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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
(AMENDMENT NO. 1)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF
1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
COMMISSION FILE NO. 0-23556
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INHALE THERAPEUTIC SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-3134940
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 INDUSTRIAL ROAD, SAN CARLOS, CA 94070
(Address of principal executive offices and zip code)
(650) 631-3100
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK,
$0.0001 PAR VALUE
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|
The approximate aggregate market value of voting stock held by
non-affiliates of the Registrant, based upon the last sale price of the Common
Stock on February 1, 2001 as reported by Nasdaq National Market was
approximately $1,922,029,208. Determination of affiliate status for this purpose
is not a determination of affiliate status for any other purpose.
51,495,073
(Number of shares of common stock outstanding as of April 9, 2001)
INHALE THERAPEUTIC SYSTEMS, INC.
2000 AMENDED ANNUAL REPORT ON FORM 10-K/A
TABLE OF CONTENTS
PAGE
----
PART IIII
Item 11. Executive Compensation................................................... 1
Item 12. Security Ownership of Certain Beneficial Owners and Management........... 9
Item 13. Certain Relationships and Related Transactions........................... 11
SIGNATURES........................................................................... 12
PART III
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Each non-employee Director of the Company receives an annual retainer
of $15,000. In the fiscal year ended December 31, 2000, the total compensation
paid to non-employee Directors for service as Directors was $60,000. The members
of the Board of Directors are also eligible for reimbursement for their expenses
incurred in connection with attendance at Board of Directors meetings in
accordance with Company policy.
Upon their election, each member of the Company's Board of Directors
who is not an employee of the Company is automatically granted, under the 1994
Non-Employee Directors' Stock Option Plan (the "Non-Employee Directors' Plan")
as amended, without further action by the Company, the Board of Directors or the
stockholders of the Company, an option to purchase 30,000 shares of Common Stock
of the Company for each three-year term to which he or she is elected. The
non-employee Directors who began with a one or a two-year term when the Company
first instituted the staggered Board of Directors were granted 10,000 and 20,000
shares of Common Stock, respectively. Vesting is monthly over the period of the
term being served. Only non-employee Directors of the Company are eligible to
receive options under the Non-Employee Directors' Plan. Options granted under
the Non-Employee Directors' Plan are intended by the Company not to qualify as
incentive stock options under the Internal Revenue Code of 1986, as amended. The
exercise price of options granted under the Non-Employee Directors' Plan is 100%
of the fair market value of the Common Stock subject to the option on the date
of the option grant. Option grants under the Non-Employee Directors' Plan are
non-discretionary. The term of options granted under the Non-Employee Directors'
Plan is ten years. In the event of a merger of the Company with or into another
corporation or a consolidation in which the Company is the surviving
corporation, with the outstanding shares of the Company's Common Stock
immediately preceding the merger being converted by virtue of the merger into
other property, or any other capital reorganization in which 50% of the shares
of the Company entitled to vote are exchanged, the vesting of each option will
1
accelerate in full and the option will terminate if not exercised prior to
the consummation of the transaction. Non-employee Directors are also eligible
for discretionary grants of options under the Company's 2000 Equity Incentive
Plan.
Options to purchase an aggregate of 425,200 shares of Common Stock have
been granted to current non-employee Directors of the Company as of March 1,
2001, of which 150,600 have been exercised. Options to purchase an aggregate of
3,251,292 shares of Common Stock have been granted to Directors who are
employees of the Company as of March 1, 2001, of which 1,351,289 have been
exercised as of March 1, 2001. On November 15, 2000, Mr. Gabrielson, a former
Director, exercised options to purchase 3,333 shares of Common Stock of the
Company pursuant to a grant he received on June 6, 2000. On April 1, 1999, Mr.
Lerner entered into a consulting agreement with the Company. Pursuant to the
agreement, Mr. Lerner may perform consulting services relating to product
marketing and general business issues of at least four half days per year as
well as telephone discussions as needed in consideration for his standard
consulting fee. In 2000, Mr. Lerner received no consulting fees for services
performed for the Company.
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows for the fiscal years ended December 31, 2000,
1999 and 1998, compensation awarded or paid to, or earned by, Inhale's Chief
Executive Officer and its other highest compensated executive officers whose
annual salary and bonus were in excess of $100,000 at December 31, 2000 (the
"Named Executive Officers"(1)).
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
-------------------
ALL OTHER
NAME AND PRINCIPAL SECURITIES COMPENSATION
- -------------------------- OTHER ANNUAL UNDERLYING ------------
POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($) OPTIONS (#) ($)(2)
-------- ---- ---------- --------- ---------------- ----------- ------
Ajit S. Gill............ 2000 $387,788 $746,546(3) -- 350,000 $6,066
Chief Executive Officer 1999 248,013 113,249 -- 100,000 6,452
and President 1998 201,176 78,859 -- 100,000 1,945
Robert B. Chess(4)...... 2000 251,250 668,945(3) -- 326,666 5,520
Executive Chairman of the 1999 248,013 113,249 -- 100,000 6,005
Board of Directors and 1998 201,183 78,859 -- 100,000 709
former Co-Chief
Executive Officer
John S. Patton.......... 2000 209,271 92,369 -- 19,600 1,659
Vice President, Research 1999 190,774 76,518 -- 28,000 6,117
1998 159,887 61,264 -- 140,000 1,523
Brigid A. Makes(5)...... 2000 205,750 70,636 950(6) 19,600 5,730
Vice President, Finance 1999 87,739 30,000 11,707(6) 140,000 175
& Administration, 1998 -- -- -- -- --
Chief Financial Officer
and Assistant Secretary
Stephen L. Hurst........ 2000 171,863 96,044 -- 79,600 3,427
Vice President, General 1999 179,316 57,605 -- 21,602 1,186
Counsel and Secretary 1998 160,333 54,054 -- 78,000 461
2
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(1) The Named Executive Officers include all the Executive Officers of the
Company.
(2) Amounts include perquisites consisting of one or more of the following:
(i) life insurance premiums paid by Inhale; (ii) reimbursement for
computer equipment used for company business; (iii) entertainment gifts
associated with company business; and (iv) Inhale's matching payments
under its 401(k) plan.
(3) Includes a stock bonus of 20,000 fully vested shares of Common Stock
granted to each of Messrs. Gill and Chess pursuant to the 2000 Equity
Incentive Plan on April 19, 2000, each grant with a fair market value
of $550,000 on the date of grant.
(4) Mr. Chess resigned as Co-Chief Executive Officer of the Company on
April 19, 2000. For the fiscal year ended December 31, 2000, Mr. Chess
received compensation for his services as Co-Chief Executive Officer of
the Company in the amount of $67,645, reflecting payment for his
services as Co-Chief Executive Officer through April 19, 2000. He
continues to serve as Executive Chairman of the Board of Directors of
the Company and received a base salary of $183,605 in 2000. Mr. Chess's
annualized base salary as Executive Chairman was $251,250.
(5) Ms. Makes became an Executive Officer of Inhale on June 28, 1999. Her
annualized base salary in 1999 was $200,250.
(6) Includes payments to Ms. Makes in 2000 and 1999 for the reimbursement
of expenses in connection with Ms. Makes' relocation.
STOCK OPTION GRANTS AND EXERCISES
Inhale grants options to its Executive Officers under the 2000 Equity
Incentive Plan. As of March 1, 2001, options to purchase a total of 9,085,050
shares had been granted under the 2000 Equity Incentive Plan and options to
purchase 1,956,769 shares remained available for grant thereunder.
The following tables show for the fiscal year ended December 31, 2000
certain information regarding options granted to, exercised by, and held at
year-end by the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR OPTION
TERM(3)
-----------------------------
PERCENTAGE OF
TOTAL OPTIONS
GRANTED TO EXERCISE OR
SECURITIES UNDERLYING EMPLOYEES IN BASE PRICE
NAME OPTIONS GRANTED(1)(#) FISCAL YEAR(2) ($/SHARE) EXPIRATION DATE 5% 10%
---- --------------------- -------------- --------- --------------- -- ---
Ajit S. Gill........ 350,000(4) 8.77% $27.69 1/13/10 $6,094,382 $15,444,361
Robert B. Chess..... 326,666(5) 8.18% $27.69 1/13/10 5,688,078 14,414,707
John S. Patton...... 19,600(6) 0.49% $27.69 1/13/10 341,285 864,884
Brigid A. Makes..... 19,600(7) 0.49% $27.69 1/13/10 341,285 864,884
Stephen L. Hurst.... 79,600(8) 1.99% $27.69 1/13/10 1,386,037 3,512,489
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(1) In January 1995, the Board of Directors amended the provisions of
existing option grant forms to provide that upon a change in control,
the vesting of all outstanding options held by Executive Officers would
be accelerated by two years. This acceleration also applies to all
subsequent grants made to Executive Officers. Options also accelerate
and vest in full upon a change in control, asset sale, merger,
consolidation or reverse merger, as described in Inhale's 2000 Equity
Incentive Plan, in the event the acquiring Company does not assume the
options or does not substitute similar options. The options will also
3
accelerate and vest in full upon a securities acquisition, as described
in Inhale's 2000 Equity Incentive Plan. The Board of Directors may
re-price the options under the terms of the 2000 Equity Incentive Plan.
(2) Based on an aggregate of 3,991,561 options granted to employees in
2000, including the Named Executive Officers.
(3) The potential realizable value is based on the term of the option at
the time of grant (ten years). Assumed stock price appreciation of 5%
and 10% is used pursuant to rules promulgated by the SEC. The potential
realizable value is calculated by assuming that the market price on the
date of grant appreciates at the indicated rate for the entire term of
the option and that the option is exercised at the exercise price and
sold on the last day of its term at the appreciated price.
(4) Options for 70,000 shares vest monthly over one year commencing in May
2004. Options for 280,000 shares vest monthly over three years
commencing in January 2000. Does not include stock bonus of 20,000
fully vested shares granted in April 2000 as described in "Compensation
of Executive Officers" above.
(5) Options for 46,666 shares vest monthly over one year commencing in
November 2004. Options for 280,000 shares vest monthly over three years
commencing in January 2000. Mr. Chess continues to vest in such options
as a result of his continuing service as a Director. Does not include
stock bonus of 20,000 fully vested shares granted in April 2000 as
described in "Compensation of Executive Officers" above.
(6) Options for 19,600 shares vest monthly over one year commencing in
April 2004.
(7) Options for 19,600 shares vest monthly over one year commencing in June
2004.
(8) Options for 19,600 shares vest monthly over one year commencing in
March 2004. Options for 60,000 shares vest monthly over five years
commencing February 2000.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND DECEMBER 31, 2000 OPTION VALUES
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 2000 DECEMBER 31, 2000(3)
----------------- --------------------
SHARES ACQUIRED VALUE
NAME ON EXERCISE(#) REALIZED($)(1) EXERCISABLE(#) UNEXERCISABLE(#) EXERCISABLE($) UNEXERCISABLE($)
- ---- -------------- -------------- -------------- ---------------- -------------- ----------------
Ajit S. Gill(2)........... 180,356 $7,866,170 351,119 461,481 $13,601,744 $13,407,306
Robert B. Chess(2)........ 180,909 7,266,876 208,668 469,579 7,507,249 14,312,641
John S. Patton............ -- -- 248,354 160,802 11,135,532 5,737,193
Brigid A. Makes........... -- -- 41,999 117,601 1,532,964 4,024,162
Stephen L. Hurst.......... 105,936 3,416,741 15,133 165,771 569,660 5,257,312
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(1) Based on the fair market value of Inhale's Common Stock on the exercise
date, minus the exercise price, multiplied by the number of shares
exercised.
(2) Does not include 20,000 shares of Common Stock granted as stock bonus
described in "Compensation of Executive Officers."
(3) Based on the fair market value of Inhale's Common Stock as of December
31, 2000 ($50.50 per share), minus the exercise price, multiplied by
the number of shares underlying the options.
4
REPORT OF THE COMPENSATION COMMITTEE OF
THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
The Board of Directors has delegated to the Compensation Committee the
authority to establish and administer the Company's compensation programs. The
Compensation Committee is comprised of two non-employee Directors: Messrs.
Lerner and Glavin. The Compensation Committee is responsible for:
o determining the most effective total executive compensation
strategy, based upon the business needs of the Company and
consistent with stockholders' interests;
o administering the Company's executive compensation plans,
programs and policies;
o monitoring corporate performance and its relationship to
compensation of executive officers; and
o making appropriate recommendations concerning matters of
executive compensation.
COMPENSATION PHILOSOPHY
The primary goals of the compensation program are to align compensation
with the attainment of key business objectives and to enable the Company to
attract, retain and reward capable executives who can contribute to the
continued success of the Company. Equity participation and a strong alignment to
stockholders' interests are key elements of the Company's compensation
philosophy. Four key goals form the basis for compensation decisions for all
employees of the Company:
o attracting and retaining the most highly qualified management
and employee team;
o emphasizing sustained performance by aligning rewards with
stockholder interests, especially through the use of equity
participation programs;
o paying competitively compared to similar drug delivery and
biopharmaceutical companies and providing appropriate reward
opportunities for achieving high levels of performance
compared to similar organizations in the marketplace; and
o motivating executives and employees to achieve the Company's
annual and long-term business goals and encouraging behavior
toward the fulfillment of those objectives.
To meet these goals, the Compensation Committee has adopted a mix among
the compensation elements of salary, stock options and bonuses.
5
BASE SALARY
The Compensation Committee recognizes the importance of maintaining
compensation practices and levels of compensation competitive with drug delivery
and biopharmaceutical companies in comparable stages of development. Base salary
represents the fixed component of the executive compensation program. The
Company's philosophy regarding base salaries is conservative, maintaining
salaries approximately at the competitive industry median. Base salary levels
are established on an annual review of marketplace competitiveness with similar
pharmaceutical and drug delivery companies and on the basis of individual
performance. Periodic increases in base salary are the result of individual
contributions evaluated against established performance objectives, relative
success toward achieving the Company's annual and long-term business goals,
length of service with the Company and an annual salary survey of comparable
companies in Inhale's industry. Base salaries for executives were increased for
fiscal 2000 to a level consistent with the industry median. In 2000, the Company
continued the variable compensation program implemented in 1996 for all
employees, including all executive officers, which provides that a portion of
total compensation is variable based on certain qualitative and quantitative
criteria for both the Company and each employee.
STOCK OPTIONS
The option plans offered by the Company have been established to
provide all executive officers of the Company with an opportunity to share,
along with the stockholders of the Company, in the long-term performance of the
Company. The Compensation Committee strongly believes that a goal of the
compensation program should be to provide key employees who have significant
responsibility for the management, growth and future success of the Company with
an opportunity to increase their ownership of the Company and potentially gain
financially from Company stock price increases. The interests of stockholders,
executives and employees should thereby be closely aligned. Executives and
employees are eligible to receive stock options generally not more often than
once a year, giving them the right to purchase shares of Common Stock of the
Company in the future at a price equal to fair market value at the date of
grant. All grants must be exercised according to the provisions of the Company's
stock option plans. All outstanding options expire ten years from the date of
grant.
As the base salaries for executive officers of the Company are in the
mid-range for comparable companies, the Company has used stock options as a
primary incentive to attract and retain its executive officers. Option amounts
are based on salary grade within the Company and overall Company and individual
performance. After considering the criteria relating to awarding stock options,
the Compensation Committee determined that all executive officers, including the
Chief Executive Officer, would receive option grants in fiscal 2000. The options
granted to executive officers in fiscal 2000 include options with vesting
periods ranging from three to five years commencing upon the date of grant, as
well as providing "evergreen" options, which typically vest over a twelve month
period commencing four years after the date of grant.
Section 162(m) of the Code limits the Company to a deduction for
federal income tax purposes of no more than $1 million of compensation paid
to certain Named Executive Officers in a taxable year. Compensation above $1
million may be deducted if it is "performance-based compensation" within the
6
meaning of the Code. The Compensation Committee believes that at the present
time, except for the compensation of Mr. Gill in 2000, it is unlikely that
the compensation paid to any other Named Executive Officer in a taxable year,
which is subject to the deduction limit, will exceed $1 million. However, the
Compensation Committee has determined that stock awards granted under the
Equity Incentive Plan with an exercise price at least equal to the fair
market value of the Company's Common Stock on the date of grant shall be
treated as "performance-based compensation."
BONUSES
Bonus awards are another component of the compensation program.
Bonuses, if any, are linked to the achievement of specified corporate goals,
which is determined at the discretion of the Board of Directors upon the
recommendation of the Compensation Committee. Corporate performance goals on
which 2000 bonuses were based were: the successful attainment of anticipated
milestones generating payments under current partnered projects; progress in
further establishing the necessary infrastructure to support commercialization
at anticipated levels; signing of new collaborative partners and converting
existing collaborative partners with feasibility agreements to long-term
development agreements; advancing the delivery system technology by improving
the performance and efficiency of the inhalation device, powder processing and
powder filling; and improving the Company's liquidity by obtaining funding from
corporate partners and from the sale of securities. In January 2001, the
Compensation Committee reviewed the Company's 2000 corporate performance goals
and determined that the goals had been substantially achieved. Based on such
achievement, the Compensation Committee awarded bonuses for 2000 for all
executive officers. In addition, in April 2000 the Compensation Committee
approved stock bonuses of 20,000 fully vested shares of Common Stock for each of
Messrs. Gill and Chess, which are more fully described below.
CEO COMPENSATION
Messrs. Chess and Gill served as co-Chief Executive Officers of the
Company from January 1, 2000 through April 19, 2000 during which period each
was paid cash compensation that was below the average for chief executive
officers in the Company's industry comparative group. Mr. Gill assumed sole
responsibility as Chief Executive Officer on April 19, 2000, and he was paid
cash compensation for the year that was at the median or above for chief
executive officers in the Company's industry comparative group. Under the
Company's executive compensation program, the total compensation mix for
senior executives emphasizes longer-term rewards in the form of stock
options. In 2000, Mr. Chess received option grants to purchase 326,666 shares
of the Company's Common Stock at the fair market value of the Common Stock on
the date of grant, of which 46,666 were evergreen grants. Mr. Gill received
option grants to purchase 350,000 shares of the Company's Common Stock at the
fair market value of the Common Stock on the date of grant, of which 70,000
were evergreen grants. The non-evergreen portion of these grants was based on
market compensation surveys used in determining the grants to other executive
officers within comparable companies in Inhale's industry. These grants were
made to enhance retention and the overall competitiveness of the compensation
packages of Messrs. Chess and Gill, and to strengthen the alignment of
Messrs. Chess's and Gill's interests with those of the stockholders. In April
2000, stock bonuses of 20,000 shares each to Messrs. Chess and Gill were paid
in recognition of sustained contributions to the success of the Company.
7
For 2000, the Compensation Committee set a cash bonus of approximately 50% of
base salary for both Messrs. Chess and Mr. Gill based upon the substantial
achievement of the corporate goals discussed above.
SUMMARY
The Compensation Committee believes that the compensation of executives
by the Company is appropriate and competitive with the compensation programs
provided by other drug delivery and biopharmaceutical companies with which the
Company competes for executives and employees. The Compensation Committee
believes its compensation strategy, principles and practices result in a
compensation program tied to stockholder returns and linked to the achievement
of annual and longer-term financial and operational results of the Company on
behalf of the Company's stockholders.
COMPENSATION COMMITTEE
Irwin Lerner
James B. Glavin
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Company's Compensation Committee of the
Board of Directors is currently, or has been, at any time since our formation,
an officer or employee of the Company. On April 1, 1999, Mr. Lerner entered into
a consulting agreement with the Company. Pursuant to the agreement, Mr. Lerner
may perform consulting services relating to product marketing and general
business issues of at least four half days per year as well as telephone
discussions as needed in consideration for his standard consulting fee. In 2000,
Mr. Lerner received no consulting fees for services performed for the Company.
COMPARISON OF STOCKHOLDER RETURN(1)
Set forth below is a line graph comparing the annual percentage change
in the cumulative total return on the Company's Common Stock with the CRSP Total
Return Index for the Nasdaq Stock Market (U.S. Companies) and the CRSP Total
Return Index for the Nasdaq Pharmaceutical Stocks(2) for the period commencing
on December 31, 1995, and ending on December 31, 2000. All values assume
reinvestment of the full amount of all dividends.
COMPARISON OF CUMULATIVE TOTAL RETURN FROM DECEMBER 31, 1995, AND ENDING ON
DECEMBER 31, 2000(3)
NASDAQ US NASDAQ PharmacInhalelTherapeutic Systems, Inc.
12/31/1995 100 100 100
3/30/1996 105 104 156
6/30/1996 113 101 190
9/30/1996 117 104 132
12/31/1996 123 100 155
3/31/1997 116 74 196
6/30/1997 138 78 254
9/30/1997 161 87 322
12/31/1997 151 77 267
3/31/1998 177 86 278
6/30/1998 181 80 254
9/30/1998 164 81 287
12/31/1998 212 111 338
3/31/1999 238 145 278
6/30/1999 261 148 244
9/30/1999 267 169 312
12/31/1999 394 245 437
3/31/2000 443 304 764
6/30/2000 386 338 1041
9/30/2000 355 371 1156
12/31/2000 238 309 1036
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(1) The material in this report is not "soliciting material" and is not
deemed filed with the SEC, and is not to be incorporated by reference
into any filing of the company under the Act or the Exchange Act,
8
whether made before or after the date hereof and irrespective of any
general incorporation language contained in any such filing.
(2) The CRSP Total Return Index for the NASDAQ Stock Market and for the
NASDAQ Stock Market Pharmaceutical Stocks are calculated by the Center
for Research in Securities Prices (CRSP).
(3) Assumes that $100.00 was invested on December 29, 1995, in Inhale's
Common Stock at the Company's closing sales price of $4.875 per share,
as adjusted for the stock split of August 22, 2000, and at the closing
sales price for each index on that date and that all dividends were
reinvested. No cash dividends have been declared on Inhale's Common
Stock. Shareholders returns over the indicated period should not be
considered indicative of future shareholder returns.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
ownership of our Common Stock as of March 1, 2001 by: (i) each Director; (ii)
each of the Named Executive Officers (as defined below under "Compensation of
Executive Officers); (iii) all Executive Officers and Directors of Inhale as a
group; and (iv) all those known by us to be beneficial owners of more than 5% of
our Common Stock.
BENEFICIAL OWNER(1)
-------------------
NUMBER OF PERCENT OF
BENEFICIAL OWNERSHIP(1) SHARES TOTAL(2)
--------- ----------
Franklin Resources, Inc.(3)..................................................................... 7,068,966 13.7%
777 Mariners Island Boulevard
San Mateo, CA 94404
Putnam Investments, LLC(4)...................................................................... 6,326,062 12.3%
1166 Avenue of the Americas
New York, NY 10036
T. Rowe Price Associates, Inc.(5)............................................................... 2,593,450 5.0%
100 East Pratt Street
Baltimore, MD 21202
John S. Patton(6)............................................................................... 664,826 1.3%
Robert B. Chess(7).............................................................................. 598,531 1.2%
Ajit S. Gill(8)................................................................................. 494,286 1.0%
Melvin Perelman(9).............................................................................. 56,666 *
Brigid A. Makes(9).............................................................................. 52,666 *
James B. Glavin(9).............................................................................. 51,266 *
Irwin Lerner(9)................................................................................. 40,000 *
Stephen L. Hurst(10)............................................................................ 32,217 *
Roy A. Whitfield(9)............................................................................. 13,333 *
All Directors and executive officers as a group (9 persons)(11)................................. 2,003,791 3.8%
- -----------
* Less than 1%
(1) This table is based upon information supplied by Executive Officers,
Directors and principal stockholders and Schedules 13D and 13G filed
with the Securities and Exchange Commission. Unless otherwise indicated
in the footnotes to this table and subject to the community property
laws where applicable, we believe that each of the stockholders named
in the table has sole voting and investment power with respect to the
shares shown as beneficially owned.
(2) Applicable percentages are based on 51,422,992 shares of Common Stock
outstanding as of March 1, 2001, adjusted as required by rules
promulgated by the SEC.
9
(3) Based solely on information obtained from Franklin Resources Inc.
Franklin Resources, Inc. is the parent holding company of two
registered investment advisors: Franklin Advisors, Inc. and Franklin
Management, Inc. Franklin Advisors has sole voting and dispositive
power over 6,904,344 of the shares. Franklin Management has sole voting
power over none of the shares and sole dispositive power over 164,622
of the shares. Charles B. Johnson and Rupert H. Johnson, Jr. each own
in excess of 10% of the outstanding Common Stock of Franklin Resources,
Inc. and are the principal shareholders of Franklin Resources, Franklin
Advisors and Franklin Management. Franklin Resources, Franklin
Advisors, Franklin Management and their principal shareholders disclaim
any beneficial interest in the shares.
(4) Based solely on information obtained from Putnam Investments, LLC.
Includes 37,912 shares of common stock issuable upon conversion of
outstanding convertible subordinated notes. Putnam Investments, LLC is
a holding company that is a wholly owned subsidiary of Marsh & McLennan
Companies, Inc., which wholly owns two registered investment advisers:
Putnam Investment Management, LLC and Putnam Advisory Company, LLC.
Marsh & McLennan, Putnam Investments, Putnam Investment Management and
Putnam Advisory Company have sole voting power and sole dispositive
power over none of the shares. For purposes of the reporting
requirements of the Securities Exchange Act of 1934, Marsh & McLennan
and Putnam Investments LLC are deemed to be beneficial owners of these
securities; however they expressly disclaim that they are, in fact, the
beneficial owners of such securities.
(5) Based solely on information obtained from T. Rowe Price Associates Inc.
T. Rowe Price Associates Inc. is an investment advisor registered under
the Investment Advisors Act of 1940. T. Rowe Price Associates Inc. has
sole voting power over 627,950 of the shares and has sole dispositive
power over 2,593,450 of the shares. T. Rowe Price expressly disclaims
beneficial ownership of such shares.
(6) Includes 396,008 shares held by John S. Patton & Jamie S. Patton,
Trustees, under the July 2, 1997 Patton Revocable Trust ("Patton
Trust"). Dr. Patton and his wife, Jamie S. Patton, are sole trustees.
Dr. Patton and his wife, each acting alone, have the power to vote and
dispose of such shares. Includes 2,184 shares held by Dr. Patton's
minor child. Also includes 4,146 shares held by two other children of
Dr. Patton as to which shares Dr. Patton disclaims beneficial
ownership. Also includes 262,488 shares issuable upon exercise of
options exercisable within 60 days of March 1, 2001.
(7) Includes 267,111 shares issuable upon exercise of options exercisable
within 60 days of March 1, 2001.
(8) Includes 26,100 shares held by Ajit S. Gill & Ann C. Gill, Trustees,
under an agreement dated October 14, 1998 FBO Ajit S. Gill & Ann C.
Gill ("Gill Trust"). Mr. Gill and his wife, Ann C. Gill, are sole
trustees. Mr. Gill and his wife, each acting alone, have the power to
vote and dispose of such shares. Also includes 406,230 shares issuable
upon exercise of options exercisable within 60 days of March 1, 2001.
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(9) All shares issuable upon exercise of options exercisable within 60 days
of March 1, 2001.
(10) Includes 6,383 shares issuable upon exercise of options exercisable
within 60 days of March 1, 2001.
(11) Includes 396,008 shares held by the Patton Trust and an aggregate of
6,330 shares held by Dr. Patton's children, as described in footnote 6.
Includes 26,100 shares held by the Gill Trust, as described in footnote
8. Also includes 1,156,143 shares issuable upon exercise of outstanding
options exercisable within 60 days of March 1, 2001 (see footnotes 6
through 10).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN TRANSACTIONS
In 1999 and 2000, the Company sold an aggregate total of $568,450,000
of Convertible Subordinated Notes pursuant to three separate Rule 144A private
placements. In February 2000, the Company converted a portion of these notes and
made certain conversion payments totaling an aggregate of $5.7 million to
Franklin Resources to convert bonds with a face value of $32.5 million into
approximately one million shares.
The Company's Bylaws provide that the Company will indemnify its
Directors and may indemnify its officers, employees and other agents to the
fullest extent permitted by Delaware law. The Company is also empowered under
its Bylaws to enter into indemnification contracts with its Directors and
officers and to purchase insurance on behalf of any person whom it is required
or permitted to indemnify.
In addition, the Company's Amended and Restated Certificate of
Incorporation, as amended, provides that the liability of the Directors for
monetary damages shall be eliminated to the fullest extent permissible under
Delaware law. Pursuant to Delaware law, the Company's Directors shall not be
liable for monetary damages for breach of the Directors' fiduciary duty of care
to the Company and its stockholders. However, this provision does not eliminate
the duty of care, and in appropriate circumstances, equitable remedies such as
injunctive or other forms of nonmonetary relief will remain available under
Delaware law. In addition, each Director will continue to be subject to
liability for (i) breach of the Directors duty of loyalty to the corporation or
its stockholders, (ii) acts or omissions, (iii) violating Section 174 of the
Delaware General Corporation Law, or (iv) any transaction from which the
Director derived an improper personal benefit. The provision also does not
affect a Director's responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws.
On February 21, 2001, the Board of Directors approved an option grant
to Brigid A. Makes of 40,000 shares at an option price of $27.875 per share.
These options have a vesting term of five years, vesting monthly commencing on
February 1, 2001. As of March 1, 2001, none of these options have been
exercised.
On November 15, 2000, Mr. Gabrielson, a former Director, exercised
options to purchase 3,333 shares of Common Stock of the Company pursuant to a
grant he received on June 6, 2000.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 30th day of April,
2001.
INHALE THERAPEUTIC SYSTEMS, INC.
By: /s/ Ajit S. Gill
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Ajit S. Gill
CHIEF EXECUTIVE OFFICER,
PRESIDENT AND DIRECTOR
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