonably require same for the purposes hereof and
who are bound to such party by a like obligation as to confidentiality, without
the express written permission of the other party. Notwithstanding the
foregoing, DJ Pharma shall not have any such obligations of confidentiality with
regard to any Rondec Purchased Assets or CCA Purchased Assets or Keftab Rights
after the Closing or Second Closing which is not addressed in any agreements
regarding such Rondec or CCA Purchased Assets or Keftab Rights, as applicable,
nor shall the Receiving Party have any obligation of confidentiality with regard
to information which:
-30-
*Certain confidential portions of this Exhibit were omitted by means of marking
such portions with an asterisk (the "Mark"). This Exhibit has been filed with
the Secretary of the Commission without the Mark pursuant to the Company's
application requesting confidential treatment under Rule 24b-2 under the
Securities Exchange Act of 1934, as amended.
<PAGE>
(a) can be demonstrated by written records to have been known
to the Receiving Party at the time of receipt, with the exception of certain
information transferred by Dura or Dura Bermuda to DJ Pharma upon the Second
Closing which will be deemed and shall as of the Second Closing be treated as
Confidential Information by Dura or Dura Bermuda pursuant to the terms of this
Section 10;
(b) was subsequently otherwise legally acquired by the
Receiving Party from a third party having an independent right to disclose the
information;
(c) which now or later becomes publicly known without breach
of this Agreement by the Receiving Party;
(d) which is independently developed by employees of the
Receiving Party without the aid, use or application of the Confidential
Information; or
(e) which is required by law, regulation, rule, act, or order
of any governmental authority or agency, to be disclosed by the Receiving Party;
PROVIDED, HOWEVER, that the Receiving Party shall make its best efforts to give
the Disclosing Party sufficient advance notice to permit it to seek a protective
order or other similar order with respect to such Confidential Information and
thereafter discloses only the minimum Confidential Information required to be
disclosed in order to comply.
The Receiving Party's obligation of confidentiality shall be in force
during the term of this Agreement and any extension hereof, and shall extend for
a period of ten (10) years from the expiration or termination of this Agreement
or any extension thereof.
10.2 RETURN OF INFORMATION. Upon the termination of this Agreement, DJ
Pharma shall return to Dura all documents and unused promotional materials,
including all copies, which DJ Pharma acquired from Dura or any of its related
entities under this Agreement.
10.3 EQUITABLE RELIEF. Each Party acknowledges and agrees that breach
of any of the terms of this Section 10 would cause irreparable harm and damage
to the other and that such damage may not be ascertainable in money damages and
that as a result thereof the non-breaching party would be entitled to seek
equitable or injunctive relief restraining any breach or future violation of the
terms contained herein by the breaching party without the necessity of proving
actual damages. Such right to equitable relief is in addition to whatever
remedies either party may be entitled to as a matter of law or equity, including
money damages.
11. MISCELLANEOUS
11.1 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns; provided, however, that DJ Pharma may not assign any of its rights,
duties, or obligations hereunder without the prior written consent of Dura,
which consent may be withheld in Dura's sole discretion.
11.2 NOTICES. All notices or other communications required or permitted
to be given hereunder shall be in writing and shall be deemed to have been duly
given if delivered by hand, prepaid telex, cable, telegram or facsimile and
confirmed in writing, or mailed first class, postage
-31-
<PAGE>
prepaid, by registered or certified mail, return receipt requested (mailed
notices and notices sent by telex, cable or telegram shall be deemed to have
been given on the date received) as follows:
If to DURA: Dura Pharmaceuticals, Inc.
7475 Lusk Boulevard
San Diego, CA 92121
Attention: Office of the General Counsel
Facsimile: (619) 657-0981
with a copy to: Brobeck, Phleger & Harrison, LLP
550 West "C" Street, Suite 1300
San Diego, CA 92101-3532
Attention: Faye H. Russell, Esq.
Facsimile: (619) 234-3848
If to DJ PHARMA: DJ Pharma, Inc.
12730 High Bluff Drive
San Diego, CA 92130
Attention: James W. Newman, President
Facsimile: (619) 509-8610
with a copy to: Pillsbury Madison & Sutro LLP
101 West Broadway, 18th Floor
San Diego, CA 92101
Attention: David R. Snyder, Esq.
Facsimile: (619) 236-1995
If to DURA BERMUDA: Dura (Bermuda) Trading Company LTD
102 St. James Court
Flatts, Smiths FLO4, Bermuda
Attention: Kevin Insley, President
Facsimile: (441) 292-2224
11.3 GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of California excluding any choice of law
rules which may direct the application of the law of another state.
11.4 CAPTIONS. All section titles or captions contained in this
Agreement, in any Schedule referred to herein or in any Exhibit annexed hereto,
and the table of contents, if any, to this Agreement are for convenience only,
shall not be deemed a part of this Agreement and shall not affect the meaning or
interpretation of this Agreement.
11.5 NO THIRD-PARTY RIGHTS. No provision of this Agreement shall be
deemed or construed in any way to result in the creation of any rights or
obligation in any other individual, group, entity, or organization not a party
to this Agreement.
11.6 NO IMPLIED WAIVERS. No failure on the part of either party to
exercise and no delay in exercising any right, power, remedy or privilege under
this Agreement shall impair,
-32-
<PAGE>
prejudice or constitute a waiver of any such right, power, remedy or privilege
nor shall any such waiver or 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. No waiver of either
party of any default, right, power, remedy or privilege shall be effective
unless in writing, nor shall any such waiver operate as a waiver of any other or
the same default, right, power, remedy or privilege respectively on a future
occasion.
11.7 RELATIONSHIP OF THE PARTIES. Nothing contained in this Agreement
is intended or is to be construed to constitute DJ Pharma, Dura, Dura Bermuda
(or any of their affiliates) as partners or joint venturers or either party as
an employee or agent of the other. Neither 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 the other party or to bind the other party to any contract,
agreement or undertaking with any other individual, entity, group or
organization, and no conduct of the parties shall be deemed to infer such right.
11.8 FURTHER ASSURANCE. Each party 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 hereof or to better
assure and confirm unto such other party its rights and remedies under, this
Agreement.
11.9 SURVIVAL. The provisions of this Agreement shall survive the
closings and continue in full force and effect in accordance with their terms.
11.10 AMENDMENTS AND MODIFICATIONS. No amendment, modification,
termination or discharge of any provision of this Agreement, nor consent by DJ
Pharma or Dura 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, terminated or discharged and
signed by DJ Pharma and Dura, and each amendment, modification, 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 usage of trade or any other matter not set forth in an agreement
in writing and signed by DJ Pharma, Dura and Dura Bermuda.
11.11 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.
11.12 CONSTRUCTION. Except as otherwise provided herein,, references to
Articles, Sections, Schedules and Exhibits are to those contained in this
Agreement. Any Schedules or Exhibits form an integral part of this Agreement and
reference to this Agreement include references thereto. Unless the context
otherwise requires, words importing the singular include
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<PAGE>
the plural and vice versa, words importing the masculine include the feminine,
and words importing persons includes corporations. 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.
11.13 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.
11.14 ENTIRE AGREEMENT. This Agreement, together with any agreements
referenced herein, constitute the entire agreement of DJ Pharma, Dura, and Dura
Bermuda with respect to the subject matter hereof. This Agreement supersedes all
prior or contemporaneous understandings or agreements, whether written or oral,
between DJ Pharma, Dura and Dura Bermuda with respect to such subject matter.
11.15 FORCE MAJEURE
(a) EVENTS OF FORCE MAJEURE. Failure of either party to
perform its obligations under this Agreement shall not subject such party to any
liability to the other if such failure is caused by or results from causes
beyond the reasonable control of the affected party such as but not limited to
acts of God, fire, explosion, flood, drought, war, riot, sabotage, embargo,
strikes or other labor trouble, or compliance with any law, order or regulation
of any government entity acting with color of right which is promulgated after
the date hereof.
(b) CONSEQUENCES OF FORCE MAJEURE. Upon occurrence of an event
of force majeure the party affected shall promptly notify the other in writing,
setting forth the details of the occurrence, and make every attempt to resume
the performance of its obligations as soon as practicable after the force
majeure event ceases.
11.16 SALES TAX. Any and all sales or use taxes payable with respect to
the Rondec and CCA Purchased Assets, the Keftab Rights, and the transactions
contemplated under this Agreement (except for taxes levied thereon as income to
Dura) shall be borne by DJ Pharma. Any and all transfer taxes payable as a
result of the transaction shall be paid by Dura.
11.17 NO FINDERS FEE. Each party to this Agreement represents and
warrants that no broker or finder has acted for it in connection with this
Agreement or the transactions contemplated by this Agreement and that no broker
or finder is entitled to any brokerage or finders fee or other commission in
respect thereof based in any way on agreements, arrangements or understandings
made by it.
11.18 PUBLICITY. Dura and DJ Pharma agree not to disclose the existence
of this Agreement or use the name of the other in any publicity, press release,
advertising or information which is disseminated to the general public without
the other party's prior written approval, which approval shall not be
unreasonably withheld, unless such disclosure shall be required by applicable
law or regulatory agencies, in which case the other party shall have the
opportunity to review and approve the form of disclosure (such approval not to
be unreasonably withheld).
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<PAGE>
11.19 ATTORNEYS' FEES. In the event it becomes necessary for either
party (or any of its affiliates) to institute any action at law or in equity
against the other party to enforce its rights under Section 11 hereof, the
prevailing party shall be entitled to recover from the non-prevailing party
reasonable attorneys' fees, court costs and expenses relating to such action.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives as of the date first above
written.
DURA PHARMACEUTICALS, INC. DJ PHARMA, INC.
By: /s/ Michael Borer By: /s/ James W. Newman
---------------------------------- -------------------------
Title: Senior Vice President and CFO Title: CEO and PRESIDENT
---------------------------------- -------------------------
DURA (BERMUDA) TRADING COMPANY LTD.
By: /s/ Kevin Insley
-------------------------
Title: President
-------------------------
[SIGNATURE PAGE TO AMENDED AND RESTATED
PURCHASE AND LICENSE AGREEMENT]
<PAGE>
EXHIBIT 10.38
AMENDMENT NO. 1 TO AMENDED AND
RESTATED PURCHASE AND LICENSE AGREEMENT
This AMENDMENT NO. 1 TO AMENDED AND RESTATED PURCHASE AND LICENSE
AGREEMENT (the "Amendment") is entered into as of December 30, 1999, by and
among Dura Pharmaceuticals, Inc. ("Dura"), DJ Pharma, Inc. ("DJ Pharma") and
Dura (Bermuda) Trading Company LTD. ("Dura Bermuda") (the latter solely with
respect to the Keftab Products), and amends and restates certain provisions of
that certain Amended and Restated Purchase and License Agreement entered into as
of January 25, 1999, and effective as of October 1, 1998 (the "Agreement"),
among Dura, DJ Pharma and Dura Bermuda (the latter solely with respect to the
Keftab Products). Capitalized terms used but not defined herein shall have the
meanings given to them in the Agreement.
RECITALS
A. Pursuant to the Agreement, DJ Pharma received certain rights to
certain products from Dura and Dura Bermuda and assumed certain obligations to
Dura and DJ Pharma in connection therewith.
B. * between DJ Pharma, on the one hand, and Dura and Dura Bermuda, on
the other hand, *.
C. DJ Pharma, Dura and Dura Bermuda are entering into this Amendment to
* and to * under the Agreement.
NOW, THEREFORE, in consideration of the mutual agreements contained
herein and for other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, Dura, DJ Pharma and Dura Bermuda hereby agree
as follows:
1. AMENDMENTS TO AGREEMENT. The Agreement is hereby amended and
restated as follows:
1.1 SECTION 2.1. Section 2.1 of the Agreement is hereby
amended and restated in its entirety to read as follows:
"2.1 FOR PURCHASE AND LICENSING RIGHTS WITH RESPECT TO THE
PRODUCTS. In consideration for the purchase and licensing rights as set
forth in Section 1 hereof, DJ Pharma shall (i) * (as hereinafter
defined) and (ii) pay to Dura with respect to the Rondec Products and
CCA Products and to Dura Bermuda with respect to the Keftab Rights the
following licensing fees during the Licensing Period:
1
*Certain confidential portions of this Exhibit were omitted by means of marking
such portions with an asterisk (the "Mark"). This Exhibit has been filed with
the Secretary of the Commission without the Mark pursuant to the Company's
application requesting confidential treatment under Rule 24b-2 under the
Securities Exchange Act of 1934, as amended.
<PAGE>
(a) for * (as hereinafter defined) * aggregate Net
Sales (as hereinafter defined) of the Products during such *;
(b) for * (as hereinafter defined) * during such
*;
(c) * during *;
(d) * during *; and
(e) * during * and the *.
Notwithstanding the foregoing, * under Sections 2.1(a)-(e) hereof,
after subtracting therefrom the costs of all Products sold by DJ Pharma
during the respective calendar year as permitted by Section 2.2, *
during the respective calendar year: (i) * (ii) * (iii) * and (iv) *.
For example, (a) in the event that * and the *, but (b) * under
Sections 2.1(e) and 2.2 *. Notwithstanding the foregoing, *
(collectively, the " * ") in any way *
2
*Certain confidential portions of this Exhibit were omitted by means of marking
such portions with an asterisk (the "Mark"). This Exhibit has been filed with
the Secretary of the Commission without the Mark pursuant to the Company's
application requesting confidential treatment under Rule 24b-2 under the
Securities Exchange Act of 1934, as amended.
<PAGE>
*, including, without limitation, *.
For purposes of this Agreement: (A) a "Contract Quarter" shall mean
each quarter in the Contract Year commencing October 1, 1998 and ending
September 30, 1999; (B) the first "Contract Year" shall mean the period
of twelve (12) consecutive months commencing on October 1, 1998, and
each subsequent Contract Year shall begin on the respective anniversary
thereof; and (C) "Net Sales" shall mean (i) the gross amount of sales
invoiced to third parties by DJ Pharma less the reasonable and
customary accrual-basis deductions from such gross amounts including:
(a) normal and customary trade and quantity discounts, allowances and
credits actually allowed or paid; (b) credits or allowances given or
made for return of previously sold products; (c) sales or excise taxes,
as adjusted for rebates and refunds; and (d) chargeback payments and
rebates granted to managed health care organizations, employer groups
or to federal, state and local governments, their agencies, purchasers
and reimbursers or to trade customers, including, but not limited to,
wholesalers and chain and pharmacy buying groups, which are
specifically identified to the sale of the Products by DJ Pharma. All
amounts under this Section shall be determined from the books and
records of DJ Pharma which shall be maintained in accordance with
GAAP."
1.2 SECTION 2.8. A new Section 2.8 is hereby added to the
Agreement as follows:
"2.8 PRODUCT RETURNS. DJ Pharma shall process, and hereby
assumes and agrees to be responsible for and to perform and satisfy all
obligations associated with the processing of, all Products that were
sold by Dura prior to October 1, 1998, and that are returned in
compliance with Dura's returned goods policy for credit after the
Closing. Dura shall reimburse DJ Pharma for certain of the costs it
incurs in performing the foregoing obligations as follows:
(a) CREDITS. Dura shall reimburse DJ Pharma for * of
the credits DJ Pharma issues with respect to all of the Products that
were sold by Dura prior to October 1, 1998, and that are returned in
compliance with Dura's returned goods policy for credit after the
Closing.
(b) EXCHANGES. Dura shall reimburse DJ Pharma for *
pursuant to the Dura Supply Agreement for all of the Products that are
delivered by DJ Pharma in exchange for Products that were sold by Dura
prior to October 1, 1998, and that are returned in compliance with
Dura's returned goods policy for exchange after the
3
*Certain confidential portions of this Exhibit were omitted by means of marking
such portions with an asterisk (the "Mark"). This Exhibit has been filed with
the Secretary of the Commission without the Mark pursuant to the Company's
application requesting confidential treatment under Rule 24b-2 under the
Securities Exchange Act of 1934, as amended.
<PAGE>
Closing * (calculated based on the wholesale list price for such
Products at the time DJ Pharma ships the replacement Products), * at
the time DJ Pharma ships the replacement Products, and * (calculated
based on the wholesale list price for such Products at the time DJ
Pharma ships the replacement Products), * at the time DJ Pharma ships
the replacement Products.
(c) CERTAIN OTHER COSTS. Dura shall reimburse DJ
Pharma for * for the services rendered in connection with all of the
Products that were sold by Dura prior to October 1, 1998, and that are
returned in compliance with Dura's returned goods policy for credit or
exchange after the Closing * time DJ Pharma ships the replacement
Products for all of the Products that were sold by Dura prior to
October 1, 1998, and that are returned in compliance with Dura's
returned goods policy for exchange after the Closing.
(d) NO OTHER OBLIGATIONS. Neither Dura nor Dura
Bermuda shall have any obligation or liability to DJ Pharma in
connection with DJ Pharma's performance of its obligations under this
Section except as expressly set forth in subsections (a) - (c) above,
including, without limitation, any obligation to reimburse DJ Pharma
for any of the internal or indirect costs it may incur in performing
its obligations under this Section.
(e) DJ PHARMA COOPERATION. In addition to maintaining
accurate books and accounts of record in sufficient detail to permit
Dura and Dura Bermuda to verify all payments that they may be required
to make pursuant to this Section as required by Section 2.4 above, DJ
Pharma shall also cooperate with Dura and Dura Bermuda as reasonably
requested *.
2. ACKNOWLEDGMENTS.
2.1 ACKNOWLEDGMENT BY DJ PHARMA. DJ Pharma hereby acknowledges
and agrees that as of the date of this Amendment it does not know of, nor does
it have any intent to assert now or at any time in the future, any claims or
causes of
4
*Certain confidential portions of this Exhibit were omitted by means of marking
such portions with an asterisk (the "Mark"). This Exhibit has been filed with
the Secretary of the Commission without the Mark pursuant to the Company's
application requesting confidential treatment under Rule 24b-2 under the
Securities Exchange Act of 1934, as amended.
<PAGE>
action against Dura, Dura Bermuda or any of their directors, officers,
employees, agents, stockholders, partners, attorneys, assignees, parents or
subsidiaries, individually or collectively, for any breach or other failure to
perform any obligation owing to DJ Pharma, whether legal, equitable, statutory
or otherwise, including without limitation any and all obligations owing under
the Agreement and all related agreements.
2.2 ACKNOWLEDGMENT BY DURA AND DURA BERMUDA. Dura and Dura
Bermuda each hereby acknowledges and agrees that as of the date of this
Amendment it does not know of, nor does it have any intent to assert now or at
any time in the future, any claims or causes of action against DJ Pharma or any
of its directors, officers, employees, agents, stockholders, partners,
attorneys, assignees, parents or subsidiaries, individually or collectively, for
any breach or other failure to perform any obligation owing to Dura or Dura
Bermuda, whether legal, equitable, statutory or otherwise, including without
limitation any and all obligations owing under the Agreement and all related
agreements.
3. MISCELLANEOUS.
3.1 ENTIRE AGREEMENT; CONFLICTS. This Amendment constitutes
the entire agreement among Dura, DJ Pharma and Dura Bermuda with respect to the
amendment to the Agreement set forth herein. This Amendment supersedes all prior
or contemporaneous understanding or agreements, whether written or oral, between
Dura, DJ Pharma and Dura Bermuda with respect to such amendment. In the event of
any conflict between the terms of this Amendment and the terms of the Agreement,
the terms of this Amendment shall govern and control.
3.2 GOVERNING LAW. This Amendment shall be governed and
construed in accordance with the laws of the State of California excluding any
choice of law rules which may direct the application of the law of another
state.
3.3 CAPTIONS. All section titles or captions contained in this
Amendment are for convenience only, shall not be deemed a part of this Amendment
and shall not affect the meaning or interpretation of this Amendment.
3.4 NO THIRD PARTY RIGHTS. No provision of this Amendment
shall be deemed or construed in any way to result in the creation of any rights
or obligation in any other individual, group, entity or organization not a party
to this Amendment.
3.5 NO IMPLIED WAIVERS. No failure on the party of any party
to exercise and no delay in exercising any right, power, remedy or privilege
under this Amendment shall impair, prejudice or constitute a waiver of any such
right, power, remedy or privilege, nor shall any such waiver or 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. No waiver by any party of any default, right, power, remedy
or privilege shall be effective unless in writing, nor
5
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shall any such waiver operate as a waiver of any other or the same default,
right, power, remedy or privilege respectively on a future occasion.
3.6 AMENDMENTS AND MODIFICATIONS. No amendment, modification,
termination or discharge of any provision of this Amendment, nor consent by
Dura, DJ Pharma or Dura Bermuda to any departure therefrom, shall in any event
be effective unless the same shall be in writing specifically identifying this
Amendment and the provision intended to be amended, modified, terminated or
discharged and signed by Dura, DJ Pharma and Dura Bermuda, and each amendment,
modification, termination or discharge shall be effective only in the specific
instance and for the specific purpose for which given. No provision of this
Amendment shall be varied, contradicted or explained by any other agreement,
course of dealing or performance or usage of trade or any other matter not set
forth in an agreement in writing and signed by Dura, DJ Pharma and Dura Bermuda.
3.7 SEVERABILITY. If any provision of this Amendment should be
held to be 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.
3.8 COUNTERPARTS. This Amendment 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.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
6
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IN WITNESS WHEREOF, Dura, DJ Pharma and Dura Bermuda have each caused
this Amendment to be executed by their duly authorized representatives as of the
date first written above.
DURA PHARMACEUTICALS, INC.
By: /s/ Erle Mast
-----------------------
Its: Vice President Finance
-----------------------
DURA (BERMUDA) TRADING
COMPANY LTD.
By: /s/ Kevin Insley
-----------------------
Its: President
-----------------------
DJ PHARMA, INC.
By: /s/ Jerry E. Canning
-----------------------
Its: Vice President, Finance
-----------------------
[SIGNATURE PAGE TO AMENDMENT NO. 1 TO AMENDED
AND RESTATED PURCHASE AND LICENSE AGREEMENT]
7
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Exhibit 10.39
DURA PHARMACEUTICALS, INC.
BOARD OF DIRECTORS DEFERRED COMPENSATION PLAN
ARTICLE I
PURPOSE
This Deferred Compensation Plan is designed to provide members of the
Board of Directors at Dura Pharmaceuticals, Inc. (the "Company") who are not
employees of the Company an opportunity to defer certain compensation received
by them from the Company in accordance with the terms and conditions set forth
herein. This Plan shall be effective January 1, 2000.
In order for the Plan to accomplish its objective, it must meet certain
requirements to insure that Eligible Directors are not taxed on their deferred
compensation until paid. If the Plan is found not to comply with the
requirements for income tax deferral, the Plan will be "unwound" and all
deferred amounts will be paid to the Participants in accordance with their
interests under the Plan. This will cause the recipients to lose the benefit of
the deferral of taxable income and to recognize taxable income.
ARTICLE II
DEFINITIONS
In this Plan, the following terms have the meanings indicated below:
2.01 "ACCOUNT" means amounts credited to a Participant under Article
III of the Plan, as adjusted for any earnings and losses thereon under Article
IV of the Plan and distributions under Article VI of the Plan. To the extent it
considers necessary or appropriate, the Committee or its delegate shall maintain
a separate sub-account for each type of deferral under the Plan or shall
otherwise provide a means for determining that portion of an Account
attributable to each type.
2.02 "BENEFICIARY" means the person or persons, natural or otherwise,
designated in writing, to receive a Participant's vested Account if the
Participant dies before distribution of his or her entire vested Account. A
Participant may designate one or more primary Beneficiaries and one or more
secondary Beneficiaries. A Participant's Beneficiary designation will be made in
writing pursuant to such procedures as the Committee may establish and delivered
to the Committee before the Participant's death. The Participant may revoke or
change this designation at any time before his or her death by following such
procedures as the Committee will establish. If the Committee has not received a
Participant's Beneficiary designation before the Participant's death or if the
Participant does not otherwise have an effective Beneficiary designation on file
when he or she dies, the Participant's vested Account will be distributed to the
Participant's estate.
2.03 "BOARD" means the board of directors of Dura Pharmaceuticals, Inc.
2.04 "CASH SUB-ACCOUNT" means amounts credited to a Participant's
Account under Article III that shall earn interest in accordance with Article
IV.
1.
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2.05 "COMPENSATION" means the annual retainer, board meeting fees,
committee meeting fees and, if applicable, any other cash compensation received
by a Participant from the Company during the Plan Year.
2.06 "COMPENSATION DEFERRAL" means a Participant's deferral of all or
any portion of his or her Compensation pursuant to Article III.
2.07 "CESSATION OF SERVICE" means cessation of service as a
non-employee Director of the Company, by reason other than death.
2.08 "CODE" means the Internal Revenue Code of 1986, as amended.
2.09 "COMMITTEE" means the Dura Pharmaceuticals, Inc. Board of
Directors Deferred Compensation Plan Committee, as constituted from time to
time. The Committee has full discretionary authority to administer and interpret
the Plan, to determine eligibility for Plan benefits, to select employees for
Plan participation, and to correct errors. The Committee may delegate its duties
and responsibilities and, unless the Committee expressly provides to the
contrary, any such delegation will carry with it the Committee's full
discretionary authority to accomplish the delegation. Decisions of the Committee
and its delegate will be final and binding on all persons.
2.10 "COMPANY" means Dura Pharmaceuticals, Inc.
2.11 "COMMON STOCK UNIT SUB-ACCOUNT" means amounts credited to a
Participant's Account under Article III that are converted to units whose value
tracks changes in the Fair Market Value of the common stock of Dura
Pharmaceuticals, Inc.
2.12 "ELIGIBLE DIRECTOR" means a non-employee Director of the Company.
2.13 FAIR MARKET VALUE" means the closing market price per share of the
Company's common stock as reported on the NASDAQ Stock Market on the preceding
trading day.
2.14 "PARTICIPANT" means a current or former Eligible Director who
retains an Account.
2.15 "PLAN" means this Dura Pharmaceuticals, Inc. Board of Directors
Deferred Compensation Plan, as amended from time to time.
2.16 "PLAN YEAR" means the calendar year, beginning with the calendar
year 2000.
ARTICLE III
COMPENSATION DEFERRALS
3.01 COMPENSATION DEFERRALS.
(a) ELECTIONS. In order to be eligible for Compensation Deferrals
for a Plan Year, an Eligible Director must make an election to make Compensation
Deferrals for such Plan Year. Such election generally must be made by an
Eligible Director and received by the Company before the calendar year in which
the Compensation is earned. However, if an individual first becomes an Eligible
Director during a Plan Year, an Eligible Director may elect, within thirty (30)
days after he or she is first notified that he or she is eligible to participate
in the Plan, to elect Compensation Deferrals with respect to Compensation for
services performed after the
2.
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election during such Plan Year. Elections will remain in effect for one Plan
Year or, if the Committee so permits, all subsequent Plan Years during which the
individual remains an Eligible Director. Such election may be revoked, but any
revocation cannot be made effective before the first day of the Plan Year
beginning after the date the revocation is filed.
(b) LATE ELECTION. If an Eligible Director does not make a timely
election for a Plan Year, no Compensation Deferrals will be made under the Plan
on behalf of that Eligible Director with regard to that election for that Plan
Year.
(c) AMOUNT. An Eligible Director may elect to defer receipt of any
whole percentage or whole dollar amount of his or her Compensation.
(d) CREDITING. Compensation Deferrals will be credited to Eligible
Directors' Accounts as of the last day of the calendar quarter in which such
Compensation would otherwise have been paid.
ARTICLE IV
EARNINGS ON COMPENSATION DEFERRALS
4.01 EARNINGS METHODS. An Eligible Director must irrevocably elect at
the time that he or she elects Compensation Deferrals whether those Compensation
Deferrals will be credited to his or her Cash Sub-Account or Common Stock Unit
Sub-Account. Amounts credited to either Sub-Account will remain in such
Sub-Account until distributed to the Eligible Director or his or her Beneficiary
pursuant to Article VI. No transfers will be made between Sub-Accounts.
4.02 CASH SUB-ACCOUNT. Compensation Deferrals directed by a Participant
to his or her Cash Sub-Account shall earn interest at the rate of prime plus one
percent, compounded quarterly. The prime interest rate shall be determined as of
the first day of each calendar quarter as quoted in the Wall Street Journal.
4.03 COMMON STOCK UNIT SUB-ACCOUNT. Compensation Deferrals directed by
a Participant to his or her Common Stock Unit Sub-Account shall be converted to
units as of the effective date of each deferral. The number of units credited to
the Common Stock Unit Sub-Account shall be determined by dividing the amount of
the Compensation Deferral by the Fair Market Value of the Company's common stock
as of the effective date of the deferral. The number of units credited to a
Participant's Common Stock Sub-Account will change only by subsequent deferrals
into or distributions from this Sub-Account. Units credited to a Participant's
Common Stock Unit Sub-Account shall be converted to an equal number of shares of
the Company's common stock upon distribution to the Participant in accordance
with Article VI.
ARTICLE V
VESTING
Each Participant shall at all times have a fully-vested and
non-forfeitable right to his or her Account.
3.
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ARTICLE VI
DISTRIBUTIONS
6.01 DISTRIBUTION OF BENEFITS. Eligible Directors must elect the manner
in which their Accounts will be paid out by following the procedures described
below and by satisfying such additional requirements as the Committee may
determine.
(a) ELECTIONS. When an Eligible Director first confirms his or her
initial participation in the Plan the Eligible Director must elect, in writing,
which of the distribution options described below will govern payment of the
Eligible Director's Account.
(b) TIMING. A Participant may elect to have his or her Account
distributed, based on the Participant's election under (a) above, within the 30
to 60 day period following one of the following distribution events: (i) the
date of the Participant's Cessation of Service, (ii) the date of the
Participant's death, (iii) the date, if any, specified by the Participant in his
or her election or (iv) the earliest of any (i), (ii) or (iii) above elected by
the Participant. Under option (iii) above, the date specified must be at least
twelve (12) months from the date of initial election to defer and in no event
later than the fifth (5th) anniversary of Participant's Cessation of Service.
(c) FORM. A Participant's Account will be distributed, based on
the Participant's election under (a) above, in one of the following forms: (i) a
lump sum, (ii) a series of annual installments, not in excess of five (5) or
(iii) a distribution schedule specified by the Participant and approved by the
Committee. The amount of each installment will be the amount, if any, specified
by the Participant or the remaining balance of the Participant's Account divided
by the number of installments remaining (including the installment to be made).
Amounts credited to a Participant's Cash Sub-Account reflecting Compensation
Deferrals (including earnings thereon) shall be distributed in cash. Units
credited to a Participant's Common Stock Unit Sub-Account will be paid in
registered shares of the Company's common stock. For purposes of distribution,
each unit shall be equal to one share of common stock.
(d) SUBSEQUENT ELECTIONS. A Participant may change a distribution
election with respect to his or her Account by submitting the change to the
Committee, in writing, at least twelve (12) months before the Participant was
originally to receive such distribution. The subsequent election will be valid
only if the distribution does in fact occur more than twelve (12) months after
the date of such subsequent election.
(e) DEFAULT. If, upon a Participant's Cessation of Service, the
Committee does not have a proper distribution election on file for that
Participant, that Participant's Account will be distributed to the Participant
in one lump sum within the 30 to 60 day period after the Participant's Cessation
of Service.
6.02 DEATH. If a Participant dies with an amount in his or her Account,
whether or not the Participant was receiving payouts from that Account at the
time of his or her death, the Participant's Beneficiary will receive that
Participant's Account, in accordance with the time and form of distribution set
forth in (b) and (c) above.
6.03 ACCELERATED DISTRIBUTIONS. Pursuant to the following restrictions,
a Participant may accelerate the timing and form of distribution:
4.
<PAGE>
(a) HARDSHIP WITHDRAWAL. If a Participant has an immediate and
heavy financial need and has no other resources reasonably available to meet
this need, Participant may request a hardship withdrawal. An immediate and heavy
financial means an unanticipated emergency caused by events beyond the control
of the Participant that would result in a severe financial hardship to the
Participant if withdrawal were not permitted. The total hardship withdrawal must
be approved by the Committee, and shall be limited to the amount necessary to
meet the financial need, and in no event may such amount exceed the
Participant's Account.
(b) FORFEITURE. Absent a demonstration of immediate and heavy
financial need described above in paragraph (a), a Participant may elect to
receive ninety percent (90%) of his or her entire Account in an early
distribution at any time upon thirty (30) days written request, in which case
the remaining ten percent (10%) of the Participant's entire Account shall be
permanently forfeited. A Participant electing to receive a forfeiture
distribution may not again participate in the Plan until the Plan Year that
begins at least twelve (12) months following the end of the Plan Year in which
such distribution occurred.
ARTICLE VII
AMENDMENT OR TERMINATION OF PLAN
7.01 AMENDMENT OF PLAN. The Company shall have the right to amend the
Plan, at any time from time to time, in whole or in part. Any amendment must be
made in writing; no oral amendment will be effective. No amendment may, without
the consent of an affected Participant (or, if the Participant is deceased, the
Participant's Beneficiary), adversely affect the Participant's or the
Beneficiary's rights and obligations under the Plan with respect to amounts
already credited to a Participant's Account. The Company shall notify each
Participant in writing of any Plan amendment.
7.02 TERMINATION. Although the Company has established this Plan with
the intention and expectation to maintain the Plan indefinitely, the Company may
terminate or discontinue the Plan in whole or in part at any time without any
liability for such termination or discontinuance. Upon Plan termination, all
Compensation Deferrals shall cease. The Company shall retain each Participant's
Compensation Deferrals (and earnings and losses thereon) until distribution of
benefits commences under Article VI. Notwithstanding the foregoing, if the Plan
is terminated, the Company retains the right to determine that all Accounts will
be paid out as soon as practicable thereafter in single sum distributions.
ARTICLE VIII
MISCELLANEOUS
8.01 LIMITATION OF RIGHTS. Participation in this Plan does not give any
individual the right to be retained in the service of the Company or of any
related entity or to continue to serve as a member of the Board.
8.02 CLAIMS PROCEDURE. If a Participant or Beneficiary ("Claimant")
believes that he or she is entitled to a greater benefit under the Plan, the
Claimant may submit a signed, written application to the Committee within 90
days of having been denied such a greater benefit. The Claimant will generally
be notified of the approval or denial of this application within 90 days of the
date that the Committee receives the application. If the claim is denied, the
notification will state specific reasons for the denial and the Claimant will
have 60 days to file a signed, written request for a review of the denial with
the Committee. This request will include the reasons for
5.
<PAGE>
requesting a review, facts supporting the request and any other relevant
comments. The Committee, operating pursuant to its discretionary authority to
administer and interpret the Plan and to determine eligibility for benefits
under the terms of the Plan, will generally make a final, written determination
of the Claimant's eligibility for benefits within 60 days of receipt of the
request for review.
8.03 INDEMNIFICATION. The Company will indemnify and hold harmless the
Directors, the members of the Committee, and employees of the Company who may be
deemed fiduciaries of the Plan, from and against any and all liabilities,
claims, costs and expenses, including attorneys' fees, arising out of an alleged
breach in the performance of their fiduciary duties under the Plan, other than
such liabilities, claims, costs and expenses as may result from the gross
negligence or willful misconduct of such persons. The Company shall have the
right, but not the obligation, to conduct the defense of such persons in any
proceeding to which this Section applies.
8.04 ASSIGNMENT. To the fullest extent permitted by law, benefits under
the Plan and rights thereto are not subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or
garnishment by creditors of a Participant or a Beneficiary.
8.05 INABILITY TO LOCATE RECIPIENT. If a benefit under the Plan remains
unpaid for two years from the date it becomes payable, solely by reason of the
inability of the Committee to locate the Participant or Beneficiary entitled to
the payment, the benefit shall be treated as forfeited. Any amount forfeited in
this manner shall be restored without interest upon presentation of an
authenticated written claim by the person entitled to the benefit.
8.06 APPLICABLE LAW. To the extent not governed by Federal law, the
Plan is governed by the laws of the State of California. If any provision of the
Plan is held to be invalid or unenforceable, the remaining provisions of the
Plan will continue to be fully effective.
8.07 NO FUNDING. The Plan constitutes a mere promise by the Company to
make payments in the future in accordance with the terms of the Plan.
Participants and Beneficiaries have the status of general unsecured creditors of
the Company. Plan benefits will be paid from the general assets of the Company
and nothing in the Plan will be construed to give any Participant or any other
person rights to any specific assets of the Company. In all events, it is the
intention of the Company and all Participants that the Plan be treated as
unfunded for tax purposes.
6.
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Exhibit 10.40
EXECUTIVE CHANGE OF CONTROL SEVERANCE AGREEMENT
THIS EXECUTIVE CHANGE OF CONTROL SEVERANCE AGREEMENT dated as
of January 1, 2000 by and between Dura Pharmaceuticals, Inc., (the "Company"),
and _____________ ("Executive");
W I T N E S S E T H:
WHEREAS, the Company desires to create a greater incentive for
Executive to remain in the employ of the Company, particularly in the event of
any possible change or threatened change of control of the Company,
NOW, THEREFORE, in partial consideration of Executive's past
and future services to the Company and the mutual covenants contained herein,
the parties hereto hereby agree as follows:
1. TERMINATION FOLLOWING A CHANGE OF CONTROL.
(a) QUALIFYING TERMINATION. Executive shall be entitled to the
compensation and benefits listed in Paragraph 1(b), in addition to compensation
and benefits to which Executive would otherwise be entitled as of the date of
termination, if Executive's employment with the Company is terminated either (i)
by the Company for any reason other than for Cause or (ii) by Executive for Good
Reason, in each case within two (2) years following the occurrence of any Change
of Control or successive Change of Control that occurs during the Period of
Coverage (in each case a "Qualified Termination") and Executive properly
executes, and does not revoke or attempt to revoke, a release of claims against
the Company, its affiliates and their employees and agents in the form attached
as EXHIBIT A.
(b) COMPENSATION AND BENEFITS.
(i) LUMP SUM PAYMENT OF SALARY AND BONUS. Within ten (ten)
business days after a Qualified Termination (or, if later, the last day of
any period during which the release referred to in Paragraph 3 may be revoked
by Executive), the Company shall make a lump sum cash payment to Executive,
subject to any mandatory tax withholding, equal to ____ times the sum of
Executive's Base Salary and Executive's Average Annual Bonus.
(ii) WELFARE BENEFIT COVERAGE. The Company will, at normal employee
rates, provide Executive and, to the extent available before the Qualified
Termination, Executive's eligible dependents with coverage under the Company's
medical/dental plan, life insurance and accident plan and disability plan until
the earlier of (A) ___________ months after the date of Executive's Qualified
Termination or (B) the first date that Executive is covered under another
employer's program which provides substantially the same level of benefit
coverage without exclusion for pre-existing conditions. After this period of
coverage, Executive (and, if
1.
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applicable, Executive's eligible dependents) may elect to continue coverage
under the Company's group medical/dental plan at Executive's own expense in
accordance with the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended ("COBRA") and, for purposes of determining the maximum period of COBRA
coverage, such maximum period will begin immediately following the end of
Company-subsidized coverage.
(iii) ACCELERATION OF STOCK OPTIONS. Each outstanding Company stock
option which Executive holds at the time of a Qualified Termination, to the
extent not otherwise exercisable for all the shares of Company common stock
subject to that stock option, will immediately become exercisable for all those
option shares and may be exercised for any or all of those shares as fully
vested shares.
(iv) ACCELERATION OF RESTRICTED STOCK. All contractual restrictions
and repurchase rights shall immediately lapse with respect to any shares of
Company restricted stock held by Executive at the time of a Qualified
Termination.
(v) DEFERRED COMPENSATION PLAN. Solely for purposes of
determining the commencement date for the payment of any deferred
compensation to which Executive may be entitled under a Company non-qualified
deferred compensation plan, Executive's employment with the Company will be
deemed to continue for a period of ____ months after a Qualifying
Termination. However, no portion of the payments Executive is entitled to
receive under Section 1 of this Agreement will be eligible for deferral under
such plan.
(vi) CASH-OUT OF AFFILIATE STOCK OPTIONS. Each outstanding option
granted to Executive on stock of Spiros Development Corporation II, Inc. and any
similar outstanding option granted to Executive on securities of an affiliate of
the Company shall be cancelled as of the date of Executive's Qualified
Termination. With respect to each such option, whether or not vested, Executive
shall be entitled to an immediate cash payment equal to the excess, if any, of
the aggregate Fair Market Value (as defined below) of the securities subject to
such option and the aggregated exercise price of such option.
(vii) EXCESS TAX GROSS-UP PAYMENT. If any compensation payable
hereunder, either alone or when aggregated with other compensation payable to
Executive, would constitute a parachute payment that would subject Executive to
an excise tax under Section 4999 of the Internal Revenue Code, Executive shall
be entitled to receive an additional lump sum cash payment, subject to mandatory
tax withholding, which, when added to all compensation payable to Executive that
constitutes a parachute payment, provides Executive with the same after
tax-compensation that he would have received from such parachute payments had
none of such compensation constituted a parachute payment. The procedures for
making such payment are set forth in Section 2 hereof.
(viii) JOB SEARCH ASSISTANCE. The Company will, at its sole
expense, provide Executive with individual outplacement counseling for up to
twelve (12) months by a provider selected by the Company at levels customary for
positions held by Executive.
(ix) LIMITATION ON ACCELERATION. Notwithstanding the above, if it
is reasonably determined by the Company's Board of Directors, upon consultation
with Company management
2.
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and the Company's independent auditors, that the acceleration of vesting of
stock options or restricted stock or the acceleration and cash-out of affiliate
options provided under Paragraph 1(b)(iii), (iv) or (vi) above upon a Change in
Control (to the extent that those Paragraphs provide for acceleration or
cash-out that would not otherwise occur under the terms of the instruments
evidencing such options or restricted stock) would preclude accounting for any
proposed business combination of the Company as a pooling of interests, and the
Board of Directors otherwise desires to approve such a proposed business
transaction which requires as a condition to the closing of such transaction
that it be accounted for as a pooling of interests, then, solely to the extent
necessary to permit such accounting, such acceleration or cash-out shall not
occur. The previous sentence shall not limit any acceleration of vesting or
cash-out of any option or restricted stock that would occur, in absence of
Paragraphs 1(b)(iii) (iv) and (vi) above, under the terms of the instruments
underlying such option or restricted stock.
The compensation and benefits payable hereunder shall not be reduced or offset
by any amounts that Executive earns or could earn from any other sources
following Executive's Qualified Termination. However, except to the extent the
Company expressly agrees otherwise in writing, if the Company becomes obligated
to pay Executive any severance pay or severance benefits (excluding any amounts
deemed to be received by Executive on account of the forgiveness of any loan due
by Executive, if applicable) under a separate employment or severance agreement
or arrangement, the benefits payable hereunder shall be reduced by the amount of
benefits payable under such other agreement or arrangement.
(c) TERMINATIONS BY REASON OF SUBSEQUENT TRANSACTIONS. Notwithstanding
the foregoing, if an otherwise Qualifying Termination occurs by reason of the
sale of a subsidiary of the Company or all or a portion or the assets or
business of the Company or one of its subsidiaries and Executive is offered a
Comparable Position (as defined below) with the purchaser or the parent of the
purchaser or the sold subsidiary, then Executive shall not be entitled to any
benefits under this Paragraph 1, whether or not Executive accepts such position.
However, if Executive accepts such position and, within two (2) years following
the Change of Control, Executive's employment is involuntarily terminated
without Cause or by Executive for Good Reason, Executive shall be entitled to
the benefits under Paragraph 1(b), less any severance benefits (excluding any
amounts deemed to be received by Executive on account of the forgiveness of any
loan due by Executive, if applicable) or similar benefits payable by the entity
from which his or her employment is terminated.
2. EXCISE TAX GROSS-UP PROCEDURES.
The amount of any such Tax Gross-Up to which Executive becomes
entitled under Paragraph 1(b)(vii), will be determined pursuant to the
following:
X = Y divided by (1 - (A + B + C)), where
X is the total dollar amount of the Tax Gross-Up
payable to Executive;
Y is the total Excise Tax imposed on Executive;
3.
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A is the Excise Tax rate in effect at the time;
B is the highest combined marginal federal income and
applicable state income tax rate in effect for
Executive, after taking into account the
deductibility of state income taxes against federal
income taxes to the extent allowable, for the
calendar year in which the Tax Gross-Up is paid; and
C is the applicable Hospital Insurance (Medicare) Tax
Rate in effect for Executive for the calendar year in
which the Tax Gross-Up is paid;
provided if there is a change in the tax laws after the date hereof that would
render the amount determined above insufficient to fully reimburse Executive on
an after-tax basis for the amount of any Excise Tax, Executive shall be entitled
to such additional amount as may be necessary to provide him with such
reimbursement.
Within ninety (90) days after a determination is made by the
Internal Revenue Service or Executive's tax advisor that an item of compensation
or benefit payable hereunder constitutes a parachute payment under Code Section
280G for which Executive is liable for an Excise Tax, Executive shall identify
the nature of the payment to the Company and submit to the Company the
calculation of the Excise Tax attributable to that payment and the Tax Gross-Up
to which Executive is entitled with respect to such tax liability. The Company
will pay such Tax Gross-Up to Executive (net of all applicable withholding
taxes, including any taxes required to be withheld under Code Section 4999)
within ten (10) business days after Executive's submission of the calculation of
such Excise Tax and the resulting Tax Gross-Up, provided such calculations
represent a reasonable interpretation of the applicable law and regulations.
In the event that Executive's actual Excise Tax liability is
determined by a Final Determination to be greater than the Excise Tax liability
previously taken into account for purposes of the Tax Gross-Up paid to Executive
pursuant to this Section 2, then within ninety (90) days following the Final
Determination, Executive shall submit to the Company a new Excise Tax
calculation based upon the Final Determination. Within ten (10) business days
after receipt of such calculation, the Company shall pay Executive the
additional Tax Gross-Up attributable to such excess Excise Tax liability.
In the event that Executive's actual Excise Tax liability is
determined by a Final Determination to be less than the Excise Tax liability
previously taken into account for purposes of the Tax Gross-Up paid to Executive
pursuant to this Section 2, then Executive shall refund to the Company, promptly
upon receipt, any federal or state tax refund attributable to the Excise Tax
overpayment.
For purposes of this Paragraph 2, a "Final Determination"
means an audit adjustment by the Internal Revenue Service that is either (i)
agreed to by both Executive (or his estate) and the Company (such agreement by
the Company to be not unreasonably withheld) or
4.
<PAGE>
(ii) sustained by a court of competent jurisdiction in a decision with which
Executive and the Company concur (such concurrence by the Company to be not
unreasonably withheld) or with respect to which the period within which an
appeal may be filed has lapsed without a notice of appeal being filed.
3. FAILURE TO EXECUTE A RELEASE.
All compensation and benefits under Paragraph 1 above are in
consideration for Executive's execution of a release of claims against the
Company, its affiliates and their employees and agents in the form attached as
EXHIBIT A hereto, which release Executive does not subsequently revoke or
attempt to revoke. If Executive doesn't properly execute such a release or if
Executive attempts to revoke such release, Executive will not be entitled to any
of the benefits provided under Paragraph 1.
4. DEFINITIONS.
(a) AVERAGE ANNUAL BONUS. "Average Annual Bonus" means, at any
time, the greatest of (i) the average of the annual bonuses
paid to Executive in each of the two (2) years prior to the
Change of Control, (ii) the average of the annual bonuses paid
to Executive in each of the two (2) years prior to the
Qualifying Termination or (iii) in the event Executive is
entitled to receive an annual bonus under a written agreement
for the year during which the Qualifying Termination occurs,
the annual bonus to which Executive is entitled under such
written agreement. In the event Executive, at the time of the
Qualifying Termination, has received only one (1) annual
bonus, the Average Annual Bonus for such Executive shall be
the amount of such bonus.
(b) BASE SALARY. "Base Salary" means the greater of the annual
rate of base salary in effect for Executive at the time of
Executive's Qualified Termination or the annual rate of base
salary in effect for Executive immediately before the Change
of Control.
(c) CAUSE. "Cause" means Executive's conviction of any felony,
Executive's commission of any act of fraud or embezzlement, or
Executive's unauthorized use or disclosure of confidential
information or trade secrets of the Company or its
subsidiaries.
(d) CHANGE OF CONTROL. A "Change of Control" shall have occurred
if:
(i) a majority of the directors of the Company are
persons other than persons: (A) for whose election
proxies shall have been solicited by the Board of
Directors of the Company, or (B) who are then serving
as directors appointed by the Board of Directors to
fill vacancies on the Board of Directors caused by
death or resignation (but not by removal) or to fill
newly-created directorships; or
(ii) thirty percent (30%) or more of the outstanding
voting power of the Company shall have been acquired
or beneficially owned (as defined in
5.
<PAGE>
Rule 13d-3 under the 1934 Act or any successor rule
thereto) by any person or group of two or more
persons acting as a partnership, limited partnership,
syndicate, or other group acting in concert for the
purpose of acquiring, holding or disposing of voting
stock of the Company; or
(iii) a reorganization, merger, consolidation or other
corporate transaction or sale or other disposition of
all or substantially all of the assets of the Company
occurs (other than (i) a transaction with a
subsidiary of the Company or (ii) a transaction in
which the holders of voting stock of the Company
immediately before the merger as a class continue to
hold immediately after the merger more than fifty
percent (50%) of all outstanding voting power of the
surviving or resulting corporation or its parent
(including, without limitation, a company which owns
directly or indirectly the Company or all or
substantially all of its pre-acquisition assets) in
substantially the same proportion as their ownership
of common stock of the Company immediately before the
transaction); or
(iv) the Company's shareholders approve the complete
liquidation or dissolution of the Company.
(e) COMPARABLE POSITION. A Comparable Position, for purposes of
this Agreement, means a position with a successor to part or
all of the business of the Company if the terms of the
position do not differ from Executive's prior position with
the Company in any manner that would constitute Good Reason,
assuming that the terms of Executive's employment were changed
to the terms of such position with the successor.
(f) FAIR MARKET VALUE. For purposes of Paragraph 1(b)(vi), "Fair
Market Value" per unit of a security subject to an option on
any relevant date shall be determined under the terms of the
instruments evidencing the option, if such instrument provides
an objective method for determining such fair market value or,
if such instrument does not so provide, shall be determined in
accordance with the following provisions:
(i) If the security is not at the time listed or admitted to
trading on any Stock Exchange but is traded on the NASDAQ
National Market System, the Fair Market Value shall be the
closing selling price per unit of security on the date in
question, as the price is reported by the National Association
of Securities Dealers through the NASDAQ National Market
System or any successor system. If there is no closing selling
price for the security 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; or
(ii) If the security is at the time listed or admitted to
trading on any Stock Exchange, then the Fair Market Value
shall be the closing selling price per unit of security on the
date in question on the Stock Exchange determined by the Plan
Administrator to be the primary market for the security, as
such price is officially
6.
<PAGE>
quoted in the composite tape of transactions on such exchange.
If there is no closing selling price for the security 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; or
(iii) If the security is at the time neither listed nor
admitted to trading on any Stock Exchange nor traded on the
NASDAQ National Market System, then such Fair Market Value
shall be determined pursuant to an appraisal made by an
independent appraiser mutually agreed to by the Company and
Executive.
(g) GOOD REASON. "Good Reason" means (i) a material reduction in
Executive's level of duties or responsibilities or the nature
of Executive's functions or (ii) a reduction in Executive's
base salary or a reduction in Executive's total cash
compensation (consisting of base salary and target bonus), or
(iii) the failure to provide Executive with employee benefits
(including medical/dental, disability and life insurance) that
are substantially equivalent to the benefits provided to
Executive immediately before the Change of Control, or (iv) a
relocation of Executive's principal place of employment by
more than thirty (30) miles, if the new location is both (A)
more than thirty (30) miles from Executive's principal
residence and (B) farther from Executive's principal residence
than Executive's principal place of employment immediately
before such relocation, or (v) the breach of the terms of any
compensation agreement or arrangement between the Company and
Executive or (vi) the repudiation or failure by the Company or
its successor to acknowledge (upon Executive's written
request) or to comply with any of its obligations under this
Agreement.
(h) PERIOD OF COVERAGE. The "Period of Coverage" shall be the
period commencing with the date of this Agreement and ending
ten (10) years thereafter, unless either (i) the Company, by
written action of its Board of Directors, extends the period
or (ii) the Company has entered into a definitive agreement to
consummate a transaction that would constitute a Change of
Control, in which case the period of coverage will continue
until the date specified by the Board of Directors or the date
on which the pending transaction is consummated or abandoned,
respectively.
5. ARBITRATION.
Except as otherwise provided in Paragraph 2, any controversy
between Executive and the Company involving the construction or application of
any of the terms, provisions, or conditions of this Agreement or otherwise
arising out of or relating to this Agreement shall be settled by binding
arbitration in accordance with the then current applicable rules of the American
Arbitration Association, and judgment on the award rendered by the arbitrator(s)
may be entered by any court having jurisdiction thereof. The location of the
arbitration shall be in San Diego, California. The expenses incurred by both
parties in settling such controversy, including the expenses of arbitration and
reasonable attorney fees, shall be born by the Company.
7.
<PAGE>
6. MISCELLANEOUS.
(a) CAPTIONS. The captions in this Agreement are not part of the
provisions hereof, are merely for the purpose of reference and
shall have no force or effect.
(b) GOVERNING LAW. This Agreement is made in, and shall be
governed by and construed in accordance with the laws of, the
State of California, to the extent not preempted by the
Employee Retirement Income Security Act of 1974, as amended.
This Agreement, to the extent that it provides for severance
benefits, together with similar agreements with other
executives of the Company, is intended, for purposes of ERISA,
to qualify as an employee welfare benefit plan for a select
group of management or highly compensated employees.
(c) AMENDMENT OR MODIFICATION. This Agreement contains the entire
agreement of the parties with respect to the subject matter
hereof and no amendment or modification shall be effective
unless made in writing executed by an authorized officer of
the Company and Executive.
(d) SUCCESSORS AND BENEFICIARIES. This Agreement shall be binding
on and inure to the benefit of the successors, assigns, heirs,
devisees and personal representatives of the parties,
including any successor to the Company by merger or
combination and any purchaser of all or substantially all of
the assets of the Company. Should Executive die before receipt
of all benefits to which Executive becomes entitled under this
Agreement, the payment of such benefits will be made, on the
due date or dates hereunder had Executive survived, to the
executors or administrators of Executive's estate.
(e) NOTICES. All notices given hereunder shall be in writing and
shall be sent by registered or certified mail or delivered by
hand and, if intended for the Company, shall be addressed to
it (if sent by mail) or delivered to it (if delivered by hand)
at its principal office for the attention of the Secretary of
the Company or at such other address and for the attention of
such other person of which the Company shall have given notice
to Executive in the manner herein provided; and, if intended
for Executive, shall be delivered personally or shall be
addressed (if sent by mail) at the then current residence
address as reflected in the personnel records of the Company,
or at such other address or to such designee of which
Executive shall have given notice to the Company in the manner
herein provided. Each such notice shall be deemed to be given
on the date received at the address of the addressee or, if
delivered personally, on the date so delivered.
(f) DISTRIBUTIONS. The benefits to which Executive may become
entitled under this Agreement will be paid, when due, from the
general assets of the Company. Executive's right (or the right
of the executors or administrators of Executive's estate) to
receive any such payments will at all times be that of a
general creditor of the Company and will have no priority over
the claims of other general creditors of the Company. The
benefits provided under this Agreement are
8.
<PAGE>
intended to be unfunded for purposes of the Employee
Retirement Security Act of 1974.
(g) RIGHTS AND REMEDIES. All rights and remedies provided pursuant
to this Agreement or by law will be cumulative, and no such
right or remedy will be exclusive of any other. A party may
pursue any one or more rights or remedies hereunder or may
seek damages or specific performance in the event of another
party's breach hereunder or may pursue any other remedy by law
or equity, whether or not stated in this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
DURA PHARMACEUTICALS, INC.
By
--------------------------------------
Cam L. Garner
Chairman and Chief Executive Officer
EXECUTIVE:
----------------------------------------
9.
<PAGE>
[LOGO]
EXHIBIT A
SEPARATION AGREEMENT AND GENERAL RELEASE
In consideration of the severance benefits to be provided to ______
("Employee") under the Executive Change of Control Severance Agreement (the
"Severance Agreement"), dated as of January 1, 2000, by and between Dura
Pharmaceuticals, Inc., a Delaware corporation ("Dura") and Employee, this
General Release (the "Release") is entered into as of ___________, 20__, by
and between Dura and Employee with respect to the following:
(a) Employee has been employed as a _______________ for Dura.
(b) The employment relationship was terminated effective ______________
, 20__.
(c) Dura and Employee desire to enter into an agreement with regard to
termination of that employment relationship to resolve any and all known or
unknown claims between them, neither party admitting any liability or fault.
THE PARTIES THEREFORE HEREBY AGREE AND PROMISE in consideration of all
of the following terms and conditions as follows:
1. Employee's employment with Dura is terminated effective
____________, 20__ .
2. As contemplated by the Severance Agreement, and in
consideration of the severance benefit (excluding any amounts
deemed to be received by Employee on account of the
forgiveness of any loan due by Employee, if applicable) to be
provided to Employee under the Severance Agreement, Employee
irrevocably and unconditionally releases forever Dura and each
of its stockholders, predecessors, successors, assigns,
agents, directors, officers, employees, representatives,
affiliates, and all persons acting by, through, under, or in
concert with any of them (collectively referred to as
"Releases"), from any and all claims, complaints, liabilities,
obligations, agreements, damages, and actions of any nature,
known or unknown, suspected or unsuspected, that he/she ever
had, now has, or hereafter may have by reason of any matter,
cause, or thing relating in any way to his/her employment
relationship or the termination of his/her employment
relationship with Dura.
3. Employee further waives any an all claims based on state or
federal statutes prohibiting discrimination involving age,
sex, race, color, national origin, physical or mental
impairment, marital status, or religion, including but not
limited to Title VII, the Equal Pay Act, or the Fair
Employment and Housing Act, whether such claim be based upon
an action filed by the Employee or by a governmental agency.
1
<PAGE>
4. Employee expressively waives and relinquishes all rights and
benefits afforded by Section 1542 of the Civil Code of the
State of California, and does so understanding and
acknowledging the significance of this waiver of Section 1542.
Section 1542 of the Civil Code of the State of California
states as follows:
"A General release does not extend to claims which the
creditor does not know or suspect to exist in his/her favor at
the time of the executing the release, which if known by
his/her must have materially affected his/her settlement with
the debtor."
Thus, notwithstanding the provisions of Section 1542, and for
the purpose of implementing a full and complete release and
discharge of the Releasees, Employee expressly acknowledges
that this Agreement is intended to include in its effect,
without limitation, all claims that Employee does not know or
suspect to exist in his/her favor at the time of execution,
and the extinguishment of any of these claims.
5. Employee hereby reaffirms his/her obligations under the
Confidentiality Agreement and Acknowledgement of
Confidentiality previously executed by Employee.
6. This Agreement shall be governed by and interpreted according
to the laws of the State of California without regard to its
conflict of laws provisions. Any controversy or claim arising
out of or relating to this Agreement, or the breach thereof,
shall be settled by binding arbitration in San Diego County,
California, administered by the American Arbitration
Association in accordance with its applicable rules. Judgment
on the award rendered by the arbitrator may be entered in any
court having jurisdiction thereof.
7. Should any provision of this Agreement be declared or be
determined by a court to be illegal or invalid, the validity
of the remaining parts, terms, and provisions shall not be
affected thereby and said illegal or invalid part, term, or
provision shall be deemed not to be a part of this Agreement.
8. This Agreement and all of its provisions shall be binding
upon, and inure to the benefit of, any successors, assigns,
personal representatives or heirs of the parties hereto.
9. Employee represents and acknowledges that in executing this
Agreement, he/she does not rely and has not relied upon any
representation or statement not set forth herein made by any
of the Releasees, their agents or representatives. Employee
confirms that he/she has been encouraged to and has had the
opportunity to seek the advice of legal counsel with respect
to executing this Agreement. The parties acknowledge that each
has read this Agreement, that each fully understands their
rights, privileges and duties under this Agreement, and that
each enters into this Agreement voluntarily and without
coercion or duress.
10. [INCLUDE FOR EMPLOYEES AGE 40+] Employee acknowledges he/she
is entitled to twenty-one (21) days' time in which to consider
this Agreement. Employee acknowledges that he/she has obtained
or had the opportunity to obtain the advice and counsel from
the legal representative of his/her choice and that he/she
executes this
2
<PAGE>
Agreement having had sufficient time within which to consider
its terms. Employee represents that if he/she executes this
Agreement before twenty-one (21) days have elapsed, he/she
does so voluntarily, upon the advice and with the approval of
his/her legal counsel, and that he/she voluntarily waives any
remaining consideration period.
11. [INCLUDE FOR EMPLOYEES AGE 40+] Employee understands that
after executing this Agreement, he/she has the right to revoke
it within seven (7) days after his/her execution of it.
Employee understands that this Agreement will not become
effective and enforceable unless the seven (7) day revocation
period passes and Employee does not revoke the Agreement in
writing. Employee understands that this Agreement may not be
revoked after the seven (7) day revocation period has passed.
Employee understands that any revocation of this Agreement
must be in writing and delivered to Dura within the seven (7)
day period.
PLEASE READ CAREFULLY. THIS AGREEMENT INCLUDES
A RELEASE OF ALL KNOWN OR UNKNOWN CLAIMS.
Executed as of the date first written above at ___________________.
(City and State)
After signature by Employee, an original of this Separation
Agreement and General Release is to be forwarded to the Human Resources
Development Department.
DURA PHARMACEUTICALS, INC. EMPLOYEE
By:
---------------------------------- ----------------------------
Name: (Employee name)
--------------------------------
Title:
-------------------------------
3
<PAGE>
DURA PHARMACEUTICALS, INC.
EXECUTIVE CHANGE OF CONTROL SEVERANCE AGREEMENTS
ENTERED INTO JANUARY 1, 2000
----------------------------
<TABLE>
<CAPTION>
- ------------------------------------ ------------------------- ----------------------------------- -----------------------------
SECTION 1(b)(i) SECTION 1(b)(ii)
(b) Lump Sum Payment of WELFARE BENEFIT
NAME TITLE Salary and Bonus COVERAGE
- ------------------------------------ ------------------------- ----------------------------------- -----------------------------
- ------------------------------------ ------------------------- ----------------------------------- -----------------------------
<S> <C> <C> <C>
Cam L. Garner Chairman and CEO 2.0 times the sum of Base Salary Continuation for 24 months
plus Average Annual Bonus following a Qualified
Termination
- ------------------------------------ ------------------------- ----------------------------------- -----------------------------
- ------------------------------------ ------------------------- ----------------------------------- -----------------------------
Robert S. Whitehead President 1.5 times the sum of Base Salary Continuation for 18 months
David S. Kabakoff President plus Average Annual Bonus following a Qualified
Mitchell R. Woodbury Sr. Vice President Termination
Michael T. Borer Sr. Vice President
Lloyd E. Flanders Sr. Vice President
- ------------------------------------ ------------------------- ----------------------------------- -----------------------------
- ------------------------------------ ------------------------- ----------------------------------- -----------------------------
John R. Cook Vice President .75 times the sum of Base Salary Continuation for 9 months
Chester Damecki Vice President plus Average Annual Bonus following a Qualified
Diane S. Goostree Vice President Termination
Susan M. Hanan Vice President
Malcolm R. Hill Vice President
Robert W. Keith Vice President
Damien Lamendola Vice President
Erle T. Mast Vice President
Peter W. Schineller Vice President
Robert K. Schultz Vice President
J. Gregory Wease Vice President
Carol A. Wells Vice President
Clyde L. Witham Vice President
- ------------------------------------ ------------------------- ----------------------------------- -----------------------------
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------
SECTION 1(b)(v)
DEFERRED COMPENSATION PLAN
----------------------------------------------
----------------------------------------------
<S> <C>
Cam L. Garner Continuation as a non-employee participant
for 24 months following a Qualified
Termination
- ------------------------------------ ----------------------------------------------
- ------------------------------------ ----------------------------------------------
Robert S. Whitehead Continuation as a non-employee participant
David S. Kabakoff for 18 months following a Qualified
Mitchell R. Woodbury Termination
Michael T. Borer
Lloyd E. Flanders
- ------------------------------------ ----------------------------------------------
- ------------------------------------ ----------------------------------------------
John R. Cook Continuation as a non-employee participant
Chester Damecki for 9 months following a Qualified
Diane S. Goostree Termination
Susan M. Hanan
Malcolm R. Hill
Robert W. Keith
Damien Lamendola
Erle T. Mast
Peter W. Schineller
Robert K. Schultz
J. Gregory Wease
Carol A. Wells
Clyde L. Witham
- ------------------------------------
</TABLE>
<PAGE>
EXHIBIT 11
DURA PHARMACEUTICALS, INC.
STATEMENTS RE COMPUTATIONS OF NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ------------------ ------------------
<S> <C> <C> <C>
NET INCOME PER SHARE - BASIC
Net income $ 30,004,000 $ 2,733,000 $ (84,692,000)
================== ================== ==================
Weighted average number of common shares:
Common stock 44,132,372 46,028,396 43,828,208
================== ================== ==================
Net income per share $ 0.68 $ 0.06 $ (1.93)
================== ================== ==================
NET INCOME PER SHARE - DILUTED
Net income $ 30,004,000 $ 2,733,000 $ (84,692,000)
================== ================== ==================
Weighted average number of common and
common equivalent shares assuming
issuance of all dilutive contingent shares:
Common stock 44,132,372 46,028,396 43,828,208
Stock options 906,859 744,155 -
Warrants 633,070 1,036,440 -
------------------ ------------------ ------------------
Total 45,672,301 47,808,991 43,828,208
================== ================== ==================
Net income per share $ 0.66 $ 0.06 $ (1.93)
================== ================== ==================
</TABLE>
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Subsidiary Name Jurisdiction D.B.A.
- --------------- ------------ ------
<S> <C> <C>
Dura (Bermuda) Trading Company Ltd. Bermuda n/a
</TABLE>
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-90891 on Form S-8 and Registration Statement Nos. 33-71798, 33-93914 and
333-37955 on Form S-3 of Dura Pharmaceuticals, Inc. of our report dated
January 24, 2000, (March 20, 2000 as to the merger agreement with Spiros
Development Corporation II, Inc. described in Note 6), appearing in this
Annual Report on Form 10-K of Dura Pharmaceuticals, Inc. for the year ended
December 31, 1999.
/s/ DELOITTE & TOUCHE LLP
San Diego, California
March 28, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1999 AND THE RELATED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999 AND
THE NOTES THERETO, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 63,631
<SECURITIES> 210,782
<RECEIVABLES> 44,632
<ALLOWANCES> 0
<INVENTORY> 12,938
<CURRENT-ASSETS> 343,506
<PP&E> 113,509
<DEPRECIATION> (20,176)
<TOTAL-ASSETS> 883,474
<CURRENT-LIABILITIES> 87,581
<BONDS> 287,500
0
0
<COMMON> 44
<OTHER-SE> 441,695
<TOTAL-LIABILITY-AND-EQUITY> 883,474
<SALES> 231,776
<TOTAL-REVENUES> 301,426
<CGS> 45,839
<TOTAL-COSTS> 252,369
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,175
<INCOME-PRETAX> 44,448
<INCOME-TAX> 14,444
<INCOME-CONTINUING> 30,004
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,004
<EPS-BASIC> 0.68
<EPS-DILUTED> 0.66
</TABLE>
