AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 6, 1997
REGISTRATION NO. 333-17991
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
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AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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KOS PHARMACEUTICALS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<TABLE>
<S> <C> <C>
FLORIDA 2834 65-0670898
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
DANIEL M. BELL
1001 BRICKELL BAY DRIVE, SUITE 2502, 1001 BRICKELL BAY DRIVE, SUITE 2502,
MIAMI, FL 33131 MIAMI, FL 33131
305-577-3464 305-577-3464
(ADDRESS, INCLUDING ZIP CODE, (ADDRESS, INCLUDING ZIP CODE,
AND TELEPHONE NUMBER, INCLUDING AREA CODE, AND TELEPHONE NUMBER, INCLUDING
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) AREA CODE, OF AGENT FOR SERVICE)
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COPIES TO:
STEVEN SONBERG, ESQ. BRUCE K. DALLAS, ESQ.
HOLLAND & KNIGHT DAVIS POLK & WARDWELL
ONE EAST BROWARD BOULEVARD, SUITE 1300 450 LEXINGTON AVENUE
FORT LAUDERDALE, FL 33301 NEW YORK NY 10017
954-525-1000 212-450-4000
TELECOPIER NO. 954-463-2030 TELECOPIER NO. 212-450-4800
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES
AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES
LAWS OF ANY SUCH JURISDICTION.
PROSPECTUS (Subject to Completion)
Dated March 6, 1997
3,500,000 Shares
KOS PHARMACEUTICALS, INC.
Common Stock
- -----------------------------------------------------------------------------
All of the shares of Common Stock, par value $.01 per share (the "Common
Stock"), offered are being sold by Kos Pharmaceuticals, Inc. ("Kos" or the
"Company").
Prior to this offering, there has been no public market for the Common
Stock of the Company. It is estimated that the initial public offering price
will be between $13.00 and $15.00 per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. The Common Stock has been approved for quotation on the Nasdaq
National Market under the symbol "KOSP", subject to notice of issuance.
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THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS.
- -----------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
- -----------------------------------------------------------------------------
Per Share $ $ $
Total(3) $ $ $
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company, estimated to be
$600,000.
(3) The Company has granted the Underwriters an option, exercisable within 30
days of the date hereof, to purchase an aggregate of up to 525,000
additional shares at the Price to Public, less Underwriting Discounts and
Commissions to cover over-allotments, if any. If all such additional
shares are purchased, the total Price to Public, Underwriting Discounts
and Commissions, and Proceeds to Company will be $ , $ ,
and $ , respectively. See "Underwriting."
-------------------------------------------------------------------------
The Common Stock is offered by the several Underwriters named herein when,
as and if received and accepted by them, and subject to their right to reject
orders in whole or in part and subject to certain other conditions. It is
expected that delivery of certificates for the shares will be made at the
offices of Cowen & Company, New York, New York on or about , 1997.
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COWEN & COMPANY
DILLON, READ & CO. INC.
SALOMON BROTHERS INC
, 1997
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act, with respect to the securities offered
hereby. This Prospectus, which constitutes part of the Registration
Statement, does not contain all the information set forth in the Registration
Statement, certain portions of which have been omitted in accordance with the
rules and regulations of the Commission. For further information with respect
to the Company and the securities offered hereby, reference is made to the
Registration Statement and to the exhibits and schedules thereto. Statements
made in this Prospectus as to the contents of any contract, agreement or
other document referred to are not necessarily complete. With respect to each
such contract, agreement or other document filed as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement is qualified in
its entirety by such reference. The Registration Statement, including the
exhibits and schedules thereto, may be inspected without charge at the public
reference facilities maintained by the Commission at Judiciary Plaza, Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional
offices of the Commission located at 7 World Trade Center, Suite 1300, New
York, New York 10048 and the Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material may also be obtained
from the Public Reference Section of the Commission located at Judiciary
Plaza, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, upon
payment of prescribed fees. The Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission with a Web site
address of http://www.sec.gov.
The Company intends to furnish its shareholders with annual reports
containing financial statements audited by the Company's independent
accountants and to make available to its shareholders quarterly reports for
the first three quarters of each fiscal year containing unaudited interim
financial information.
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NIASPAN/registered trademark/ is a registered trademark of the Company.
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CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN MARKET.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS
PROSPECTUS, INCLUDING "RISK FACTORS" HEREIN. EXCEPT AS OTHERWISE NOTED, ALL
INFORMATION IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE UNDERWRITERS'
OVER-ALLOTMENT OPTION.
THE COMPANY
Kos Pharmaceuticals, Inc. ("Kos", pronounced Kos, or the "Company") is
engaged primarily in the development of proprietary prescription
pharmaceutical products for the treatment of certain chronic cardiovascular
and respiratory diseases. The Company intends to manufacture its products and
to market such products directly through its own specialty sales force. The
Company's cardiovascular products under development consist of
controlled-release, once-a-day, oral dosage formulations. The Company's
respiratory products under development consist of aerosolized inhalation
formulations to be used primarily with the Company's proprietary inhalation
devices.
The Company was founded in 1988 by the former Chief Executive Officer,
Chief Operating Officer, and Director of Product Development of Key
Pharmaceuticals, Inc., which was acquired by Schering-Plough Corporation in
June 1986. The Company believes that substantial market opportunities exist
for developing drugs that are reformulations of existing approved
prescription pharmaceutical products but which offer certain safety
advantages, such as reduced harmful side effects, or patient compliance
advantages, such as once-a-day rather than multiple daily dosing regimens,
over such currently existing products. Kos believes that developing
proprietary products based on currently approved drugs, rather than new
chemical entities, may reduce regulatory and development risks and, in
addition, facilitate the marketing of such products because physicians are
generally familiar with the safety and efficacy of such products. Seven of
the Company's nine products under development require new drug application
("NDA") filings with the United States Food and Drug Administration ("FDA").
Although more expensive and time consuming, developing products that require
NDA approval offers several advantages compared with generic products,
including potential for higher gross margins, limited competition resulting
from significant clinical and formulation development challenges, and a
three-year statutory barrier to generic competition.
The Company's objective is to become a fully-integrated specialty
pharmaceutical company that develops, manufactures, and markets its
proprietary products. The Company's management has significant experience in
implementing the principal elements of the Company's business strategy. These
elements consist of the following: (i) select products with unrealized
commercial potential where safety or patient compliance may be improved; (ii)
focus initially on the large, rapidly growing cardiovascular and respiratory
markets, which include many chronic diseases requiring long-term therapy;
(iii) develop proprietary formulations of currently approved pharmaceutical
compounds, which can reduce regulatory and development risks typically
associated with the development of new chemical entities; (iv) manage
internally the clinical development of its products; (v) manufacture its
products internally; (vi) market its products directly through the Company's
specialty sales force; and (vii) leverage its core competencies through
additional corporate and academic alliances.
On May 6, 1996, Kos submitted a NDA to the FDA for NIASPAN, its lead
product under development. NIASPAN is a once-a-day, oral, controlled-release
formulation of niacin for the treatment of multiple lipid disorders, which
are primary risk factors for coronary heart disease. Niacin is a water
soluble vitamin long recognized by the National Institutes of Health and the
American Heart Association as an effective pharmacological agent for the
treatment of multiple lipid disorders, including elevated low-density
lipoprotein ("LDL") cholesterol, total cholesterol, and triglycerides and low
high-density lipoprotein ("HDL") cholesterol. The Company submitted its NDA
based on six clinical trials, including three double-blinded,
placebo-controlled pivotal clinical trials, involving an aggregate of 633
NIASPAN-treated subjects at 17 sites throughout the United States. The
results of these
3
<PAGE>
trials produced statistically significant changes in all major lipid
components without serious treatment-related adverse events. Treatment with
NIASPAN demonstrated a 14% to 19% reduction in LDL cholesterol, a 25% to 35%
reduction in triglycerides, an increase of 22% to 29% in HDL cholesterol, and
a reduction of 24% to 29% in Lp(a). Moreover, NIASPAN'S controlled-release
formulation and dosing regimen reduced the liver toxicity and intolerable
side effects generally associated with currently available formulations of
niacin. There can be no assurance that the FDA will approve the Company's NDA
for NIASPAN on a timely basis, or at all.
The Company expects to launch NIASPAN in 1997, and Kos is establishing a
specialty sales force to market NIASPAN to the approximately 16,000
physicians who account for approximately 40% of the total prescriptions for
lipid-altering medications in the United States. The Company's marketing of
NIASPAN will focus on niacin's long-recognized position as first-line drug
therapy for the treatment of hyperlipidemia and on informing specialist
physicians as to the manner in which NIASPAN achieves its safety and efficacy
profile. In 1995, the market for cholesterol reducing drugs exceeded $2.0
billion in the United States and was one of the fastest growing sectors of
the cardiovascular market.
In addition to NIASPAN, Kos has three other once-a-day, controlled-release
cardiovascular products under development: (i) a combination of two currently
approved drugs for the treatment of multiple lipid disorders; (ii) a
formulation of captopril, an angiotensin converting enzyme ("ACE") inhibitor
for hypertension; and (iii) a branded generic form of
isosorbide-5-mononitrate, a nitrate for angina. In 1995, the disease segments
of the cardiovascular market for which the Company is developing its products
achieved aggregate sales in the United States of approximately $10.2 billion.
Kos is also developing five aerosolized inhalation pharmaceutical
products, dispensed in metered-dose inhalation ("MDI") devices for the
treatment of asthma. The Company is developing a generic version of
albuterol, a beta-agonist for asthma, dispensed in a generic MDI with a
chloroflourocarbon ("CFC") propellant. Kos anticipates that it will submit an
abbreviated new drug application ("ANDA") for its CFC albuterol in 1997. Kos
is also developing three non-CFC formulations using its proprietary breath
coordinated inhaler: two different inhaled steroids for asthma, triamcinolone
and flunisolide, and albuterol. In addition, the Company is developing a
proprietary breath actuated inhaler for pediatric and geriatric use with one
of its non-CFC formulations. The market for asthma products in 1995 was $2.4
billion in the United States.
In 1996, the Company entered into certain agreements with Fuisz
Technologies, Ltd., for the development of up to six products using Fuisz'
proprietary microsphere formulation technology. Fuisz has commenced the
development of three of these products, including the Company's combination
product for treatment of multiple lipid disorders, captopril and
isosorbide-5-mononitrate; up to three other products will commence
development during 1997. The Company is also presently sponsoring basic
research at Tufts University and Boston University and intends to enter into
corporate alliances to develop products identified through these research
programs.
Since its inception, the Company's operations have been funded entirely by
Michael Jaharis, one of the Company's founders and its Chairman who was
previously the Chief Executive Officer of Key Pharmaceuticals, Inc. The
Company employs approximately 105 people, of whom 68 are in product
development and 19 in manufacturing.
The Company was incorporated in Florida on June 25, 1996, as the successor
to Kos Holdings, Inc. (formerly named Kos Pharmaceuticals, Inc.), which was
incorporated in Florida on July 1, 1988. References in this Prospectus to the
Company include the operations of its predecessor until June 30, 1996 and its
wholly-owned subsidiary, Aeropharm Technology, Inc.
4
<PAGE>
<TABLE>
<CAPTION>
THE OFFERING
<S> <C>
Common Stock offered hereby ........... 3,500,000 shares
Common Stock to be outstanding
after this offering .................. 13,500,000 shares(1)
Use of proceeds ........................ For research and development, establishment
of a sales and marketing organization for
the anticipated commercial launch of NIASPAN,
repayment of all or a portion of a loan from
Kos Investments, Inc., working capital, and
other general corporate purposes.
Proposed Nasdaq National Market symbol . KOSP
</TABLE>
<TABLE>
<CAPTION>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE DATA)
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
------------------------------------------- ---------------------
1994 1995 1996 1995 1996
------------- ------------- ------------- ---------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenues ................................................ $ 22 $ 14 $ -- $ -- $ --
Operating expenses:
Research and development ............................... 6,663 8,387 13,816 6,426 6,057
General and administrative ............................. 1,619 1,614 1,772 789 1,936
Expense recognized on modification of stock
option grants(2)....................................... -- -- 5,436 -- --
------------- ----------- ---------- ---------- ----------
Total operating expenses ................................ 8,282 10,001 21,024 7,215 7,993
Other income ............................................ (2) -- - - -- --
Interest (income) expense, net .......................... 1,108 1,052 (14) (8) 131
Minority interest (3) ................................... (164) 1 16 1 --
------------- ------------ ---------- ---------- ----------
Net loss ................................................ $ (9,530) $ (11,038) $ (20,994) $ (7,206) $ (8,124)
============= ============= ========== ========== ==========
Net loss per share (4) .................................. $ (0.84) $ (0.98) $ (1.86) $ (0.64) $ (0.72)
============= ============ ========== ========== ==========
Weighted average common shares in computing net loss
per share(4) ........................................... 11,304,786 11,304,786 11,304,786 11,304,786 11,304,786
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
ACTUAL AS ADJUSTED(6)
----------- ---------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET(5):
Cash and cash equivalents ........................... $ 358 $ 36,973
Working capital (deficit) ........................... (8,816) 36,154
Total assets ........................................ 3,197 39,812
Total debt .......................................... 8,355 --
Deficit accumulated during the development stage(7) (64,782) (64,782)
Shareholders' equity (deficit) ...................... (6,210) 38,760
</TABLE>
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(1) Excludes 3,675,000 shares of Common Stock reserved for issuance under the
Company's 1996 Stock Option Plan and 325,000 shares of Common Stock
reserved for issuance upon exercise of other outstanding options. Options
to acquire an aggregate of 2,330,500 shares of Common Stock at a weighted
average exercise price of $4.37 per share were issued and outstanding as
of February 7, 1997. Excludes 811,071 shares of Common Stock (assuming an
initial public offering price of $14.00 per share) issuable to Kos
Investments, at February 7, 1997, upon the conversion, if any, of a note
representing a loan made to the Company by Kos Investments (the
"Convertible Note"). See "Management--Stock Option Plan" and "Certain
Transactions."
(2) Reflects a non-cash charge associated with an extension of the exercise
period for stock options granted during 1988 to 1990 to the Company's
Chief Executive Officer and two independent consultants; no other
material economic terms of these options were changed.
(3) Represents the minority shareholder's interest in Aeropharm Technology,
Inc., the Company's aerosol subsidiary, which interest was acquired by
the Company in June 1996.
(4) See Note 2 of Notes to Consolidated Financial Statements for information
concerning the computation of net loss per share. Assuming the issuance
only of sufficient shares to repay indebtedness outstanding as of
December 31, 1996, supplementary pro forma net loss per share of common
stock would be $(0.67) for the six month period ended December 31, 1996.
(5) The Company has funded its operations since July 1, 1996 using the
proceeds of a loan from Kos Investments, Inc., a company that is
wholly-owned by, and serves as an investment vehicle for Michael Jaharis,
the Company's Chairman and one of its founders. As of February 7, 1997,
the Company had outstanding borrowings of $11,355,000 under such loan.
See "Use of Proceeds."
(6) Adjusted to reflect the sale of 3,500,000 shares of Common Stock offered
hereby (at an assumed initial public offering price of $14.00 per share)
and receipt by the Company of the estimated net proceeds therefrom. See
"Use of Proceeds" and "Capitalization."
(7) In connection with the transfer on June 30, 1996 of assets and
liabilities from Kos Holdings, Inc. to the Company, net operating loss
carry forwards amounting to approximately $51.0 million and related tax
benefits, were not transferred to the Company. See "The Company" and
"Management's Discussion and Analysis of Financial Condition and Results
of Operations."
5
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, PROSPECTIVE
INVESTORS SHOULD CONSIDER THE FOLLOWING FACTORS IN EVALUATING THE COMPANY AND
ITS BUSINESS BEFORE PURCHASING ANY OF THE COMMON STOCK OFFERED HEREBY.
PROSPECTIVE INVESTORS ARE CAUTIONED THAT THE STATEMENTS IN THIS PROSPECTUS
THAT ARE NOT DESCRIPTIONS OF HISTORICAL FACTS MAY BE FORWARD-LOOKING
STATEMENTS THAT ARE SUBJECT TO RISKS AND UNCERTAINTIES. ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE CURRENTLY ANTICIPATED DUE TO A NUMBER OF
FACTORS, INCLUDING THOSE IDENTIFIED UNDER "RISK FACTORS," "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,"
"BUSINESS" AND ELSEWHERE IN THIS PROSPECTUS.
The Company's success depends to a significant extent on whether its lead
product, NIASPAN, is successfully commercialized. There can be no assurance
as to the successful commercialization of NIASPAN. The successful
commercialization of NIASPAN may be affected by various factors, certain of
which are set forth below.
EARLY STAGE OF DEVELOPMENT; HISTORY OF OPERATING LOSSES; UNCERTAINTY OF
FUTURE PROFITABILITY
The Company is a development stage company. It has generated no revenues
from product sales and it does not expect to generate significant revenue
from product sales for at least the next nine months. As of December 31,
1996, the Company's accumulated deficit was $64.8 million. In connection with
the transfer of operations from Kos Holdings, Inc. to the Company on June 30,
1996, net operating loss carry forwards amounting to approximately $51.0
million and related tax benefits remained with Kos Holdings, Inc. and were
not transferred to the Company. Consequently, the Company had no tax assets
or liabilities as of June 30, 1996. See "The Company." To date the Company
has dedicated most of its financial resources to the development of NIASPAN,
the development of other products and general and administrative expenses.
The Company expects to incur significant operating losses for at least the
next 12 months, primarily due to the expansion of its research and
development programs and the establishment of a sales and marketing
organization. The Company's ability to achieve profitability will depend,
among other things, on its successfully completing development of its
products, obtaining regulatory approvals, establishing manufacturing, sales
and marketing capabilities, achieving market acceptance for its products and
maintaining sufficient funds to finance its activities. There can be no
assurance that the Company will be able to achieve profitability or that
profitability, if achieved, can be sustained. See "Selected Consolidated
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and "Business."
UNCERTAINTIES RELATED TO FDA APPROVAL OF NIASPAN
On May 6, 1996, the Company submitted a NDA to the FDA for NIASPAN. The
NDA requests authorization for the Company to market NIASPAN for the
treatment of multiple lipid disorders. The FDA generally requires that the
safety and efficacy of a drug be supported by results from adequate and
well-controlled clinical trials before approval for commercial sale. If the
FDA believes that the results of the pivotal clinical trials for NIASPAN do
not establish the safety and efficacy of NIASPAN in the treatment of any or
all of the referenced indications, or if the FDA fails to accept that the
long-term patient benefits from the treatment of such indications has been
established, the Company will not receive the approvals necessary to market
NIASPAN. Failure to obtain FDA approval to market NIASPAN would have a
material adverse effect on the Company. Securing approval for less than all
of the indications set forth in the NIASPAN NDA could have a material adverse
effect on the Company. The Company may be required to conduct additional
clinical trials in order to demonstrate the safety and efficacy of NIASPAN,
which trials also may not be acceptable to the FDA. Even if acceptable to the
FDA, such additional trials may delay the FDA approval process, which could
have a material adverse effect on the Company. There can be no assurance that
the results of any of the Company's pivotal clinical trials will be
satisfactory or that NIASPAN will obtain regulatory approval for
commercialization on a timely basis, or at all, with respect to all or any of
the indications for which the Company intends to market NIASPAN.
6
<PAGE>
UNCERTAINTIES RELATED TO PRODUCT DEVELOPMENT
The Company has not yet completed the development of any products and,
accordingly, has not begun to market or generate revenues from the
commercialization of products. Although the Company recently submitted a NDA
to the FDA for NIASPAN, each of its other products under development is at an
earlier stage of development. There can be no assurance that the Company will
be able to successfully formulate any of its products as planned, or that the
Company will be successful in demonstrating the safety and efficacy of such
products in human clinical trials. These trials may be costly and
time-consuming. The administration of any product the Company develops may
produce undesirable side effects that could result in the interruption, delay
or suspension of clinical trials, or the failure to obtain FDA or other
regulatory approval for any or all targeted indications. Even if regulatory
approval is secured, the Company's products under development may later
produce adverse effects that limit or prevent their widespread use or that
necessitate their withdrawal from the market.
UNCERTAINTIES RELATED TO MARKET ACCEPTANCE
If the Company receives the required regulatory approvals to market
NIASPAN, the Company's ability to successfully commercialize NIASPAN will
depend in part on the acceptance of NIASPAN by physicians and their patients.
The Company believes that intolerable flushing is one of the principal
reasons why physicians generally have been reluctant to prescribe or
recommend currently available formulations of niacin. Flushing episodes are
often characterized by facial redness, tingling or rash. Although most
patients taking NIASPAN will sometimes flush, the formulation and dosing
regimen for NIASPAN have been designed to maximize patient acceptance and
minimize the occurrence of flushing. There can be no assurance, however, that
patients using NIASPAN will not suffer episodes of flushing that they
consider intolerable. The failure of physicians to prescribe NIASPAN or the
failure of patients to continue taking NIASPAN due to intolerable flushing or
other side effects would have a material adverse effect on the Company. The
Company believes that physicians have also been reluctant to prescribe or
recommend certain currently available formulations of niacin because of
potential liver toxicity associated with these formulations. Although
clinical trials conducted using NIASPAN demonstrated that fewer than 1% of
patients experienced clinically significant elevations in liver enzyme
levels, there can be no assurance that patients using NIASPAN will not
experience any clinically significant elevations of liver enzymes or other
side effects.
Unanticipated side effects or unfavorable publicity concerning any of the
Company's products under development or any other product incorporating
technology similar to that used in the Company's products under development
could have an adverse effect on the Company's ability to obtain regulatory
approvals; to achieve acceptance by prescribing physicians, managed care
providers or patients; and to commercialize its products, any of which could
have a material adverse effect on the Company.
PATENTS AND TRADEMARKS; INTERFERENCE
The Company's ability to commercialize any of its products under
development will depend, in part, on its or its licensors' ability to obtain
patents, enforce those patents, preserve trade secrets, and operate without
infringing on the proprietary rights of third parties. In addition, the
patents for which the Company has applied relating to NIASPAN and certain
other of the Company's products under development are based on, among other
things, the timed administration of NIASPAN. If the indications treated by
NIASPAN and such other products under development could be treated using
drugs without such timed administration, the Company's patents, if issued,
would not prevent the use of such drugs for the treatment of such
indications, which would have a material adverse effect on the Company. There
can be no assurance that the patent applications licensed to or owned by the
Company will result in issued patents, that patent protection will be secured
for any particular technology, that any patents that have been or may be
issued to the Company or its licensors will be valid or enforceable or that
any patents will provide meaningful protection to the Company.
In general, the U.S. patents and patent applications owned by or licensed
to the Company are method-of-use patents that cover the timed use of certain
compounds to treat specified conditions.
7
<PAGE>
Composition-of-matter protection is not available for the active ingredient
in NIASPAN. The active ingredient in NIASPAN, niacin, is currently sold in
the United States and other markets for LDL cholesterol lowering and for
other uses. Even in jurisdictions where the use of the active ingredient in
NIASPAN for lowering LDL cholesterol and other indications may be covered by
the claims of a use patent licensed to the Company, off-label sales might
occur, especially if another company markets the active ingredient at a price
that is less than the price of NIASPAN, thereby potentially reducing the
sales of NIASPAN. See "Business--Competition" and "Business--Government
Regulation."
The Company has a patent application pending in the U.S. Patent and
Trademark Office ("PTO") with claims covering NIASPAN's method of use
consistent with its recommended once-a-day dosing regimen. Certain of these
claims have recently been held allowable by the PTO, but have not yet been
issued as a patent. The patent examiner has, however, suspended prosecution
of the Kos application and referred such application to the PTO's Board of
Appeals to determine whether an interference should be declared between such
Kos application and a method-of-use patent issued to a generic manufacturer
allegedly claiming the same dosing regimen invention. It may take up to a
year or more for the PTO's Board of Appeals to determine whether to declare
such an interference. On February 7, 1997, the Company and such generic
manufacturer entered into a cross licensing agreement (the "License
Agreement") pursuant to which the parties agreed to resolve, as between
themselves, the effects of such potential interference by granting licenses
under their respective patent application and patent.
The patent positions of pharmaceutical and biotechnology companies are
highly uncertain and involve complex legal and factual questions. There can
be no assurance that the patents owned and licensed by the Company, or any
future patents, will prevent other companies from developing similar or
therapeutically equivalent products or that others will not be issued patents
that may prevent the sale of Company products or require licensing and the
payment of significant fees or royalties by the Company. Furthermore, there
can be no assurance that any of the Company's future products or methods will
be patentable, that such products or methods will not infringe upon the
patents of third parties, or that the Company's patents or future patents
will give the Company an exclusive position in the subject matter claimed by
those patents. The Company may be unable to avoid infringement of third party
patents and may have to obtain a license, defend an infringement action, or
challenge the validity of the patents in court. There can be no assurance
that a license will be available to the Company, if at all, on terms and
conditions acceptable to the Company, or that the Company will prevail in any
patent litigation. Patent litigation is costly and time consuming, and there
can be no assurance that the Company will have or will devote sufficient
resources to pursue such litigation. If the Company does not obtain a license
under such patents, is found liable for infringement or is not able to have
such patents declared invalid, the Company may be liable for significant
money damages, may encounter significant delays in bringing products to
market, or may be precluded from participating in the manufacture, use, or
sale of products or methods of treatment requiring such licenses.
The Company also relies on trade secrets and other unpatented proprietary
information in its product development activities. To the extent that the
Company relies on trade secrets and unpatented know-how to maintain its
competitive technological position, there can be no assurance that others may
not independently develop the same or similar technologies. The Company seeks
to protect trade secrets and proprietary knowledge in part through
confidentiality agreements with its employees, consultants, advisors and
collaborators. Nevertheless, these agreements may not effectively prevent
disclosure of the Company's confidential information and may not provide the
Company with an adequate remedy in the event of unauthorized disclosure of
such information. If the Company's employees, scientific consultants or
collaborators develop inventions or processes independently that may be
applicable to the Company's products under development, disputes may arise
about ownership of proprietary rights to those inventions and processes. Such
inventions and processes will not necessarily become the Company's property,
but may remain the property of those persons or their employers. Protracted
and costly litigation could be necessary to enforce and determine the scope
of the Company's proprietary rights. Failure to obtain or maintain patent and
trade secret protection, for any reason, would have a material adverse effect
on the Company. See "Business--Patents and Proprietary Rights."
8
<PAGE>
The Company engages in collaborations, sponsored research agreements, and
other arrangements with academic researchers and institutions that have
received and may receive funding from U.S. government agencies. As a result
of these arrangements, the U.S. government or certain third parties may have
rights in certain inventions developed during the course of the performance
of such collaborations and agreements as required by law or such agreements.
Several legislative bills affecting patent rights have been introduced in the
United States Congress. These bills address various aspects of patent law,
including publication, patent term, re-examination subject matter and
enforceability. It is not certain whether any of these bills will be enacted
into law or what form such new laws may take. Accordingly, the effect of such
potential legislative changes on the Company's intellectual property estate
is uncertain.
LIMITED SALES AND MARKETING EXPERIENCE
The Company has not yet established a sales and marketing organization nor
has it yet marketed, distributed or sold any product. The Company intends to
market NIASPAN and the majority of its other products under development
through its own specialty sales force. Substantial resources will be required
for the Company to establish its own sales force and promote the sale of
NIASPAN and its other products under development. There can be no assurance
that the Company will be able to establish a sales and marketing organization
prior to the Company's planned launch of NIASPAN in 1997 or at all, or that
the Company will devote resources to NIASPAN or its other products under
development sufficient to achieve market acceptance. The Company's failure or
delay in establishing a marketing and sales force prior to the planned launch
of NIASPAN in 1997 or its failure to expend the resources to adequately
promote NIASPAN would have a material adverse effect on the Company. The
Company's failure to establish a marketing and sales force or its failure to
expend the resources to adequately promote any of its other products under
development could have a material adverse effect on the Company.
COMPETITION AND TECHNOLOGICAL CHANGE
The active ingredient in NIASPAN, niacin, is available in several other
formulations, most of which do not require a prescription. Although the
Company believes that there are no currently available niacin formulations
that have been approved by the FDA specifically for once-a-day dosing, there
can be no assurance that physicians will not prescribe or recommend some of
these unapproved niacin formulations, using the NIASPAN dosing regimen, to
try to achieve the same results as NIASPAN. Substitution of other niacin
formulations for NIASPAN could have a material adverse effect on the Company.
Moreover, manufacturers of other niacin formulations could promote their
products using the NIASPAN dosing regimen and could promote the sale of their
products to treat the indications for which the Company has sought approval
to market NIASPAN. Although such promotion would be a violation of FDA
regulations, the occurrence of such practices would have a material adverse
effect on the Company. See "Business--Government Regulation" and
"Business--Competition." Moreover, many products are commercially available
for the treatment of elevated LDL cholesterol, and the manufacturers of such
products have significantly greater financial resources and sales and
manufacturing capabilities than the Company. There can be no assurance that
any products developed by the Company will be able to compete successfully
with any of those products.
Many established pharmaceutical and biotechnology companies, universities,
and other research institutions with resources significantly greater than the
Company's may develop products that directly compete with the Company's
products. Even if the Company's products under development prove to be more
effective than those developed by other entities, such other entities may be
more successful in marketing their products than the Company because of
greater financial resources, stronger sales and marketing efforts, and other
factors. These entities may succeed in developing products that are safer,
more effective or less costly than the products developed by the Company.
There can be no assurance that any products developed by the Company will be
able to compete successfully with any of those products.
9
<PAGE>
GOVERNMENT REGULATION; NO ASSURANCES OF REGULATORY APPROVAL
The Company's research and development activities, preclinical studies,
clinical trials, and the manufacturing and marketing of its products are
currently subject to extensive regulation by the FDA and may in the future be
subject to foreign regulations. The drug approval process takes many years
and requires the expenditure of substantial resources. Data obtained from
preclinical and clinical activities are susceptible to varying
interpretations that could delay, limit, or prevent regulatory approval.
Although the Company may consult the FDA for guidance in developing protocols
for clinical trials, that consultation provides no assurance that the FDA
will accept the clinical trials as adequate or well-controlled or accept the
results of those trials. In addition, delays or rejections of applications
for regulatory approval may result from changes in or additions to FDA
regulations concerning the drug approval process. Similar delays may also be
encountered in foreign countries. There can be no assurance that any
regulatory review will be conducted in a timely manner or that regulatory
approvals will be obtained for any products developed by the Company,
including NIASPAN. Even if regulatory approval of a product is obtained, the
approval may be limited as to the indicated uses for which it may be promoted
or marketed. In addition, a marketed drug, its bulk chemical supplier, its
manufacturer and its manufacturing facilities are subject to continual
regulatory review and periodic inspections, and later discovery of previously
unknown problems with a product, supplier, manufacturer or facility may
result in restrictions on such products or manufacturers, which may require a
withdrawal of the product from the market. Failure to comply with the
applicable regulatory requirements can, among other things, result in fines,
suspensions of regulatory approvals, product recalls, operating restrictions
and criminal prosecution, any of which could have a material adverse effect
on the Company.
The Company's business is also subject to regulation under state, federal
and local laws, rules, regulations and policies relating to the protection of
the environment and health and safety, including those governing the use,
generation, manufacture, storage, air emission, effluent discharge, handling
and disposal of certain materials. The Company believes that it is in
compliance in all material respects with all such laws, rules, regulations
and policies applicable to the Company. There can be no assurance that the
Company will not be required to incur significant costs to comply with such
environmental and health and safety laws and regulations in the future. The
Company's research and development involves the controlled use of hazardous
materials. Although the Company believes that its safety procedures for
handling and disposing of such materials comply with the standards prescribed
by applicable state, federal and local regulations, the risk of contamination
or injury from these materials cannot be completely eliminated. In the event
of such contamination or injury, the Company could be held liable for any
damages that result and any such liability could exceed the resources of the
Company and materially adversely affect the Company's business, financial
condition and results of operations. One of the Company's products under
development involves the use of CFC propellants. The use of CFC propellants
is subject to significant U.S. and foreign regulations. Moreover, it is
possible that future international treaties or U.S. or foreign government
regulations will prohibit the use of CFC propellants. See
"Business--Government Regulation" and "Business--Respiratory Products."
DEPENDENCE ON FUISZ TECHNOLOGIES LTD. AND OTHER COLLABORATORS
The Company may rely on third parties for certain aspects of the
development of certain of its products under development. The Company has
entered into agreements with Fuisz Technologies Ltd. ("Fuisz") pursuant to
which the Company and Fuisz have agreed to collaborate in the development of
captopril, isosorbide-5-mononitrate ("IS-5-MN"), and the lipid-altering
combination product, as well as certain other products in the future. Under
the terms of these agreements, Kos is responsible for conducting
pharmacokinetic studies and clinical trials and Fuisz is responsible for the
formulation of such products. The Company is not aware of any approved
products that use Fuisz' microsphere technology, which will be used in the
future in certain of the Company's products under development. The Company's
ability to commercialize these products may depend to a significant extent
on the efforts of Fuisz, over which the Company has no control. There can be
no assurance that Fuisz will be successful in developing any of the Company's
products under development. The failure of Fuisz to develop any of the
Company's products may have a material adverse effect on the Company. The
10
<PAGE>
Company may also rely on other third parties for certain aspects of the
development of the Company's presently planned or future products. There can
be no assurance that the Company will be able to enter into future
collaborative arrangements on favorable terms, or at all. Even if the Company
is successful in entering into such collaborative agreements, there can be no
assurance that any such arrangement will be successful. The success of any
such arrangement is dependent on, among other things, the skills, experience
and efforts of the third party's employees responsible for the project, the
third party's commitment to the arrangement, and the financial condition of
the third party, all of which are beyond the control of the Company.
LIMITED MANUFACTURING EXPERIENCE; RISK OF SCALE-UP
Although the Company has manufactured sufficient quantities of certain of
its products to facilitate the conduct of human clinical trials and extensive
testing and research, the Company has no experience manufacturing products
for commercial purposes. At present, the Company manufactures clinical
materials in two manufacturing plants, both of which the Company believes
operate in substantial compliance with current Good Manufacturing Practices
("cGMP") regulations for the manufacture of pharmaceutical products. The
Company may need to further scale-up certain of its current manufacturing
processes to achieve production levels consistent with the commercial sale of
its products. Further, modifications to the facilities, systems and
procedures may be necessary to maintain compliance with cGMP regulations and
other regulations prescribed by various regulatory agencies including the
Occupational Safety and Health Administration and the Environmental
Protection Agency, in connection with manufacture for commercial sale.
Failure by the Company to successfully further scale-up or modify its
manufacturing process or to comply with cGMP regulations and other
regulations could delay the approval of the Company's products under
development or limit the Company's ability to meet the demand for its
products, either of which would have a material adverse effect on the
Company. Such occurrences may require the Company to acquire alternative
means of manufacturing its products, which may not be available to the
Company on a timely basis, on commercially practicable terms, or at all.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company has experienced negative cash flows from operations since its
inception and has funded its activities to date by capital contributions and,
since July 1, 1996, a loan from Kos Investments, Inc. represented by a
promissory note convertible at the option of the holder into Common Stock at the
initial public offering price (the "Convertible Note"). Assuming successful
commercial launch of NIASPAN, the Company anticipates positive cash flows from
operations in 1998. The Company anticipates that it will use a portion of the
net proceeds of the offering to repay all or a portion of the Convertible Note.
See "Certain Transactions." The Company has expended and will continue to be
required to expend substantial funds to continue research and development,
including clinical trials of its products under development, and to commence
sales and marketing efforts if regulatory approvals are obtained. Although the
Company believes that the net proceeds of this offering (after repayment, if
any, of the Convertible Note) will be sufficient to fund the operations of the
Company for at least the next twelve months, the Company may need or elect to
raise additional capital. The Company's capital requirements will depend on many
factors, including the problems, delays, expenses and complications frequently
encountered by development stage companies; the progress of the Company's
research, development and clinical trial programs; the costs and timing of
seeking regulatory approvals of the Company's products under development; the
Company's ability to obtain such regulatory approvals; the success of the
Company's sales and marketing programs; costs in filing, prosecuting, defending
and enforcing any patent claims and other intellectual property rights; the
extent and terms of any collaborative research, manufacturing, marketing or
other arrangements; and changes in economic, regulatory or competitive
conditions or the Company's planned business. Estimates about the adequacy of
funding for the Company's activities are based on certain assumptions, including
the assumption that testing and regulatory procedures relating to the Company's
products
11
<PAGE>
under development can be conducted at projected costs and within projected
time frames and that the Company's NIASPAN product receives regulatory
approval on a timely basis and is successfully marketed.
To satisfy its capital requirements, the Company may seek to raise funds
in the public or private capital markets. The Company's ability to raise
additional funds in the public or private markets will be adversely affected
if the results of the Company's ongoing or future clinical trials are not
favorable or if regulatory approval for any of the Company's products under
development is not obtained. The Company may seek additional funding through
corporate collaborations and other financing vehicles. There can be no
assurance that any such funding will be available to the Company, or if
available, that it will be available on acceptable terms. If adequate funds
are not available, the Company may be required to curtail significantly one
or more of its research or development programs or it may be required to
obtain funds through arrangements with future collaborative partners or
others that may require the Company to relinquish rights to some or all of
its technologies or products under development. If the Company is successful
in obtaining additional financing, the terms of the financing may have the
effect of diluting or adversely affecting the holdings or the rights of the
holders of Common Stock. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
DEPENDENCE ON SINGLE SOURCES OF SUPPLY
Some materials used in the Company's products, including the active
ingredient in NIASPAN, are currently sourced from a single qualified
supplier. The Company does not have a contractual arrangement with the sole
supplier of the active ingredient in NIASPAN pursuant to which the Company
obtains such ingredient. Although the Company has not experienced difficulty
in acquiring materials for product development to date, no assurance can be
given that supply interruptions will not occur in the future or that the
Company will not have to obtain substitute materials, which would require
additional product validations and regulatory submissions. Any such
interruption of supply could have a material adverse effect on the Company's
ability to manufacture its products or to obtain or maintain regulatory
approval of such products.
NO ASSURANCE OF ADEQUATE THIRD-PARTY REIMBURSEMENT
The Company's ability to commercialize successfully its products under
development is dependent in part on the extent to which appropriate levels of
reimbursement for the Company's products and related treatments are obtained
from government authorities, private health insurers and other organizations,
such as health maintenance organizations ("HMOs"). Third-party payors are
increasingly challenging the pricing of pharmaceutical products. The trend
toward managed healthcare in the U.S., the growth of organizations such as
HMOs and legislative proposals to reform healthcare and government insurance
programs could significantly influence the purchase of pharmaceutical
products, resulting in lower prices and reduced demand for the Company's
products under development. Such cost containment measures and healthcare
reform could affect the Company's ability to sell its products under
development and may have a material adverse effect on the Company.
Significant uncertainty exists about the reimbursement status of newly
approved pharmaceutical products. There can be no assurance that
reimbursement in the United States or foreign countries will be available for
any of the Company's products under development, that any reimbursement
granted will be maintained or that limits on reimbursement available from
third-party payors will not reduce the demand for, or negatively affect the
price of, the Company's products under development. The unavailability or
inadequacy of third-party reimbursement for the Company's products under
development would have a material adverse effect on the Company.
RISK OF PRODUCT LIABILITY CLAIMS; NO ASSURANCE OF ADEQUATE INSURANCE
Testing, manufacturing, marketing, and selling the Company's products
under development entails a risk of product liability. Although the Company
carries clinical trial product liability insurance in the aggregate amount of
$3,000,000, there can be no assurance that the existing coverage is adequate.
Furthermore, this existing coverage may not be adequate as the Company
further develops products. If
12
<PAGE>
the Company receives the required regulatory approvals and begins to sell
NIASPAN or any of its other products under development, there can be no
assurance that additional liability insurance coverage for a commercialized
product will be available in the future on acceptable terms, if at all. The
Company's business could be adversely affected by the assertion of a product
liability claim, and the Company could be rendered insolvent if it does not
have sufficient financial resources to satisfy any liability resulting from
such a claim or to fund the legal defense of such a claim.
DEPENDENCE ON KEY PERSONNEL
The success of the Company is dependent on its ability to attract and
retain highly qualified scientific and management personnel. The Company
faces intense competition for personnel from other companies, academic
institutions, government entities and other organizations. There can be no
assurance that the Company will be successful in attracting and retaining key
personnel. The loss of key personnel, or the inability to attract and retain
the additional, highly-skilled employees required for the expansion of the
Company's activities, could adversely affect the Company's results of
operations and its business. See "Management."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
The Company's sole shareholder, each current holder of options to acquire
Common Stock and Kos Investments, Inc., which holds the Convertible Note,
have agreed not to sell shares of Common Stock for a period of 180 days from
the date of this Prospectus. The Company has granted certain registration
rights to the Company's sole shareholder and to Kos Investments, Inc., the
holder of the Convertible Note, which entitle such entities to cause the
Company to effect three registrations under the Securities Act of sales of
shares of the Company's Common Stock owned by such entities. By exercising
these registration rights, these entities could cause a large number of
shares to be registered and become freely tradeable without restrictions
under the Securities Act (except for those purchased in the offering by
affiliates of the Company) immediately upon the effectiveness of such
registration. In addition, the Company intends to file, after the expiration
of such 180 day period, registration statements under the Securities Act to
register an aggregate of 4,000,000 shares of Common Stock issued or reserved
for issuance under the Company's employee benefit plans. Such sales may have
an adverse effect on the market price of the Common Stock and could impair
the Company's ability to raise additional capital. See "Shares Eligible for
Future Sale" and "Underwriting."
NO PRIOR PUBLIC MARKET; POSSIBLE STOCK PRICE VOLATILITY
Prior to this offering, there has been no public market for shares of the
Common Stock. Although the Company has submitted an application to have the
Common Stock approved for quotation on the Nasdaq National Market system,
there can be no assurance that a regular trading market will develop or be
sustained after the offering. The initial public offering price for the
Common Stock will be determined by negotiations between the Company and the
representatives of the Underwriters. See "Underwriting." The stock market,
including the Nasdaq National Market, on which the Company's shares are
expected to be quoted, has from time to time experienced significant price
and volume fluctuations that may be unrelated to the operating performance of
particular companies. In addition, the market price of the Common Stock, like
the stock prices of many publicly traded pharmaceutical and biotechnology
companies, may prove to be highly volatile. Announcements of technological
innovations or new commercial products by the Company or its competitors,
developments or disputes concerning patent or proprietary rights, publicity
regarding actual or potential medical results relating to products under
development by the Company or its competitors, regulatory developments in
either the United States or foreign countries, public concern as to the
safety of pharmaceutical and biotechnology products and economic and other
external factors, as well as period-to-period fluctuations in financial
results, among other factors, may have a significant impact on the market
price of the Common Stock.
13
<PAGE>
CONTROL BY EXISTING SHAREHOLDER
Upon completion of this offering, Michael Jaharis, the Chairman of the
Board of Directors of the Company and one of its founders, will beneficially
own approximately 74% of the outstanding Common Stock (approximately 71% if
the Underwriters exercise their over-allotment option in full), excluding
811,071 shares of Common Stock issuable to Kos Investments upon conversion,
if any, of the Convertible Note. Accordingly, this shareholder will be able
to control the outcome of shareholder votes, including votes concerning the
election of directors, the adoption or amendment of provisions in the
Company's Articles of Incorporation, and the approval of mergers and other
significant corporate transactions. This level of concentrated ownership by
one person, along with the factors described in "Risk Factors--Anti-Takeover
Provisions," may have the effect of delaying or preventing a change in the
management or voting control of the Company. See "Principal Shareholders."
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Articles of Incorporation and Bylaws,
as well as the Florida Business Corporation Act, could discourage a third
party from attempting to acquire, or make it more difficult for a third party
to acquire, control of the Company without approval of the Company's Board of
Directors. Such provisions could also limit the price that certain investors
might be willing to pay in the future for shares of the Common Stock. Certain
of such provisions allow the Board of Directors to authorize the issuance of
preferred stock with rights superior to those of the Common Stock. Moreover,
certain provisions of the Company's Articles of Incorporation or Bylaws
generally permit removal of directors only for cause by a 60% vote of the
shareholders of the Company, require a 60% vote of the shareholders to amend
the Company's Articles of Incorporation or Bylaws, require a demand of at
least 50% of the Company's shareholders to call a special meeting of
shareholders, and prohibit shareholder actions by written consent. See
"Description of Capital Stock."
DILUTION; ABSENCE OF DIVIDENDS
Purchasers of the Common Stock in the offering will experience an
immediate dilution in net tangible book value of $11.13 (assuming an initial
public offering price per share of $14.00) per share. These investors will
also experience additional dilution upon the exercise of outstanding options.
See "Dilution." The Company intends to retain earnings, if any, for use in
its business and does not anticipate paying any cash dividends in the
foreseeable future. See "Dividend Policy."
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THE COMPANY
The Company's predecessor, Kos Holdings, Inc. ("Holdings"), which was
previously named Kos Pharmaceuticals, Inc., was incorporated in Florida on
July 1, 1988, to develop prescription pharmaceutical products principally for
the cardiovascular and respiratory markets. On June 25, 1996, Kos (named
after the Greek Island where Hippocrates founded the science of medicine) was
incorporated in Florida as the successor to the business of Holdings. On June
30, 1996, all of the assets and all of the liabilities of Holdings were
transferred to the Company in exchange for shares of common stock of the
Company (the "Reorganization"). The Reorganization was accomplished in order
to transfer the assets and operations of Holdings to the Company while
preserving Holdings' net operating loss carryforwards and related tax
benefits for Holdings. As a result, the Company had no tax assets or
liabilities as of June 30, 1996. Kos Investments, Inc. ("Kos Investments") is
the sole shareholder of Holdings. Kos Investments is wholly-owned by, and
serves as an investment vehicle for Michael Jaharis, one of the Company's
founders and its Chairman, who has solely financed the Company's operations
from inception. All references in this Prospectus to the Company include its
wholly-owned subsidiary, Aeropharm Technology, Inc. ("Aeropharm"), and the
business and operations of Holdings, its predecessor company, until June 30,
1996.
The Company's principal executive offices are located at 1001 Brickell Bay
Drive, Suite 2502, Miami, Florida 33131, and its telephone number is (305)
577-3464.
USE OF PROCEEDS
The net proceeds to the Company from the sale of Common Stock offered
hereby are estimated to be $45.0 million ($51.8 million if the Underwriters'
over-allotment option is exercised in full), at an assumed initial public
offering price of $14.00 per share and after deducting underwriting discounts
and commissions and estimated offering expenses payable by the Company. The
Company intends to use approximately $13 million to fund the Company's
research and development programs, approximately $6 million to establish a
sales and marketing organization and to fund marketing expenses related to
the commercial launch of NIASPAN, and the remaining amount for general
corporate purposes and working capital. The Company may, in the discretion of
its Board of Directors, use a portion of the proceeds to repay all or a
portion of the Convertible Note and currently anticipates that it will use at
least $8 million for such purpose. Kos Investments has the option to convert
such note into shares of Common Stock at the initial public offering price.
No assurance can be given as to whether Kos Investments will exercise such
option. The Convertible Note bears interest at First Union National Bank of
Florida's prime rate commencing July 1, 1996, escalating to a rate of 1% over
such prime rate during calendar year 1997, 2% over such prime rate during
calendar year 1998, and 3% over such prime rate during calendar year 1999,
until the maturity date of June 30, 1999. As of February 7, 1997, the amount
outstanding on the Convertible Note was $11,355,000. These borrowings were
incurred to fund the Company's operations since July 1, 1996. See "Certain
Transactions." The Company may also use a portion of the net proceeds to
acquire businesses, technologies or products complementary to the Company's
business, although the Company does not currently have any commitment or
agreement for any such acquisitions. No material transactions of this nature
are currently planned or being negotiated. Pending application of the
proceeds as described above, the Company intends to invest the net proceeds
of this offering in short-term, investment grade, interest-bearing
securities.
DIVIDEND POLICY
The Company intends to retain earnings, if any, for use in its business
and, therefore, does not anticipate paying any cash dividends in the
foreseeable future. Any future determination as to the payment of cash
dividends will be made at the discretion of the Board of Directors and will
depend upon the financial condition, capital requirements and earnings of the
Company, as well as upon other factors that the Board of Directors may deem
relevant. The Company has not paid any cash dividends since inception.
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<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
December 31, 1996, and (ii) on an adjusted basis to reflect receipt and
application of the estimated net proceeds, after deducting underwriting
discounts and commissions and estimated expenses payable by the Company, from
the sale of 3,500,000 shares of Common Stock pursuant to this offering. As of
December 31, 1996, the Company's outstanding principal balance under the
Convertible Note was $8,355,000. See "Use of Proceeds" and "Certain
Transactions."
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------
ACTUAL AS ADJUSTED
----------- --------------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt .................................................. $ 8,355 $ --
--------------
Shareholders' equity (deficit):
Common stock; $.01 par value; 50,000,000 shares authorized;
10,000,000 shares issued and outstanding, and 13,500,000 issued
and outstanding, as adjusted (1) .............................. $ 100 135
Additional paid-in capital ...................................... 58,472 103,407
Deficit accumulated during the development stage ................. (64,782) (64,782)
----------- --------------
Total shareholders' equity (deficit) ............................. (6,210) 38,760
----------- --------------
Total capitalization ............................................. $ 2,145 $ 38,760
=========== ==============
</TABLE>
- -----------------------------------------------------------------------------
(1) Excludes 3,675,000 shares of Common Stock reserved for issuance under the
Company's 1996 Stock Option Plan and 325,000 shares of Common Stock
reserved for issuance upon exercise of other outstanding options. Options
to acquire an aggregate of 2,330,500 shares of Common Stock at a weighted
average exercise price of $4.37 per share were issued and outstanding as
of December 31, 1996. Excludes 596,786 shares of Common Stock issuable at
December 31, 1996, to Kos Investments upon the conversion, if any, of the
Convertible Note.
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DILUTION
The net tangible book value of the Company as of December 31, 1996 was
approximately $(6,210,000), or $(0.62) per share. Net tangible book value per
share represents the amount of the Company's shareholder's equity, less
intangible assets, divided by 10,000,000, the number of shares of Common
Stock outstanding as of December 31, 1996.
Net tangible book value dilution per share represents the difference
between the amount per share paid by purchasers of shares of Common Stock in
this offering and the net tangible book value per share of Common Stock
immediately after completion of this offering. After giving effect to the
sale of 3,500,000 shares of Common Stock in this offering at the assumed
initial public offering price of $14.00 per share and after deducting
underwriting discounts and commissions and estimated offering expenses
payable by the Company, the net tangible book value of the Company as of
December 31, 1996 would have been $38,760,000 or $2.87 per share. This
represents an immediate increase in net tangible book value of $3.49 per
share to the existing shareholder and an immediate dilution in net tangible
book value of $11.13 per share to purchasers of Common Stock in this
offering, as illustrated in the following table:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share ............... $14.00
Net tangible book value per share as of December 31, 1996 ... $(0.62)
Increase per share attributable to new investors ............ 3.49
----------
Pro forma net tangible book value per share after this
offering ..................................................... $ 2.87
---------
Dilution per share to new investors ........................... $11.13
=========
</TABLE>
Utilizing the foregoing assumptions, the following table summarizes the
total consideration paid to the Company and the average price per share paid
by the existing shareholder and by new investors purchasing shares of the
Common Stock in this offering.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------------- ------------------------------
AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
---------------- ------------- --------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Existing Shareholder 10,000,000(1) 74% $ 52,989,000 52% $ 5.30
New Investors ........ 3,500,000 26 49,000,000 48 14.00
---------------- ------------- --------------- ------------- ----------------
Total .............. 13,500,000 100% $101,989,000 100%
================ ============= =============== =============
</TABLE>
- -----------------------------------------------------------------------------
(1) If the Convertible Note is converted to shares of Common Stock, the
Shares Purchased by Existing Shareholders in the table will be 10,811,071
as of February 7, 1997 (assuming an initial public offering price of
$14.00 per share), for Total Consideration of $64,344,000, and for
Average Price Per Share of $5.95.
The foregoing table excludes 3,675,000 shares of Common Stock reserved for
issuance under the Company's 1996 Stock Option Plan and 325,000 shares of
Common Stock reserved for issuance upon exercise of other outstanding
options. Options to acquire an aggregate of 2,330,500 shares of Common Stock
at a weighted average exercise price of $4.37 per share were issued and
outstanding as of December 31, 1996. See "Management--Stock Option Plan" and
Note 6 of Notes to Consolidated Financial Statements. To the extent
outstanding options are exercised, there will be future dilution to investors
in this offering. See "Management--Employee Benefit Plans--Stock Option
Plan.".
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's consolidated financial
statements and related notes included elsewhere in this Prospectus. The
statement of operations data for the five years ended June 30, 1996 and the
balance sheet data at June 30, 1992, 1993, 1994, 1995 and 1996 are derived
from the financial statements and the notes thereto of the Company audited by
Arthur Andersen LLP. The selected financial data, as of and for the six
months ended December 31, 1995 and 1996, have been derived from unaudited
financial statements of the Company that, in the opinion of management,
include all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation as of and for such periods. The results of
operations for the six months ended December 31, 1996 are not necessarily
indicative of the results of operations to be expected for the entire fiscal
year.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------------
1992 1993 1994 1995
-------------- ------------- ------------- -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenues ....................... $ -- $ -- $ 22 $ 14
Operating expenses:
Research and development ........ 2,476 4,930 6,663 8,387
General and administrative ..... 975 1,232 1,619 1,614
Expense recognized on
modification of stock option
grants(1) ..................... -- -- -- --
-------------- ------------- ------------- -------------
Total operating expenses ...... 3,451 6,162 8,282 10,001
Other income ..................... (1) (1) (2) --
Interest (income) expense, net .. 428 556 1,058 1,026
Interest expense-related parties 15 29 50 26
-------------- ------------- ------------- -------------
Total other (income) expense .... 442 584 1,106 1,052
-------------- ------------- ------------- -------------
Loss before minority interest ... (3,893) (6,746) (9,366) (11,039)
Minority interest(2) ............. -- -- (164) 1
-------------- ------------- ------------- -------------
Net loss ......................... $ (3,893) $ (6,746) $ (9,530) $ (11,038)
============== ============= ============= =============
Net loss per share (3) ........... $ (0.34) $ (0.60) $ (0.84) $ (0.98)
============== ============= ============= =============
Weighted average common shares in
computing net loss per share(3) 11,304,786 11,304,786 11,304,786 11,304,786
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JULY 1, 1988
DECEMBER 31, (INCEPTION) TO
------------- ---------------------------- DECEMBER 31,
1996 1995 1996 1996
------------- ------------- ------------- ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenues ....................... $ -- $ -- $ -- $ 37
Operating expenses:
Research and development ........ 13,816 6,426 6,057 44,762
General and administrative ..... 1,772 789 1,936 10,808
Expense recognized on
modification of stock option
grants(1) ..................... 5,436 -- -- 5,436
------------- ------------- ------------- ---------------
Total operating expenses ...... 21,024 7,215 7,993 61,006
Other income ..................... -- -- -- (10)
Interest (income) expense, net .. (14) (8) (5) 3,409
Interest expense-related parties -- -- 136 266
------------- ------------- ------------- ---------------
Total other (income) expense .... (14) (8) 131 3,665
------------- ------------- ------------- ---------------
Loss before minority interest ... (21,010) (7,207) (8,124) (64,634)
Minority interest(2) ............. 16 1 -- (148)
------------- ------------- ------------- ---------------
Net loss ......................... $ (20,994) $ (7,206) $ (8,124) $ (64,782)
============= ============= ============= ===============
Net loss per share (3) ........... $ (1.86) $ (0.64) $ (0.72) $ (5.73)
============= ============= ============= ===============
Weighted average common shares in
computing net loss per share(3) 11,304,786 11,304,786 11,304,786 11,304,786
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
-------------------------------------------------------------- DECEMBER 31,
1992 1993 1994 1995 1996 1996
---------- ----------- ----------- ----------- ----------- ---------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET(4):
Cash and cash equivalents ........................ $ 27 $ 13 $ 18 $ 41 $ 193 $ 358
Working capital (deficit)(5) ..................... (8,407) (15,235) (25,394) (1,129) (8) (8,816)
Total assets ..................................... 586 686 1,574 2,355 2,281 3,197
Total debt ....................................... 8,232 14,742 24,790 -- -- 8,355
Deficit accumulated during the development stage (8,350) (15,096) (24,626) (35,664) (56,658) (64,782)
Shareholder's equity (deficit)(5) ................ (7,860) (14,606) (24,136) 943 1,914 (6,210)
</TABLE>
- -----------------------------------------------------------------------------
(1) Reflects a non-cash charge associated with an extension of the exercise
period for stock options granted during 1988 to 1990 to the Company's
Chief Executive Officer and two independent consultants; no other
material economic terms of these options were changed.
(2) Represents the minority shareholder's interest in Aeropharm, which
interest was acquired by the Company in June 1996.
(3) See Note 2 of Notes to Consolidated Financial Statements for information
concerning the computation of net loss per share. Assuming the issuance
only of sufficient shares to repay the indebtedness outstanding as of
December 31, 1996, supplementary pro forma net loss per share of common
stock would be $(0.67) for the six month period ended December 31, 1996.
(4) The Company has funded its operations since July 1, 1996 using the
proceeds of the Convertible Note. As of February 7, 1997, the Company had
outstanding borrowings of $11,355,000 under the Convertible Note. See
"Use of Proceeds."
(5) In March 1995, Investments assumed repayment of a note payable to a bank
in the principal amount of $30,372,000. This assumption was accounted for
as a transfer to Investments and as an increase in additional paid-in
capital. See Note 4 of Notes to Consolidated Financial Statements.
18
<PAGE>
MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
A predecessor corporation to the Company was formed in July 1988 under the
name of Kos Pharmaceuticals, Inc., principally to conduct research and
development on new formulations of existing prescription pharmaceutical
products. In June 1993, Aeropharm Technologies, Inc., a then majority-owned
subsidiary of the Company, was formed to conduct research and development
activities on aerosolized MDI products for the treatment of respiratory
diseases. During June 1996, this predecessor corporation acquired the
outstanding minority interest in Aeropharm; changed its name to Kos Holdings,
Inc.; established the Company as a wholly-owned subsidiary under the name Kos
Pharmaceuticals, Inc.; and, effective as of June 30, 1996, transferred all of
its existing assets, liabilities and intellectual property, other than
certain net operating loss carryforwards, to the Company. Accordingly, all
references in this Prospectus to the Company's business include the business
and operations of Holdings until June 30, 1996.
Since inception, the Company has been a development stage company engaged
primarily in the development of cardiovascular and respiratory pharmaceutical
products. The Company has not recorded any significant revenues since inception
and has funded its operations exclusively through equity contributions from its
sole shareholder. Through December 31, 1996, the Company had accumulated a
deficit from operations of $64.8 million. In connection with the transfer of
operations from Holdings to the Company on June 30, 1996, net operating loss
carryforwards amounting to approximately $51.0 million and related tax benefits
were retained by Holdings and not transferred to the Company. Consequently, the
Company had no deferred tax assets or liabilities as of June 30, 1996. The
Company expects to continue to incur significant operating losses for at least
the next 12 months.
RESULTS OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1995 AND 1996
The Company's research and development expenses decreased from $6.4
million for the six months ended December 31, 1995 to $6.1 million for the
six months ended December 31, 1996. The decrease was attributable primarily
to the absence in the December 1996 quarter of the clinical trials that were
completed late in calendar 1995 in support of the filing of a NDA during May
1996 for the Company's first product, NIASPAN. The decrease in clinical trial
costs was partially offset by an increase in personnel costs, principally in
connection with manufacturing scale-up and by an increase in development
costs associated with various third party development agreements. The Company
expects research and development activities to increase as personnel are
added and development activities are expanded to support the development of
additional products and conduct additional clinical trials.
General and administrative expenses increased from $789,000 for the six
months ended December 31, 1995 to $1.9 million for the six months ended
December 31, 1996. The increase was primarily attributable to the hiring of
additional personnel to support the Company's marketing activities and
administrative functions, and professional fees. The Company expects that its
general and administrative expenses will continue to increase in support of
its marketing efforts and research and development programs.
Since July 1, 1996, the Company has funded its operations from the
proceeds of a loan from Kos Investments, the sole shareholder of Holdings. As
of December 31, 1996, the Company had outstanding borrowings of approximately
$8.4 million outstanding under the Convertible Note. As a result of this
loan, the Company had $136,000 of interest expense for the six months ended
December 31, 1996,
19
<PAGE>
compared with no such expense for the six months ended December 31, 1995. The
Company expects to increase the amount of such borrowings from Kos
Investments, Inc. to finance its operating activities through the completion
of this offering.
The Company incurred a net loss of $7.2 million for the six months ended
December 31, 1995 compared with a net loss of $8.1 million for the six months
ended December 31, 1996. The Company expects to report substantial losses for
at least the next 12 months.
FISCAL YEARS ENDED JUNE 30, 1995 AND 1996
The Company's research and development expenses increased from $8.4
million for the fiscal year ended June 30, 1995 to $13.8 million for the year
ended June 30, 1996. This increase was attributable primarily to licensing
and development programs, hiring of additional personnel and increased
clinical trials costs. Of the total increase in research and development
expenses for the fiscal year ended June 30, 1996, $1.0 million is
attributable to a payment by the Company in connection with the execution of
an agreement with Fuisz to form a joint venture for the development of a
future product. This product is in the very early stages of development and
the Company cannot estimate when or if a commercially viable product will be
developed. The parties have generally agreed to share the expenses of
developing the product. Hiring of additional personnel principally related to
manufacturing scale-up of certain of the Company's products under development
and to support the filing of a NDA for NIASPAN.
General and administrative expenses increased from $1.6 million for the
fiscal year ended June 30, 1995 to $1.8 million for the fiscal year ended
June 30, 1996. This increase was attributable principally to the hiring of
additional personnel to support the Company's administrative functions, and
to the acquisition of market research data.
In June 1996, the Company recorded a non-cash charge of $5.4 million for
compensation expense associated with an adjustment of the exercise period on
certain stock options granted during 1988 to 1990 to an officer and to two
independent consultants of the Company.
During December 1994, the Company transferred its existing line of credit
facility with a local bank and its accumulated borrowings to Kos Investments,
Inc., the sole shareholder of Holdings. The effect of this transfer was to
increase the Company's paid-in capital in the amount of its accumulated
borrowings, of $30.4 million, outstanding on the date of transfer. As a
result of this transfer, the Company had $1.1 million of interest expense for
the fiscal year ended June 30, 1995 compared with no such expense for the
fiscal year ended June 30, 1996.
The Company incurred a net loss of $11.0 million for the fiscal year ended
June 30, 1995 compared with $21.0 million for the fiscal year ended June 30,
1996.
FISCAL YEARS ENDED JUNE 30, 1994 AND 1995
Research and development expenses increased from $6.7 million for the
fiscal year ended June 30, 1994 to $8.4 million for the fiscal year ended
June 30, 1995. This increase was attributable principally to hiring of
additional personnel in support of the Company's clinical trial activities on
NIASPAN. Research and development expenses also were higher in 1995 because
it was the first full year of operation of the Company's aerosol research and
development facility, which was launched during 1994.
General and administrative expenses, at $1.6 million, were essentially
unchanged from 1994.
As more fully explained above, during December 1994 the Company
transferred its existing credit facility with a local bank to Kos
Investments, Inc. As a result of the timing of this transfer, interest
expense decreased approximately $50,000 from the fiscal year ended June 30,
1994 to the fiscal year ended June 30, 1995.
20
<PAGE>
Minority interest expense decreased approximately $160,000 during the
fiscal year ended June 30, 1995 principally as a result of timing differences
in equity contributions made by the Company to its then majority-owned
aerosol subsidiary.
During 1995, revenue was recognized from consulting activities conducted
by the Company's Vice President of Aerosol Research and Development. These
consulting activities were of a non-recurring nature.
As a result of the foregoing, the Company incurred a net loss of $9.5
million for the fiscal year ended June 30, 1994 compared with $11.0 million
for the fiscal year ended June 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company financed its operations since inception until June 30, 1996
through capital contributions from Kos Investments, which totaled an aggregate
of approximately $53.0 million as of June 30, 1996. Since July 1, 1996 the
Company has financed its operations from the proceeds of the Convertible Note,
which totaled approximately $8.4 million at December 31, 1996. Borrowings under
the Convertible Note will continue to be the Company's principal source of
financing until completion of this offering. All or a portion of the Convertible
Note may be repaid using a portion of the net proceeds from the sale of the
Common Stock offered hereby and the Company currently anticipates that it will
use at least $8.0 million for such purpose. At December 31, 1996, the Company's
working capital deficit totaled approximately $8.8 million and cash totaled
approximately $358,000. The Company expects to continue to incur significant
costs in connection with its ongoing research and development activities and
with the establishment of its marketing capabilities.
The Company's primary uses of cash to date have been in operating
activities to fund research and development, including clinical trials, and
general and administrative expenses. As of December 31, 1996, the Company's
net investment in equipment and leasehold improvements was $2.6 million. The
Company expects that additional equipment and facilities will be needed as it
increases its research and development activities. The Company has no material
commitments for capital expenditures as of December 31, 1996. In connection with
its agreement with a privately owned generic drug manufacturer, see
"Business--Patents and Proprietary Rights," the Company anticipates recognizing
an expense of $3.0 million during the three months ending March 31, 1997. The
Company's obligations under its agreement with such privately owned generic drug
manufacturer, see "Business--Patents and Proprietary Rights," are not expected
to materially affect the Company's liquidity or capital resources.
Although the Company anticipates that the net proceeds from the sale of
the Common Stock offered hereby, together with available cash, cash
equivalents, short-term investments and expected interest income, will be
sufficient to fund the Company's operations for the next 12 months, the
Company's future cash requirements will be substantial and will depend on
many factors, some of which are outside the control of the Company. Such
factors include the problems, delays, expenses and complications frequently
encountered by development stage companies; the progress of the Company's
research, development and clinical trial programs; the costs and timing of
seeking regulatory approvals of the Company's products under development; the
Company's ability to obtain such regulatory approvals; the success of the
Company's sales and marketing programs; costs in filing, prosecuting,
defending and enforcing any patent claims and other intellectual property
rights; the extent and terms of any collaborative research, manufacturing,
marketing, joint venture or other arrangements; and changes in economic,
regulatory or competitive conditions or the Company's planned business. As a
result, the Company may need to raise substantial additional capital to fund
its operations before achieving anticipated positive cash flows from
operations in 1998, assuming the successful commercialization of NIASPAN. The
Company expects that it would seek such additional funding through public or
private equity or debt financings or through collaborations. To the extent
the Company raises additional capital by issuing equity securities, ownership
dilution to existing shareholders will result and future investors may be
granted rights superior to those of existing shareholders. There can be no
assurance, however, that additional funding will be available on acceptable
terms, or at all. See "Risk Factors--Future Capital Needs; Uncertainty of
Additional Funding."
21
<PAGE>
BUSINESS
OVERVIEW
Kos Pharmaceuticals, Inc. ("Kos", pronounced Kos, or the "Company") is
engaged primarily in the development of proprietary prescription
pharmaceutical products for the treatment of certain chronic cardiovascular
and respiratory diseases. The Company intends to manufacture its products and
to market such products directly through its own specialty sales force. The
Company's cardiovascular products under development consist of
controlled-release, once-a-day, oral dosage formulations. The Company's
respiratory products under development consist of aerosolized inhalation
formulations to be used primarily with the Company's proprietary inhalation
devices.
The Company was founded in 1988 by the former Chief Executive Officer,
Chief Operating Officer and Director of Product Development of Key
Pharmaceuticals, Inc., which was acquired by Schering-Plough Corporation in
June 1986. The Company believes that substantial market opportunities exist
for developing drugs that are reformulations of existing approved
prescription pharmaceutical products but which offer certain safety
advantages, such as reduced harmful side effects, or patient compliance
advantages, such as once-a-day rather than multiple daily dosing regimens,
over such currently existing products. Kos believes that developing
proprietary products based on currently approved drugs, rather than new
chemical entities ("NCEs"), may reduce regulatory and development risks and,
in addition, facilitate the marketing of such products because physicians are
generally familiar with the safety and efficacy of such products. Seven of
the Company's nine products under development require NDA filings with the
FDA. Although more expensive and time consuming, developing products that
require NDA approval offers several advantages compared with generic
products, including potential for higher gross margins, limited competition
resulting from significant clinical and formulation development challenges,
and a three-year statutory barrier to generic competition.
On May 6, 1996, Kos submitted a NDA to the FDA for NIASPAN, its first
product under development. NIASPAN is a controlled-release, once-a-day, oral
formulation of niacin for the treatment of multiple lipid disorders, which
are primary risk factors for coronary heart disease.
STRATEGY
The Company's objective is to become a fully-integrated specialty
pharmaceutical company that develops, manufactures, and markets proprietary
products directly through its own specialty sales force. The Company's
business strategy includes the following fundamental elements:
SELECT PRODUCTS WITH UNREALIZED COMMERCIAL POTENTIAL.--The Company
develops products that address unmet medical needs through formulation
improvements of existing drugs or distinctive marketing efforts. Kos
believes that the safety or patient compliance associated with certain
currently marketed drugs can be improved, thus providing substantial
market opportunities with the successful development of proprietary
formulations. In addition, Kos believes that substantial market
opportunities exist that can be addressed by marketing its products
through a direct sales force that can focus on specialist physicians and
provide those physicians with scientific information regarding the
therapeutic benefits of the Company's products.
FOCUS INITIALLY ON THE CARDIOVASCULAR AND RESPIRATORY MARKETS.--Kos has
initially concentrated its product development efforts on the
cardiovascular and respiratory markets because they are large and growing
rapidly and include many chronic diseases requiring long-term therapy.
Management believes that as a result of physician prescribing patterns in
these markets, a relatively small, direct sales force can effectively
market its products. The Company's management team has substantial
experience in identifying product opportunities and marketing products in
these two therapeutic categories.
22
<PAGE>
DEVELOP PROPRIETARY FORMULATIONS OF CURRENTLY APPROVED PHARMACEUTICAL
COMPOUNDS.--Kos believes that by developing proprietary products based on
currently approved drugs, rather than NCEs, the Company can reduce
regulatory and development risks and shorten the product development
cycle. Further, developing products that require NDA approval offers
several advantages compared with generic products, including the potential
for higher gross margins, limited competition resulting from significant
clinical and formulation development challenges, and a three-year
statutory barrier to generic competition. The Company's management and
scientific personnel have significant experience in formulation technology
using controlled-release and aerosolized delivery methods.
MANAGE CLINICAL DEVELOPMENT.--The Company managed the extensive clinical
trials for NIASPAN, and Kos intends to continue to manage directly the
clinical development of future products. The Company believes that its
commitment to this process ensures the quality of clinical development,
allows the Company to better coordinate the regulatory objectives of
clinical trials and maximizes the marketing utility of such trials.
MANUFACTURE PRODUCTS INTERNALLY.--In order to maximize the quality of
developed products, assure compliance with regulatory requirements, and
minimize costs, the Company currently intends to manufacture internally
all of its solid-dose (i.e., tablet) and aerosol products. Moreover, the
Company believes that certain manufacturing challenges associated with
aerosol formulations present a barrier to entry in the aerosol
pharmaceutical market. The Company's management has substantial experience
in manufacturing solid dose and aerosol products. Kos estimates that it
has sufficient capacity, with limited additional capital expenditures, to
accommodate sales volume for such products through the year 2000.
MARKET DIRECTLY THROUGH A SPECIALTY SALES FORCE.--The Company intends to
market its products through a direct sales force focused on providing
education-oriented product information to selected specialist physicians.
Kos intends to market all but one of its planned products in North America
through its direct sales force. In areas outside of North America, Kos
intends initially to market certain of its products through licensing
arrangements with third parties, although it may establish direct sales
and marketing capabilities in selected areas.
LEVERAGE CORE COMPETENCIES THROUGH ALLIANCES WITH CORPORATE AND RESEARCH
PARTNERS.--The Company intends to expand its product portfolio by
in-licensing existing products or technologies or entering into other
development collaborations with third parties. Kos is currently developing
three once-a-day cardiovascular products with Fuisz, using its proprietary
microsphere formulation technology. Additionally, the Company is
sponsoring basic research at Boston University and Tufts University and
intends to enter into corporate alliances to develop products identified
through these research programs. The Company intends to enter into
additional research alliances in the future. To date, the Company has not
identified any additional licensing or development partners or any
additional research partners.
23
<PAGE>
PRODUCTS UNDER DEVELOPMENT
Seven of the Company's nine products under development require NDA
filings. Although NDA approvals are generally associated with products
consisting of NCEs, which require extensive preclinical studies and clinical
trials, the Company's products under development consist of new formulations
of existing drugs. For products currently under development, the Company
typically will be required to perform Phase I clinical pharmacology and Phase
III safety and efficacy pivotal trials; limited preclinical toxicology
studies will also be required on some products. Compared with the development
of NCEs, the Company believes that its product development strategy generally
reduces regulatory risks and development costs and shortens overall
development time. In order to take advantage of certain market opportunities,
the Company is developing two products that require ANDA filings. The Company
has retained worldwide marketing rights for all of the products set forth in
the table below.
PRODUCTS UNDER DEVELOPMENT
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION AND REGULATORY DEVELOPMENT
PRODUCT THERAPEUTIC APPLICATION FILING STATUS
------- ----------------------- ---------- -----------
<S> <C> <C> <C>
CARDIOVASCULAR
Niaspan/ Niacin for lipid altering NDA NDA submitted May 1996
registered
trademark/
Combination Combination of two currently NDA Formulation; clinical
Product((1)) approved drugs for lipid altering pharmacology expected to
commence in 1997
Isosorbide-5- Nitrate for angina ANDA Clinical pharmacology commenced
Mononi- in November 1996
trate((1))
Captopril((1)) ACE inhibitor for hypertension NDA Formulation; clinical
pharmacology expected to
commence in 1997
RESPIRATORY (METERED-DOSE INHALERS)
Albuterol Beta-agonist for asthma ANDA Clinical validation study
(CFC) completed; clinical
pharmacology commenced
in January 1997
Triamcino- Inhaled steroid for asthma NDA Formulation; clinical
lone((2)) pharmacology expected to
(non-CFC) commence in 1997
Flunisolide((2)) Inhaled steroid for asthma NDA Formulation; clinical
(non-CFC) pharmacology expected to
commence in 1997
Albuterol((2)) Beta-agonist for asthma NDA Formulation; clinical
(non-CFC) pharmacology expected to
commence in 1998
Confidential Unnamed compound with novel NDA Formulation; clinical
Product((3)) device for treating asthma for pharmacology expected
(non-CFC) the pediatric and geriatric to commence in 1998
markets
</TABLE>
(1) Being developed in collaboration with Fuisz. See "--Collaboration with
Fuisz Technologies Ltd."
(2) Utilizing the Company's proprietary breath coordinated inhaler,
currently under development.
(3) Utilizing the Company's proprietary breath actuated inhaler, currently
under development.
24
<PAGE>
CARDIOVASCULAR PRODUCTS
The Company is developing once-a-day, controlled-release prescription
products for the treatment of lipid disorders, ischemic heart disease
(including angina), and hypertension. In 1995, such disease segments of the
cardiovascular market achieved aggregate sales in the United States of
approximately $10.2 billion.
NIASPAN
SUMMARY. NIASPAN is a once-a-day, oral, solid-dose, controlled-release
formulation of niacin for the treatment of multiple lipid disorders, a
condition typically associated with elevated cholesterol involving multiple
lipids that are primary risk factors for coronary heart disease ("CHD"). On
May 6, 1996, the Company submitted a NDA to the FDA for NIASPAN. If NIASPAN
is approved, the Company believes it will be the only once-a-day,
controlled-release niacin product approved by the FDA for the treatment of
multiple lipid disorders. The Company has conducted three double-blinded,
placebo-controlled clinical trials in which NIASPAN produced statistically
and clinically significant changes in several lipid components without
generating treatment-related serious adverse events. Moreover, in a two-year
safety study, less than 1% of patients discontinued use of NIASPAN because of
clinically significant elevations in liver enzyme levels.
LIPID-ALTERING MARKET.--Clinical research since the mid-1980's has
determined that an elevated level of LDL cholesterol, a condition referred to
as hyperlipidemia, is a critical atherogenic risk factor for CHD.
Hyperlipidemia is a lipid metabolism disorder that results in excess lipids
in the blood, which can block arteries and create adverse coronary events,
such as CHD and myocardial infarction. In addition to elevated LDL
cholesterol ("bad" cholesterol), low levels of HDL cholesterol ("good"
cholesterol) and high levels of triglycerides are risk factors for CHD
according to the National Institutes of Health ("NIH") and the American Heart
Association ("AHA"). HDL cholesterol is considered to be protective against
CHD because it removes harmful cholesterol from blood vessels and peripheral
tissues. Moreover, recent research has indicated that an elevated level of
lipoprotein (a) ("Lp(a)"), a component of LDL cholesterol, may be as
important an independent risk factor for CHD as elevated total cholesterol.
As a result of the increased awareness and the prevalence of multiple lipid
disorders, lipid-altering drugs have emerged as one of the largest and
fastest growing pharmaceutical product segments. In 1995, the market for
cholesterol-reducing drugs exceeded $2 billion in the United States and $5
billion worldwide.
While the risks of multiple lipid disorders are becoming well recognized, the
condition remains significantly untreated worldwide. To address this large unmet
medical need, the NIH convened a panel of cholesterol research experts, the
National Cholesterol Education Program ("NCEP"), to establish recommended
cholesterol levels, principally total and LDL cholesterol, and to establish
other risk factors for CHD. Based on extensive research conducted during the
last 20 years, the NCEP established guidelines consisting of recommended lipid
goals and intervention criteria, such as diet and drug therapies, for reducing
the risk of heart disease and heart attack. According to the guidelines, an
estimated 52 million people in the United States have levels of LDL cholesterol
that exceed the levels recommended by the NCEP and, approximately 13 million of
these persons would require both diet and drug therapies to achieve adequate
reduction in cholesterol levels. The Company estimates that approximately half
of these 13 million people have one or more other lipid components that are
outside the levels recommended by the NIH and the AHA. Additionally, it is
estimated that as many as 30% of the 11 million patients in the United States
with confirmed CHD do not have elevated LDL cholesterol but do have clinically
deficient HDL cholesterol levels. Further, an elevated level of Lp(a) is
estimated to be present in 20% of the U.S. adult population. The Company
believes that the market for lipid-altering drugs should grow as awareness and
diagnosis of lipids, particularly those other than LDL cholesterol, continue to
increase.
When diet and exercise fail to adequately control cholesterol levels,
physicians typically prescribe lipid-altering medications. Physicians can
choose from the following four classes of medications when
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<PAGE>
attempting to alter lipid levels: HMG CoA reductase inhibitors, or "statins"
(e.g., lovastatin); fibric acid derivatives (e.g., gemfibrozil); bile-acid
sequestrants (e.g., cholestyramine); and niacin. The statins are the most
widely prescribed lipid-altering medication, accounting for nearly $2 billion
in U.S sales in 1995 and 72% of the 35 million prescriptions for
lipid-altering medication in the United States in 1995. Generally, the
statins are highly effective in lowering total and LDL cholesterol but have
limited impact in raising HDL cholesterol or in substantially reducing
triglycerides. Gemfibrozil, the major fibric acid derivative in the U.S.,
accounted for approximately 20% of total lipid-altering prescriptions in
1995. Gemfibrozil is most commonly prescribed to reduce triglycerides and has
limited efficacy on total, LDL and HDL cholesterol. The remaining product
categories, including bile-acid sequestrants and existing preparations of
niacin, represented approximately 8% of U.S. lipid-altering prescriptions in
1995.
OVERVIEW OF NIACIN. Niacin is a water-soluble vitamin that has long been
recognized as an effective pharmacologic agent for the treatment of multiple
lipid disorders, including elevated LDL and low HDL cholesterol. In numerous
independent studies performed during the past 30 years, niacin has proven
effective in reducing total cholesterol, LDL cholesterol and triglycerides,
as well as in increasing HDL cholesterol. Additional clinical studies have
indicated that long-term treatment with niacin reduces morbidity and
mortality in patients with CHD. The NIH recommends niacin as first-line drug
therapy because of its low cost and its efficacy in altering multiple lipid
components.
Although niacin has demonstrated favorable efficacy on most major lipid
components, adverse side effects associated with currently available
preparations of niacin have prevented it from becoming widely used to treat
hyperlipidemia. Immediate-release ("IR") preparations of niacin generally are
administered three times daily and can cause multiple flushing episodes,
characterized primarily by facial redness and tingling, often accompanied by
rash. Because at least two IR niacin doses are usually taken during the
daytime, frequent flushing episodes are often embarrassing as well as
uncomfortable. Consequently, in many patients, these flushing episodes,
particularly in the daytime, result in non-compliance with the recommended
dosing regimen for the product or complete discontinuation of its use. In
order to remedy the side effects associated with IR niacin, several
manufacturers have developed sustained-release ("SR") preparations of niacin,
typically administered twice a day. Such SR preparations have not been
approved by the FDA for treatment of lipid disorders, and their
administration frequently has been associated with a high incidence of liver
toxicity. Consequently, despite its broad favorable effect on multiple lipids
and its position as the NIH's recommended first-line drug therapy for
treatment of hyperlipidemia, U.S. drug store sales of niacin were
approximately $14 million in 1995. The Company believes that a significant
opportunity exists to expand the market for niacin with an improved
formulation that maintains the compound's favorable efficacy profile while
reducing adverse events.
NIASPAN PRODUCT DEVELOPMENT.--Kos has developed a controlled-release
hydrogel matrix formulation of niacin that reduces the intolerable side
effects and frequent safety problems characteristic of currently available
niacin formulations. Kos believes that it is the unique controlled-release
nature of its NIASPAN formulation in conjunction with NIASPAN's specific
dosing regimen that minimizes adverse events while maintaining niacin's
positive effect on lipids. Kos also believes the recommended dosing regimen
for NIASPAN contributes to the positive effects on lipid levels because of
the chronobiology of lipid metabolism.
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Although niacin's efficacy on multiple lipid components has been well
documented for many years, relatively little has been published about
niacin's mechanism of action, its complete metabolic profile, or other
elements of its pharmacology. As a result, the Company's clinical development
of NIASPAN has included extensive pharmacokinetics research, including 14
studies involving 350 healthy volunteers, as well as two pilot studies, three
pivotal trials, and a long-term open label safety study. The Company's
clinical development program, which has studied the effects of NIASPAN in
1,212 persons, is summarized in the table below.
NIASPAN CLINICAL DEVELOPMENT PROGRAM
<TABLE>
<CAPTION>
NIASPAN DOSING STATUS
SUBJECTS PERIOD
-------- ------------ ---------
<S> <C> <C> <C>
14 PHARMACOKINETIC STUDIES 350 Up to 3 wks. Completed
2 PILOT STUDIES 39 2 mos. Completed
DOUBLE-BLINDED PLACEBO
CONTROLLED PIVOTAL TRIALS:
NIASPAN 1,500 mg 76 4 mos. Completed
NIASPAN 1,000 mg and 2,000 mg 82 4 mos. Completed
NIASPAN dose escalation to 3,000 mg 87 6 mos. Completed
LONG-TERM OPEN LABEL SAFETY STUDY 728 22 mos. Ongoing
Memo:
SUBJECTS INCLUDED IN NDA 633
TOTAL NIASPAN SUBJECTS 1,212
</TABLE>
In a total of six clinical trials conducted at 17 lipid research centers
in the United States, NIASPAN has been evaluated in 633 patients with
confirmed diagnoses of hyperlipidemia. Three of these clinical trials were
double-blinded, placebo-controlled pivotal trials. In each of these studies
involving males and females ages 21 to 75, subjects were evaluated for the
percentage change from baseline in LDL cholesterol, HDL cholesterol, total
cholesterol, triglycerides, apolipoprotein B, Lp(a) and apolipoprotein A-1.
Safety endpoints included objective measurements such as liver enzyme levels
and levels of fasting glucose and uric acid as well as subjective endpoints,
such as flushing and symptoms of gastrointestinal distress. Additionally, the
Company is conducting a 22-month, open label safety study, in approximately
728 patients, of which 133 patients had completed the study before May 1996.
The results from these 133 patients were included in the Company's NDA
submission for NIASPAN. This trial included a subset of patients dosed
concomitantly with NIASPAN and a statin or bile-acid sequestrant.
No clinically significant serious adverse safety trends arose during the
clinical trials of NIASPAN. Of all patients treated with NIASPAN in the
pivotal and long-term safety trials, only four patients with normal liver
function tests at baseline showed clinically significant elevations in liver
function tests (defined as elevations greater than three times the upper
limit of normal) during treatment with NIASPAN and only two patients treated
with NIASPAN discontinued the drug because of elevations in liver function
tests. Treatment with NIASPAN revealed no significant differences compared
with placebo in the incidence of subjective adverse events with the exception
of flushing and rash. The Company believes that such flushing episodes will
be acceptable to most patients when they do occur due to the combination of
NIASPAN's formulation, its dosing regimen, and proper dose titration. See "--
Cardiovascular Products--NIASPAN--Marketing Strategy for NIASPAN."
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The following table sets forth results with respect to principal efficacy
endpoints of the Company's three double-blinded, placebo-controlled pivotal
trials and the one open label long-term safety study of NIASPAN. In these
studies, NIASPAN consistently showed clinically and statistically significant
changes (p/less than/0.001 compared with baseline) in all of the major lipids
measured, including those considered to be most important in the development
of CHD.
NIASPAN LIPID-ALTERING PROFILE((1))
PERCENTAGE CHANGE
FROM BASELINE(2)
--------------------
Total Cholesterol Decreased 11% to 12%
LDL Cholesterol Decreased 14% to 19%
HDL Cholesterol Increased 22% to 29%
Triglycerides Decreased 25% to 35%
Lp(a) Decreased 24% to 29%
- -------------------
(1) Intent-to-Treat Population at 2,000 mg Once-a-Day.
(2) Statistically significant for all indicated lipids at
p/less than/0.001.
Based on the results of the three double-blinded, placebo-controlled
clinical trials and the long-term safety study, Kos has filed a NDA seeking
approval for NIASPAN for the treatment of elevated total and LDL cholesterol
and elevated serum triglycerides, consistent with the FDA's standard labeling
for niacin when used as a lipid-altering agent (rather than as a nutritional
supplement). Kos believes that its clinical trial data will support the
approval of such standard labeling for NIASPAN. The Company also is seeking
approval as concomitant therapy with statins and bile-acid sequestrants to
decrease total and LDL cholesterol.
In the clinical trials performed by the Company, NIASPAN was shown to
decrease total and LDL cholesterol levels less than reported by statin
manufacturers in the 1996 Physician's Desk Reference (the "PDR"). These data
also indicate, however, that the statins are less effective than NIASPAN in
raising HDL cholesterol and lowering triglycerides. Numerous independent
clinical studies evaluating the effects of statins on Lp(a) indicate that the
statins have little or no effect on reducing Lp(a), whereas NIASPAN
significantly reduces Lp(a).
MARKETING STRATEGY FOR NIASPAN. The Company intends to market NIASPAN
directly to the specialist physicians within the cardiovascular market who
are among the leading prescribers of lipid-altering medications.
Specifically, the Company believes there are approximately 16,000 specialist
physicians, consisting primarily of cardiologists and internists, who account
for approximately 40% of the total prescriptions for lipid-altering
medications in the United States in 1995. The Company's initial sales force
is expected to consist of approximately 70 field representatives and managed
care specialists to be trained in explaining the features and benefits of
NIASPAN ("detailing") prior to its expected launch in 1997. Kos estimates
that it will be able to detail each of these physicians up to six times a
year with such a sales force. Kos believes that the significant prior
experience of members of its management team in recruiting and managing
specialty sales forces in this market, aided by favorable hiring conditions
in the pharmaceutical industry, will allow the Company to have its sales
force in place within the projected time frame. Within a year following
NIASPAN's launch, Kos expects to expand its direct sales force and possibly
to supplement it with a contract sales force that will detail selected
additional specialist physicians not addressed by the Company's specialty
sales force. Although the Company does not expect to hire its field sales
force before it receives an indication of the approvability of NIASPAN from
the FDA, it is possible that formal approval of NIASPAN could be delayed,
thus requiring the Company to pay the salaries of such personnel during any
such delay. Following the launch of NIASPAN in the United States, the Company
plans to license marketing rights to an established marketing partner in
major international markets.
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If approved by the FDA, the marketing of NIASPAN will focus on the NIH and
AHA recommendation that niacin be used as first-line drug therapy for the
treatment of hyperlipidemia. Additionally, the Company intends to inform the
specialist physicians as to the manner in which NIASPAN achieves its safety
and efficacy profile. This marketing program will be implemented through
direct visits with selected physicians, medical journal reprints, seminars,
and clinical discussion groups. The Company also intends to educate patients
on the benefits and proper use of NIASPAN through brochures and product
sample "starter packs" to encourage proper dose titration. Information
delivered by the Company to physicians and patients will include a discussion
about the flushing side effects of NIASPAN, including the importance of
proper dose titration and adherence to the prescribed dosing regimen to
reduce this side effect. Although most patients taking NIASPAN will flush
occasionally, the Company believes that the combination of NIASPAN's
formulation, its dosing regimen, and proper dose titration should result in
an incidence of flushing episodes that are tolerable for most patients.
NIASPAN's dosing regimen provides for the drug to be taken once-a-day at
night; therefore, any flushing episodes will normally occur while the patient
is sleeping. The Company believes that flushing during the night will not
cause the discomfort or embarrassment that often accompanies the multiple
daytime flushing episodes that occur with IR niacin.
The Company expects that NIASPAN will be priced below the statins and
competitively with gemfibrozil, while retaining the gross margins typically
associated with NDA products. The Company believes that NIASPAN's relatively
low anticipated selling price combined with its favorable effects on multiple
lipid components also should make it attractive to the managed care market.
The Company plans to include a number of managed care sales specialists
within its sales force to address this market segment.
LIPID-ALTERING COMBINATION PRODUCT
In addition to NIASPAN, Kos is developing a product that consists of a
combination of two currently approved drugs for the treatment of multiple
lipid disorders. The combination product will require a NDA. The Company
believes that a once-a-day tablet combining the complementary properties of
its combination product represents an effective modality for treating
patients with multiple lipid disorders. The Company also believes that this
once-a-day product should offer significant improvements in patient
compliance compared with taking each product independently under their
recommended dosing regimens. The potential market for the combination product
consists of patients with multiple lipid disorders, including high total and
LDL cholesterol, high triglycerides or low HDL cholesterol.
The product is currently in the formulation development stage, and the
Company expects that clinical pharmacology trials will commence in 1997. By
or near the time of completion of the development of the combination product,
the patent for the one currently patented component compound will have
expired, which will enable the Company to market its combination product
following FDA approval. Although it is expected that generic versions of the
individual components will be marketed following patent expiration, the
Company believes that the positive effects of the combination product on
multiple lipid components and the convenience associated with taking one
tablet, once-a-day should support a price premium compared with any generic
versions of the individual drugs.
The combination product will be marketed by the same Kos specialty sales
force that will market NIASPAN and to essentially the same group of
physicians.
ISOSORBIDE-5-MONONITRATE
Kos is developing a once-a-day, controlled-release, oral, generic version
of IS-5-MN for the prophylactic treatment of angina pectoris. This product,
which will be a branded generic requiring an ANDA filing, is being developed
in order to provide Kos with a near-term product for the angina market and to
expand its cardiovascular product line. A formulation of IS-5-MN has been
developed
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<PAGE>
and the Company began a clinical pharmacology study during November 1996. The
Company intends to leverage its specialty sales force by having its sales
representatives market IS-5-MN during physician office visits while detailing
NIASPAN.
Angina pectoris is a cardiovascular related disorder that is characterized
by thoracic pain and a feeling of suffocation, most often due to anoxia (lack
of oxygen supply) to the myocardium precipitated by physical exertion or
excitement. The treatment of angina pectoris includes several classes of
therapeutic compounds including nitrates, beta-blockers, and calcium channel
blockers. The beta-blockers and calcium channel blockers, as well as certain
forms of nitrates, are long-acting preparations most commonly prescribed for
prophylaxis of chronic angina pectoris. In 1995, U.S. sales of nitrate
products approximated $580 million. The only currently marketed once-a-day
mononitrate is the fastest growing product within the nitrate segment; U.S.
sales of this product grew by 260% in 1995 from 1994. Kos is aware of two
other companies that are developing a once-a-day formulation of IS-5-MN.
CAPTOPRIL
The Company is also developing a once-a-day, controlled-release captopril,
an ACE inhibitor for the treatment of hypertension for which a NDA is
required. At present, captopril is dosed as an IR tablet to be taken two or
three times daily. The U.S. patent on the branded product expired in the
first quarter of 1996 and there currently exist many generic forms of this
immediate-release product. The Company believes that its controlled-release,
once-a-day formulation of captopril will provide a competitive advantage
compared with the generic versions of IR captopril and this advantage will
support a modest price premium compared with generics. Captopril is currently
in the formulation development stage and the Company expects that clinical
pharmacology trials will commence in 1997.
Hypertension is a major health care problem in the United States that
accounted for almost half of all cardiovascular related physician visits in
1995. In 1995, U.S. sales of products addressing the antihypertensive disease
segment were estimated to be in excess of $5.6 billion. ACE inhibitors
constituted the second largest class of products of the antihypertensive
market, after calcium channel blockers, generating approximately $2.7 billion
in sales in the United States in 1995. In its existing two-to-three times a
day dosage forms, sales of captopril in the United States were approximately
$520 million in 1995, although 1996 sales have been trending lower because of
generic competition. Captopril accounted for approximately 13% of the 65
million prescriptions for ACE inhibitors in the United States in 1995. Kos is
aware of one other company that is developing a once-a-day formulation of
captopril.
RESPIRATORY PRODUCTS
The Company is developing five aerosolized inhalation pharmaceutical
products, dispensed in MDI devices, for the treatment of asthma. The
Company's management has substantial experience in formulating,
manufacturing, and marketing aerosolized products.
MARKET OVERVIEW
The respiratory market consists of the asthma and allergy segments. In
1995, the market for respiratory prescription drugs was $3.2 billion in the
United States, of which the market for asthma products was $2.4 billion.
Asthma is a complex respiratory disorder that results in troubled breathing
due to inflammation and constriction of the bronchial airways, caused by
factors including allergens, such as dust and pollen, or vigorous exercise.
Asthma is principally treated by two classes of therapeutic compounds,
bronchodilators and anti-inflammatory agents. Bronchodilators, which are used
to open constricted airways during asthma, include beta-agonists (e.g.,
albuterol), xanthines (e.g., theophylline) and anti-cholinergics (e.g.,
ipratropium). Anti-inflammatories, which include cromolyns (e.g., cromolyn
sodium) and corticosteroids (e.g., triamcinolone, beclomethasone, and
flunisolide) are used to diminish inflammation causing the asthma. Each of
these therapeutic compounds, except xanthines, is delivered primarily through
MDI devices. Drug delivery through such MDI devices is believed to be the
fastest
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<PAGE>
growing form of drug delivery in the asthma market. Kos has focused on this
mode of delivery for the asthma market because of its efficacy and because of
management's experience with formulating and marketing aerosolized inhalation
products.
Currently, most MDI products use CFC propellants. Although, due to
environmental concerns, the use of CFC propellants has been banned or
severely restricted for most worldwide commercial uses, CFC's are still
permitted in limited amounts for MDI pharmaceutical products under an
"essential use" exemption available under the Montreal Protocol on Substances
that Deplete the Ozone Layer. It is expected, however, that such "essential
use" exemptions will grow more limited and will eventually expire. In
anticipation of these future restrictions, all of the Company's proposed MDI
products, with the exception of albuterol (CFC), are being developed with
environmentally safe non-CFC propellants. See "Government Regulations."
ALBUTEROL (CFC)
The Company is developing a generic version of albuterol (CFC) to be
dispensed in a generic MDI. The Company has commenced scale-up and completed
manufacture of clinical supplies of albuterol (CFC). It has recently
completed a human clinical validation study and a pivotal clinical
pharmacology trial commenced in January, 1997. The Company expects that it
will submit an ANDA for its albuterol (CFC) in 1997. Kos intends to
distribute albuterol (CFC) through a generic distributor. Although the
Company's long-term strategy is to market its own branded proprietary aerosol
products using non-CFC propellants, albuterol (CFC) will provide the Company
with limited near-term revenue opportunities. Moreover, albuterol (CFC) will
enable the Company to demonstrate its aerosol formulation and manufacturing
capabilities earlier than would be possible with a non-CFC product. The
Company believes that such demonstrated aerosol capabilities might provide it
with opportunities to cross-license products or collaborate with other
pharmaceutical companies, especially outside the United States, that lack MDI
capabilities but that might desire such products. The Company has not had
discussions with any third parties regarding any possible licensing
arrangements.
Albuterol is the most widely used MDI product approved for the treatment
of asthma, accounting for nearly $680 million in sales and 26 million
prescriptions in the United States in 1995, although 1996 sales have been
trending lower because of generic competition. Kos anticipates a relatively
limited number of generic competitors for generic albuterol because of the
manufacturing challenges and the high capital costs of entering the aerosol
pharmaceutical business.
TRIAMCINOLONE (NON-CFC) WITH BREATH COORDINATED INHALER ("BCI")
Kos is developing a proprietary non-CFC formulation of triamcinolone to be
used with the Company's proprietary breath coordinated inhaler ("BCI"). This
product will require the submission of a NDA. The Company believes that its
BCI may improve the coordination of inhalation with actuation of medication,
thereby offering possible benefits in patient compliance and uniform dose
administration. Triamcinolone is a corticosteroid that is used to treat the
underlying inflammation of asthma. Triamcinolone is currently in the
formulation development stage and the Company expects clinical pharmacology
trials to commence in 1997.
Inhaled steroids are being widely prescribed because their efficacy for
prophylactic treatment is greater than that of other asthma products that can
be delivered through MDIs. Triamcinolone, marketed by only one U.S. producer,
is the largest selling of the metered-dose inhaled steroids. U.S. sales of
inhaled steroids were approximately $450 million in 1995, of which
triamcinolone accounted for $199 million.
FLUNISOLIDE (NON-CFC) WITH BCI
Kos is developing a non-CFC proprietary formulation of flunisolide to be
used with its BCI. Flunisolide is a long-acting inhaled steroid for the
treatment of asthma. The Kos formulation of
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<PAGE>
flunisolide, for which a NDA is required, is currently in development, and
the Company expects clinical pharmacology trials to commence in 1997.
Flunisolide, also marketed by only one U.S. producer, is the fastest growing
inhaled steroid, with U.S. sales of approximately $120 million in 1995,
representing an increase of 40% from 1994.
OTHER MDI AND DEVICE PRODUCTS
Kos is developing a non-CFC albuterol to address environmental regulations
ultimately that will require manufacturers to phase out the CFC-based MDIs,
including the Company's generic albuterol (CFC) product. Kos is also
developing a second proprietary MDI device, a breath actuated inhaler
("BAI"). The Company's BAI operates automatically and is being developed
principally to address the difficulties in taking inhaled medication often
faced by children and the elderly. The Company intends to develop the BAI
with one of its non-CFC formulations. Clinical pharmacology trials with the
BAI are expected to commence in 1998. The Company also is developing a
proprietary inhalation dose counter designed to indicate when sufficient
doses no longer remain in the aerosol canister, thereby alerting the patient
to obtain a "refill" prescription. At present, the Company intends to use the
inhalation dose counter on all of its inhalation products with the exception
of albuterol (CFC).
COLLABORATION WITH FUISZ TECHNOLOGIES LTD.
The Company has entered into certain agreements with Fuisz, a company
engaged in the development and commercialization of drug delivery and food
applications. Pursuant to these agreements, the Company will collaborate with
Fuisz in the development of up to six products principally using Fuisz'
proprietary microsphere formulation technology. Captopril, the combination
product and IS-5-MN are currently being developed pursuant to this
collaboration with Fuisz. Fuisz also committed to collaborate on the
development of up to three other products; one of these products may be
subject to a joint venture arrangement. Kos believes that Fuisz' proprietary
microsphere technology is uniquely well-suited to overcome the particular
formulation challenges associated with the Company's combination product and
with captopril.
Under the terms of such agreements, Fuisz is responsible for formulating
each product and Kos is responsible for the remainder of the development
program. The first milestone of Fuisz' formulation work will permit Kos to
file Investigational New Drug ("IND") applications with the FDA for
subsequent pharmacokinetics and clinical studies on the products. Except for
the possible joint venture project, Kos has exclusive rights to manufacture
the formulated products and Kos retains exclusive worldwide marketing rights
upon exercising its existing option rights. On those products, Kos will pay
the development costs and pay license and development fees based on milestone
achievement. In addition, the Company will pay royalties to Fuisz based on
product sales by Kos.
SPONSORED RESEARCH
BOSTON UNIVERSITY
Kos is sponsoring basic research at Boston University focused on the role
of apolipoproteins in cardiovascular and Alzheimer's diseases. The objective
of the research program is to identify molecular agents involved so that
pharmaceutical products can be developed for the cardiovascular and
Alzheimer's indications. Two patents have been filed related to this
research, one of which is owned by Boston University and licensed to the
Company and one of which is jointly owned by Boston University and Kos.
Although no products have yet been identified for development as a result of
this research, the Company would pay royalties upon the sale of such
products. The research is being led by Vassilis Zannis, Ph.D., Professor and
Director of the Section of Molecular Genetics of the Cardiovascular Institute
at Boston University Medical Center. Dr. Zannis is recognized as a leading
expert in the research of apolipoproteins.
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TUFTS UNIVERSITY
Since 1988, Kos has also been sponsoring research at Tufts University aimed
at identifying and characterizing the pathophysiological significance of mast
cell degranulation and mast cell-derived mediators in such diseases as migraine,
irritable bowel syndrome, interstitial cystitis, multiple sclerosis, and
urticaria. This research has generated one issued U.S. patent, licensed to Kos,
covering the use of inhibitors of mast cell degranulation for the treatment of
migraines, as well as five other patent applications claiming other therapeutic
areas. Although no products have yet been identified for development as a result
of this research, the Company would pay royalties upon the sale of such
products. This research is being led by T.C. Theoharides, PhD., M.D., Professor
of Pharmacology and Medicine at Tufts University School of Medicine and is being
conducted at Tufts and the New England Medical Center.
The Company's sponsorship of both research programs currently aggregates
approximately $500,000 annually. Kos intends to seek additional industry
development partners as research and development efforts increase. Kos has
exclusive worldwide rights to all compounds related to the research conducted
at both universities.
LICENSING AND OTHER ACTIVITIES
The Company intends to pursue collaborative opportunities, including
licensing the use of selected products and technologies from third parties
("in-licensing"); acquisition of complementary technologies, products or
companies; product co-marketing arrangements; joint ventures; and strategic
alliances. The Company believes that attractive collaborative opportunities
exist in which Kos may be able to leverage its competencies through such
potential alliances in order to increase revenue potential for the Company.
See "Use of Proceeds."
Many existing pharmaceutical products, or products currently under
development, may be suitable candidates for specialty promotional or
co-marketing campaigns. Kos intends to actively attempt to identify
licensing, co-marketing and product acquisition opportunities that can
complement the Company's future product portfolio. In addition, in situations
where third-party drug delivery technologies are complementary to the
Company's drug development formulation capabilities, the Company may pursue
licensing rights for such technology. The Company may also consider licensing
certain of its products and technologies to third parties ("out-licensing").
Kos intends to explore strategic development and marketing alliances with
one or more large pharmaceutical companies to pursue new chemical entities
that may emerge from the Company's sponsored research programs.
PATENTS AND PROPRIETARY RIGHTS
The Company actively seeks, when appropriate and available, protection for
its products and proprietary information by means of United States and
foreign patents, trademarks, trade secrets and contractual arrangements.
Patent protection in the pharmaceutical field, however, can involve complex
legal and factual issues. Moreover, broad patent protection for new
formulations or new methods of use of existing chemical entities is sometimes
difficult to obtain and often of limited usefulness, primarily because the
active ingredient and many of the formulation techniques have been known for
some time. Consequently, some patents claiming new formulations or new
methods of use for old drugs may not provide meaningful protection against
competition. Nevertheless, the Company intends to seek patent protection when
appropriate and available and otherwise to rely on regulatory-related
exclusivity and trade secrets to protect certain of its products,
technologies and other scientific information. There can be no assurance,
however, that any steps taken to protect such proprietary information will be
effective.
The Company has a patent application pending in the PTO with claims
covering NIASPAN'S method of use consistent with its recommended once-a-day
dosing regimen. Certain of these claims have recently been held allowable but
have not yet been issued as a patent by the PTO. The patent examiner
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<PAGE>
has, however, suspended prosection of the Kos application and referred such
application to the PTO's Board of Interference to determine whether an
interference should be declared between such Kos application and a
method-of-use patent issued to a privately owned generic manufacturer
allegedly claiming the same dosing regimen invention.
On February 7, 1997, the Company and such generic manufacturer entered
into an agreement pursuant to which the parties agreed to resolve, as between
themselves, the effects of such potential interference by granting each other
licenses under their respective patent application and patent, regardless of
whether such licenses would be required. Accordingly, under the agreement,
the generic manufacturer granted the Company a license to sell products under
the generic manufacturer's above referenced patent, under a formulation
patent owned by such generic manufacturer, and under corresponding foreign
patents owned by such generic manufacturer, and the Company granted the
generic manufacturer the right to sell such generic manufacturer's products
that are covered by the claims in the Company's patent application and
corresponding foreign applications owned by the Company. As consideration for
entering into the agreement, the Company agreed to pay the generic
manufacturer certain license fees and royalties on the net sales of NIASPAN
subject to a cap on such royalty payments in the United States and a separate
cap on such payments outside the United States. Neither the license fees nor
the royalty payments are material to the financial condition of the Company.
The Company may sublicense its rights under the agreement to third parties to
make, use, or sell products developed by or for the Company. The generic
manufacturer may not sublicense or transfer the license granted to it by Kos,
although the generic manufacture may sublicense to third parties the right to
supply to the generic manufacturer or market with or on behalf of the generic
manufacturer, products that are covered by the generic manufacturer's patents
but which are not covered by the Company's patent application. The Company
may terminate the agreement after February 7, 2001.
Various inhalation devices, technologies, and methods of use licensed
from, or assigned to Kos by, researchers and engineers engaged in development
projects or sponsored research on behalf of Kos are the subject of four
issued and one allowed U.S. patent, as well as various corresponding foreign
patents. Similar patents applied for in other foreign countries are pending
and being pursued by the Company. Six patent applications on certain of the
Company's products under development and pertaining to certain of the
sponsored research activities are pending at the PTO. The Company believes
that most of the once-daily oral products in development under Kos'
agreements with Fuisz are protected by various technology patents in the name
of Fuisz.
There can be no assurance, however, that the patents owned and licensed by
the Company, or any future patents, will prevent other companies from
developing similar or therapeutically equivalent products or that others will
not be issued patents that may prevent the sale of Company products or
require licensing and the payment of significant fees or royalties by the
Company. Furthermore, there can be no assurance that any of the Company's
future products or methods will be patentable, that such products or methods
will not infringe upon the patents of third parties, or that the Company's
patents or future patents will give the Company an exclusive position in the
subject matter claimed by those patents.
NIASPAN and Kos are the Company's principal registered trademarks,
although eight other marks have been allowed and published by the PTO and
will become registered trademarks upon their use by the Company. As the
Company is not yet marketing any product, none of its planned trademarks are
considered critical to the business of the Company.
MARKETING
Kos intends to market its branded proprietary products through its own
specialty sales force. A fundamental element of the Company's product
selection strategy is to focus on products where a relatively concentrated
group of specialist physicians account for a significant portion of the
prescriptions for the therapeutic indication addressed by the Company's
products. The Company believes that such specialist physicians will be the
most receptive to the patient compliance, safety, or
34
<PAGE>
other therapeutic advantages that the Company's products will seek to offer.
Accordingly, the Company believes that significant market gains can be
achieved with such products through the use of a relatively small, well
trained sales force concentrating its detailing efforts on informing such
specialist physicians about the scientific basis for the therapeutic
advantages of the Company's products.
The Company has not yet established a sales and marketing organization nor
has it yet marketed, distributed or sold any product. Members of the
Company's management, however, have substantial prior experience in
establishing a sales force to market products to specialist physicians. The
Company anticipates having an initial sales force of approximately 70 field
sales representatives and managed care specialists in place prior to the
expected launch of NIASPAN in 1997. Following the launch of NIASPAN and the
approval of additional products for marketing, the Company plans to expand
substantially its direct sales force to enable it to adequately detail such
products to the specialists in both the cardiovascular and respiratory
markets as appropriate. In particular, the Company intends to leverage its
initial NIASPAN sales force by marketing future cardiovascular products, as
they are approved, simultaneously with NIASPAN.
Following the introduction of NIASPAN, the Company expects to increase its
detailing efforts to a larger group of cardiovascular specialists and other
frequent prescribers of lipid-altering medications through the use of a
contract detail force. The Company will also consider developing its own
specialized flex-time (or part-time) sales representatives either to
supplement or replace the contract detail force. It is expected that the use
of contract and flex-time field forces will be used, in combination or alone,
by the Company in the future as other products are added to assist with new
product launches and to supplement the ongoing detail efforts of the
specialized sales force. Although the Company has had no discussions with any
such contract detail organization nor has it commenced the development of its
own flex-time sales force, the Company's management has had substantial
experience with the use of such field sales organizations to supplement
internal sales forces. See "--Cardiovascular Products--Controlled-Release
NIASPAN--Marketing Strategy for NIASPAN."
Following the launch of NIASPAN in the United States, the Company plans to
license marketing rights to an established marketing partner in major
international markets. Ultimately, the Company will consider establishing its
own sales organization in selected foreign markets. To date, the Company has
had no material discussions concerning such possible arrangements with other
companies.
MANUFACTURING
In order to maximize the quality of developed products, assure compliance
with regulatory requirements, and minimize costs, the Company intends to
manufacture all of its products internally. The Company currently has
solid-dose production capability in both its Hollywood, Florida and Edison,
New Jersey facilities.The Company's Edison facility is currently configured,
and largely equipped, to manufacture aerosol inhalation products using both
CFC and non-CFC propellants. Although the Company believes that both of these
facilities currently operate using current good manufacturing practices as
required by the FDA for the manufacture of product to be used in clinical
trials, both facilities will require inspection and approval by the FDA
before production for commercial sale can commence. The Company estimates
that it has sufficient capacity, with limited additional capital outlays, to
accommodate sales volume for both solid-dose and aerosol products through the
year 2000.
The Company intends initially to contract the packaging of its solid-dose
and aerosol products to third parties. The Company intends to begin in-house
packaging operations once product sales volumes justify the capital
expenditures required to establish such capabilities. Certain of the
Company's raw materials, including the active ingredient in NIASPAN, are
currently obtained from single sources of supply. The Company does not have a
contractual arrangement with the sole supplier of the active ingredient in
NIASPAN pursuant to which the Company obtains such incredient. The Company
intends, to the extent possible, to identify multiple sources for all of its
key raw materials, including the active ingredient in NIASPAN, although an
alternate source for at least one such material will not be available because
of the supplier's patent rights.
35
<PAGE>
COMPETITION
The Company's products will be competing with currently existing or future
prescription pharmaceuticals and vitamins in the United States, Europe and
elsewhere. Competition among these products will be based on, among other
things, efficacy, safety, reliability, availability, price and patent
position. In addition, academic institutions, government agencies and other
public and private organizations conducting research may seek patent
protection, discover new drugs or establish collaborative arrangements for
drug research. Many of the Company's existing or potential competitors have
substantially greater financial, technical and human resources than the
Company and may be better equipped to develop, manufacture and market
products.
The Company's cardiovascular and respiratory products, when developed and
marketed, will compete in most cases with well established products
containing the same active ingredient already being marketed by medium-sized
and large pharmaceutical companies in the United States. For example, the
Company's captopril formulation will compete with several other ACE
inhibitors that are currently available, all of which have approval for
treatment of certain indications using once-a-day administration. Kos is
aware of one other company that is developing a once-a-day formulation of
captropril. Further, the Company's triamcinolone and flunisolide formulations
each will compete with another triamcinolone and flunisolide product,
respectively, already being marketed in the United States. Although such
competing products are sold only in a CFC version, the Company believes that
the originators are developing non-CFC versions.
Moreover, there are numerous manufacturers of niacin preparations
indicated for use as vitamin supplements or, in IR form, for treatment of
hyperlipidemia. The Company is not aware that any such manufacturer is
actively pursuing an NDA for the once-a-day use of niacin as a lipid-altering
agent. The Company believes, however, that a generic manufacturer has
performed an early-stage clinical study using niacin as a once-a-day
treatment for lipid-altering. Further, the Company's NIASPAN product will
compete with many existing lipid-altering medications, which currently
account for more than 90% of the lipid-altering market.
GOVERNMENT REGULATION
The development, manufacture and potential sales of prescription
pharmaceutical products is subject to extensive regulation by U.S. and
foreign governmental authorities. In particular, pharmaceutical products are
subject to rigorous preclinical and clinical testing and to other approval
requirements by the FDA in the United States under the Federal Food, Drug and
Cosmetic Act ("FFDCA") and the Public Health Service Act and by comparable
agencies in most foreign countries.
Before testing of any agents with potential therapeutic value in healthy
human test subjects or patients may begin, stringent government requirements
for preclinical data must be satisfied. The data, obtained from studies in
several animal species, as well as from laboratory studies, are submitted in
an IND application, or its equivalent in countries outside the United States,
where clinical studies are to be conducted. The preclinical data must provide
an adequate basis for evaluating both the safety and the scientific rationale
for the initiation of clinical trials.
Clinical trials are typically conducted in three sequential phases,
although the phases may overlap. In Phase I, which frequently begins with the
initial introduction of the compound into healthy human subjects prior to
introduction into patients, the product is tested for safety, adverse
affects, dosage, tolerance, absorption, metabolism, excretion and other
elements of clinical pharmacology. Phase II typically involves studies in a
small sample of the intended patient population to assess the efficacy of the
compound for a specific indication, to determine dose tolerance and the
optimal dose range as well as to gather additional information relating to
safety and potential adverse effects. Phase III trials are undertaken to
further evaluate clinical safety and efficacy in an expanded patient
population at geographically dispersed study sites, in order to determine the
overall risk-benefit ratio of the compound and to provide an adequate basis
for product labeling. Each trial is conducted in accordance
36
<PAGE>
with certain standards under protocols that detail the objectives of the
study, the parameters to be used to monitor safety and the efficacy criteria
to be evaluated. Each protocol must be submitted to the FDA as part of the
IND.
Data from preclinical and clinical trials are submitted to the FDA as a
NDA for marketing approval and to other health authorities as a marketing
authorization application. The process of completing clinical trials for a
new drug is likely to take a number of years and require the expenditure of
substantial resources. Preparing a NDA or marketing authorization application
involves considerable data collection, verification, analysis and expense,
and there can be no assurance that approval from the FDA or any other health
authority will be granted on a timely basis, if at all. The approval process
is affected by a number of factors, primarily the risks and benefits
demonstrated in clinical trials as well as the severity of the disease and
the availability of alternative treatments. The FDA or other health
authorities may deny a NDA or marketing authorization application if the
regulatory criteria are not satisfied, or such authorities may require
additional testing or information.
Even after initial FDA or other health authority approval has been
obtained, further studies, including Phase IV post-marketing studies, may be
required to provide additional data on safety and will be required to gain
approval for the use of a product as a treatment for clinical indications
other than those for which the product was initially tested. Also, the FDA or
other regulatory authorities require post-marketing reporting to monitor the
adverse effects of the drug. Results of post-marketing programs may limit or
expand the further marketing of the products. Further, if there are any
modifications to the drug, including changes in indication, manufacturing
process or labeling or a change in manufacturing facility, an application
seeking approval of such changes must be submitted to the FDA or other
regulatory authority.
The FFDCA also provides for NDA submissions that may rely in whole or in
part on preclinical and clinical safety and efficacy data that are publicly
available or are allowed to be referenced from another NDA. The Company may
be able to utilize existing publicly available safety and efficacy data in
filing NDAs for controlled-release products when such data exist for an
approved immediate-release version of the same chemical entity. The Company
intends to utilize all relevant available data for its products under
development, where appropriate, in order to reduce preclinical and clinical
testing and overall development time. There can be no assurance, however,
that the FDA will accept such data in the Company's applications, or that
such existing data will be available or useful.
Certain amendments to the FFDCA established abbreviated application
procedures for obtaining FDA approval for generic versions of brand name
prescription drugs that are off patent or whose marketing exclusivity has
expired. Approval to manufacture and market generic drugs is obtained by
filing ANDAs. As a substitute for clinical studies, the FDA requires, among
other items, data demonstrating that the ANDA drug formulation is
bioequivalent to the previously approved brand name formulation. The
advantage of the ANDA approval is that an ANDA applicant is not required to
conduct preclinical and clinical studies to demonstrate that the product is
safe and effective for its intended use.
Whether or not FDA approval has been obtained, approval of a product by
regulatory authorities in foreign countries must be obtained prior to the
commencement of commercial sales of the product in such countries. The
requirements governing the conduct of clinical trials and product approvals
vary widely from country to country, and the time required for approval may
be longer or shorter than that required for FDA approval. Although there are
some procedures for unified filings for certain European countries, in
general, each country at this time has its own procedures and requirements.
Further, the FDA regulates the export of products produced in the United
States and may prohibit the export even if such products are approved for
sale in other countries.
The Company's research and development involves the controlled use of
hazardous materials, chemicals, and various radioactive compounds. Although
the Company believes that its procedures for handling and disposing of those
materials comply with state and federal regulations, the risk of
contamination or injury from these materials cannot be eliminated. In the
event of such contamination
37
<PAGE>
or injury, the Company could be held liable for resulting damages, which
could be material to the Company's business, financial condition and results
of operations. The Company is also subject to numerous environmental, health
and workplace safety laws and regulations, including those governing
laboratory procedures, exposure to blood-borne pathogens, and the handling of
biohazardous materials. Additional federal, state and local laws and
regulations affecting the Company may be adopted in the future. Any violation
of, and the cost of compliance with, these laws and regulations could
materially and adversely affect the Company.
Completing the multitude of steps necessary prior to the commencement of
marketing requires the expenditure of considerable resources and a lengthy
period of time. Delay or failure in obtaining the required approvals,
clearances, permits or inclusions by the Company or its future corporate
partners or licensees, if any, would have a material adverse effect on the
ability of the Company to generate sales or royalty revenue. Further, the
passage and implementation of new or changed laws or regulations or the
potential impact on the Company of such actions cannot be anticipated.
One of the Company's products under development, albuterol (CFC), uses CFC
propellants. CFC propellants are ozone-depleting substances, the use of which
is restricted under the Federal Clean Air Act and the Montreal Protocol on
Substances that Deplete the Ozone Layer. The United Nations Technology and
Economic Assessment Panel (TEAP) reviews requests for specific essential use
allocations of CFCs under the Montreal Protocol and makes recommendations to
the parties, who determine the yearly bulk allocations for each country.
Recently, the Company's Essential Use Application for the use of CFCs during
1997 and 1998 was approved by TEAP and the parties to the Montreal Protocol.
Although the Company has received its requested allocation for 1997 and 1998
there can be no assurance that it will receive all or any part of its
allocation for 1999, or allocations for future years.
EMPLOYEES
The Company has approximately 105 permanent employees, of which 68 are
engaged in research and development and 19 in manufacturing. No employee is
represented by a union. The Company regularly employs the services of outside
consultants with respect to regulatory, scientific, and certain
administrative and commercial matters. The Company expects to continue to
require the services of such outside consultants. The Company believes its
employee relations are good.
FACILITIES
The Company leases approximately 3,400 square feet for its executive
offices pursuant to a lease that expires in 1997. The Company leases
approximately 14,500 square feet in adjacent buildings in Hollywood, Florida,
which are used for the research and development and solid-dose manufacturing
operations. These leases expire in November 2000, assuming the Company elects
to exercise certain renewal options. An additional 5,200 square feet of
office space at the same Hollywood site is leased through July 1997. The
Company also occupies approximately 21,500 square feet of space in Edison,
New Jersey under a lease that expires in October 2003, assuming the Company
elects to exercise a five-year renewal option. The Edison, New Jersey
facility is used for research and development, solid-dose manufacturing, and
aerosol manufacturing.
LEGAL PROCEEDINGS
There are no legal proceedings pending against the Company or its
properties or to which the Company is a party.
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<PAGE>
MANAGEMENT
The following table provides information regarding directors, director
nominees, executive officers and key personnel of the Company:
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------------------------------------
<S> <C> <C>
Michael Jaharis ......... 68 Chairman of the Board of Directors
Daniel M. Bell .......... 54 President, Chief Executive Officer and Director
Robert E. Baldini ....... 66 Vice Chairman of the Board of Directors
David J. Bova ........... 51 Senior Vice President, Product Development
John Brademas, Ph.D. ... 69 Director Nominee(1)
Steven Jaharis, M.D. ... 37 Director(1)(2)
Louis C. Lasagna, M.D. . 74 Director Nominee(1)
Mark Novitch, M.D. ...... 64 Director Nominee(2)
Frederick B. Whittemore 66 Director Nominee(2)
</TABLE>
OTHER KEY EMPLOYEES
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Marvin F. Blanford, Pharm. D. 49 Vice President, Compliance
Eugenio A. Cefali, Ph.D. ..... 38 Vice President, Clinical Pharmacology
Anthony J. Cutie, Ph.D. ...... 53 Vice President, Aerosol Research & Development
David L. Heatherman ........... 50 Vice President, Sales & Marketing
Frederick A. Sexton ........... 37 Vice President, Technical Operations
Arthur W. Brinkmann ........... 62 Director of Human Resources
Christopher P. Kiritsy ........ 32 Director of Financial Analysis and Business Planning
Mukesh P. Patel ............... 39 Director of Licensing
Juan F. Rodriguez ............. 29 Controller
</TABLE>
- -----------------------------------------------------------------------------
(1) Proposed member of the Audit Committee
(2) Proposed member of the Compensation and Stock Option Committee
MICHAEL JAHARIS, a founder of the Company, has, since its inception,
funded the operations of the Company and served as Chairman of the Board. In
this position, Mr. Jaharis has been actively involved in the development of
the Company's business strategy and in critical implementation decisions.
From 1972 until its acquisition by Schering-Plough Corporation
("Schering-Plough") in 1986, Mr. Jaharis served as the President and Chief
Executive Officer of Key Pharmaceuticals, Inc. ("Key Pharmaceuticals"). Mr.
Jaharis also serves as Chairman of Kos Investments and Kos Holdings, as
Trustee of Tufts University, and as Chairman of the Board of Overseers of
Tufts University School of Medicine.
DANIEL M. BELL, a founder of the Company, has served as a Director and as
the President and Chief Executive Officer of the Company since its inception.
Mr. Bell also serves as a director of Kos Investments and Kos Holdings and as
a director of two private companies in which Kos Investments or Michael
Jaharis is the largest shareholder. From 1983 to 1986, Mr. Bell was employed
by Key Pharmaceuticals and was serving as its Executive Vice President and
Chief Operating Officer at the time of its acquisition by Schering-Plough in
June 1986.
ROBERT E. BALDINI has served as Vice Chairman of the Board since July 1996
and as a senior marketing consultant to the Company since April 1996. In
these positions, Mr. Baldini serves as an executive officer of the Company.
In addition to performing services for the Company, Mr. Baldini serves as a
consultant to, and director of, several private pharmaceutical and medical
device companies. Mr. Baldini served Key Pharmaceuticals from 1982 to 1986 as
Senior Vice President of Sales and Marketing. Following its acquisition by
Schering-Plough, he continued with the Key Pharmaceuticals Division of
Schering-Plough until 1995, last serving as its President.
39
<PAGE>
DAVID J. BOVA, a founder of the Company, has directed the Company's
product development efforts since inception and now serves as Senior Vice
President, Product Development. Prior to the founding of Kos, Mr. Bova was at
Key Pharmaceuticals from 1981 until its acquisition by Schering-Plough; he
continued with Schering-Plough until the founding of Kos in 1988. At Key
Pharmaceuticals, he last served as the Director of Product Development. Prior
to 1981, Mr. Bova was employed by the USV pharmaceutical operation of Revlon
Healthcare.
JOHN BRADEMAS, PH.D. has been nominated to become a Director of the
Company immediately following the closing of this offering. Dr. Brademas has
been President Emeritus of New York University since 1992. Prior to 1992, he
was President of New York University for eleven years and was the U.S.
Representative in Congress for Indiana's Third District for twenty-two years.
Dr. Brademas serves as a director of Texaco, Inc., NYNEX Corporation,
Scholastic, Inc., and Loews Corporation. He is a former Chairman of the
Federal Reserve Bank of New York and a former director of the New York Stock
Exchange.
STEVEN JAHARIS, M.D. has served as a Director of the Company since its
inception. Dr. Jaharis has been a practicing physician since 1990 and
currently serves as a family practitioner at Rush Prudential H.M.O. Dr.
Jaharis is the son of Michael Jaharis.
LOUIS C. LASAGNA, M.D. has been nominated to become a Director of the
Company immediately following the closing of this offering. Dr. Lasagna has
served as the Dean of the Sackler School of Graduate Biomedical Sciences at
Tufts University since 1984. Dr. Lasagna serves as a director of Astra U.S.A.
Inc., a subsidiary of Astra AB.
MARK NOVITCH, M.D. has been nominated to become a Director of the Company
immediately following the closing of this offering. Dr. Novitch has served as
Professor of Health Care Sciences at George Washington University since 1994.
Dr. Novitch was with The Upjohn Company from 1985 to 1993, last serving as
its Vice Chairman. From 1971 to 1985, Dr. Novitch was with the FDA, serving
as Deputy Commissioner from 1981 to 1985. Dr. Novitch serves as a director of
Alteon, Inc., Guidant Corporation, Neurogen Corporation, and Calypte
Biomedical, Inc.
FREDERICK B. WHITTEMORE has been nominated to become a Director of the
Company immediately following the closing of this offering. Mr. Whittemore
has been with Morgan Stanley Group since 1958 and presently serves as
Advisory Director. Mr. Whittemore is a director of various mutual funds
organized under Morgan Stanley Asset Management, Inc. Mr. Whittemore also
serves as a director of Chesapeake Energy Corporation, PartnerRe Holdings,
Ltd., and Integon, Inc.
MARVIN F. BLANFORD, PHARM. D. joined Kos in 1996 and serves as Vice
President, Compliance. Dr. Blanford was the Director of Clinical Research for
Noven Pharmaceuticals, Inc. from 1992 to 1995. Previously joining Noven, Dr.
Blanford was vice president of a major independent clinical research
organization. Dr. Blanford also worked for Key Pharmaceuticals as a research
manager from 1981 through 1984.
EUGENIO A. CEFALI, PH.D. joined the Company in January 1994 and serves as
Vice President, Clinical Pharmacology. Dr. Cefali was responsible for
clinical pharmacology and Phase IV clinical research at Whitby
Pharmaceuticals from 1991 to 1994. Prior to 1991, Dr. Cefali was at Key
Pharmaceuticals and Schering-Plough where he was responsible for in-vivo
evaluation of certain oral sustained release and transdermal dosage forms.
ANTHONY J. CUTIE, PH.D. serves as Vice President, Aerosol Research and
Development; he has been the Chief Scientific Officer of the Company's
aerosol subsidiary since its founding in 1993. For more than 25 years, Dr.
Cutie has been an industry consultant in pharmaceutical aerosols and he has
worked with over 50 pharmaceutical companies ranging from large
multinationals to small generic companies. He has served as a consultant for
the FDA, and he has been an active member of various United States
Pharmacopia committees and two aerosol committees of the American Association
of Pharmaceutical Scientists. Dr. Cutie also serves as Professor of
Industrial Pharmacy at Long Island University.
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<PAGE>
DAVID L. HEATHERMAN has served as Vice President, Sales and Marketing
since July 1996. Mr. Heatherman worked for Schering-Plough from 1972 to 1996
in several capacities including Senior Product Promotion Director, Regional
Sales Director, last serving as Managed Care Director.
FREDERICK A. SEXTON joined the Company in January 1996 and serves as Vice
President, Technical Operations. Prior to joining the Company, Mr. Sexton was
employed by Boehringer Ingelheim Pharmaceuticals from 1984 through 1995 in
various production and quality assurance positions involving solid-dose and
aerosol products. Prior to 1984, Mr. Sexton was employed by Ayerst
Laboratories in research and production positions.
ARTHUR W. BRINKMANN has served as Director, Human Resources since
September, 1991. Mr. Brinkmann was Director of Human Resources at Key
Pharmaceuticals and Schering-Plough from 1984 to 1989. Prior to Key
Pharmaceuticals, Mr. Brinkmann worked in human resources at Johnson & Johnson
for twenty-one years.
CHRISTOPHER P. KIRITSY joined the Company in June 1995 and serves as
Director, Financial Analysis and Business Planning. Prior to joining the
Company, Mr. Kiritsy was with Institute of Molecular Biology, Inc., a
development stage biotechnology concern, from 1988 to 1995, where he last
served as Associate Director of Product Development.
MUKESH P. PATEL has served as Director, Licensing since July 1991. Mr.
Patel was employed by Glaxo in London, England for eleven years prior to
joining the Company, last serving as an International Licensing Executive for
Glaxo Holdings.
JUAN F. RODRIGUEZ, a certified public accountant, joined the Company in
November 1995 and serves as Controller. Prior to joining Kos, Mr. Rodriguez
was employed by the accounting firms of Rosen and Co. from 1994 to 1995 and
Arthur Andersen LLP from 1991 to 1994.
ELECTION, COMMITTEES AND COMPENSATION OF DIRECTORS
Prior to the consummation of this offering, the Company intends to
establish a Compensation and Stock Option Committee and an Audit Committee.
The Compensation and Stock Option Committee will administer the Company's
1996 Stock Option Plan (the "Option Plan") including, among other things,
determining the amount, exercise price and vesting schedule of stock options
awarded under the Option Plan. The Compensation and Stock Option Committee
will administer the Company's other compensation programs and perform such
other duties as may from time to time be determined by the Board of
Directors. The Compensation and Stock Option Committee is expected to be
comprised of Dr. Jaharis, Dr. Novitch, and Mr. Whittemore.
The Audit Committee will review the scope and results of the annual audit
of the Company's consolidated financial statements conducted by the Company's
independent accountants, the scope of other services provided by the
Company's independent accountants, proposed changes in the Company's
financial and accounting standards and principles, and the Company's policies
and procedures with respect to its internal accounting, auditing and
financing controls. The Audit Committee will also examine and consider other
matters relating to the financial affairs and accounting methods of the
Company, including selection and retention of the Company's independent
accountants. The Audit Committee is currently expected to be comprised of Dr.
Brademas, Dr. Jaharis, and Dr. Lasagna.
Each non-employee and non-consultant director of the Company, is entitled
to receive a fee of $1,000 for attendance at each meeting of the Board of
Directors. In addition, each non-employee and non-consultant director is
entitled to receive $500 for attendance at each meeting of a committee of the
Board of Directors. All directors are reimbursed for travel expenses incurred
in connection with the performance of their duties as directors.
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<PAGE>
Each non-employee and non-consultant director is entitled to receive an
option to purchase 5,000 shares of Common Stock upon their appointment to the
Board of Directors and is entitled to receive an option to purchase 3,000
shares of Common Stock annually thereafter, so long as they continue to serve
on the Board of Directors. See "Management--Stock Option Plan."
Michael Jaharis has elected not to receive fees or stock options in
connection with his serving as Chairman of the Board. Although Mr. Jaharis
has been actively involved in the development of the Company's business
strategy and in critical implementation decisions, he has never been paid
compensation by the Company for acting in such capacity. Since July 1, 1996,
however, the Company has leased an automobile for Mr. Jaharis' use.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended June 30, 1996, Michael Jaharis, the Company's
Chairman of the Board, and Daniel M. Bell, the Company's President and Chief
Executive Officer, participated in deliberations of the Company's Board of
Directors concerning executive officer compensation. Prior to this offering,
the Company did not have a stock option or compensation committee.
EXECUTIVE COMPENSATION
The following table summarizes the compensation during the fiscal years
ended June 30, 1996, 1995 and 1994, paid to or earned by the Company's Chief
Executive Officer and to the other executive officers of the Company whose
annual salary and bonuses exceeded $100,000 during the fiscal year ended June
30, 1996 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------------------------- ------------------------------ ----------
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND SALARY BONUS COMPENSATION AWARD(S) OPTIONS/SARS PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($) ($)(1)
- ------------------ ---- ------ - ----- ------------ ---------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Daniel M. Bell 1996 246,000 -- -- -- 750,000(2) -- 4,928
President and 1995 246,000 10,000 -- -- -- -- 1,814
Chief Executive Officer 1994 246,000 -- -- -- -- -- 890
David J. Bova 1996 185,000 25,000 -- -- -- -- 1,091
Senior Vice President, 1995 185,000 -- -- -- -- -- 726
Product Development 1994 164,167 -- -- -- -- -- 605
</TABLE>
- -----------------------------------------------------------------------------
(1) Consists of life insurance premiums paid by the Company.
(2) The options originally were granted to Mr. Bell in August 1988. The
option terms were amended on June 20, 1996, to extend the expiration date
of the options from December 1996 to June 20, 2006. Other material terms
of the options, including the exercise price, were not changed. The
options are currently exercisable.
42
<PAGE>
The following table contains information about stock option grants to
Named Executive Officers during the fiscal year ended June 30, 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
---------------------------------------------------------------------------- ANNUAL RATE OF
NUMBER OF SECURITIES % OF TOTAL OPTIONS EXERCISE OR STOCK PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED TO EMPLOYEES BASE PRICE EXPIRATION FOR OPTION TERM(1)
NAME GRANTED (#) IN FISCAL YEAR ($/SHARE) DATE 0%($) 5%($) 10%($)
- ---------------- --------------------- --------------------- ---------- ---------- ------------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
DANIEL M. BELL 750,000(2) 41% $0.60 6/20/06 $4,800,000 $7,818,694 $12,449,964
DAVID J. BOVA . -- -- -- -- -- -- --
</TABLE>
- -----------------------------------------------------------------------------
(1) Amounts reflect hypothetical gains that could be achieved for the options
if they are exercised at the end of the option term. Those gains are
based on assumed rates of stock appreciation of 0%, 5% and 10% compounded
annually from the date the option was modified through the expiration
date. The Board of Directors estimated the fair market value of Common
Stock to be $7.00 per share on the date of such modification.
(2) The options originally were granted to Mr. Bell in August 1988. The
option terms were amended on June 20, 1996, to extend the expiration date
of the options from December 1996 to June 20, 2006. Other material terms
of the options, including the exercise price, were not changed. The
options are currently exercisable.
The following table provides information about the number and value of
options held by the Named Executive Officers at June 30, 1996:
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FY-END(#) AT FY-END($)(1)
-------------------------------- --------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------- -------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
Daniel M. Bell 750,000 -- $4,800,000 --
David J. Bova . 275,000 -- $1,718,750 --
</TABLE>
- -----------------------------------------------------------------------------
(1) For purposes of determining the values of the options held by Named
Executive Officers, the Company has assumed that Common Stock had a value
of $7.00 per share on June 30, 1996, which is the estimated fair market
value the Board of Directors had attributed to the Common Stock on June
20, 1996, in connection with certain grants of options under the
Company's stock option plan. The option value is based on the difference
between the fair market value of the shares on June 30, 1996 and the
option exercise price per share, multiplied by the number of shares of
Common Stock subject to the option.
CONFIDENTIALITY AND INTELLECTUAL PROPERTY AGREEMENTS
Each employee of the Company has entered into a Confidentiality Agreement
that (i) prohibits the employee from disclosing confidential information
relating to the Company and (ii) provides that intellectual property
conceived by the employee during the term of employment and relating to the
business of the Company remains the exclusive property of the Company.
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with Daniel M. Bell dated
as of July 1, 1996. Under the agreement, Mr. Bell serves as President and
Chief Executive Officer of the Company for a term expiring on June 30, 2002,
unless earlier terminated for cause, upon the death or disability of Mr.
Bell, or, at the election of Mr. Bell, upon a change in control of the
Company. In the event that Mr. Bell is terminated without cause or upon a
change in control of the Company, Mr. Bell is entitled to receive as
severance compensation his base salary, bonus compensation and annual stock
options until the later to occur of the date thirty-six months after such
termination and June 30, 2002. The agreement provides that Mr. Bell receive
base annual compensation of $250,000 for each year during the term of the
agreement, subject to an annual increase in an amount to be determined by the
Board of Directors. Under the agreement, Mr. Bell also receives an annual
bonus and an annual stock option grant in amounts to be determined by the
Board of Directors based upon Mr. Bell's and the Company's
43
<PAGE>
performance. Mr. Bell was paid a bonus of $150,000 in December 1996. The
agreement also provides that the Company will provide Mr. Bell with the use
of an automobile. Mr. Bell is prohibited from competing with the Company
during the term of the agreement and for two years after termination thereof.
The Company entered into an employment agreement with David Bova dated as
of June 15, 1996, pursuant to which Mr. Bova serves as Senior Vice President
of the Company. This agreement constitutes an amendment and restatement of a
previous employment agreement with Mr. Bova, dated December 18, 1992. Under
the agreement, the term of Mr. Bova's employment terminates on December 31,
1997 unless earlier terminated for cause, upon the death or disability of Mr.
Bova, or, at the election of Mr. Bova, upon a change in control of the
Company. Notwithstanding the foregoing, the Company may exercise an option to
extend the term of the agreement for up to twenty-four additional months. The
agreement provides that Mr. Bova receive a base salary of $195,000 per year,
which amount may be increased by the Company. In December 1996, the Company's
Board of Directors determined to award a $25,000 bonus to Mr. Bova, payable
to Mr. Bova in 1997. In the event that Mr. Bova is terminated without cause
or upon a change in control of the Company, Mr. Bova is entitled to receive
as severance compensation his base salary until December 31, 1997. In
addition, the agreement provides that Mr. Bova receive royalties in an amount
equal to one percent of the net sales of the Company's NIASPAN product and
its combination product through December 31, 2003, up to a cap of $4,000,000.
The agreement provides that, under certain enumerated circumstances, the
royalty amount may be reduced to 0.5% of net sales. The agreement also
provides that under certain specific circumstances, the Company's obligation
to pay royalties may cease upon Mr. Bova's termination with the Company. The
agreement prohibits Mr. Bova from competing with the Company during the term
of the agreement and for a period of two years after the termination thereof.
The Company entered into a consulting agreement with Robert Baldini
effective as of April 1, 1996, pursuant to which Mr. Baldini serves as Vice
Chairman of the Board and as senior marketing consultant to the Company,
advising the Company with respect to its establishment of a sales force and
its marketing efforts. Mr. Baldini will receive $75,000 per year under the
agreement and is obligated to devote fifty days per year to Company matters.
The term of the agreement continues for five years. The agreement is
automatically renewable for successive two year periods unless either party
provides thirty days prior written notice of its desire not to renew. The
agreement is terminable by either party upon 120 days prior written notice.
The agreement prohibits Mr. Baldini from competing with the Company during
the term of the Agreement.
EMPLOYEE BENEFIT PLANS
STOCK OPTION PLAN
The Option Plan provides for the grant of both nonstatutory stock options
and stock options intended to be treated as incentive stock options within
the meaning of Section 422 of the Internal Revenue Code. The Option Plan is
intended to provide incentives to, and rewards for, certain eligible
employees, consultants and outside directors of the Company who have
contributed and will continue to contribute to the success of the Company.
The Option Plan was adopted by the Board of Directors and the shareholder of
the Company in June 1996. An aggregate of 3,675,000 shares of Common Stock
have been reserved for issuance under the Option Plan. The Company has
granted options to purchase an aggregate of 2,005,500 shares of Common Stock
under the Option Plan to employees and consultants at exercise prices ranging
from $0.60 to the initial public offering price per share, including stock
options covering an aggregate of 750,000 shares of Common Stock granted to
one of the Company's Named Executive Officers. The Company has also granted
options to purchase an aggregate of 325,000 shares of Common Stock outside of
the Option Plan to an employee and a consultant, including stock options
covering an aggregate of 275,000 shares of Common Stock granted to one of the
Company's Named Executive Officers.
Under the Option Plan, the Compensation and Stock Option Committee of the
Board of Directors of the Company (the "Stock Option Committee") is
authorized to administer the Option Plan,
44
<PAGE>
including the selection of employees and consultants of the Company to whom
options may be granted. The Stock Option Committee also determines the number
of shares, the exercise price, the term, any conditions on exercise and other
terms of each option granted to an employee or consultant. Options granted to
employees or consultants under the Option Plan become vested over a period of
four years or such shorter or longer period as may be determined by the Stock
Option Committee at the time of grant. The duration of an option granted to
an employee or consultant under the Option Plan is ten years from the date of
grant, or such shorter or longer period as may be determined by the Stock
Option Committee at the time of grant or as may result from the death,
disability, or termination of the employment of the employee or consultant to
whom the option is granted.
The Option Plan prescribes a formula for determining the amount, price and
timing of awards of stock options to the eligible outside directors. Upon his
or her election to the Board of Directors of the Company, an eligible outside
director will receive an option to purchase 5,000 shares of the Company's
common stock. On each anniversary of his or her appointment to the Board of
Directors of the Company, an eligible outside director will receive an option
to purchase 3,000 shares of the Company's common stock. The exercise price of
each share subject to an option granted to an outside director will be the
fair market value of the Company's common stock on the later of (a) the
earlier of the date of an initial public offering of the Company's common
stock or December 31, 1996, or (b) the date the option is granted. Each
option granted to an outside director under the Option Plan becomes vested on
the first anniversary of its date of grant. The duration of an option granted
to an outside director under the Option Plan is the lesser of ten years from
the date of grant or one year from the date of the outside director's death.
The options are non-transferable other than by will or by the laws of
descent and distribution. The Option Plan may be amended at any time by the
Board of Directors, although certain amendments require shareholder approval.
The Option Plan terminates in June 2006.
401(K) PLAN
The Company's Internal Revenue Code Section 401(k) Plan, known as the Kos
Savings Plan, became effective on January 1, 1994. Each employee who has
completed at least one year of service with the Company and has attained age
21 is eligible to make pre-tax elective deferral contributions each year not
exceeding the greater of a specified statutory amount or 15 percent of the
employee's compensation for the year. An employee is always 100 percent
vested in the employee's elective deferral contributions. The Company makes
no contributions under this plan.
45
<PAGE>
CERTAIN TRANSACTIONS
During 1995 the Company acquired certain property including used
computers, laboratory equipment and supplies and certain other office
equipment and furnishings from the Institute of Molecular Biology, Inc.
("IMB"), a company controlled by Kos Investments. In the aggregate, such
purchases totaled approximately $83,500. Until June 1996, Daniel M. Bell, the
Company's President and Chief Executive Officer, also served as the Chairman
of the Board of Directors and Chief Executive Officer of IMB.
Michael Jaharis, the sole shareholder of Kos Investments, has personally
guaranteed the repayment of a loan to Kos Investments from certain financial
institutions. Prior to March 21, 1995, the Company was the primary borrower
under this loan, and therefore received the benefit of the personal guaranty
extended by Mr. Jaharis. As consideration for Mr. Jaharis's personal
guaranty, the Company agreed to pay Mr. Jaharis an annual fee of 0.25% of the
average amount outstanding under the loan during the Company's fiscal year.
The Company paid Mr. Jaharis $28,700 and $92,333 during the fiscal years
ended June 30, 1994 and 1995, respectively. In March 1995, the Company was
released as a borrower under the loan.
The Company executed the Convertible Note, dated as of July 1, 1996, the
proceeds of which will be used to fund the Company's operations until the
consummation of this offering, in connection with a loan to the Company from
Kos Investments in the aggregate principal amount of up to $15.0 million.
Under the terms of this note, interest accrues on the outstanding principal
amount at First Union National Bank of Florida's prime rate commencing July
1, 1996, escalating to a rate of 1% over such prime rate during calendar year
1997, 2% over such prime rate during calendar year 1998, and 3% over such
prime rate during calendar year 1999 until maturity. Principal and interest
under this note are due on June 30, 1999. From time to time, at Kos
Investments' option, principal and interest outstanding under this note may
be converted, in whole or in part, into Common Stock at a conversion price
per share equal to the initial public offering price per share. As of
February 7, 1997, the Company had borrowed $11,355,000 under this note.
46
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of February 7, 1997 and as adjusted at
that date to reflect the sale of Common Stock offered by the Company hereby,
information with respect to the beneficial ownership of the Company's Common
Stock by: (i) each person known by the Company to beneficially own more than
five percent (5%) of the outstanding shares of the Company's Common Stock;
(ii) each director and director nominee of the Company; (iii) the Company's
Named Executive Officers; and (iv) all directors and executive officers as a
group. Unless otherwise indicated, each of the shareholders named in this
table: (a) has sole voting and investment power with respect to all shares of
Common Stock beneficially owned; and (b) has the same address as the Company.
<TABLE>
<CAPTION>
PERCENTAGE
BENEFICIALLY OWNED(1)
-----------------------------------------
SHARES BENEFICIALLY
BENEFICIAL OWNER OWNED(1) BEFORE THE OFFERING AFTER THE OFFERING
- --------------------------- --------------------------- -------------------- -------------------
<S> <C> <C> <C>
Michael Jaharis(2) ........ 10,000,000 100.0% 74.1%
Daniel M. Bell(3) ......... 750,000 7.0% 5.3%
David J. Bova(4) .......... 275,000 2.7% 2.0%
Robert E. Baldini(5) ...... 50,000 * *
John Brademas, Ph.D. ..... -- -- --
Steven Jaharis, M.D. ..... -- -- --
Louis C. Lasagna, M.D. ... -- -- --
Mark Novitch, M.D. ........ -- -- --
Frederick B. Whittemore .. -- -- --
All Officers and Directors
as a group (9 persons)(6) 11,075,000 100.0% 76.0%
</TABLE>
- -----------------------------------------------------------------------------
* less than 1 percent
(1) Shares beneficially owned and percentage of ownership are based on
10,000,000 shares of Common Stock outstanding before this offering and
13,500,000 shares of Common Stock outstanding after the closing.
Beneficial ownership is determined in accordance with the rules of the
SEC and generally includes voting and disposition power with respect to
securities.
(2) All shares are held by Kos Holdings, Inc., which is wholly owned by Kos
Investments, Inc., of which Mr. Jaharis is the sole shareholder, and with
respect to such shares Mr. Jaharis has sole voting and investment power.
Excludes 811,071 shares of Common Stock (assuming a public offering price
of $14.00 per share) issuable to Kos Investments upon the conversion, if
any, of the Convertible Note.
(3) Consists of 750,000 shares of Common Stock that may be purchased by Mr.
Bell pursuant to an option, which is currently exercisable.
(4) Consists of 275,000 shares of Common Stock that may be purchased by Mr.
Bova pursuant to an option, which is currently exercisable.
(5) Consists of 50,000 shares of Common Stock that may be purchased by Mr.
Baldini pursuant to an option, which is exercisable within 60 days.
(6) Includes an aggregate of 1,075,000 shares underlying options to purchase
Common Stock that are currently exercisable or are exercisable within 60
days.
47
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 50,000,000 shares
of Common Stock having a par value of $.01 per share and 10,000,000 shares of
Preferred Stock having a par value of $.01 per share ("Preferred Stock"). As
of February 7, 1997, 10,000,000 shares of Common Stock and no shares of
Preferred Stock were outstanding. An additional 2,330,500 shares of Common
Stock may be issued upon the exercise of outstanding stock options and an
additional 811,071 shares of Common Stock (assuming a public offering price
of $14.00 per share) issuable upon conversion, if any, of the Convertible
Note.
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share held.
Shareholders do not have the right to cumulate their votes in elections of
directors. Accordingly, holders of a majority of the issued and outstanding
Common Stock will have the right to elect all the Company's directors and
otherwise control the affairs of the Company.
Holders of Common Stock are entitled to dividends on a pro rata basis upon
declaration of dividends by the Board of Directors. Dividends are payable
only out of funds legally available for the payment of dividends. The Board
of Directors is not required to declare dividends, and it currently expects
to retain earnings to finance the development of the Company's business. See
"Dividend Policy."
Upon a liquidation of the Company, holders of the Common Stock will be
entitled to a pro rata distribution of the assets of the Company, after
payment of all amounts owed to the Company's creditors, and subject to any
preferential amount payable to holders of Preferred Stock of the Company, if
any. Holders of Common Stock have no preemptive, subscription, conversion,
redemption or sinking fund rights.
PREFERRED STOCK
The Articles permit the Company's Board of Directors to issue shares of
Preferred Stock in one or more series and to fix the relative rights,
preferences and limitations of each series. Among such rights, preferences
and limitations are dividend rates, provisions of redemption, rights upon
liquidation, conversion privileges and voting powers. Should the Board of
Directors elect to exercise this authority, the rights and privileges of
holders of Common Stock could be made subject to the rights and privileges of
any such series of Preferred Stock. The Board of Directors of the Company
currently has no plans to issue any shares of Preferred Stock. The issuance
of Preferred Stock could have the effect of making it more difficult for a
third party to acquire, or discouraging a third party from acquiring, a
majority of the outstanding voting stock of the Company.
CERTAIN ANTI-TAKEOVER PROVISIONS INCLUDED IN THE COMPANY'S ARTICLES OF
INCORPORATION AND BYLAWS
The Articles permit removal of directors only for cause by the
shareholders of the Company at a meeting by the affirmative vote of at least
60% of the outstanding shares entitled to vote for the election of directors
(the "Voting Stock"). The Articles provide that any vacancy on the Board of
Directors may be filled only by the remaining directors then in office.
The Articles also contain provisions which require: (i) the affirmative
vote of 60% of the Voting Stock to amend the Articles of Incorporation or
Bylaws of the Company; and (ii) the demand of not less than 50% of all votes
entitled to be cast on any issue to be considered at a proposed special
meeting to call a special meeting of shareholders. In addition, the Articles
require that all shareholder action, including the election of directors, be
taken by means of a vote at a duly convened shareholders meeting and not by
use of written consents.
The Company's Bylaws establish an advance notice procedure for the
nomination of candidates for election as directors by shareholders as well as
for shareholder proposals to be considered at shareholders' meetings.
48
<PAGE>
The above-described provisions may have certain anti-takeover effects.
Such provisions, in addition to the provisions described below, may make it
more difficult for persons, without the approval of the Company's Board of
Directors, to make a tender offer or acquire substantial amounts of the
Common Stock or launch other takeover attempts that a shareholder might
consider in such shareholder's best interests, including attempts that might
result in the payment of a premium over the market price for the Common Stock
held by such shareholder.
CERTAIN PROVISIONS OF FLORIDA LAW
The Company is subject to several anti-takeover provisions under Florida
law that apply to a public corporation organized under Florida law, unless
the corporation has elected to opt out of those provisions in its articles of
incorporation or bylaws. The Company has not elected to opt out of certain of
those provisions. The Florida Business Corporation Act (the "FBCA") prohibits
the voting of shares in a publicly-held Florida corporation that are acquired
in a "control share acquisition" unless the holders of a majority of the
corporation's voting shares (exclusive of shares held by officers of the
corporation, inside directors or the acquiring party) approve the granting of
voting rights as to the shares acquired in the control share acquisition or
unless the acquisition is approved by the corporation's board of directors. A
"control share acquisition" is defined as an acquisition that immediately
thereafter entitles the acquiring party to vote in the election of directors
within each of the following ranges of voting power: (i) one-fifth or more
but less than one-third of such voting power (ii) one-third or more but less
than a majority of such voting power; and (iii) more than a majority of such
voting power.
The FBCA also contains an "affiliated transaction" provision that
prohibits a publicly-held Florida corporation from engaging in a broad range
of business combinations or other extraordinary corporate transactions with
an "interested shareholder" unless (i) the transaction is approved by a
majority of disinterested directors before the person becomes an interested
shareholder, (ii) the interested shareholder has owned at least 80% of the
corporation's outstanding voting shares for at least five years or (iii) the
transaction is approved by the holders of two-thirds of the corporation's
voting shares other than those owned by the interested shareholder. An
interested shareholder is defined as a person who together with affiliates
and associates beneficially owns more than 10% of the corporation's
outstanding voting shares. The Company's Articles provide that the FBCA's
affiliated transaction voting requirements will not apply to the Company.
TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Company has been appointed the transfer
agent and registrar for the Common Stock. Its address is 40 Wall Street, 46th
Floor, New York, New York 10005.
49
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 13,500,000 shares
of Common Stock outstanding. Of these shares, the 3,500,000 shares offered
hereby will be freely tradeable without restriction or further registration
under the Securities Act, except for any shares purchased by an "affiliate"
of the Company (in general, a person who has a control relationship with the
Company), which shares will be subject to the resale limitations, described
below, of Rule 144 promulgated under the Securities Act. The remaining
10,000,000 shares are deemed to be "restricted securities," as that term is
defined under Rule 144, in that such shares were issued and sold by the
Company in private transactions not involving a public offering and, as such,
may only be sold pursuant to an effective registration under the Securities
Act, in compliance with the exemption provisions of Rule 144 or pursuant to
another exemption under the Securities Act (the "Restricted Shares"). The
Restricted Shares are eligible for sale under Rule 144 (subject to certain
recurring three-month volume limitations prescribed therein). The Company has
granted certain registration rights to its sole shareholder and to Kos
Investments, the holder of the note representing the Investments Loan. These
entities have "piggyback" registration rights to request that the Company
register any of their shares in the event that the Company proposes to
register any of its securities under the Securities Act. Additionally, these
entities have "demand" registration rights to have the Company prepare and
file, on three occassions, a registration statement so as to permit a public
offering and sale of their shares of Common Stock.
The existing shareholder of the Company, which will beneficially hold an
aggregate of 10,000,000 shares of Common Stock upon consummation of this
offering, holders of options to purchase an aggregate of 2,330,500 shares of
Common Stock, and Kos Investments, Inc., the holder of the Convertible Note,
which may be converted into 811,071 shares of Common Stock (assuming a public
offering price of $14.00 per share), have agreed with the Underwriters not to
sell or otherwise dispose of any of those shares of Common Stock for a period
of 180 days after the date of this Prospectus without the written consent of
Cowen & Company, a Representative of the Underwriters. Cowen & Company may,
in its sole discretion and at any time without notice, release all or any
portion of the securities subject to these lock-up restrictions.
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company (or persons whose shares are aggregated with an affiliate), who
has owned restricted shares of Common Stock beneficially for at least two
years is entitled to sell, within any three-month period, a number of shares
that does not exceed the greater of 1% of the total number of outstanding
shares of the same class or, if the common stock is quoted on Nasdaq National
Market, the average weekly trading volume during the four calendar weeks
preceding the sale. A person who has not been an affiliate of the Company for
at least three months immediately preceding the sale and who has beneficially
owned shares of Common Stock for at least three years is entitled to sell
such shares under Rule 144 without regard to any of the limitations described
above. The Securities and Exchange Commission is currently considering a
proposal to reduce the Rule 144 holding period for restricted securities to
one year.
The Company intends to file a registration statement under the Securities
Act to register shares of Common Stock reserved for issuance under the Option
Plan, thereby permitting the resale of such shares by non-affiliates in the
public market without restriction under the Securities Act. As of December
31, 1996, options to purchase 2,005,500 shares of Common Stock were
outstanding under the Option Plan.
Prior to this offering, there has been no public market for the securities
of the Company. No prediction can be made as to the effect, if any, that
public sales of shares of Common Stock or the availability of such shares for
sale will have on the market prices of the Common Stock prevailing from time
to time. Nevertheless, sales of a substantial number of shares by the
existing shareholder or by shareholders purchasing Common Stock in this
offering could have a negative effect on the market price of Common Stock and
could impair the Company's ability in the future to raise additional capital
through the sale of its equity securities.
50
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives,
Cowen & Company, Dillon, Read & Co. Inc. and Salomon Brothers Inc have
severally agreed to purchase from the Company the following respective number
of shares of Common Stock at the initial public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus:
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITER OF COMMON STOCK
- ----------------------------- ---------------------
<S> <C>
Cowen & Company .............
Dillon, Read & Co. Inc. ....
Salomon Brothers Inc ........
---------------------
Total ..................... 3,500,000
=====================
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the
absence of any material adverse change in the Company's business and the
receipt of certain certificates, opinions and letters from the Company and
its counsel and independent auditors. The nature of the Underwriter's
obligation is such that they are committed to purchase all shares of Common
Stock offered hereby if any of such shares are purchased.
The Underwriters propose to offer the shares of Common Stock directly to
the public at the initial public offering price set forth on the cover page
of this Prospectus and to certain dealers at such price less a concession not
is excess of $ per share. The Underwriters may allow and such dealers may
re-allow a concession not in excess of $ per share to certain other
dealers. The Underwriters have informed the Company that they do not intend
to confirm sales to any accounts over which they exercise discretionary
authority. After the initial public offering of the shares, the offering
price and other selling terms may from time to time be varied by the
Underwriters.
The Company has granted to the Underwriters an option, exercisable no
later than 30 days after the date of this Prospectus, to purchase up to
525,000 additional shares of Common Stock at the initial public offering
price, less the underwriting discount, set forth on the cover page of this
Prospectus, to cover over-allotments, if any. If the Underwriters exercise
their over-allotment option, the Underwriters have severally agreed, subject
to certain conditions, to purchase approximately the same percentage thereof
that the number of shares of Common Stock to be purchased by each of them
shown in the foregoing table bears to the total number of shares of Common
Stock offered hereby. The Underwriters may exercise such option only to cover
over-allotments made in connection with the sale of share of Common Stock
offered hereby.
In connection with the offering, the Underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the Common Stock.
Specifically, the Underwriters may overallot. In addition, the Underwriters may
bid for, and purchase, shares of Common Stock in the open market to cover
syndicate short positions created in connection with the offering or to
stabilize the price of the Common Stock. Finally, the underwriting syndicate may
reclaim selling concessions allowed for distributing the Common Stock in this
offering, if the syndicate repurchases previously distributed Common Stock in
syndicate covering transactions, in stabilization transactions or otherwise.
Any of these activities may stabilize or maintain the market price of the
Common Stock above independent market levels. The Underwriters are not required
to engage in these activities, and may end any of these activities at anytime.
Each of the Company, its sole shareholder and the Company's directors,
officers and key personnel who hold options to purchase shares of Common
Stock, holding in the aggregate 12,330,500 shares or options to purchase
shares of Common Stock, and the holder of the Convertible Note have agreed
that they will not during the period commenced on the date hereof and ending
180 days after the date of this Prospectus, without the prior written consent
of Cowen & Company, (i) directly or indirectly, offer, sell, assign,
transfer, encumber, pledge, contract to sell, grant an option to purchase or
otherwise dispose of, other than by operation of law, any shares of Common
Stock (other than the shares offered hereby and, in the case of the Company,
in certain limited circumstances), options, rights or warrants to acquire
shares of Common Stock, or securities convertible into or exercisable or
exchangeable for shares of Common Stock (whether such shares or any such
securities are now owned or hereafter acquired) or (ii) enter into any swap
or other arrangement that transfers to another, any of the economic
consequences of ownership of the Common Stock, whether any such transaction
described in clause (i)
51
<PAGE>
or (ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise. The foregoing lockup would prohibit,
without the prior written consent of Cowen & Company, the sale by Mr. Jaharis
of any direct or indirect interest in Kos Investments, or by Kos Investments
of any direct or indirect interest in Kos Holdings.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, and to
contribute to payments the Underwriters may be required to make in respect
thereof.
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock will be
determined by negotiation among the Company and the Representatives. The
factors to be considered in determining the initial public offering price
will be prevailing market and economic conditions, the revenues and earnings
of the Company, market valuations of other companies engaged in activities
similar to the Company, estimates of the business potential and prospects of
the Company, the present state of the Company's business operations and the
Company's management.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby is being passed
upon for the Company by Holland & Knight LLP, One East Broward Boulevard, Suite
1300, Fort Lauderdale, Florida 33301. Holland & Knight LLP has also provided
advice to the Company with respect to certain intellectual property matters.
Certain matters are being passed upon for the Underwriters by Davis Polk &
Wardwell, 450 Lexington Avenue, New York, New York 10017.
EXPERTS
The consolidated financial statements included in this prospectus and this
registration statement have been audited by Arthur Andersen LLP, independent
certified public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm,
as experts in giving said report.
52
<PAGE>
KOS PHARMACEUTICALS, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Certified Public Accountants ........................................... F-2
Financial Statements:
Consolidated Balance Sheets at June 30, 1995 and 1996 and December 31, 1996 (unaudited) ..... F-3
Consolidated Statements of Operations for the year ended June 30, 1994, 1995 and 1996 and the
period July 1, 1988 (inception) to June 30, 1996 and for the six months ended December 31,
1995 and 1996 (unaudited) and for the period from July 1, 1988 (inception) to December 31,
1996 (unaudited) ........................................................................... F-4
Consolidated Statements of Shareholder's Equity (Deficit) for the period July 1, 1988 (incep-
tion) to June 30, 1996 and for the six months ended December 31, 1996 (unaudited) .......... F-5
Consolidated Statements of Cash Flows for the year ended June 30, 1994, 1995 and 1996 and for
the period ended July 1, 1988 (inception) to June 30, 1996 and for the six months ended De-
cember 31, 1995 and 1996 (unaudited) and for the period from July 1, 1988 (inception) to De-
cember 31, 1996 (unaudited) ................................................................ F-6
Notes to Consolidated Financial Statements ................................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of
Kos Pharmaceuticals, Inc.:
We have audited the accompanying consolidated balance sheets of Kos
Pharmaceuticals, Inc. (a development stage corporation and wholly-owned
subsidiary of Kos Holdings, Inc.) and subsidiary as of June 30, 1995 and
1996, and the related consolidated statements of operations, shareholder's
equity (deficit) and cash flows for each of the three years in the period
ended June 30, 1996 and for the cumulative period from inception (July 1,
1988) to June 30, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated 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, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Kos Pharmaceuticals, Inc. and subsidiary as of June 30, 1995 and 1996, and
the results of their operations and their cash flows for each of the three
years in the period ended June 30, 1996, and for the cumulative period from
inception (July 1, 1988) to June 30, 1996, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Miami, Florida,
July 15, 1996, (except with respect to the
matters discussed in Note 7, as to which
the date is February 7, 1997).
F-2
<PAGE>
<TABLE>
<CAPTION>
KOS PHARMACEUTICALS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE CORPORATION AND WHOLLY-OWNED SUBSIDIARY OF KOS HOLDINGS, INC.)
CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
-------------------------------- ---------------
1995 1996 1996
--------------- --------------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ................... $ 40,973 $ 193,484 $ 357,520
Prepaid expenses and other current assets .. 78,205 165,392 233,841
--------------- --------------- ---------------
Total current assets ....................... 119,178 358,876 591,361
Fixed Assets, net ............................ 2,235,456 1,921,943 2,605,404
--------------- --------------- ---------------
Total assets ............................... $ 2,354,634 $ 2,280,819 $ 3,196,765
=============== =============== ===============
LIABILITIES AND SHAREHOLDER'S EQUITY
(DEFICIT)
Current Liabilities:
Accounts payable .......................... $ 751,352 $ 195,299 $ 515,595
Accrued expenses ............................ 496,790 171,371 536,409
Loan from Kos Investments, Inc. ............. -- -- 8,355,000
--------------- --------------- ---------------
Total current liabilities .................. 1,248,142 366,670 9,407,004
--------------- --------------- ---------------
Minority Interest ............................ 163,869 -- --
--------------- --------------- ---------------
Commitments and Contingencies (Note 5)
Shareholder's Equity (Deficit):
Common stock, $.01 par value, 50,000,000
shares authorized, 10,000,000 shares issued
and outstanding ........................... 100,000 100,000 100,000
Preferred stock, $.01 par value, 10,000,000
shares authorized, none issued and
outstanding ............................... -- -- --
Additional paid-in capital .................. 36,507,000 58,472,323 58,472,323
Deficit accumulated in the development stage (35,664,377) (56,658,174) (64,782,562)
--------------- --------------- ---------------
Total shareholder's equity (deficit) ...... 942,623 1,914,149 (6,210,239)
--------------- --------------- ---------------
Total liabilities and shareholder's
equity (deficit) ......................... $ 2,354,634 $ 2,280,819 $ 3,196,765
=============== =============== ===============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-3
<PAGE>
<TABLE>
<CAPTION>
KOS PHARMACEUTICALS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE CORPORATION AND WHOLLY-OWNED SUBSIDIARY OF KOS HOLDINGS, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JUNE 30,
---------------------------------------------------
1994 1995 1996
--------------- ---------------- ----------------
<S> <C> <C> <C>
Revenues ........................... $ 22,461 $ 14,300 $ --
--------------- ---------------- ----------------
Expenses:
Research and development .......... 6,662,626 8,386,872 13,815,776
General and administrative ....... 1,619,038 1,613,832 1,772,060
Expense recognized on
modification of stock option
grants (Note 6) ................. -- -- 5,436,000
--------------- ---------------- ----------------
8,281,664 10,000,704 21,023,836
--------------- ---------------- ----------------
Other (Income) Expense:
Other income ...................... (1,687) -- --
Interest (income) expense, net ... 1,058,029 1,025,559 (13,860)
Interest expense-related parties . 50,010 26,898 --
--------------- ---------------- ----------------
Total other (income) expense .... 1,106,352 1,052,457 (13,860)
--------------- ---------------- ----------------
Loss before minority interest ... (9,365,555) (11,038,861) (21,009,976)
Minority Interest .................. (164,401) 532 16,179
--------------- ---------------- ----------------
Net loss ......................... $(9,529,956) $(11,038,329) $(20,993,797)
=============== ================ ================
Net loss per Share ................. $ (0.84) $ (0.98) $ (1.86)
=============== ================ ================
Weighted Average Shares of Common
Stock Outstanding ................ 11,304,786 11,304,786 11,304,786
=============== ================ ================
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
CUMULATIVE
PERIOD SIX MONTHS
FROM INCEPTION ENDED JULY 1, 1988
(JULY 1, 1988) DECEMBER 31, (INCEPTION) TO
TO JUNE 30, -------------------------------- DECEMBER 31,
1996 1995 1996 1996
--------------- -------------------------------- ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues ........................... $ 36,761 $ -- $ -- $ 36,761
--------------- --------------- --------------- ----------------
Expenses:
Research and development .......... 38,705,510 6,426,071 6,056,677 44,762,187
General and administrative ....... 8,871,358 788,842 1,936,611 10,807,969
Expense recognized on
modification of stock option
grants (Note 6) ................. 5,436,000 -- -- 5,436,000
--------------- --------------- --------------- ----------------
53,012,868 7,214,913 7,993,288 61,006,156
--------------- --------------- --------------- ----------------
Other (Income) Expense:
Other income ...................... (10,103) -- -- (10,103)
Interest (income) expense, net ... 3,413,997 (7,718) (5,182) 3,408,815
Interest expense-related parties . 130,483 -- 136,282 266,765
--------------- --------------- --------------- ----------------
Total other (income) expense .... 3,534,377 (7,718) 131,100 3,665,477
--------------- --------------- --------------- ----------------
Loss before minority interest ... (56,510,484) (7,207,195) (8,124,388) (64,634,872)
Minority Interest .................. (147,690) 837 -- (147,690)
--------------- --------------- --------------- ----------------
Net loss ......................... $ (56,658,174) $(7,206,358) $(8,124,388) $(64,782,562)
=============== =============== =============== ================
Net loss per Share ................. $ (5.01) $ (0.64) $ (0.72) $ (5.73)
=============== =============== =============== ================
Weighted Average Shares of Common
Stock Outstanding ................ 11,304,786 11,304,786 11,304,786 11,304,786
=============== =============== =============== ================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-4
<PAGE>
<TABLE>
<CAPTION>
KOS PHARMACEUTICALS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE CORPORATION AND WHOLLY-OWNED SUBSIDIARY OF KOS HOLDINGS, INC.)
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (DEFICIT)
DEFICIT
ACCUMULATED
ADDITIONAL IN THE
COMMON PAID-IN DEVELOPMENT
STOCK CAPITAL STAGE TOTAL
----------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Issuance of common stock .............. $100,000 $ -- $ -- $ 100,000
Capital contributions from Parent .... -- 390,000 -- 390,000
Net loss .............................. -- -- (621,814) (621,814)
----------- -------------- ---------------- ---------------
Balance at June 30, 1989 .............. 100,000 390,000 (621,814) (131,814)
Net loss .............................. -- -- (1,389,932) (1,389,932)
----------- -------------- ---------------- ---------------
Balance at June 30, 1990 .............. 100,000 390,000 (2,011,746) (1,521,746)
Net loss .............................. -- -- (2,445,506) (2,445,506)
----------- -------------- ---------------- ---------------
Balance at June 30, 1991 .............. 100,000 390,000 (4,457,252) (3,967,252)
Net loss .............................. -- -- (3,893,185) (3,893,185)
----------- -------------- ---------------- ---------------
Balance at June 30, 1992 .............. 100,000 390,000 (8,350,437) (7,860,437)
Net loss .............................. -- -- (6,745,655) (6,745,655)
----------- -------------- ---------------- ---------------
Balance at June 30, 1993 .............. 100,000 390,000 (15,096,092) (14,606,092)
Net loss .............................. -- -- (9,529,956) (9,529,956)
----------- -------------- ---------------- ---------------
Balance at June 30, 1994 .............. 100,000 390,000 (24,626,048) (24,136,048)
Capital contributions from Parent .... -- 5,745,000 -- 5,745,000
Assumption of note payable by Parent . -- 30,372,000 -- 30,372,000
Net loss .............................. -- -- (11,038,329) (11,038,329)
----------- -------------- ---------------- ---------------
Balance at June 30, 1995 .............. 100,000 36,507,000 (35,664,377) 942,623
Capital contributions from Parent .... -- 16,381,633 -- 16,381,633
Modification of options (Note 6) ..... -- 5,436,000 -- 5,436,000
Contribution of minority interest .... -- 147,690 -- 147,690
Net loss .............................. -- -- (20,993,797) (20,993,797)
----------- -------------- ---------------- ---------------
Balance at June 30, 1996 .............. 100,000 58,472,323 (56,658,174) 1,914,149
Net loss (unaudited) .................. -- -- (8,124,388) (8,124,388)
----------- -------------- ---------------- ---------------
Balance at December 31, 1996
(unaudited) ........................... $100,000 $58,472,323 $(64,782,562) $ (6,210,239)
=========== ============== ================ ===============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-5
<PAGE>
<TABLE>
<CAPTION>
KOS PHARMACEUTICALS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE CORPORATION AND WHOLLY-OWNED SUBSIDIARY OF KOS HOLDINGS, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30,
---------------------------------------------
1994 1995 1996
------------- -------------- --------------
<S> <C> <C> <C>
Cash Flows from
Operating Activities:
Net loss .......................... $(9,529,956) $(11,038,329) $(20,993,797)
Adjustments to reconcile net loss to
net cash used in operating
activities--
Depreciation and amortization ... 260,053 409,528 522,288
Minority interest .................. 164,401 (532) (16,179)
Compensation recognized on
modification of stock option
grants ........................... -- -- 5,436,000
Changes in operating assets and
liabilities:
Prepaid expenses and other
current assets .................. (92,203) 55,729 (87,187)
Accounts payable .................. (310,472) 130,011 (556,053)
Accrued expenses .................. 514,469 362,359 (325,419)
------------- -------------- --------------
Net cash used in operating
activities ..................... (8,993,708) (10,081,234) (16,020,347)
------------- -------------- --------------
Cash Flows from
Investing Activities:
Capital expenditures .............. (1,051,152) (1,223,221) (208,775)
------------- -------------- --------------
Cash Flows from
Financing Activities:
Proceeds from issuance of common
stock ........................... -- -- --
Capital contributions received from
Parent ............................ -- 5,745,000 16,381,633
Borrowings under note payable ...... 10,050,000 5,582,000 --
Borrowings under loan from Kos
Investments, Inc. ................. -- -- --
------------- -------------- --------------
Net cash provided by financing
activities ..................... 10,050,000 11,327,000 16,381,633
------------- -------------- --------------
Net increase (decrease) in cash . 5,140 22,545 152,511
Cash and Cash Equivalents, beginning
of period .......................... 13,288 18,428 40,973
------------- -------------- --------------
Cash and Cash Equivalents,
end of period ...................... $ 18,428 $ 40,973 $ 193,484
============= ============== ==============
Supplemental Disclosure of
Cash Flow Information:
Interest paid ..................... $ 728,537 $ 1,387,377 $ --
============= ============== ==============
Supplemental Disclosure of Noncash
Information:
Transfer of note payable to Parent $ -- $ 30,372,000 $ --
============= ============== ==============
Contribution of minority interest
to paid-in capital ................ $ -- $ -- $ 147,690
============= ============== ==============
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
CUMULATIVE
PERIOD SIX MONTHS JULY 1, 1988
FROM INCEPTION ENDED (INCEPTION) TO
(JULY 1, 1988) DECEMBER 31, DECEMBER 31,
TO JUNE 30, ----------------------------- ---------------
1996 1995 1996 1996
--------------- ------------- ------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash Flows from
Operating Activities:
Net loss .......................... $(56,658,174) $(7,206,358) $(8,124,388) $(64,782,562)
Adjustments to reconcile net loss to
net cash used in operating
activities--
Depreciation and amortization ... 1,589,747 261,907 279,280 1,869,027
Minority interest .................. 147,690 (838) -- 147,690
Compensation recognized on
modification of stock option
grants ........................... 5,436,000 -- -- 5,436,000
Changes in operating assets and
liabilities:
Prepaid expenses and other
current assets .............. (165,392) (75,201) (68,449) (233,841)
Accounts payable .................. 195,299 (385,996) 320,296 515,595
Accrued expenses .................. 171,371 (381,703) 365,038 536,409
--------------- ------------- ------------- --------------
Net cash used in operating
activities ..................... (49,264,229) (7,788,189) (7,228,223) (56,511,682)
--------------- ------------- ------------- --------------
Cash Flows from
Investing Activities:
Capital expenditures .............. (3,511,690) (23,353) (962,741) (4,474,431)
--------------- ------------- ------------- --------------
Cash Flows from
Financing Activities:
Proceeds from issuance of common
stock ........................... 490,000 -- -- 490,000
Capital contributions received from
Parent ............................ 22,126,633 8,000,000 -- 22,126,633
Borrowings under note payable ...... 30,372,000 -- -- 30,372,000
Borrowings under loan from Kos
Investments, Inc. ................. -- -- 8,355,000 8,355,000
--------------- ------------- ------------- --------------
Net cash provided by financing
activities ..................... 52,988,633 8,000,000 8,355,000 61,343,633
--------------- ------------- ------------- --------------
Net increase (decrease) in cash . 193,484 188,458 164,036 357,520
Cash and Cash Equivalents, beginning
of period .......................... -- 40,973 193,484 --
--------------- ------------- ------------- --------------
Cash and Cash Equivalents,
end of period ...................... $ 193,484 $ 229,431 $ 357,520 $ 357,520
=============== ============= ============= ==============
Supplemental Disclosure of
Cash Flow Information:
Interest paid ..................... $ 3,476,267 $ -- $ -- $ 3,476,267
=============== ============= ============= ==============
Supplemental Disclosure of Noncash
Information:
Transfer of note payable to Parent $ 30,372,000 $ -- $ -- $ 30,372,000
=============== ============= ============= ==============
Contribution of minority interest
to paid-in capital ................ $ 147,690 $ -- $ -- $ 147,690
=============== ============= ============= ==============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-6
<PAGE>
KOS PHARMACEUTICALS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE CORPORATION AND WHOLLY-OWNED SUBSIDIARY
OF KOS HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The predecessor to Kos Pharmaceutical's, Inc. (the "Company"), Kos
Holdings, Inc. ("Holdings") was incorporated in Florida on July 1, 1988 to
develop prescription pharmaceutical products principally for the
cardiovascular and respiratory markets. On June 25, 1996, the Company was
incorporated in Florida as the successor to the business of Holdings. On June
30, 1996, all of the assets and all of the liabilities of Holdings, other
than its net operating loss carryforwards, were transferred to the Company in
exchange for shares of common stock of the Company (the "Reorganization").
The Reorganization was accomplished in order to transfer the assets and
operations of Holdings to the Company while preserving Holdings' net
operating losses and related federal tax benefits for Holdings and its sole
shareholder and one of its founders. Kos Investments, Inc. ("Investments") is
the sole shareholder of Holdings. As this transaction was between entities
under common control, the transaction was accounted for on a historical cost
basis, in a manner similar to a pooling of interests.
On June 22, 1993, Holdings and Aeropharm Technology, Inc. ("Aeropharm")
entered into a letter of intent for the purchase of a controlling interest in
Aeropharm. On February 14, 1995, the transaction was completed through a stock
purchase agreement that gave control (80% ownership) of Aeropharm to Holdings.
Holdings accounted for its investment in Aeropharm as a consolidated subsidiary
from June 22, 1993. On June 20, 1996, Holdings acquired the minority interest in
Aeropharm, held by an employee of Aeropharm, in exchange for options to purchase
50,000 shares of common stock, at $7.00 per share, the estimated fair value of
the underlying shares at the date of grant. The acquisition of the minority
interest in Aeropharm was accounted for under the purchase method and the fair
value of the options granted approximated the carrying value ($147,690) of the
minority interest.
On May 6, 1996, the Company submitted a New Drug Application ("NDA") to
the U.S. Food and Drug Administration ("FDA") for, NIASPAN, its first
cardiovascular product. NIASPAN is a once-a-day, oral, solid dose
controlled-release formulation of niacin for the treatment of hyperlipidemia,
a multiple lipid disorder that is a primary risk factor for coronary heart
disease. Niacin is a water soluble vitamin that has long been recognized as
an effective pharmacological agent for the treatment of multiple lipid
disorders including elevated LDL and low HDL. The Company has conducted
extensive pharmacokinetic studies and three double-blinded, placebo
controlled pivotal trials in support of the NDA filing.
The Company expects to incur substantial additional losses in the near
term primarily due to research and development activities and the
commencement of sales and marketing efforts associated with NIASPAN. To date,
the Company has not marketed any products. Future revenues, if any, are
expected to be generated from sales of products. No assurance can be given
that the Company's product development efforts will be successfully
completed, that required regulatory approvals will be obtained, that products
under development can be manufactured at acceptable cost and with appropriate
quality or that any products can be successfully marketed. The Company is
subject to a number of other risks including, but not limited to,
uncertainties related to FDA approval of NIASPAN, uncertainties related to
market acceptance, uncertainties related to patents and trademarks,
interference and risk of infringement, uncertainties related to limited sales
and marketing experience, uncertainties related to competition and
technological changes, government regulation and no assurances of regulatory
approval, dependence on Fuisz Technologies Ltd. and other collaborations,
limited manufacturing experience and risk of scale-up, future capital needs
and uncertainty of additional funding, dependence on single sources of
supply, and no assurances of adequate third party reimbursement.
Management is actively pursuing an initial public offering of its common
stock to finance operations of the Company. In addition, the Company
continuously evaluates licensing agreements, joint development agreements and
other transactions that may result in fees or revenues to the
F-7
<PAGE>
KOS PHARMACEUTICALS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE CORPORATION AND WHOLLY-OWNED SUBSIDIARY
OF KOS HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. GENERAL--(CONTINUED)
Company. The likelihood of the success of the Company must be considered in
light of the uncertainty caused by problems, expenses, complications and
delays frequently encountered in connection with the development of new
business ventures.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION:
The consolidated financial statements include the results of Holdings
(prior to July 1, 1996), the Company and its subsidiary, Aeropharm. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
CASH AND CASH EQUIVALENTS:
For the purpose of the consolidated statements of cash flows, the Company
considers all highly liquid investments with an original maturity of three
months or less at the time of purchase to be cash and cash equivalents. As of
June 30, 1995 and 1996, and December 31, 1996, the Company had no cash
equivalents.
MINORITY INTEREST:
Minority interest represents the minority shareholder's interest in the
shareholders' equity and net loss of Aeropharm. As of June 30, 1996, the
Company owned 100% of Aeropharm, therefore, no minority interest is
reflected.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
As of June 30, 1995 and 1996, and December 31, 1996, the carrying amount
of cash and cash equivalents, prepaid expenses and other current assets,
accounts payable and accrued expenses approximates fair value due to the
short term nature of these accounts.
CONCENTRATION OF CREDIT RISK:
The Company has no significant off balance sheet concentrations of credit
risk.
DEPRECIATION AND AMORTIZATION:
Fixed assets are stated at cost, less accumulated depreciation and
amortization. Depreciation and amortization are provided using the
straight-line method over the estimated useful lives of the assets or lease
term, if shorter, as follows:
YEARS
-------------------
Furniture and equipment .................... 3-7
Computer software and hardware ............. 3-5
Laboratory and manufacturing equipment .... 3-5
Leasehold improvements ..................... Life of lease
RESEARCH AND DEVELOPMENT EXPENSES:
All research and development expenses are reflected in the Company's
consolidated statements of operations as incurred.
LOSS PER SHARE:
Loss per share is determined by dividing the net loss attributable to
holders of the Company's common stock by the weighted average number of
shares of common stock and dilutive common stock
F-8
<PAGE>
KOS PHARMACEUTICALS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE CORPORATION AND WHOLLY-OWNED SUBSIDIARY
OF KOS HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
equivalents outstanding after applying the treasury stock method. Common
stock equivalents include the impact of the issuance of options (see Note 6)
issued within one year prior to the date of the Company's initial public
offering (see Note 7) at exercise prices less than the assumed initial
offering price, whether or not the effects are antidilutive.
INTERIM FINANCIAL DATA:
In the opinion of the management of the Company, the accompanying
unaudited consolidated financial statements contain all adjustments
(consisting of only normal recurring adjustments) necessary to present fairly
the financial position of the Company as of December 31, 1996, and the
results of operations for the six month periods ended December 31, 1995 and
1996. The results of operations and cash flows for the six month period ended
December 31, 1996 are not necessarily indicative of the results of operations
or cash flows which may be reported for the remainder of fiscal 1997.
INCOME TAXES:
The Company follows the Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes," which requires, among other things,
recognition of future tax benefits measured at enacted rates attributable to
deductible temporary differences between financial statement and income tax
bases of assets and liabilities and to tax net operating loss carryforwards
to the extent that realization of said benefits is more likely than not. As
the net operating loss carryforwards, amounting to approximately $51,000,000,
as of the Reorganization were not transferred to the Company, the Company has
no deferred tax assets or liabilities as of June 30, 1996. Any operating
losses generated by the Company after June 30, 1996 will be available to
offset future net income, if any.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS:
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS No.
121"). SFAS No. 121 will apply to the Company for the fiscal year ending June
30, 1997. The Company does not believe that SFAS No. 121 would have had a
material effect on its financial position or the results of its operations
had it been applied in the fiscal year ended June 30, 1996.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). SFAS No. 123
applies to transactions with non-employees after December 15, 1995. The
compensation expense recognized for stock option modifications for options
held by consultants in fiscal 1996, as more fully described in Note 6, was
reflected under the provisions of SFAS 123. SFAS No. 123 will apply to
transactions with employees in fiscal 1997. As the Company intends to
continue applying the provision of APB 25 for transactions with employees, as
permitted by SFAS No. 123, the Company does not believe that SFAS No. 123
will have a material effect on its financial position or the results of its
operations.
F-9
<PAGE>
KOS PHARMACEUTICALS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE CORPORATION AND WHOLLY-OWNED SUBSIDIARY
OF KOS HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
------------------------------ --------------
1995 1996 1996
-------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Furniture and equipment ....................... $ 246,510 $ 297,131 $ 310,284
Computer software and hardware ................ 323,094 399,847 469,105
Laboratory and manufacturing equipment ....... 1,979,922 2,055,423 2,376,250
Leasehold improvements ........................ 753,389 759,289 1,318,792
-------------- -------------- --------------
3,302,915 3,511,690 4,474,431
Less-Accumulated depreciation and amortization (1,067,459) (1,589,747) (1,869,027)
-------------- -------------- --------------
Fixed assets, net ........................... $ 2,235,456 $ 1,921,943 $ 2,605,404
============== ============== ==============
</TABLE>
4. NOTE PAYABLE
Michael Jaharis, the sole shareholder of Investments, has personally
guaranteed the repayment of a loan to Investments from certain financial
institutions. Prior to March 21, 1995, the Company was the primary borrower
under this loan, and therefore received the benefit of the personal guaranty
extended by Mr. Jaharis. As consideration for Mr. Jaharis' personal guaranty,
the Company agreed to pay Mr. Jaharis an annual fee of 0.25% of the average
amount outstanding under the loan during the Company's fiscal year. The
Company paid Mr. Jaharis $28,700 and $92,333 during the fiscal years ended
June 30, 1994 and 1995, respectively. In March 1995, the Company was released
as a borrower under the loan. The assumption of the note payable to bank has
been accounted for as a transfer to Investments and is reflected as an
increase in "Additional paid-in capital" in the accompanying 1995
consolidated balance sheet. As more fully discussed in Note 7, Investments
will continue to fund the operations of the Company through a promissory
note.
5. COMMITMENTS AND CONTINGENCIES
EMPLOYMENT AGREEMENTS
The Company has entered into three employment agreements that require
future minimum payments as follows:
YEAR ENDING JUNE 30, AMOUNT
- --------------------- -------------
1997 ................ $ 595,000
1998 ................ 430,000
1999 ................ 250,000
2000 ................ 250,000
2001 ................ 250,000
Thereafter .......... 250,000
-------------
$ 2,025,000
=============
Salary expense recorded under two of the agreements totaled approximately
$244,000, $302,000 and $355,000 during the years ended June 30, 1994, 1995
and 1996, respectively. In addition to the minimum salaries described above,
certain of the employment agreements entitle certain officers to royalties on
future sales, the aggregate amounts of which may not exceed $5,500,000. The
third employment agreement, which is for the President and Chief Executive
Officer, was not entered into
F-10
<PAGE>
KOS PHARMACEUTICALS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE CORPORATION AND WHOLLY-OWNED SUBSIDIARY
OF KOS HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
until July 1, 1996. Salary expense recorded under these agreements totaled
approximately $297,500 (unaudited) for the six months ended December 31,
1996.
LEASE COMMITMENTS
The Company has entered into various operating leases for the rental of
office space and laboratory facilities which expire through fiscal 1999.
Future minimum commitments under these agreements as of June 30, 1996 are as
follows:
YEAR ENDING JUNE 30, AMOUNT
- --------------------- ------------
1997 ................ $322,304
1998 ................ 267,133
1999 ................ 71,557
------------
$660,994
============
As of June 30, 1995 and 1996, standby letters of credit of $157,050 and
$65,050, respectively, were issued by a bank on the Company's behalf in favor
of the lessors as collateral for the leases which the lessors have agreed to
provide to the Company.
Rent expense under operating leases during the years ended June 30, 1994,
1995 and 1996 and for the six months ended December 31, 1996 was $388,687,
$450,890, $578,122 and $272,127 (unaudited), respectively.
CONSULTING AGREEMENT
On April 1, 1996, the Company entered into a consulting agreement with the
Vice Chairman of the Board of Directors for the formulation and evaluation of
product development strategies, negotiations for product licenses and other
responsibilities. The consulting agreement provides for an initial five-year
term and will automatically renew for each successive two-year period unless
notification by either party is given. The consultant receives $75,000 as
annual compensation and is also eligible to receive stock options.
LICENSING AND JOINT VENTURE AGREEMENTS
The Company has entered into several license agreements (the "License
Agreements") with third parties (the "Licensees") for the development of
future products. Under the License Agreements, the Company is required to
make payments to the Licensees upon completion of various milestones of each
project in order to secure exclusive rights to develop, manufacture, sell
and/or sublicense future products developed through the License Agreements.
In connection with the License Agreements, the Company recorded licensing
fees expense of approximately $470,000, $449,000, $700,000 and $75,000
(unaudited) for the years ended June 30, 1994, 1995, 1996 and for the six
months ended December 31, 1996, respectively, which are reflected in
"Research and development" in the accompanying consolidated statements of
operations. In order to maintain its rights under the License Agreements,
the Company is required to pay certain future milestone payments and licensing
fees. In the event that no milestone event occurs, the Company generally would
not be required to make any milestone payment. The Company anticipates, based on
the development efforts that have been conducted to
F-11
<PAGE>
KOS PHARMACEUTICALS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE CORPORATION AND WHOLLY-OWNED SUBSIDIARY
OF KOS HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
date, that it will be required to make future milestone payments and pay
licensing fees under the License Agreements as follows:
MINIMUM ADDITIONAL
YEAR ENDING JUNE 30, PAYMENT PAYMENTS
- --------------------- -------------- ------------
1997 ................ $150,000 $ 859,000
1998 ................ -- 711,000
1999 ................ -- 125,000
-------------- ------------
$150,000 $1,695,000
============== ============
Additionally, upon FDA approval of certain products, the Company is
obligated to pay up to $4,500,000 to a licensee. Milestone payments are recorded
when the milestone event occurs.
The Company has also entered into a letter of intent to form a joint
venture agreement (the "Joint Venture") with a company related to the sale of
a certain product using technology provided by that company. The Company paid
$1,000,000 for the exclusive right to use the technology. Because of the
uncertainties surrounding the use of the technology, as well as the lack of
an existing technologically feasible product with commercial viability, such
amount has been expensed and is included in "Research and development" in the
accompanying 1996 consolidated statement of operations. Within 30 days
following the filing of a NDA to the FDA for a certain product developed by
the Joint Venture, or in the event management determines such NDA filing to
be infeasible, any party to the Joint Venture investing in excess of the
other party shall be entitled to consideration and a transfer to it from the
Joint Venture of an amount not to exceed $1,250,000.
SPONSORED RESEARCH
The Company has research agreements with two universities and a research
center. The Company is primarily responsible for funding the projects, and
the university or research center is responsible for providing personnel,
equipment and facilities to conduct the research activities. The aggregate
commitment at June 30, 1996 for future payments under these agreements is
approximately $200,000 for fiscal year 1997. Expenses recorded under these
agreements totaled approximately $249,000, $379,000, $373,000 and $162,000
(unaudited) during the years ended June 30, 1994, 1995 and 1996, and for the
six months ended December 31, 1996, respectively, and are reflected in
"Research and development" in the accompanying consolidated statements of
operations.
DEVELOPMENT AGREEMENTS
The Company entered into development agreements with various third parties
during 1996. As dictated by these development agreements, the Company is
responsible for funding all required development activities. The aggregate
commitment at June 30, 1996 for future payments under these agreements is
approximately $724,000 and $200,000 for fiscal years 1997 and 1998,
respectively. Expense recorded under these agreements totaled approximately
$665,000 and $496,000 (unaudited) during the year ended June 30, 1996, and
for the six months ended December 31, 1996, respectively, and are reflected
in "Research and development" in the accompanying consolidated statements of
operations.
401(K) PLAN
The Company's Internal Revenue Code Section 401(k) Plan, known as the Kos
Savings Plan, became effective on January 1, 1994. Each employee who has
completed at least one year of service
F-12
<PAGE>
KOS PHARMACEUTICALS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE CORPORATION AND WHOLLY-OWNED SUBSIDIARY
OF KOS HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
with the Company and has attained age 21 is eligible to make pre-tax elective
deferral contributions each year not exceeding the greater of a specified
statutory amount or 15 percent of the employee's compensation for the year. An
employee is always 100 percent vested in the employee's elective deferral
contributions. The Company makes no contributions under this plan.
6. STOCK OPTION PLAN
During 1996, the Board of Directors of the Company adopted the Kos
Pharmaceuticals, Inc. 1996 Stock Option Plan (the "Plan"). As of June 30,
1996, a maximum aggregate total of 4,000,000 shares of Common Stock may be
subject to stock options granted or to be granted under the Plan. All
directors, officers, employees and certain related parties of the Company
designated by the Board are eligible to receive options under the Plan. The
Plan is administered by a Committee appointed by the Board of Directors of
the Company.
Each outside director of the Company will be granted an option to purchase
5,000 shares of common stock and automatically will receive an option to
purchase an additional 3,000 shares effective on each director's anniversary
date. The exercise price of such options will be the fair market value on the
later of (a) the date of an initial public offering or December 31, 1996, or (b)
the date the option is granted. As of June 30, 1996, one director had been
granted an option to purchase 5,000 shares at an established exercise price of
$7.00 per share, which is the estimated fair market value the Board of Directors
had attributed to the common stock, as determined by an appraiser. The Company
considered the provisions of SFAS No. 123 using the Black Scholes method and an
expected volatility rate of 57.6%, a risk-free interest rate of 6.11%, expected
dividends of $0 and an expected term of 4 years to approximate the related
charge to expense.
The maximum term of any option is ten years from the date of grant. All
options expire within 30 days of termination of employment.
The Company has granted options to purchase an aggregate of 2,158,000
shares to employees, consultants, management and directors, including options
granted prior to the issuance of the Plan, as follows:
OPTIONS GRANTED DATE OF GRANT DATE OF EXPIRATION EXERCISE PRICE
- ---------------- ----------------- ------------------- ---------------
750,000 August 1988(a) June 2006 $0.60
35,000 January 1989(a) July 2001 1.90
75,000 February 1990(a) June 2006 0.90
275,000 December 1992 December 2002 0.75
50,000 July 1994 July 2003 3.33
973,000 June 1996 June 2006 7.00
- -----------------------------------------------------------------------------
(a) During June 1996, the Company modified the terms of the original options
granted to an officer and two outside consultants. Included in the
accompanying consolidated statements of operations is $5,436,000 recorded
as compensation recognized as a result of this modification to the
existing option grants. For purposes of determining the values of the
options, the Company believes that the Common Stock had a value of $7.00
per share on June 30, 1996, which is the estimated fair market value the
Board of Directors had attributed to the Common Stock on June 20, 1996,
as determined by an appraiser. Compensation expense for the 750,000 options
issued to an officer was measured based on the excess of the estimated fair
market value of the Common Stock over the exercise price of the options. For
the 110,000 options issued to the two outside consultants, the Company
considered the provisions of SFAS No. 123 using the Black Scholes method and
an expected volatility rate of 57.6%, a risk-free interest rate of 6.11%,
expected dividends of $0 and an expected term of 4 years to approximate the
charge to expense for such non-employees, which amounted to approximately
$636,000.
Exercise prices of options granted were at their estimated fair market
value as of the date of grant. No options outstanding under the Plan had been
exercised as of June 30, 1996.
F-13
<PAGE>
KOS PHARMACEUTICALS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE CORPORATION AND WHOLLY-OWNED SUBSIDIARY
OF KOS HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. SUBSEQUENT EVENTS
The Company has filed a Registration Statement with the Securities and
Exchange Commission relating to an initial public offering of its common
stock. The Company will utilize the net proceeds of the offering to primarily
fund research and development programs, the initial recruitment of sales
force for the anticipated commercial launch of NIASPAN, repayment of the
short-term bridge loan, and other general corporate purposes.
On July 1, 1996, the Company executed a promissory note (the "Note") in
favor of Investments in the aggregate principal amount of up to $15.0 million,
the proceeds of which will be used to fund the Company's operations until the
consummation of this offering. Under the terms of the Note, interest accrues on
the outstanding principal amount at First Union National Bank of Florida's prime
rate commencing July 1, 1996, escalating to a rate of 1% over such prime rate
during calendar year 1997, 2% over such prime rate during calendar year 1998,
and 3% over such prime rate during calendar year 1999 until maturity. As of
December 31, 1996, the Note accrued interest at a rate of 7.25% per year.
Principal and interest under the Note is due on June 30, 1999, however, the
Company may repay the Note in whole or in part prior to such date. From time to
time, at Investments' option, principal and interest outstanding under the Note
may be converted into Common Stock at a conversion price per share equal to the
initial public offering price per share. As of February 7, 1997, the Company had
borrowed $11,355,000 under this Note. Assuming the issuance only of sufficient
shares to repay the indebtedness outstanding as of December 31, 1996,
supplementary pro forma net loss per share of Common Stock would be $(0.67) for
the six month period ended December 31, 1996.
On February 7, 1997, the Company entered into an agreement with an
unaffiliated generic drug manufacturer pursuant to which the parties agreed to
resolve the effects, as between themselves, of a potential interference
proceeding by the United States Patent and Trademark Office by granting cross
licenses under their respective patent applications and patents, regardless of
whether such licenses would be required. As consideration for entering into the
agreement, the Company agreed to pay the generic manufacturer certain license
fees and royalties on the net sales of NIASPAN subject to a cap on such royalty
payments in the United States and a separate cap on such payments outside the
United States.
8. RELATED PARTY TRANSACTION
During 1995 the Company acquired certain property including used
computers, laboratory equipment, laboratory supplies and certain other office
equipment and furnishings from the Institute of Molecular Biology, Inc.
("IMB"), a company controlled by Investments. In the aggregate, such
purchases totaled approximately $83,500. Until June 1996, Daniel M. Bell, the
Company's President and Chief Executive Officer, also served as the Chairman
of the Board of Directors and Chief Executive Officer of IMB.
F-14
<PAGE>
No dealer, salesperson or other person has been authorized to give any
information or to make any representation not contained in this Prospectus
and, if give or made, such information or representations must not be relied
upon as having been authorized by the Company or any of the Underwriters or
by any other person. This Prospectus does not constitute an offer to sell or
a solicitation of any offer to buy a security other than the shares of Common
Stock offered hereby, nor does it constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered hereby to any
person in any jurisdiction in which it is unlawful to make such offer or
solicitation to such person. Neither the delivery of this Prospectus nor any
sale made hereunder shall under any circumstances create any implication that
the information contained herein is correct as of any date subsequent to the
date hereof.
- -----------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary ......................... 3
Risk Factors ............................... 6
The Company ................................ 15
Use of Proceeds ............................ 15
Dividend Policy ............................ 15
Capitalization ............................. 16
Dilution ................................... 17
Selected Consolidated Financial Data ...... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ............................... 19
Business ................................... 22
Management ................................. 39
Certain Transactions ....................... 46
Principal Shareholders ..................... 47
Description of Capital Stock ............... 48
Shares Eligible for Future Sale ............ 50
Underwriting ............................... 51
Legal Matters .............................. 52
Experts .................................... 52
Index to Financial Statements .............. F-1
</TABLE>
- -----------------------------------------------------------------------------
Until , 1997 (25 days after the date of this Prospectus), all dealers
effecting transactions in the shares of Common Stock, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligations of dealers to deliver a Prospectus
when acting as Underwriters and with respect to their unsold allotments or
subscriptions.
3,500,000 Shares
KOS PHARMACEUTICALS, INC.
Common Stock
- -----------------------------------------------------------------------------
PROSPECTUS
- -----------------------------------------------------------------------------
COWEN & COMPANY
DILLON, READ & CO. INC.
SALOMON BROTHERS INC
, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following sets forth expenses and costs (other than underwriting
discounts and commissions) expected to be incurred in connection with the
issuance and distribution of the securities being registered and payable by
the Company. All amounts are estimated except for the SEC registration fee
and the NASD filing fee.
SEC Registration Fee ............... $ 18,296
NASD filing fee ................... 6,538
Nasdaq fees ....................... 51,250
Transfer agent and registrar fees 10,000
Legal fees and expenses ........... 200,000
Accounting fees and expenses ..... 100,000
Blue Sky fees and expenses ........ 5,000
Printing and engraving expenses .. 100,000
Miscellaneous ..................... 108,916
----------
Total ........................... $600,000
==========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Florida Business Corporation Act ("FBCA") and the Company's Bylaws
provide that in certain cases, each officer and director of the Company shall be
indemnified by the Company against certain costs, expenses and liabilities which
he or she may incur in his or her capacity as such. The Company also intends to
purchase directors' and officers' liability insurance consistent with the
provisions of the Florida Business Corporation Act to protect directors and
officers from liabilities against various laws, including the Securities Act of
1933.
The Company's Bylaws provide:
RIGHT TO INDEMNIFICATION. Any person, his heirs, or personal representative,
made, or threatened to be made a party to any threatened, pending, or
completed action or proceeding, whether civil, criminal, administrative,
regulatory, or investigative ("Proceeding") because he is or was a director
or officer of this Corporation or serves or served any other corporation or
other enterprise in any capacity at the request of this Corporation, shall be
indemnified by this Corporation, to the full extent permitted by the Florida
Business Corporation Act; provided, however, that the Corporation shall
indemnify any such person seeking indemnity in connection with a Proceeding
(or part thereof) initiated by such person only if such Proceeding (or part
thereof) was authorized by the Board of Directors of the Corporation. In
discharging his duty, any director or officer, when acting in good faith, may
rely upon information, opinions, reports, or statements, including financial
statements and other financial data, in each case prepared or presented by
(1) one or more officers or employees of the Corporation whom the director or
officer reasonably believes to be reliable and competent in the matters
presented, (2) counsel, public accountants, or other persons as to matters
that the director or officer believes to be within that person's professional
or expert competence, or (3) in the case of a director, a committee of the
board of directors upon which he does not serve, duly designated according to
law, as to matters within its designated authority, if the director
reasonably believes that the comittee is competent.
ADVANCES. The rights set forth above in this Article VI shall include the
right to be paid by the Corporation expenses incurred in defending or being
represented in any such Proceeding in advance of its final disposition;
provided, however, that the payment of such expenses incurred by a director
or officer because he is or was a director of officer of this Corporation or
serves or served any other corporation or enterprise in any capacity at the
request of this Corporation (and not in any other capacity in which service
II-1
<PAGE>
was or is rendered by such person while a director or officer, including
service to an employee benefit plan) in advance of the final disposition
of such Proceeding, shall be made only upon delivery to the Corporation of
an undertaking, by or on behalf of such director or officer, to repay all
amounts so advanced if it should be determined ultimately that such
director or officer is not entitled to be indemnified under this Article
VI or otherwise.
CONTRACT RIGHT. All rights to indemnification, including advancement of
expenses, shall be deemed to be provided by a contract between the
Corporation and the director or officer who serves in such capacity at any
time while this Article VI and other relevant provisions of the Florida
Business Corporation Act and other applicable law, if any, are in effect,
such that any repeal or modification thereof shall not adversely affect
any right existing at the time of such repeal or modification.
RIGHT TO BRING SUIT. If a claim under the preceding paragraphs of this
Article VI is not paid in full by the Corporation within 90 days after a
written claim therefor has been received by the Corporation, the claimant
may at any time thereafter bring suit against the Corporation to recover
the unpaid amount of the claim and, if successful in whole or in part, the
claimant shall be entitled to be paid also the expense, including
attorney's fees, of prosecuting such claim. It shall be a defense to any
such action (other than an action brought to enforce a claim for expenses
incurred in defending any Proceeding in advance of its final disposition
where the required undertaking has been tendered to the Corporation) that
the claimant has not met the applicable standard of conduct which makes it
permissible under the Florida Business Corporation Act for the Corporation
to indemnify the claimant for the amount claimed, but the burden of
proving such defense shall be on the Corporation. Neither the failure of
the Corporation (including its Board of Directors, independent legal
counsel, or its shareholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper
in the circumstances because he has met the applicable standard of conduct
set forth in the Florida Business Corporation Act, nor an actual
determination by the Corporation (including its Board of Directors,
independent legal counsel, or its shareholders) that the claimant had not
met such applicable standard of conduct, shall be a defense to the action
or create a presumption that claimant had not met the applicable standard
of conduct.
NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person by this
Article VI shall not be exclusive of any other right which such person may
have or hereafter acquire under any statute, provision of these Bylaws,
the Articles of Incorporation, agreement, vote of shareholders or
disinterested directors or otherwise.
INSURANCE. The Corporation may maintain insurance, at its expense, for the
purpose of indemnifying itself and any director, officer, employee or
agent of the Corporation or another corporation, partnership, trust or
other enterprise, whether or not the Corporation would have the power to
provide such indemnity under the Florida Business Corporation Act.
Section 607.0850 of the FBCA, "Indemnification of officers, directors,
employees and agents," provides:
(1) A corporation shall have power to indemnify any person who was or is a
party to any proceeding (other than an action by, or in the right of, the
corporation), by reason of the fact that he is or was a director, officer,
employee, or agent of the corporation or is or was serving at the request of
the corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise against
liability incurred in connection with such proceeding, including any appeal
thereof, if he acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the corporation and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. The termination of any proceeding by
judgment, order, settlement, or conviction or upon a plea of nolo contendere
or its equivalent shall not, of itself, create a presumption that the person
did not act in good faith and in a manner which he
II-2
<PAGE>
reasonably believed to be in, or not opposed to, the best interests of the
corporation or, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
(2) A corporation shall have power to indemnify any person, who was or is
a party to any proceeding by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation or is or was serving at the
request of the corporation as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust, or other enterprise,
against expenses and amounts paid in settlement not exceeding, in the
judgment of the board of directors, the estimated expense of litigating the
proceeding to conclusion, actually and reasonably incurred in connection with
the defense or settlement of such proceeding, including any appeal thereof.
Such indemnification shall be authorized if such person acted in good faith
and in a manner he reasonably believed to be in, or not opposed to, the best
interests of the corporation, except that no indemnification shall be made
under this subsection in respect of any claim, issue, or matter as to which
such person shall have been adjudged to be liable unless, and only to the
extent that, the court in which such proceeding was brought, or any other
court of competent jurisdiction, shall determine upon application that,
despite the adjudication of liability but in view of all circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such
expenses which such court shall deem proper.
(3) To the extent that a director, officer, employee, or agent of a
corporation has been successful on the merits or otherwise in defense of any
proceeding referred to in subsection (1) or subsection (2), or in defense of
any claim, issue, or matter therein, he shall be indemnified against expenses
actually and reasonably incurred by him in connection therewith.
(4) Any indemnification under subsection (1) or subsection (2), unless
pursuant to a determination by a court, shall be made by the corporation only
as authorized in the specific case upon a determination that indemnification
of the director, officer, employee, or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in subsection
(1) or subsection (2). Such determination shall be made:
(a) By the board of directors by a majority vote of a quorum consisting
of directors who were not parties to such proceeding;
(b) If such a quorum is not obtainable or, even if obtainable, by
majority vote of a committee duly designated by the board of directors (in
which directors who are parties may participate) consisting solely of two or
more directors not at the time parties to the proceeding;
(c) By independent legal counsel;
1. Selected by the board of directors prescribed in paragraph (a) or
the committee prescribed in paragraph (b); or
2. If a quorum of the directors cannot be obtained for paragraph (1)
and the committee cannot be designated under paragraph (b), selected by
majority vote of the full board of directors (in which directors who are
parties may participate); or
(d) By the shareholders by a majority vote of a quorum consisting of
shareholders who were not parties to such proceeding or, if no such quorum is
obtainable, by a majority vote of shareholders who were not parties to such
proceeding.
(5) Evaluation of the reasonableness of expenses and authorization of
indemnification shall be made in the same manner as the determination that
indemnification is permissible. However, if the determination of
permissibility is made by independent legal counsel, persons specified by
paragraph (4)(c) shall evaluate the reasonableness of expenses and may
authorize indemnification.
(6) Expenses incurred by an officer or director in defending a civil or
criminal proceeding may be paid by the corporation in advance of the final
disposition of such proceeding upon receipt of an
II-3
<PAGE>
undertaking by or on behalf of such director or officer to repay such amount if
he is ultimately found not to be entitled to indemnification by the corporation
pursuant to this section. Expenses incurred by other employees and agents may be
paid in advance upon such terms or conditions that the board of directors deems
appropriate.
(7) The indemnification and advancement of expenses provided pursuant to
this section are not exclusive, and a corporation may make any other or
further indemnification or advancement of expenses of any of its directors,
officers, employees, or agents, under any bylaw, agreement, vote of
shareholders or disinterested directors, or otherwise, both as to action in
his official capacity and as to action in another capacity while holding such
office. However, indemnification or advancement of expenses shall not be made
to or on behalf of any director, officer, employee, or agent if a judgment or
other final adjudication establishes that his actions, or omissions to act,
were material to the cause of action so adjudicated and constitute:
(a) A violation of the criminal law, unless the director, officer,
employee, or agent had reasonable cause to believe his conduct was lawful or
had no reasonable cause to believe his conduct was unlawful;
(b) A transaction from which the director, officer, employee, or agent
derived an improper personal benefit;
(c) In the case of a director, a circumstance under which the liability
provisions of s. 607.0834 are applicable; or
(d) Willful misconduct or a conscious disregard for the best interests
of the corporation in a proceeding by or in the right of the corporation to
procure a judgment in its favor or in a proceeding by or in the right of a
shareholder.
(8) Indemnification and advancement of expenses as provided in this
section shall continue as, unless otherwise provided when authorized or
ratified, to a person who has ceased to be a director, officer, employee, or
agent and shall inure to the benefit of the heirs, executors, and
administrators of such a person, unless otherwise provided when authorized or
ratified.
(9) Unless the corporation's articles of incorporation provide otherwise,
notwithstanding the failure of a corporation to provide indemnification, and
despite any contrary determination of the board or of the shareholders in the
specific case, a director, officer, employee, or agent of the corporation who
is or was a party to a proceeding may apply for indemnification or
advancement of expenses, or both, to the court conducting the proceeding, to
the circuit court, or to another court of competent jurisdiction. On receipt
of an application, the court, after giving any notice that it considers
necessary, may order indemnification and advancement of expenses, including
expenses incurred in seeking court-ordered indemnification or advancement of
expenses, if it determines that:
(a) The director, officer, employee, or agent is entitled to mandatory
indemnification under subsection (3), in which case the court shall also
order the corporation to pay the director reasonable expenses incurred in
obtaining court-ordered indemnification or advancement of expenses;
(b) The director, officer, employee, or agent is entitled to
indemnification or advancement of expenses, or both, by virtue of the
exercise by the corporation of its power pursuant to subsection (7); or
(c) The director, officer, employee, or agent is fairly and reasonably
entitled to indemnification or advancement of expenses, or both, in view of
all the relevant circumstances, regardless of whether such person met the
standard of conduct set forth in subsection (1), subsection (2), or
subsection (7).
(10) For purposes of this section, the term "corporation" includes, in
addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a
II-4
<PAGE>
consolidation or merger, so that any person who is or was a director, officer,
employee, or agent of a constituent corporation, or is or was serving at the
request of a constituent corporation as a director, officer, employee, or agent
of another corporation, partnership, joint venture, trust, or other enterprise,
is in the same position under this section with respect to the resulting or
surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
(11) For purposes of this section;
(a) The term "other enterprises" includes employee benefit plans;
(b) The term "expenses" includes counsel fees, including those for
appeal;
(c) The term "liability" includes obligations to pay a judgment,
settlement, penalty, fine (including an excise tax assessed with respect to
any employee benefit plan), and expenses actually and reasonably incurred
with respect to a proceeding;
(d) The term "proceeding" includes any threatened, pending, or completed
action, suit, or other type of proceeding, whether civil, criminal,
administrative, or investigative and whether formal or informal;
(e) The term "agent" includes a volunteer;
(f) The term "serving at the request of the corporation" includes any
service as a director, officer, employee, or agent of the corporation that
imposes duties on such persons, including duties relating to an employee
benefit plan and its participants or beneficiaries; and
(g) The term "not opposed to the best interest of the corporation"
describes the actions of a person who acts in good faith and in a manner he
reasonably believes to be in the best interests of the participants and
beneficiaries of an employee benefit plan.
(12) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee, or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee, or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted
against him and incurred by him in any such capacity or arising out of his
status as such, whether or not the corporation would have the power to
indemnify him against such liability under the provisions of this section.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Within the last three years, the Company issued the following securities
without registration under the Securities Act:
On June 30, 1996, the Company issued 10,000,000 shares of Common Stock,
par value $.01 per share ("Common Stock"), to Kos Holdings, Inc. ("Holdings")
in exchange for all of the assets and all of the liabilities of Holdings.
Such assets had a book value of $2,280,819 and such liabilities amounted to
$366,670 on such date. In June 1996, the Company granted options to purchase
an aggregate of 1,833,000 shares of Common Stock under the Company's 1996
Stock Option Plan. Effective July 1, 1996, the Company issued the Convertible
Note to Kos Investments. The shares of Common Stock issued to Holdings, such
options and the Convertible Note were issued in reliance on the exemption
from registration provided in Section 4(2) of the Securities Act of 1933, as
amended.
No underwriter was engaged in connection with the foregoing sales of
securities. The sale of Common Stock, the issuances of options to employees
and consultants and the Convertible Note have been made in reliance upon the
exemption from the registration requirements afforded by Section 4(2) of the
Securities Act of 1933, as amended, as transactions not involving any public
offering. The
II-5
<PAGE>
Company has reason to believe that all of the foregoing purchasers were familiar
with or had access to information concerning the operations and financial
condition of the Company, and all of those individuals acquired the securities
for investment and not with a view to the distribution thereof.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<S> <C>
1.1 Underwriting Agreement among the Company, Cowen & Company, Dillon, Read & Co. Inc., and
Salomon Brothers Inc, as Representatives of the several Underwriters
3.1 Amended and Restated Articles of Incorporation of the Company
3.2 Amended and Restated Bylaws of the Company
4.1* See Exhibits 3.1 and 3.2 for provisions of the Amended and Restated Articles of
Incorporation and Amended and Restated Bylaws of the Company defining the rights of holders
of Common Stock of the Company
4.2 Form of Common Stock certificate of the Company (incorporated herein by reference to the
Company's Registration Statement on Form 8-A filed with the Commission on February 25, 1997)
5 Opinion of Holland & Knight LLP
10.1* Employment Agreement dated as of July 1, 1996, between Daniel M. Bell and the Company
10.2* Nonqualified Stock Option Agreement by and between the Company and Daniel M. Bell dated as
of June 20, 1996
10.3* Employment Agreement dated as of June 15, 1996, between David Bova and the Company
10.4* Kos Pharmaceuticals, Inc. 1996 Stock Option Plan
10.5/plus/ Development Agreement by and between the Company and Fuisz Technologies Ltd.
10.6* Promissory Note in favor of Kos Investments, Inc.
10.7* Registration Rights Agreement dated as of June 30, 1996 by and between the Company, Kos Holdings,
Inc. and Kos Investments, Inc.
10.8* Oakwood Business Center Lease, dated May 2, 1991, between STS Buildings Associates, L.P. and the
Company
10.9* Oakwood Business Center Lease, dated May 15, 1990, between STS Buildings Associates, L.P. and the
Company
10.10* Oakwood Business Center Lease, dated January 7, 1993, between STS Buildings Associates, L.P. and
the Company
10.11* Modification and Extension Agreement, dated June 6, 1996, between STS Buildings Associates, L.P.
and the Company
10.12* Assignment and Second Modification of Lease Agreement, dated June 30, 1996, by and between Oakwood
Business Center Limited Partnership and the Company
10.13* Assignment and Second Modification of Loan Agreement, dated June 30, 1996, by and between Oakwood
Business Center Limited Partnership and the Company
10.14* Assignment and Second Modification of Lease Agreement, dated June 30, 1996, by and between Oakwood
Business Center Limited Partnership and the Company
10.15* Lease between Center Realty, L.P. and the Company, dated May 1993
10.16* Third Modification of Lease Agreement, dated November 21, 1996, by and between Oakwood Business
Center Limited Partnership and the Company
10.17/plus/ Option/Licensing Agreement by and between the Company and Fuisz Technologies Ltd.
10.18/plus/ Development Agreement by and between the Company and Fuisz Technologies Ltd.
10.19/plus/ Option/Licensing Agreement by and between the Company and Fuisz Technologies Ltd.
10.20/plus/ License Agreement by and between the Company and Upsher-Smith Laboratories, Inc., dated February
7, 1997
21* Subsidiaries of the Company
23.1 Consent of Holland & Knight LLP (included in Exhibit 5 above)
23.2 Consent of Arthur Andersen LLP
24* Power of Attorney
27* Financial Data Schedule
II-6
<PAGE>
EXHIBIT NUMBER DESCRIPTION
- ---------------------------------------------------------------------------------------------------------------
99.1* Consent of John Brademas
99.2* Consent of Louis C. Lasagna
99.3* Consent of Mark Novitch
99.4* Consent of Frederick B. Whittemore
</TABLE>
- -----------------------------------------------------------------------------
* Previously filed.
** To be filed by amendment.
/plus/ Certain confidential material contained in the document has been
omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as
amended.
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(b) The undersigned registrant hereby undertakes that: (1) for purposes of
determining any liability under the Securities Act, the information omitted
from the form of prospectus filed as part of a Registration Statement in
reliance upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be a part of this Registration Statement as of the
time it was declared effective.
(2) for the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Amendment to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Miami, Florida on March 5, 1997.
KOS PHARMACEUTICALS, INC.
By: /s/ DANIEL M. BELL
---------------------------------
Daniel M. Bell
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1993, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------------------------------------------
<S> <C> <C>
/s/ DANIEL M. BELL President, Chief Executive Officer March 5, 1997
- ------------------ and Director
Daniel M. Bell (Principal Executive Officer)
* Chairman of the March 5, 1997
- ------------------ Board of Directors
Michael Jaharis
* Controller March 5, 1997
- ------------------ (Principal Accounting Officer
Juan F. Rodriguez and Principal Financial Officer)
* Vice Chairman of the March 5, 1997
- ------------------ Board of Directors
Robert E. Baldini
* Director March 5, 1997
- ------------------
Steven Jaharis
- -----------------------------------------------------------------------------
*BY: /S/ DANIEL M. BELL March 5, 1997
- ------------------------
Daniel M. Bell
Attorney-in-fact
</TABLE>
II-8
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement among the Company, Cowen & Company, Dillon, Read & Co. Inc., and
Salomon Brothers Inc, as Representatives of the several Underwriters
3.1 Amended and Restated Articles of Incorporation of the Company
3.2 Amended and Restated Bylaws of the Company
5 Opinion of Holland & Knight LLP
10.5/plus/ Development Agreement by and between the Company and Fuisz Technologies Ltd.
10.17/plus/ Option/Licensing Agreement by and between the Company and Fuisz Technologies Ltd.
10.18/plus/ Development Agreement by and between the Company and Fuisz Technologies Ltd.
10.19/plus/ Option/Licensing Agreement by and between the Company and Fuisz Technologies Ltd.
10.20/plus/ License Agreement by and between the Company and Upsher-Smith Laboratories, Inc., dated February 7, 1997
23.1 Consent of Holland & Knight LLP (included in Exhibit 5 above)
23.2 Consent of Arthur Andersen LLP
</TABLE>
- -----------------------------------------------------------------------------
/plus/ Certain confidential material contained in the document has been
omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as
amended.
EXHIBIT 1.1
3,500,000 Shares
KOS PHARMACEUTICALS, INC.
Common Stock
UNDERWRITING AGREEMENT
March __, 1997
COWEN & COMPANY
DILLON, READ & CO. INC.
SALOMON BROTHERS INC
As Representatives of the several Underwriters
c/o Cowen & Company
Financial Square
New York, New York 10005
Dear Sirs:
1. INTRODUCTORY. Kos Pharmaceuticals, Inc., a Florida corporation (the
"Company") proposes to sell, pursuant to the terms of this Agreement, to the
several underwriters named in Schedule A hereto (the "Underwriters," or, each,
an "Underwriter"), an aggregate of 3,500,000 shares of Common Stock, $.01 par
value (the "Common Stock") of the Company. The aggregate of 3,500,000 shares so
proposed to be sold is hereinafter referred to as the "Firm Stock". The Company
also proposes to sell to the Underwriters, upon the terms and conditions set
forth in Section 3 hereof, up to an additional 525,000 shares of Common Stock
(the "Optional Stock"). The Firm Stock and the Optional Stock are hereinafter
collectively referred to as the "Stock". Cowen & Company ("Cowen"), Dillon, Read
& Co. Inc. and Salomon Brothers Inc are acting as representatives of the several
Underwriters and in such capacity are hereinafter referred to as the
"Representatives".
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to, and agrees with, the several Underwriters that:
(i) A registration statement on Form S-1 (File No. 333-17991) in
the form in which it became or becomes effective and also in such form
as it may be when any post-effective amendment thereto shall become
effective with respect to the Stock, including any preeffective
prospectuses
<PAGE>
included as part of the registration statement as originally filed or
as part of any amendment or supplement thereto, or filed pursuant to
Rule 424 under the Securities Act of 1933, as amended (the "Securities
Act"), and the rules and regulations (the "Rules and Regulations") of
the Securities and Exchange Commission (the "Commission") thereunder,
copies of which have heretofore been delivered to you, has been
prepared by the Company in conformity in all material respects with the
requirements of the Securities Act and has been filed with the
Commission under the Securities Act. The term Registration Statement as
used in this Agreement means the registration statement in the form in
which it is declared effective by the Commission. If it is
contemplated, at the time this Agreement is executed, that a
post-effective amendment to the registration statement will be filed
and must be declared effective before the offering of the Stock may
commence, the term "Registration Statement" as used in this Agreement
means the registration statement as amended by said post-effective
amendment. The term "Registration Statement" as used in this Agreement
shall also include any registration statement relating to the Stock
that is filed and declared effective pursuant to Rule 462(b) under the
Securities Act. The term "Prospectus" as used in this Agreement means
the prospectus in the form included in the Registration Statement, or,
(A) if the prospectus included in the Registration Statement omits
information in reliance on Rule 430A under the Securities Act and such
information is included in a prospectus filed with the Commission
pursuant to Rule 424(b) under the Securities Act, the term "Prospectus"
as used in this Agreement means the prospectus in the form included in
the Registration Statement as supplemented by the addition of the Rule
430A information contained in the prospectus filed with the Commission
pursuant to Rule 424(b) and (B) if prospectuses that meet the
requirements of Section 10(a) of the Securities Act are delivered
pursuant to Rule 434 under the Securities Act, then (i) the term
"Prospectus" as used in this Agreement means the "prospectus subject to
completion" (as such term is defined in Rule 434(g) under the
Securities Act) as supplemented by (a) the addition of Rule 430A
information or other information contained in the form of prospectus
delivered pursuant to Rule 434(b)(2) under the
2
<PAGE>
Securities Act or (b) the information contained in the term sheets
described in Rule 434(b)(3) under the Securities Act, and (ii) the date
of such prospectuses shall be deemed to be the date of the term sheets.
The term "Preeffective Prospectus" as used in this Agreement means the
prospectus subject to completion in the form included in the
Registration Statement at the time of the initial filing of the
Registration Statement with the Commission, and as such prospectus
shall have been amended from time to time prior to the date of the
Prospectus.
(ii) The Commission has not issued or threatened to issue any
order preventing or suspending the use of any Preeffective Prospectus,
and, at its date of issue, each Preeffective Prospectus conformed in
all material respects with the requirements of the Securities Act and
did not include any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under
which they were made, not misleading; and, when the Registration
Statement becomes effective and at all times subsequent thereto up to
and including the Closing Date (as hereinafter defined), the
Registration Statement and the Prospectus and any amendments or
supplements thereto conformed and will conform in all material respects
to the requirements of the Securities Act and neither the Registration
Statement nor the Prospectus, nor any amendment or supplement thereto,
included or will include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that the foregoing representations, warranties and agreements
shall not apply to information contained in or omitted from any
Preeffective Prospectus or the Registration Statement or the Prospectus
or any such amendment or supplement thereto in reliance upon, and in
conformity with, written information relating to any Underwriter (or
relating to the distribution) furnished to the Company by or on behalf
of any Underwriter, directly or through you, specifically for use in
the preparation thereof; there is no franchise, lease, contract,
agreement or document required to
3
<PAGE>
be described in the Registration Statement or Prospectus or to be filed
as an exhibit to the Registration Statement which is not described or
filed therein as required; and all descriptions of any such franchises,
leases, contracts, agreements or documents contained in the
Registration Statement are accurate and complete descriptions of such
documents in all material respects.
(iii) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus, and except as
set forth or contemplated in the Prospectus, neither the Company nor
any of its subsidiaries has incurred any liabilities or obligations,
direct or contingent, nor entered into any transactions not in the
ordinary course of business, and there has not been any material
adverse change in the condition (financial or otherwise), properties,
business, management, prospects, net worth or results of operations of
the Company and its subsidiaries considered as a whole, or any change
in the capital stock (except pursuant to the Company's stock option
plans), or a material change in the short-term or long-term debt of the
Company and its subsidiaries considered as a whole.
(iv) The financial statements, together with the related notes
and schedules, set forth in the Prospectus and elsewhere in the
Registration Statement fairly present, on the basis stated in the
Registration Statement, the financial position and the results of
operations and changes in financial position of the Company and its
consolidated subsidiaries at the respective dates or for the respective
periods therein specified. Such statements and related notes and
schedules have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis except as may be
set forth in the Prospectus. The other financial accounting information
and data of the Company set forth in the Prospectus and elsewhere in
the Registration Statement is accurately presented and has been
prepared on a basis consistent with such financial statements and the
books and records of the Company. All financial and statistical
information and data set forth in the Prospectus and elsewhere in the
Registration Statement that was obtained from third party source
materials is,
4
<PAGE>
in all material respects, an accurate presentation of the information
or data as presented in the source from which it was derived.
(v) Arthur Andersen LLP, who have expressed their opinions on
the audited financial statements included in the Registration Statement
and the Prospectus, are independent public accountants as required by
the Securities Act and the Rules and Regulations.
(vi) The Company has and each of its subsidiaries has been duly
organized and is validly existing and in good standing as a corporation
under the laws of its jurisdiction of organization; and the Company is
and each of its subsidiaries is duly qualified to do business and in
good standing as a foreign corporation in all other jurisdictions where
its ownership or leasing of properties or the conduct of its business
requires such qualification. The Company has and each of its
subsidiaries has all requisite corporate power and authority, and all
necessary consents, approvals, authorizations, orders, registrations,
qualifications, licenses and permits of and from all public regulatory
or governmental agencies and bodies to own, lease and operate its
properties and conduct its business as now being conducted and as
described in the Registration Statement and the Prospectus, and no such
consent, approval, authorization, order, registration, qualification,
license or permit contains a materially burdensome restriction not
adequately disclosed in the Registration Statement and the Prospectus.
Aeropharm Technology, Inc., a Florida corporation, is owned and
controlled by the Company. The Company does not, directly or
indirectly, own or control any other corporation, association or
entity.
(vii) The Company's authorized and outstanding capital stock is
on the date hereof, and will be on the Closing Date, as set forth under
the heading "Capitalization" in the Prospectus; the outstanding shares
of Common Stock of the Company conform to the description thereof in
the Prospectus, have been duly authorized and validly issued and are
fully paid and nonassessable and have been issued in compliance with
all federal and state securities laws and were not issued in violation
of or subject to any
5
<PAGE>
preemptive rights or similar rights to subscribe for or purchase
securities and conform to the description thereof contained in the
Prospectus. Except as disclosed in and or contemplated by the
Prospectus and the financial statements of the Company and related
notes thereto included in the Prospectus, the Company does not have
outstanding any options or warrants to purchase, or any preemptive
rights or other rights to subscribe for or to purchase any securities
or obligations convertible into, or any contracts or commitments to
issue or sell, shares of its capital stock or any such options, rights,
convertible securities or obligations, except for options granted
subsequent to the date of information provided in the Prospectus
pursuant to the Company's employee and stock option plans as disclosed
in the Prospectus. The description of the Company's stock option and
other stock plans or arrangements, and the options or other rights
granted or exercised thereunder, as set forth in the Prospectus,
accurately and fairly presents in all material respects the information
required by the Rules and Regulations to be shown with respect to such
plans, arrangements, options and rights. All outstanding shares of
capital stock of each of the subsidiaries of the Company have been duly
authorized and validly issued, and are fully paid and nonassessable and
are owned directly by the Company free and clear of any liens,
encumbrances, equities or claims.
(viii) The Stock to be issued and sold by the Company to the
Underwriters hereunder has been duly and validly authorized and, when
issued and delivered against payment therefor as provided herein, will
be duly and validly issued, fully paid and nonassessable and free of
any preemptive or similar rights and will conform to the description
thereof in the Prospectus.
(ix) Except as set forth in the Prospectus, there are no legal
or governmental proceedings pending to which the Company or any of its
subsidiaries is a party or of which any property of the Company or any
subsidiary is subject, which, if determined adversely to the Company or
any such subsidiary, might individually or in the aggregate (i) prevent
or adversely affect the transactions contemplated by this Agreement,
(ii) suspend the effectiveness of the
6
<PAGE>
Registration Statement, (iii) prevent or suspend the use of the
Preeffective Prospectus in any jurisdiction or (iv) result in a
material adverse change in the condition (financial or otherwise),
properties, business, management, prospects, net worth or results of
operations of the Company and, to the Company's knowledge, there is no
valid basis for any such legal or governmental proceeding; and to the
best of the Company's knowledge no such proceedings are threatened or
contemplated against the Company or any subsidiary by governmental
authorities or others. The Company is not a party or subject to the
provisions of any material injunction, judgment, decree or order of any
court, regulatory body or other governmental agency or body. The
description of the Company's litigation under the heading
"Business--Legal Proceedings" in the Prospectus is true and correct and
complies with the Rules and Regulations.
(x) Neither the Company nor any subsidiary of the Company is in
violation of its respective articles of incorporation or by-laws or in
default in the performance of any obligation, agreement or condition
contained in any bond, debenture, note or any other evidence of
indebtedness or in any other agreement, indenture or instrument
material to the conduct of the business of the Company and its
subsidiaries considered as a whole, to which the Company or any of its
subsidiaries or their respective property is bound.
(xi) The execution, delivery and performance of this Agreement
and the consummation of the transactions herein contemplated will not
result in a breach or violation of any of the terms or provisions of or
constitute a default under any indenture, mortgage, deed of trust, note
agreement or other agreement or instrument to which the Company or any
of the subsidiaries is a party or by which it or any of its properties
is or may be bound, the articles of incorporation, by-laws or other
organizational documents of the Company or any of its subsidiaries, or
any law, order, rule or regulation of any court or governmental agency
or body having jurisdiction over the Company or any of its subsidiaries
or any of their properties or result in the creation of a
7
<PAGE>
lien on any of the assets of the Company or its subsidiaries.
(xii) No consent, approval, authorization or order of any court
or governmental agency or body is required for the consummation by the
Company of the transactions contemplated by this Agreement, except such
as may be required by the National Association of Securities Dealers,
Inc. (the "NASD") or under the Securities Act or the securities or
"Blue Sky" laws of any jurisdiction in connection with the purchase and
distribution of the Stock by the Underwriters.
(xiii) The Company has the full corporate power and authority to
enter into this Agreement and to perform its obligations hereunder
(including to issue, sell and deliver the Stock to be sold by it
hereunder), and this Agreement has been duly and validly authorized,
executed and delivered by the Company and is a valid and binding
obligation of the Company, enforceable against the Company in
accordance with its terms, except to the extent that rights to
indemnity and contribution hereunder may be limited by federal or state
securities laws or the public policy underlying such laws.
(xiv) The Company and its subsidiaries are in all material
respects in compliance with, and conduct their businesses in conformity
with, all applicable federal, state, local and foreign laws, rules and
regulations of any court or governmental agency or body; to the
knowledge of the Company, otherwise than as set forth in the
Registration Statement and the Prospectus, no prospective change in any
of such federal or state laws, rules or regulations has been adopted
which, when made effective, would have a material adverse effect on the
operations of the Company and its subsidiaries.
(xv) The Company and each of its subsidiaries (A) are in
compliance with any and all applicable foreign, federal, state and
local laws and regulations relating to the protection of human health
and safety, the environment or hazardous or toxic substances or wastes,
pollutants or contaminants ("Environmental Laws"), (B) have received
all permits, licenses or other
8
<PAGE>
approvals required of them under applicable Environmental Laws to
conduct their respective businesses and (C) are in compliance with all
terms and conditions of any such permit, license or approval, except
where such noncompliance with Environmental Laws, failure to receive
required permits, licenses or other approvals or failure to comply with
the terms and conditions of such permits, licenses or approvals would
not, singly or in the aggregate, have a material adverse effect on the
Company and its subsidiaries considered as a whole.
(xvi) The Company and each of its subsidiaries have such
permits, licenses, franchises and authorizations of governmental or
regulatory authorities ("permits"), including, without limitation,
under any applicable Environmental Laws, as are necessary to own, lease
and operate their respective properties and to conduct their businesses
except where such failure to receive required permits would not, singly
or in the aggregate, have a material adverse effect on the Company and
its subsidiaries considered as a whole; the Company and each of its
subsidiaries have fulfilled and performed all of their material
obligations with respect to such permits and no event has occurred
which allows, or after notice or lapse of time would allow, revocation
or termination thereof or results in any other material impairment of
the rights of the holder of any such permit; and, except as described
in the Prospectus, such permits contain no restrictions that are
materially burdensome to the Company or any of its subsidiaries.
(xvii) The clinical trials and the animal studies conducted by
or on behalf of the Company or in which the Company has participated
that are described in the Prospectus were and, if still pending, are
being conducted in all material respects in accordance with standard
medical and scientific research procedures, and the Company has
operated and currently is in compliance in all material respects with
all applicable FDA rules, regulations and policies.
(xviii) The Company and its subsidiaries have filed all federal,
state, local and foreign income, payroll, franchise and other tax
returns which are required to be filed through
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the date hereof, or has received extensions thereof, and have paid all
taxes shown as due thereon or with respect to any of their properties
to the extent the same are material and have become due, and there is
no tax deficiency that has been, or to the knowledge of the Company is
likely to be, asserted against the Company or any of its subsidiaries
or any of their respective properties or assets that would adversely
affect the financial position, business or operations of the Company
and its subsidiaries.
(xix) Except as described in the Registration Statement, no
person or entity has the right to require registration of shares of
Common Stock or other securities of the Company because of the filing
or effectiveness of the Registration Statement or otherwise, except for
persons and entities who have expressly waived such right or who have
been given proper notice and have failed to exercise such right within
the time or times required under the terms and conditions of such
right.
(xx) Neither the Company nor any of its officers, directors or
affiliates (as that term is defined in Rule 144, promulgated under the
Securities Act) has taken or will take, directly or indirectly, any
action designed or intended to stabilize or manipulate the price of any
security of the Company, or which caused or resulted in, or which might
in the future reasonably be expected to cause or result in,
stabilization or manipulation of the price of any security of the
Company.
(xxi) The Company has provided you with all annual, audited
financial statements since June 30, 1992 to the date hereof that are
available to the officers of the Company, and the unaudited financial
statements for the six months ended December 31, 1995 and 1996.
(xxii) Except as otherwise described in the Prospectus, the
Company and its subsidiaries own or possess the right to use (i) all
patents, trademarks, trademark registrations, service marks, service
mark registrations, trade names, copyrights, licenses, inventions,
trade secrets and rights described in the Prospectus as being owned by
them and (ii) all other material patents,
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trademarks, trademark registrations, trade names, copyrights, licenses,
inventions and trade secrets employed by them in the operation of their
respective businesses, and, except as described in the Prospectus, the
Company is not aware of any claim to the contrary or any challenge by
any other person to the rights of the Company and its subsidiaries with
respect to the foregoing. To the Company's knowledge, except as
described in the Prospectus, its business as now conducted and as
proposed to be conducted does not and will not infringe or conflict
with in any material respect patents, trademarks, service marks, trade
names, copyrights, trade secrets, licenses or other intellectual
property or franchise right of any person. Except as described in the
Prospectus, no claim has been made against the Company alleging the
infringement by the Company of any patent trademark, service mark,
trade name, copyright, trade secret, license in or other intellectual
property right or franchise right of any person.
(xxiii) The License Agreement dated February 7, 1997 by and
between Upsher-Smith Laboratories, Inc. and the Company has been duly
and validly authorized, executed and delivered by the Company and is a
valid and existing contract of the Company.
(xxiv) The Company and its subsidiaries have performed all
material obligations required to be performed by them under all
contracts required by Item 601 (b)(10) of Regulation S-K under the
Securities Act to be filed as exhibits to the Registration Statement,
and neither the Company nor any of its subsidiaries nor, to the
Company's knowledge, any other party to such contract is in default
under or in breach of any such obligations. Neither the Company nor any
of its subsidiaries has received any notice of such default or breach.
(xxv) The Company is not involved in any labor dispute nor, to
the Company's knowledge, is any such dispute threatened. The Company is
not aware that (A) any executive, key employee or significant group of
employees of the Company or any subsidiary plans to terminate
employment with the Company or any such subsidiary or (B) any such
executive or key employee is subject to any noncompete, nondisclosure,
confidentiality,
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employment, consulting or similar agreement that would be violated by
the present or proposed business activities of the Company and its
subsidiaries. Neither the Company nor any subsidiary has or expects to
have any liability for any prohibited transaction or funding deficiency
or any complete or partial withdrawal liability with respect to any
pension, profit sharing or other plan which is subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), to which
the Company or any subsidiary makes or ever has made a contribution and
in which any employee of the Company or any subsidiary is or has ever
been a participant. With respect to such plans, the Company and each
subsidiary is in compliance in all material respects with all
applicable provisions of ERISA.
(xxvi) The Company has obtained the written agreements described
in Section 3 of this Agreement from each of its officers and directors
and each person listed in Schedule B hereto.
(xxvii) The Company and its subsidiaries have, and the Company
and its subsidiaries as of the Closing Date will have, good and
marketable title in fee simple to all real property and good and
marketable title to all personal property owned by them which is
material to the business of the Company or of its subsidiaries, in each
case free and clear of all liens, encumbrances and defects except such
as are described in the Prospectus or such as would not have a material
adverse effect on the Company and its subsidiaries considered as a
whole; and any real property and buildings held under lease by the
Company and its subsidiaries or proposed to be held after giving effect
to the transactions described in the Prospectus are, or will be as of
the Closing Date, held by them under valid, subsisting and enforceable
leases with such exceptions as would not have a material adverse effect
on the Company and its subsidiaries considered as a whole in each case
except as described in or contemplated by the Prospectus.
(xxviii) The Company and its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are customary in the businesses in which
they are engaged or propose to
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engage after giving effect to the transactions described in the
Prospectus; and neither the Company nor any subsidiary of the Company
has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to
continue their business at a cost that would not materially and
adversely affect the condition, financial or otherwise, or the
earnings, business or operations of the Company and its subsidiaries
considered as a whole, except as described in or contemplated by the
Prospectus.
(xxix) Other than as contemplated by this Agreement, there is no
broker, finder or other party that is entitled to receive from the
Company any brokerage or finder's fee or other fee or commission as a
result of any of the transactions contemplated by this Agreement.
(xxx) The Company has complied with all provisions of Section
517.075 Florida Statutes (Chapter 92-198; Laws of Florida).
(xxxi) The Company and each of its subsidiaries maintain a
system of internal accounting controls sufficient to provide reasonable
assurances that (A) transactions are executed in accordance with
management's general or specific authorization; (B) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to
maintain accountability for assets; (C) access to assets is permitted
only in accordance with management's general or specific authorization;
and (D) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(xxxii) To the Company's knowledge, neither the Company nor any
of its subsidiaries nor any employee or agent of the Company or any of
its subsidiaries has made any payment of funds of the Company or any of
its subsidiaries or received or retained any funds in violation of any
law, rule or regulation, which payment, receipt or retention of funds
is of a character required to be disclosed in the Prospectus.
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(xxxiii) Neither the Company nor any of its subsidiaries is or,
after application of the net proceeds of this offering as described
under the caption "Use of Proceeds" in the Prospectus, will become an
"investment company" or an entity "controlled" by an " investment
company" as such terms are defined in the Investment Company Act of
1940, as amended.
(xxxiv) Each certificate signed by any officer of the Company
and delivered to the Underwriters or counsel for the Underwriters
pursuant to this Agreement shall be deemed to be a representation and
warranty by the Company as to the matters covered thereby.
(xxxv) No executive officer of the Company has received or is
aware of any communication (written or oral) relating to the
termination or modification of any of the agreements described or
referred to in the Prospectus under the caption "Business", the
termination or modification of which would have a material adverse
effect on the Company.
(xxxvi) Except as disclosed in the Prospectus, there are no
business relationships or related party transactions required to be
disclosed therein by Item 404 of Regulation S-K of the Commission.
3. PURCHASE BY, AND SALE AND DELIVERY TO, UNDERWRITERS--CLOSING DATES.
On the basis of the representations, warranties, covenants and agreements herein
contained, but subject to the terms and conditions herein set forth, the Company
agrees to sell to the Underwriters the Firm Stock; and the Underwriters agree,
severally and not jointly, to purchase the Firm Stock from the Company, the
number of shares of Firm Stock to be purchased by each Underwriter being set
opposite its name in Schedule A, subject to adjustment in accordance with
Section 12 hereof.
The purchase price per share to be paid by the Underwriters to the
Company will be $ _____ per share (the "Purchase Price").
The Company will deliver the Firm Stock to the Representatives for the
respective accounts of the several Underwriters in the form of definitive
certificates, issued in such names and in such denominations as the
Representatives may direct by notice in writing to the
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Company given at or prior to 12:00 Noon, New York Time, on the second full
business day preceding the First Closing Date (as defined below) or, if no such
direction is received, in the names of the respective Underwriters or in such
other names as Cowen may designate (solely for the purpose of administrative
convenience) and in such denominations as Cowen may determine, against payment
of the aggregate Purchase Price therefor by wire of federal or other immediately
available funds, payable to the order of the Company, all at the offices of
Davis Polk & Wardwell, 450 Lexington Avenue, New York, New York 10017. The time
and date of the delivery and closing shall be at _______ A.M., New York Time, on
________, 1996, in accordance with Rule 15c6-1 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). The time and date of such payment and
delivery are herein referred to as the "First Closing Date". The Closing Date
and the location of delivery of, and the form of payment for, the Firm Stock may
be varied by agreement among the Company and Cowen. The Closing Date may be
postponed pursuant to the provisions of Section 12.
The Company shall make the certificates for the Stock available to the
Representatives for examination on behalf of the Underwriters not later than
10:00 A.M., New York Time, on the business day preceding the First Closing Date
at the offices of Cowen & Company, Financial Square, New York, New York 10005.
It is understood that Cowen, individually and not as Representative of
the several Underwriters, may (but shall not be obligated to) make payment to
the Company on behalf of any Underwriter or Underwriters for the Stock to be
purchased by such Underwriter or Underwriters. Any such payment by Cowen shall
not relieve such Underwriter or Underwriters from any of its or their other
obligations hereunder.
The several Underwriters agree to make an initial public offering of
the Firm Stock at the initial public offering price as soon after the
effectiveness of the Registration Statement as in their judgment is advisable.
The Representatives shall promptly advise the Company of the making of the
initial public offering.
For the purpose of covering any over-allotments in connection with the
distribution and sale of the Firm Stock as contemplated by the Prospectus, the
Company hereby grants to the Underwriters an option to purchase, severally and
not jointly, up to the aggregate number of 525,000 shares of Optional Stock. The
price per share to be paid for the
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<PAGE>
Optional Stock shall be the Purchase Price. The option granted hereby may be
exercised as to all or any part of the Optional Stock at any time, and from time
to time, not more than thirty (30) days subsequent to the effective date of this
Agreement. No Optional Stock shall be sold and delivered unless the Firm Stock
previously has been, or simultaneously is, sold and delivered. The right to
purchase the Optional Stock or any portion thereof may be surrendered and
terminated at any time upon notice by the Underwriters to the Company.
The option granted hereby may be exercised by the Underwriters by
giving written notice from Cowen to the Company setting forth the number of
shares of the Optional Stock to be purchased by them and the date and time for
delivery of and payment for the Optional Stock. Each date and time for delivery
of and payment for the Optional Stock (which may be the First Closing Date, but
not earlier) is herein called the "Option Closing Date" and shall in no event be
earlier than two (2) business days nor later than ten (10) business days after
written notice is given. (The Option Closing Date and the First Closing Date are
herein called the "Closing Dates".) Optional Stock shall be purchased for the
account of each Underwriter in the same proportion as the number of shares of
Firm Stock set forth opposite such Underwriter's name in Schedule A hereto bears
to the total number of shares of Firm Stock (subject to adjustment by the
Underwriters to eliminate odd lots). Upon exercise of the option by the
Underwriters and subject to the terms and conditions herein set forth, the
Company agrees to sell to the Underwriters the number of shares of Optional
Stock set forth in the written notice of exercise and the Underwriters agree,
severally and not jointly, to purchase the number of such shares determined as
aforesaid.
The Company will deliver the Optional Stock to the Underwriters in the
form of definitive certificates, issued in such names and in such denominations
as the Representatives may direct by notice given at or prior to 12:00 Noon, New
York Time, on the second full business day preceding the Option Closing Date or,
if no such direction is received, in the names of the respective Underwriters or
in such other names as Cowen may designate (solely for the purpose of
administrative convenience) and in such denominations as Cowen may determine,
against payment of the aggregate Purchase Price therefor by wire of federal or
other immediately available funds, payable to the order of the Company, all at
the offices of Davis Polk & Wardwell, 450 Lexington Avenue, New York, New York
10017. The Option Closing Date and the location of delivery of, and the form of
payment for, the Optional Stock may be varied by
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agreement between the Company and Cowen. The Option Closing Date may be
postponed pursuant to the provisions of Section 12.
The Company hereby agrees, and the Company shall, concurrently with the
execution of this Agreement, deliver agreements executed by (i) each of the
directors and officers of the Company and (ii) each person listed in
Schedule B hereto, pursuant to which each such person agrees not (A) directly or
indirectly, to offer, sell, assign, transfer, encumber, pledge, contract to
sell, grant an option to purchase or otherwise dispose of, other than by
operation of law, any Common Stock of the Company or (B) to enter into any swap
or other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of Common Stock, whether any such transaction
described in clauses (A) or (B) above is to be settled by delivery of Common
Stock or such other securities, in cash or otherwise for a period of 180 days
after the date of the Prospectus without the prior written consent of Cowen. The
foregoing sentence shall not apply to (a) the Stock to be sold hereunder or (b)
the issuance by the Company of shares of Common Stock upon the exercise of an
option or warrant or the conversion of a security outstanding on the date hereof
of which the Underwriters have been advised in writing or (c) the issuance by
the Company of any option to purchase any shares of Common Stock pursuant to its
Stock Option Plan described in the Prospectus.
4. COVENANTS AND AGREEMENTS OF THE COMPANY. The Company covenants and
agrees with the several Underwriters that:
(a) The Company will (i) if the Company and the Representatives
have determined not to proceed pursuant to Rule 430A, use its best
efforts to cause the Registration Statement to become effective, (ii)
if the Company and the Representatives have determined to proceed
pursuant to Rule 430A, use its best efforts to comply with the
provisions of and make all requisite filings with the Commission
pursuant to Rule 430A and Rule 424 of the Rules and Regulations and
(iii) if the Company and the Representatives have determined to deliver
Prospectuses pursuant to Rule 434 of the Rules and Regulations, to use
its best efforts to comply with all the applicable provisions thereof.
The Company will advise the Representatives promptly as to the time at
which the Registration Statement becomes effective, will advise the
Representatives
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promptly of the issuance by the Commission of any stop order suspending
the effectiveness of the Registration Statement or of the institution
of any proceedings for that purpose, and will use its best efforts to
prevent the issuance of any such stop order and to obtain as soon as
possible the lifting thereof, if issued. The Company will advise the
Representatives promptly of the receipt of any comments of the
Commission or any request by the Commission for any amendment of or
supplement to the Registration Statement or the Prospectus or for
additional information and will not at any time file any amendment to
the Registration Statement or supplement to the Prospectus which shall
not previously have been submitted to the Representatives a reasonable
time prior to the proposed filing thereof or to which the
Representatives shall reasonably object in writing or which is not in
compliance with the Securities Act and the Rules and Regulations.
(b) The Company will prepare and file with the Commission,
promptly upon the request of the Representatives, any amendments or
supplements to the Registration Statement or the Prospectus which in
the opinion of the Representatives may be necessary to enable the
several Underwriters to continue the distribution of the Stock as
contemplated herein and will use its best efforts to cause the same to
become effective as promptly as possible.
(c) If at any time after the effective date of the Registration
Statement when a prospectus relating to the Stock is required to be
delivered under the Securities Act any event relating to or affecting
the Company or any of its subsidiaries occurs as a result of which the
Prospectus or any other prospectus as then in effect would include an
untrue statement of a material fact, or omit to state any material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is
necessary at any time to amend the Prospectus to comply with the
Securities Act, the Company will promptly notify the Representatives
thereof and will prepare an amended or supplemented prospectus which
will correct such statement or omission; and in case any Underwriter is
required to deliver a prospectus relating to the Stock nine (9) months
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or more after the effective date of the Registration Statement, the
Company upon the request of the Representatives and at the expense of
such Underwriter will prepare promptly such prospectus or prospectuses
as may be necessary to permit compliance with the requirements of
Section 10(a)(3) of the Securities Act.
(d) The Company will deliver to the Representatives, at or
before the Closing Date, three (3) signed copies of the Registration
Statement, as originally filed with the Commission, and all amendments
thereto including all financial statements and exhibits thereto, and
will deliver to the Representatives such number of copies of the
Registration Statement, including such financial statements but without
exhibits, and all amendments thereto, as the Representatives may
reasonably request. The Company will deliver or mail to or upon the
order of the Representatives, from time to time until the effective
date of the Registration Statement, as many copies of the Preeffective
Prospectus as the Representatives may reasonably request. The Company
will deliver or mail to or upon the order of the Representatives on the
date of the initial public offering, and thereafter from time to time
during the period when delivery of a prospectus relating to the Stock
is required under the Securities Act, as many copies of the Prospectus,
in final form or as thereafter amended or supplemented as the
Representatives may reasonably request; provided, however, that the
expense of the preparation and delivery of any prospectus required for
use nine (9) months or more after the effective date of the
Registration Statement shall be borne by the Underwriters required to
deliver such prospectus.
(e) The Company will make generally available to its
stockholders as soon as practicable, but not later than fifteen (15)
months after the effective date of the Registration Statement, an
earnings statement which will be in reasonable detail (but which need
not be audited) and which will comply with Section 11(a) of the
Securities Act, covering a period of at least twelve (12) months
beginning after the "effective date" (as defined in Rule 158 under the
Securities Act) of the Registration Statement.
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(f) The Company will cooperate with the Representatives to
enable the Stock to be registered or qualified for offering and sale by
the Underwriters and by dealers under the securities laws of such
jurisdictions as the Representatives may designate and at the request
of the Representatives will make such applications and furnish such
consents to service of process or other documents as may be required of
it as the issuer of the Stock for that purpose; provided, however, that
the Company shall not be required to qualify to do business or to file
a general consent (other than that arising out of the offering or sale
of the Stock) to service of process in any such jurisdiction where it
is not now so subject. The Company will, from time to time, prepare and
file such statements and reports as are or may be required of it as the
issuer of the Stock to continue such qualifications in effect for so
long a period as the Representatives may reasonably request for the
distribution of the Stock. The Company will advise the Representatives
promptly after the Company becomes aware of the suspension of the
qualifications or registration of (or any such exception relating to)
the Common Stock of the Company for offering, sale or trading in any
jurisdiction or of any initiation or threat of any proceeding for any
such purpose, and in the event of the issuance of any orders suspending
such qualifications, registration or exception, the Company will, with
the cooperation of the Representatives, use its best efforts to obtain
the withdrawal thereof.
(g) As and when required by the Rules and Regulations, the
Company will furnish to its stockholders annual reports containing
financial statements certified by independent public accountants.
During the period of five (5) years from the date hereof, the Company
will deliver to the Representatives and, upon request, to each of the
other Underwriters, as soon as they are available, copies of each
annual report of the Company and each other report furnished by the
Company to its stockholders and will deliver to the Representatives,
(i) as soon as they are available, copies of any other reports
(financial or other) which the Company shall publish or otherwise make
available to any of its stockholders as such and (ii) as soon as they
are available, copies of any reports and financial
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statements furnished to or filed with the Commission or any national
securities exchange or the NASD. So long as the Company has active
subsidiaries, such financial statements will be on a consolidated basis
to the extent the accounts of the Company and its subsidiaries are
consolidated in reports furnished to its stockholders generally.
Separate financial statements shall be furnished for all subsidiaries
whose accounts are not consolidated but which at the time are
significant subsidiaries as defined in the Rules and Regulations.
(h) The Company will use its best efforts to maintain the
inclusion of the Stock on the Nasdaq National Market (or on a national
securities exchange) for a period of five (5) years after the effective
date of the Registration Statement.
(i) The Company will maintain a transfer agent and registrar for
its Common Stock.
(j) The Company will not (i) directly or indirectly, offer,
sell, assign, transfer, encumber, pledge, contract to sell, grant an
option to purchase or otherwise dispose of, other than by operation of
law, any shares of Common Stock or (ii) enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of the Common Stock, whether any
such transaction described in clauses (i) or (ii) above is to be
settled by delivery of Common Stock or such other securities, in cash
or otherwise during the 180 days following the date on which the price
of the Common Stock to be purchased by the Underwriters is set, other
than (A) the Company's sale of Common Stock hereunder, (B) the issuance
by the Company of shares of Common Stock upon the exercise of an option
or warrant or the conversion of a security outstanding on the date
hereof of which the Underwriters have been advised in writing and (C)
the issuance by the Company of any option to purchase any shares of
Common Stock pursuant to its Stock Option Plan described in the
Prospectus.
(k) Prior to filing with the Commission any reports on Form SR
pursuant to Rule 463 of Rules and Regulations, the Company will furnish
a
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copy thereof to the counsel for the Underwriters and receive and
consider its comments thereon, and will deliver promptly to the
Representatives a signed copy of each report on Form SR filed by it
with the Commission.
(l) The Company will apply the net proceeds from the sale of the
Stock as set forth in the description under "Use of Proceeds" in the
Prospectus, which description complies in all respects with the
requirements of Item 504 of Regulation S-K.
(m) The Company will supply you with copies of all
correspondence to and from, and all documents issued to and by, the
Commission in connection with the registration of the Stock under the
Securities Act.
(n) Prior to the Closing Date the Company will issue no press
release or other communications directly or indirectly and hold no
press conference with respect to the Company or any of its
subsidiaries, the financial condition, results of operation, business,
prospects, assets or liabilities of any of them, or the offering of the
Stock, without your prior written consent. (o) ________ During the
period of five (5) years hereafter, the Company will furnish to the
Representatives and, upon request of the Representatives to each of the
Underwriters, as soon as available, copies of any report or
communication of the Company mailed generally to holders of its Common
Stock.
(p) The Company will use its best efforts to do and perform all
things required or necessary to be done and performed under this
Agreement by the Company prior to the Closing Date and to satisfy all
conditions precedent to the delivery of the Firm Stock.
5. PAYMENT OF EXPENSES. (a) The Company will pay (directly or by
reimbursement) the following costs, fees and expenses and all other costs, fees
and expenses incident to the performance of the obligations of the Company under
this Agreement: (i) all expenses and taxes incident to the issuance and delivery
of the Stock to the Representatives; (ii) all expenses incident to the
registration of the Stock under the Securities Act; (iii) the costs of preparing
stock
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certificates (including printing and engraving costs); (iv) all fees and
expenses of the registrar and transfer agent of the Stock; (v) all necessary
issue, transfer and other stamp taxes in connection with the issuance and sale
of the Stock to the Underwriters; (vi) fees and expenses of the Company's
counsel and the Company's independent accountants; (vii) all costs and expenses
incurred in connection with the preparation, printing, filing, shipping and
distribution of the Registration Statement, each Preeffective Prospectus and the
Prospectus (including all exhibits and financial statements) and all amendments
and supplements provided for herein and the Blue Sky memoranda and this
Agreement; (viii) all filing fees, attorneys' fees and expenses incurred by the
Company or the Underwriters in connection with exemptions from the qualifying or
registering (or obtaining qualification or registration of) all or any part of
the Stock for offer and sale under the Blue Sky or other securities laws of such
jurisdictions as the Representatives may designate; (ix) all fees and expenses
paid or incurred in connection with filings made with the NASD; and (x) all
other costs and expenses incident to the performance of the Company's
obligations hereunder which are not otherwise specifically provided for in this
Section.
6. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees to
indemnify and hold harmless each Underwriter and each person, if any, who
controls such Underwriter within the meaning of the Securities Act and the
respective officers, directors, partners, employees, representatives and agents
of each of such Underwriter (collectively, the "Underwriter Indemnified Parties"
and, each, an "Underwriter Indemnified Party"), against any losses, claims,
damages, liabilities or expenses (including (i) the reasonable cost of
investigating and (ii) defending against any claims therefor and counsel fees
incurred in connection therewith, unless the Company is entitled and elects to
assume the defense as contemplated in this subsection (a) and the Company has
not authorized the Underwriter Indemnified Party to retain additional counsel as
contemplated in this subsection (a)), joint or several, which may be based upon
the Securities Act, or any other statute or at common law, on the ground or
alleged ground that any Preeffective Prospectus, the Registration Statement or
the Prospectus (or any Preeffective Prospectus, the Registration Statement or
the Prospectus as from time to time amended or supplemented) includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, unless
such statement or omission was made in reliance upon,
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and in conformity with, written information furnished to the Company by any
Underwriter, directly or through the Representatives, specifically for use in
the preparation thereof; provided, that with respect to any untrue statement or
omission or alleged untrue statement or omission made in any Registration
Statement, the indemnity agreement contained in this subsection (a) shall not
inure to the benefit of any Underwriter Indemnified Party from whom the person
asserting any such losses, claims, damages or liabilities purchased the shares
of Common Stock concerned to the extent that any such loss, claim, damage or
liability of such Underwriter Indemnified Party results from the fact that a
copy of the Prospectus was not sent or given to such person at or prior to the
written confirmation of the sale of such shares of Common Stock to such person
as required by the Securities Act and if the untrue statement or omission
concerned has been corrected in the Prospectus; provided, however, that in no
case is the Company to be liable with respect to any claims made against any
Underwriter Indemnified Party against whom the action is brought unless such
Underwriter Indemnified Party shall have notified the Company in writing within
a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon the
Underwriter Indemnified Party, but failure to notify the Company of such claim
shall not relieve it from any liability which it may have to any Underwriter
Indemnified Party otherwise than on account of its indemnity agreement contained
in this paragraph. The Company will be entitled to participate at its own
expense in the defense or, if it so elects, to assume the defense of any suit
brought to enforce any such liability, but if the Company elects to assume the
defense, such defense shall be conducted by counsel chosen by it. In the event
the Company elects to assume the defense of any such suit and retain such
counsel, any Underwriter Indemnified Parties, defendant or defendants in the
suit, may retain additional counsel but shall bear the fees and expenses of such
counsel unless (i) the Company shall have specifically authorized the retaining
of such counsel or (ii) the parties to such suit include any such Underwriter
Indemnified Parties and the Company and such Underwriter Indemnified Parties at
law or in equity have been advised by counsel to the Underwriters that one or
more legal defenses may be available to it or them which may not be available to
the Company, in which case the Company shall not be entitled to assume the
defense of such suit notwithstanding its obligation to bear the fees and
expenses of such counsel. The Company shall not be liable to indemnify any
person for any settlement of any such claim effected without the Company's
consent. This indemnity agreement is not exclusive and will be in addition to
any liability which the Company might otherwise have and shall not limit any
rights or remedies which may otherwise be available at law or in equity to each
Underwriter Indemnified Party.
(b) Each Underwriter severally and not jointly agrees to
indemnify and hold harmless the Company, each of its directors, each of
its officers who have signed the Registration Statement and each
person, if any, who controls the Company within the meaning of the
Securities Act (collectively, the "Company Indemnified Parties")
against any losses, claims, damages, liabilities or expenses
(including, unless the Underwriter or Underwriters elect to assume the
defense, the reasonable cost of investigating and defending against any
claims therefor and counsel fees incurred in connection therewith),
joint or several, which arise out of or are based in whole or in part
upon the
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Securities Act, the Exchange Act or any other federal, state, local or
foreign statute or regulation, or at common law, on the ground or
alleged ground that any Preeffective Prospectus, the Registration
Statement or the Prospectus (or any Preeffective Prospectus, the
Registration Statement or the Prospectus, as from time to time amended
and supplemented) includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances in which they were made, not misleading, but only insofar
as any such statement or omission was made in reliance upon, and in
conformity with, written information furnished to the Company by such
Underwriter, directly or through the Representatives, specifically for
use in the preparation thereof; provided, however, that in no case is
such Underwriter to be liable with respect to any claims made against
any Company Indemnified Party against whom the action is brought unless
such Company Indemnified Party shall have notified such Underwriter in
writing within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been
served upon the Company Indemnified Party, but failure to notify such
Underwriter of such claim shall not relieve it from any liability which
it may have to any Company Indemnified Party otherwise than on account
of its indemnity agreement contained in this paragraph. Such
Underwriter shall be entitled to participate at its own expense in the
defense, or, if it so elects, to assume the defense of any suit brought
to enforce any such liability, but, if such Underwriter elects to
assume the defense, such defense shall be conducted by counsel chosen
by it. In the event that any Underwriter elects to assume the defense
of any such suit and retain such counsel, the Company Indemnified
Parties and any other Underwriter or Underwriters or controlling person
or persons, defendant or defendants in the suit, shall bear the fees
and expenses of any additional counsel retained by them, respectively
unless (i) the Underwriter shall have specifically authorized in
writing the retaining of such counsel or (ii) the parties to such suit
include the Company and the Underwriters and the Company at law or in
equity has been advised by counsel to the Company that one or more
defenses may be available to it which may not be available to the
Underwriters, in which case the Underwriters shall not be entitled to
assume the defense of such suit notwithstanding its obligation to bear
fees and expenses of such counsel. The Underwriter against whom
indemnity may be sought shall not be liable to indemnify any person for
any settlement of any such claim effected without such Underwriter's
consent. This indemnity agreement is not exclusive and will be in
addition to any liability which such Underwriter might otherwise have
and shall not limit any rights or remedies which may otherwise be
available at law or in equity to any Company Indemnified Party.
(c) If the indemnification provided for in this Section 6 is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages,
liabilities or expenses (or actions in respect thereof) referred to
herein,
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<PAGE>
then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) in
such proportion as is appropriate to reflect the relative benefits
received by the Company on the one hand and the Underwriters on the
other from the offering of the Stock. If, however, the allocation
provided by the immediately preceding sentence is not permitted by
applicable law, then each indemnifying party shall contribute to such
amount paid or payable by such indemnified party in such proportion as
is appropriate to reflect not only such relative benefits but also the
relative fault of the Company on the one hand and the Underwriters on
the other in connection with the statements or omissions which resulted
in such losses, claims, damages, liabilities or expenses (or actions in
respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company on the
one hand and the Underwriters on the other shall be deemed to be in the
same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company bear to the total
underwriting discounts and commissions received by the Underwriters, in
each case as set forth in the table on the cover page of the
Prospectus. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material
fact relates to information supplied by the Company or the Underwriters
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The
Company and the Underwriters agree that it would not be just and
equitable if contribution were determined by pro rata allocation (even
if the Underwriters were treated as one entity for such purpose) or by
any other method of allocation which does not take account of the
equitable considerations referred to above. The amount paid or payable
by an indemnified party as a result of the losses, claims, damages,
liabilities or expenses (or actions in respect thereof) referred to
above shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating,
defending, settling or compromising any such claim. Notwithstanding the
provisions of this subsection (c), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price
at which the shares of the Stock underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages
which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged
omission. The Underwriters' obligations to contribute are several in
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<PAGE>
proportion to their respective underwriting obligations and not joint.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent
misrepresentation.
7. SURVIVAL OF INDEMNITIES, REPRESENTATIONS, WARRANTIES ETC. The
respective indemnities, covenants, agreements, representations, warranties and
other statements of the Company and the several Underwriters, as set forth in
this Agreement or made by them respectively, pursuant to this Agreement, shall
remain in full force and effect, regardless of any investigation made by or on
behalf of any Underwriter, the Company or any of its officers or directors or
any controlling person, and shall survive delivery of and payment for the Stock.
8. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The respective obligations
of the several Underwriters hereunder shall be subject to the satisfaction of
each of the following conditions:
(a) All the representations and warranties of the Company shall
be true and correct on the Closing Date with the same force and effect
as if made on and as of the Closing Date.
(b) The Registration Statement shall have become effective and
no stop order suspending the effectiveness thereof shall have been
issued and no proceedings for that purpose shall have been initiated
or, to the knowledge of the Company or the Representatives, shall be
threatened by the Commission, and any request for additional
information on the part of the Commission (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been
complied with to the reasonable satisfaction of the Representatives.
Any filings of the Prospectus, or any supplement thereto, required
pursuant to Rule 424(b) or Rule 434 of the Rules and Regulations, shall
have been made in the manner and within the time period required by
Rule 424(b) and Rule 434 of the Rules and Regulations, as the case may
be.
(c) The Representatives shall have been satisfied that there
shall not have occurred any change, or any development involving a
prospective change, on a consolidated basis, prior to the
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<PAGE>
Closing Date in the condition (financial or otherwise), properties,
business, management, net worth or results of operations of the Company
and its subsidiaries considered as a whole, or any change in the
capital stock, short-term or long-term debt of the Company and its
subsidiaries considered as a whole, such that (i) the Registration
Statement or the Prospectus, or any amendment or supplement thereto,
contains an untrue statement of fact which, in the opinion of the
Representatives, is material, or omits to state a fact which, in the
opinion of the Representatives, is required to be stated therein or is
necessary to make the statements therein not misleading, or (ii) it is
unpracticable in the reasonable judgment of the Representatives to
proceed with the public offering or purchase the Stock as contemplated
hereby.
(d) The Representatives shall be satisfied that no legal or
governmental action, suit or proceeding affecting the Company which is
material and adverse to the Company or which affects or may affect the
Company's ability to perform its respective obligations under this
Agreement shall have been instituted or threatened and there shall have
occurred no material adverse development in any existing such action,
suit or proceeding.
(e) At the time of execution of this Agreement, the
Representatives shall have received from Arthur Andersen LLP,
independent certified public accountants, a letter, dated the date
hereof, in form and substance satisfactory to the Underwriters.
(f) The Representatives shall have received from Arthur Andersen
LLP, independent certified public accountants, a letter, dated the
Closing Date, to the effect that such accountants reaffirm, as of the
Closing Date, and as though made on the Closing Date, the statements
made in the letter furnished by such accountants pursuant to paragraph
(e) of this Section 8.
(g) The Representatives shall have received from Holland &
Knight, counsel for the Company, an opinion, dated the Closing Date, to
the effect that:
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(i) the Company has and each of its subsidiaries has been
duly incorporated and is validly existing and in active status
under Florida law, with power and authority (corporate and
other) to own or lease its properties and conduct its business
as described in the Prospectus;
(ii) the Company is and each of its subsidiaries is duly
qualified to do business and in good standing as a foreign
corporation in all other jurisdictions where its ownership or
leasing of properties or the conduct of its business requires
such qualification, except where the failure to so register
would not singly or in the aggregate, have a material adverse
effect on the Company's operations;
(iii) all of the outstanding shares of capital stock of, or
other ownership interests in each subsidiary of the Company have
been duly and validly authorized and issued and are fully paid
and nonassessable, and are owned by the Company, free and clear
of any security interest, claim, lien, encumbrance or adverse
interest of any nature;
(iv) the Company has authorized and outstanding capital
stock as set forth under the heading "Capitalization" in the
Prospectus; the outstanding shares of Common Stock of the
Company conform to the description thereof in the Prospectus
in all material respects; and all of the outstanding shares of
capital stock of the Company have been duly authorized and
validly issued and fully paid and nonassessable and not subject
to any preemptive or similar rights;
(v) the shares of Common Stock to be issued and sold
hereunder have been duly authorized, and when issued and
delivered to the Underwriters against payment therefor as
provided by this Agreement, will have been validly issued and
will be fully paid and nonassessable, and the issuance of such
Common Stock is not subject to any preemptive or similar rights;
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<PAGE>
(vi) this Agreement has been duly authorized, executed and
delivered by the Company and is a valid and binding agreement of
the Company;
(vii) Based solely on telephonic, verbal confirmation
provided to such counsel by the staff of the Commission, the
Registration Statement has become effective under the Securities
Act, and, to such counsel's knowledge, no stop order suspending
its effectiveness has been issued and no proceedings for the
purpose are pending before or contemplated by the Commission;
(viii) the statements under the captions "Risk Factors",
"Business Collaboration with Fuisz Technologies Ltd.", "Business
- Sponsored Research", "Business Government Regulation",
"Management - Executive Compensation - Confidentiality and
Intellectual Property Agreements", "Management - Executive
Compensation - Employee Agreements", "Management - Employee
Benefit Plans", "Certain Transactions", "Description of Capital
Stock", "Shares Eligible for Future Sale" in the Prospectus and
Items 14 and 15 in the Registration Statement in each case
insofar as such statements constitute summaries of the legal
matters or documents referred to therein, fairly present in all
material respects the information called for with respect to
such legal matters;
(ix) the execution, delivery and performance of this
Agreement by the Company, compliance by the Company with all the
provisions hereof and the consummation of the transactions
contemplated hereby will not require any consent, approval,
authorization or other order of any court, regulatory body,
administrative agency or other governmental body (except such as
may be required by the NASD or under the Securities Act or other
securities or Blue Sky laws) and will not conflict with or
constitute a breach of any of the terms or provisions of, or a
default under, the articles of incorporation or by-laws of the
Company or any of its subsidiaries or, to the best of such
counsel's knowledge, any agreement, indenture or
30
<PAGE>
other instrument to which the Company or any of its subsidiaries
or their respective properties are bound, or, to the best of
such counsel's knowledge, violate or conflict with any laws,
administrative regulations or rulings or court decrees
applicable to the Company or any of its subsidiaries or their
respective properties;
(x) such counsel does not know of any legal or governmental
proceeding pending or threatened to which the Company or any of
its subsidiaries is a party or to which any of their respective
property is subject which is required to be described in the
Registration Statement or the Prospectus and is not so
described, or of any contract or other document which is
required to be described in the Registration Statement or the
Prospectus or is required to be filed as an exhibit to the
Registration Statement which is not described or filed as
required;
(xi) neither the Company nor any of its subsidiaries is, nor
will be immediately after receiving the proceeds from the sale
of the Stock, an "investment company" or an entity "controlled"
by an "investment company" as such terms are defined in the
Investment Company Act of 1940, as amended;
(xii) such counsel does not know of any holder of any
security of the Company that has any right to require
registration of shares of Common Stock or any other security of
the Company except as described in the Registration Statement;
(xiii) the Registration Statement and the Prospectus and any
amendments or supplements (except for financial statements and
schedules and other financial and statistical data included
therein as to which such counsel does not express any opinion)
thereto comply as to form in all material respects with the
requirements of the Securities Act and the Rules and
Regulations;
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<PAGE>
(xiv) the Company has complied with all provisions of
Section 517.075 of the Florida Statutes (Chapter 92-198; Laws of
Florida);
In addition to the matters set forth above, such opinion shall also
include a statement to the effect that nothing has come to the
attention of such counsel which leads it to believe that the
Registration Statement, as of the time it becomes effective under the
Securities Act, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or that the
Prospectus or any amendment or supplement thereto, on the date it was
filed pursuant to Rule 424(b) and the Registration Statement and the
Prospectus, or any amendment or supplement thereto, as of the First
Closing Date, or any Option Closing Date, as the case may be, contains
an untrue statement of material fact or omits to state a material fact
required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they are made,
not misleading. With respect to such statement, counsel may state that
their belief is based upon procedures set forth therein, but is without
independent check and verification.
In rendering such opinion such counsel may assume that the laws
of the State of New York governing this Agreement are the same as the
laws of the State of Florida.
(h) The Representatives shall have received from Davis Polk &
Wardwell, counsel for the Underwriters, their opinion dated the Closing
Date with respect to the incorporation of the Company, the validity of
the Stock, the Registration Statement and the Prospectus and such other
related matters as it may reasonably request, and the Company shall
have furnished to such counsel such documents as they may request for
the purpose of enabling them to pass upon such matters.
(i) The Representatives shall have received on the Closing Date an
opinion of Holland
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<PAGE>
& Knight, patent counsel for the Company, dated the Closing Date, to
the effect that:
(i) the statements in the Prospectus under the headings
"Risk Factors- Patents and Trademarks; Interference" and in the
first, second, third and fifth paragraphs under "Business-
Patents and Proprietary Rights" constitute an accurate summary
of the matters referred to therein and fairly present the
information called for with respect to such matters;
(ii) other than as disclosed in the Prospectus, to the best
of such counsel's knowledge, there are no legal or governmental
proceedings pending relating to patents or proprietary
information rights to which the Company is a party or to which
any patents or proprietary information rights of the Company is
subject, and no such proceedings are threatened or contemplated
by governmental authorities or others;
(iii) based on the information brought to such counsel's
attention by the Company with respect to the Company's
investigation, if any, of the published literature and patent
references relating to the inventions claimed in its patent
application, Serial No. 08-368,378 (the "Application"), such
counsel disclosed all references known to it to the Patent and
Trademark Office in accordance with 37 C.F.R. Section 1.56; to
the best of such counsel's knowledge, all information submitted
to the U.S. Patent and Trademark Office in the Application, and
in connection with the prosecution of the Application, was
accurate; neither such counsel nor to the best of its knowledge,
the Company, made any misrepresentation or concealed any
material information from the Patent and Trademark Office in the
Application, or in connection with the prosecution of such
applications in violation of 37 C.F.R. Section 1.56;
(iv) other than as disclosed in the Prospectus, such counsel
is unaware of any basis for a finding that the Company does not
33
<PAGE>
have clear title or valid license rights to the patents or
patent applications referenced in the Prospectus, and such
counsel has not identified any basis for a finding of
unenforceability or invalidity of any patents or proprietary
information rights of the Company; and
(v) other than as disclosed in the Prospectus and based upon
a review of the third party rights made known to such counsel
and discussions with Company scientific personnel, such counsel
is not aware of any valid United States or foreign patent that
is or would be infringed by the activities of the Company in the
manufacture, use or sale of Niaspan, as described in the
Prospectus.
(j) The Representatives shall have received an opinion of Cooper
& Dunham, patent counsel for the Underwriters, dated the Closing Date,
to the effect that the Underwriters will reasonably rely on the opinion
delivered to the Underwriters pursuant to paragraph (i) above.
(k) The Representatives shall have received a certificate, dated
the Closing Date, signed by Daniel M. Bell, in his capacity as the
President and Chief Executive Officer, to the effect that:
(i) No stop order suspending the effectiveness of the
Registration Statement has been issued, and, to the best of the
knowledge of the signers, no proceedings for that purpose have
been instituted or are pending or contemplated under the
Securities Act;
(ii) Neither any Preeffective Prospectus, as of its date,
nor the Registration Statement nor the Prospectus, nor any
amendment or supplement thereto, as of the time when the
Registration Statement became effective and at all times
subsequent thereto up to the delivery of such certificate,
included any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or
necessary to make the statements therein,
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<PAGE>
in light of the circumstances under which they were made, not
misleading;
(iii) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, and except as set forth or contemplated in the
Prospectus, neither the Company nor any of its subsidiaries has
incurred any material liabilities or obligations, direct or
contingent, nor entered into any material transactions not in
the ordinary course of business and there has not been any
material adverse change in the condition (financial or
otherwise), properties, business, management, prospects, net
worth or results of operations of the Company and its
subsidiaries considered as a whole, or any change in the capital
stock, short-term or long-term debt of the Company and its
subsidiaries considered as a whole;
(iv) The representations and warranties of the Company in
this Agreement are true and correct at and as of the Closing
Date, and the Company has complied with all the agreements and
performed or satisfied all the conditions on its part to be
performed or satisfied at or prior to the Closing Date; and
(v) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, and
except as disclosed in or contemplated by the Prospectus, (i)
there has not been any material adverse change or a development
involving a material adverse change in the condition (financial
or otherwise), properties, business, management, prospects, net
worth or results of operations of the Company and its
subsidiaries considered as a whole; (ii) the business and
operations conducted by the Company and its subsidiaries have
not sustained a loss by strike, fire, flood, accident or other
calamity (whether or not insured) of such a character as to
interfere materially with the conduct of the business and
operations of the Company and its subsidiaries considered as a
whole; (iii) no legal or governmental action, suit or
35
<PAGE>
proceeding is pending or threatened against the Company which is
material to the Company, whether or not arising from
transactions in the ordinary course of business, or which may
materially and adversely affect the transactions contemplated by
this Agreement; (iv) since such dates and except as so
disclosed, the Company has not incurred any material liability
or obligation, direct, contingent or indirect, made any change
in its capital stock (except pursuant to its stock plans), made
any material change in its short-term or funded debt or
repurchased or otherwise acquired any of the Company's capital
stock; and (v) the Company has not declared or paid any
dividend, or made any other distribution, upon its outstanding
capital stock payable to stockholders of record on a date prior
to the Closing Date.
(l) The Company shall have furnished to the Representatives such
additional certificates as the Representatives may have reasonably
requested as to the accuracy, at and as of the Closing Date, of the
representations and warranties made herein by it and as to compliance
at and as of the Closing Date by it with its covenants and agreements
herein contained and other provisions hereof to be satisfied at or
prior to the Closing Date, and as to satisfaction of the other
conditions to the obligations of the Underwriters hereunder.
(m) The Company shall have delivered to the Representatives the
agreements specified in Section 3 hereof.
The several obligations of the Underwriters to purchase any Optional
Stock hereunder are subject to delivery to the Representatives on the Option
Closing Date of such documents as the Representatives may reasonably request
with respect to the good standing of the Company, the due authorization and
issuance of such Optional Stock and other matters related to the issuance of
such Optional Stock.
All opinions, certificates, letters and other documents will be in
compliance with the provisions hereunder only if they are satisfactory in form
and substance to the Representatives. The Company will furnish to the
Representatives conformed copies of such opinions,
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<PAGE>
certificates, letters and other documents as the Representatives shall
reasonably request. If any of the conditions hereinabove provided for in this
Section shall not have been satisfied when and as required by this Agreement,
this Agreement may be terminated by the Representatives by notifying the Company
of such termination in writing or by telegram at or prior to the Closing Date,
but Cowen shall be entitled to waive any of such conditions.
9. EFFECTIVE DATE. This Agreement shall become effective immediately as
to Sections 5, 6, 7, 9, 10, 11, 13, 14, 15, 16, 17 and 18 and, as to all other
provisions, at 11:00 a.m. New York City time on the first full business day
following the effectiveness of the Registration Statement or at such earlier
time after the Registration Statement becomes effective as the Representatives
may determine on and by notice to the Company or by release of any of the Stock
for sale to the public. For the purposes of this Section 9, the Stock shall be
deemed to have been so released upon the release for publication of any
newspaper advertisement relating to the Stock or upon the release by you of
telegrams (i) advising Underwriters that the shares of Stock are released for
public offering or (ii) offering the Stock for sale to securities dealers,
whichever may occur first.
10. TERMINATION. This Agreement (except for the provisions of Section
5) may be terminated by the Company at any time before it becomes effective in
accordance with Section 9 by notice to the Representatives and may be terminated
by the Representatives at any time before it becomes effective in accordance
with Section 9 by notice to the Company. In the event of any termination of this
Agreement under this or any other provision of this Agreement, there shall be no
liability of any party to this Agreement to any other party, other than as
provided in Sections 5, 6 and 11 and other than as provided in Section 12 as to
the liability of defaulting Underwriters.
This Agreement may be terminated after it becomes effective by the
Representatives by notice to the Company (i) if at or prior to the Closing Date
trading in securities on any of the New York Stock Exchange, American Stock
Exchange or the Nasdaq National Market shall have been suspended or minimum or
maximum prices shall have been established on any such exchange or market, or a
banking moratorium shall have been declared by New York or United States
authorities; (ii) trading of any securities of the Company shall have been
suspended on any exchange or in any over-the-counter market; (iii) if at or
prior to the Closing Date there shall have been (A) an outbreak or escalation of
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<PAGE>
hostilities between the United States and any foreign power or of any other
insurrection or armed conflict involving the United States or (B) any change in
financial markets or any calamity or crisis which, in the judgment of the
Representatives, makes it impractical or inadvisable to offer or sell the Stock
on the terms contemplated by the Prospectus; (iv) if there shall have been any
development or prospective development involving particularly the business or
properties or securities of the Company or any of its subsidiaries or the
transactions contemplated by this Agreement, which, in the judgment of the
Representatives, makes it impracticable or inadvisable to offer or deliver the
Stock on the terms contemplated by the Prospectus; (v) if there shall be any
litigation or proceeding, pending or threatened, which, in the judgment of the
Representatives, makes it impracticable or inadvisable to offer or deliver the
Stock on the terms contemplated by the Prospectus; or (vi) if there shall have
occurred any of the events specified in the immediately preceding clauses
(i)-(v) together with any other such event that makes it, in the judgment of the
Representatives, impractical or inadvisable to offer or deliver the Stock on the
terms contemplated by the Prospectus.
11. REIMBURSEMENT OF UNDERWRITERS. Notwithstanding any other provisions
hereof, if this Agreement shall not become effective by reason of any election
of the Company pursuant to the first paragraph of Section 10 or shall be
terminated by the Representatives by reason of any failure or refusal on the
part of the Company to comply with the terms or to fulfill any of the conditions
of this Agreement, the Company will bear and pay the expenses specified in
Section 5 hereof and, in addition to the obligations of the Company pursuant to
Section 6 hereof, the Company will reimburse the reasonable out-of-pocket
expenses of the several Underwriters (including reasonable fees and
disbursements of counsel for the Underwriters) incurred in connection with this
Agreement and the proposed purchase of the Stock, and promptly upon demand the
Company will pay such amounts to you as Representatives.
12. SUBSTITUTION OF UNDERWRITERS. If any Underwriter or Underwriters
shall default in its or their obligations to purchase shares of Stock hereunder
and the aggregate number of shares which such defaulting Underwriter or
Underwriters agreed but failed to purchase does not exceed ten percent (10%) of
the total number of shares underwritten, the other Underwriters shall be
obligated severally, in proportion to their respective commitments hereunder, to
purchase the shares which such defaulting Underwriter or Underwriters agreed but
failed to purchase.
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<PAGE>
If any Underwriter or Underwriters shall so default and the aggregate number of
shares with respect to which such default or defaults occur is more than ten
percent (10%) of the total number of shares underwritten and arrangements
satisfactory to the Representatives and the Company for the purchase of such
shares by other persons are not made within forty-eight (48) hours after such
default, this Agreement shall terminate.
If the remaining Underwriters or substituted Underwriters are required
hereby or agree to take up all or part of the shares of Stock of a defaulting
Underwriter or Underwriters as provided in this Section 12, (i) the Company
shall have the right to postpone the Closing Date for a period of not more than
five (5) full business days in order that the Company may effect whatever
changes may thereby be made necessary in the Registration Statement or the
Prospectus, or in any other documents or arrangements, and the Company agrees
promptly to file any amendments to the Registration Statement or supplements to
the Prospectus which may thereby be made necessary, and (ii) the respective
numbers of shares to be purchased by the remaining Underwriters or substituted
Underwriters shall be taken as the basis of their underwriting obligation for
all purposes of this Agreement. Nothing herein contained shall relieve any
defaulting Underwriter of its liability to the Company or the other Underwriters
for damages occasioned by its default hereunder. Any termination of this
Agreement pursuant to this Section 12 shall be without liability on the part of
any non-defaulting Underwriter or the Company, except for expenses to be paid or
reimbursed pursuant to Section 5 and except for the provisions of Section 6.
13. [THIS SECTION INTENTIONALLY LEFT BLANK]
14. NOTICES. All communications hereunder shall be in writing and, if
sent to the Underwriters shall be mailed, delivered or telegraphed and confirmed
to you, as their Representatives, c/o Cowen & Company at Financial Square, New
York, New York 10005 except that notices given to an Underwriter pursuant to
Section 6 hereof shall be sent to such Underwriter at the address furnished by
the Representatives or, if sent to the Company, shall be mailed, delivered or
telegraphed and confirmed to Kos Pharmaceuticals, 1001 South Bayshore Drive,
Suite 2502, Miami, Florida 33131, copy to: Holland & Knight, One East Broward
Boulevard, Suite 1300, Fort Lauderdale, Florida 33301, Attn: Steven Sonberg,
Esq.
15. SUCCESSORS. This Agreement shall inure to the benefit of and be
binding upon the several Underwriters,
39
<PAGE>
the Company and their respective successors and legal representatives. Nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any person other than the persons mentioned in the preceding sentence any
legal or equitable right, remedy or claim under or in respect of this Agreement,
or any provisions herein contained, this Agreement and all conditions and
provisions hereof being intended to be and being for the sole and exclusive
benefit of such persons and for the benefit of no other person; except that the
representations, warranties, covenants, agreements and indemnities of the
Company contained in this Agreement shall also be for the benefit of the person
or persons, if any, who control any Underwriter or Underwriters within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act,
and the indemnities of the several Underwriters shall also be for the benefit of
each director of the Company, each of its officers who has signed the
Registration Statement and the person or persons, if any, who control the
Company within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act.
16. APPLICABLE LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York.
17. AUTHORITY OF THE REPRESENTATIVES. In connection with this
Agreement, you will act for and on behalf of the several Underwriters.
18. PARTIAL UNENFORCEABILITY. The invalidity or unenforceability of any
Section, paragraph or provision of this Agreement shall not affect the validity
or enforceability of any other Section, paragraph or provision hereof. If any
Section, paragraph or provision of this Agreement is for any reason determined
to be invalid or unenforceable, there shall be deemed to be made such minor
changes (and only such minor changes) as are necessary to make it valid and
enforceable.
19. GENERAL. This Agreement constitutes the entire agreement of the
parties to this Agreement and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations with respect to
the subject matter hereof.
In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This
40
<PAGE>
Agreement may be amended or modified, and the observance of any term of this
Agreement may be waived, only by a writing signed by the Company.
20. COUNTERPARTS. This Agreement may be signed in two (2) or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter and your acceptance shall constitute a binding agreement
between us.
Very truly yours,
KOS PHARMACEUTICALS, INC.
By:_______________________
Name:
Title:
Accepted and delivered in
as of the
date first above written.
COWEN & COMPANY
DILLON, READ & CO. INC.
SALOMON BROTHERS INC
Acting on their own behalf and as Representatives of the several Underwriters
referred to in the foregoing Agreement.
By: Cowen Incorporated,
its general partner
By:_____________________
Title:
41
<PAGE>
SCHEDULE A
NAME NUMBER NUMBER OF
OF FIRM OPTIONAL
SHARES SHARES
TO BE TO BE
PURCHASED PURCHASED
--------- ---------
Cowen & Company............................
Dillon, Read & Co. Inc.....................
Salomon Brothers Inc.......................
---------- ---------
Total...............................................
========== =========
<PAGE>
SCHEDULE B
REQUIRED LOCK-UPS
Michael Jaharis
Kos Holdings, Inc.
Kos Investments, Inc.
EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
KOS PHARMACEUTICALS, INC.
In accordance with Section 607.1007 of the Florida Statutes, the
Articles of Incorporation of KOS PHARMACEUTICALS, INC., a Florida corporation
(the "Corporation"), are hereby amended and restated (the "Amended and Restated
Articles") to read in their entirety as follows:
ARTICLE I - NAME
The name of the Corporation is Kos Pharmaceuticals, Inc.
ARTICLE II - ADDRESS
The mailing address for the Corporation is 1001 Brickell Bay Drive,
Suite 2502, Miami, Florida 33131.
ARTICLE III - DURATION
The duration of the Corporation shall be perpetual.
ARTICLE IV - PURPOSE
The Corporation is organized to engage in any activity or business
permitted under the laws of the United States and the State of Florida.
ARTICLE V - INCORPORATOR
The name and address of the incorporator of this Corporation is Daniel
M. Bell, 1001 South Bayshore Drive, Suite 2502, Miami, Florida 33131.
ARTICLE VI - REGISTERED OFFICE AND AGENT
The address of the registered office of the Corporation is 1001 South
Bayshore Drive, Suite 2502, Miami, Florida 33131, and the name of the registered
agent of the Corporation at such address is Daniel M. Bell.
ARTICLE VII - CAPITAL STOCK
The total number of shares of all classes of capital stock of the
Corporation which the Corporation shall have the authority to issue is
60,000,000, of which 50,000,000 shares having a par value of $.01 per share
shall be designated as Common Stock and 10,000,000 shares having a par value of
$.01 per share shall be designated as Preferred Stock.
<PAGE>
Shares of Preferred Stock may be issued from time to time in one or
more series. The Board of Directors is authorized to fix the number of shares in
each series, the designation thereof and the relative rights, preferences and
limitations of each series, and specifically, the Board of Directors is
authorized to fix with respect to each series (a) the dividend rate; (b)
redeemable features, if any; (c) rights upon liquidation; (d) whether or not the
shares of such series shall be subject to a purchase, retirement or sinking fund
provision; (e) whether or not the shares of such series shall be convertible
into or exchangeable for shares of any other class and, if so, the rate of
conversion or exchange; (f) restrictions, if any, upon the payment of dividends
on common stock; (g) restrictions, if any, upon the creation of indebtedness;
(h) voting powers, if any, of the shares of each series; and (i) such other
rights, preferences and limitations as shall not be inconsistent with the laws
of the State of Florida.
ARTICLE VIII - BOARD OF DIRECTORS
(a) INITIAL DIRECTORS. The Corporation shall have 3 directors
initially. The number of directors may be either increased or decreased from
time to time as provided in the Bylaws of the Corporation. The names and
addresses of the initial directors of this Corporation are:
Michael Jaharis Steven Jaharis Daniel M. Bell
1001 S. Bayshore Dr. Apt. 2316 1001 S. Bayshore Dr.
Suite 2502 2800 Lake Shore Drive Suite 2502
Miami, Florida 33131 Chicago, IL 60657 Miami, Florida 33131
(b) REMOVAL. Subject to the rights, if any, of the holders of shares of
preferred stock then outstanding, any or all of the directors of the Corporation
may be removed from office for cause only by the shareholders of the Corporation
at any annual or special meeting of shareholders by the affirmative vote of the
holders of at least 60% of the outstanding shares of capital stock of the
Corporation generally entitled to vote for the election of directors, voting
together as a single class. Notice of any such annual or special meeting of
shareholders shall state that the removal of a director or directors for cause
is among the purposes of the meeting. Directors may not be removed by the
shareholders without cause.
(c) VACANCIES. Newly created directorships resulting from any increase
in the number of directors or any vacancy on the Board of Directors resulting
from death, resignation, disqualification, removal or other cause shall be
filled solely by the affirmative vote of a majority of the remaining directors
then in office, even though less than a quorum, or by a sole remaining director.
Any director elected in accordance with the preceding sentence shall hold office
until the next annual meeting of the Shareholders of the Corporation and until
such director's successor shall have been elected and qualified. No decrease in
the number of directors constituting the Board of Directors shall shorten the
term of any incumbent director.
-2-
<PAGE>
(d) ADVANCE NOTICE OF NOMINATIONS. Advance notice of nominations for
the election of directors, other than by the Board of Directors or a committee
thereof, shall be given within the term and in the manner provided in the
By-laws of the Corporation.
ARTICLE IX - SHAREHOLDER MEETINGS
(a) ANNUAL MEETINGS. Annual meetings shall be called and conducted in
the manner provided in the By-laws of the Corporation.
(b) SPECIAL MEETINGS. Special meetings of the shareholders of the
Corporation for any purpose or purposes may be called at any time by (i) the
Chairman of the Board of Directors, the President of the Corporation or a
majority of the Board of Directors or (ii) holders of not less than 50% of all
the votes entitled to be cast on any issue proposed to be considered at the
proposed special meeting, if such shareholders sign, date and deliver to the
Corporation's Secretary one or more written demands for the meeting describing
the purpose or purposes for which it is to be held. Special meetings of the
shareholders of the Corporation may not be called by any other person.
At any special meeting of shareholders, only such business shall be
conducted, and only such proposals shall be acted upon, as shall have been set
forth in the notice of such special meeting.
(c) ADVANCE NOTICE OF SHAREHOLDER PROPOSALS. Advance notice of
shareholder proposals shall be given within the term and in the manner provided
in the By-laws of the Corporation.
ARTICLE X - NO SHAREHOLDER ACTION BY WRITTEN CONSENT
Any action required or permitted to be taken at any annual or special
meeting of shareholders of the Corporation may be taken only upon the vote of
shareholders at a duly convened meeting of shareholders in accordance with these
Articles of Incorporation and the Bylaws, and may not be taken by written
consent of shareholders.
ARTICLE XI - CONTROL-SHARE ACQUISITIONS
The Corporation elects to be governed by Florida Statute Section
607.0902, as amended, relating to control-share acquisitions (the "Act"). The
Corporation is expressly authorized to the fullest extent permitted by the Act
to redeem control shares acquired in a control-share acquisition at the fair
value thereof pursuant to procedures adopted by the Board of Directors.
-3-
<PAGE>
ARTICLE XII - AFFILIATED TRANSACTIONS
The Corporation elects not to be governed by Florida Statute Section
607.0901, as amended from time to time, concerning affiliated transactions.
ARTICLE XIII - AMENDMENTS TO ARTICLES OF INCORPORATION
The Corporation reserves the right to amend, alter, change or repeal
any provision in these Articles of Incorporation in the manner now or hereafter
prescribed by statute, and all rights conferred upon the shareholders herein are
subject to this reservation. Notwithstanding anything contained in these
Articles of Incorporation to the contrary, the affirmative vote of the holders
of at least 60% of the outstanding shares of the capital stock of the
Corporation then entitled to vote generally in the election of directors, voting
together as a single class shall be required to amend these Articles of
Incorporation or to adopt any provision inconsistent therewith.
ARTICLE XIV - BY-LAWS
The Board of Directors is expressly authorized to amend, repeal or
adopt any By-law of and for the Corporation. The holders of voting stock shall
to the extent such power is at the time conferred on them by applicable law,
also have the power, by the affirmative vote of the holders of at least 60% of
the outstanding shares of capital stock of the Corporation then entitled to vote
generally in the election of directors, voting together as a single class, to
make, alter, amend or repeal any By-law of and for the Corporation.
The foregoing Amended and Restated Articles were adopted (i) at a
meeting of the Corporation's sole shareholder held on February 25, 1997, in
accordance with the terms of Section 607.0702 of the Florida Statues and (ii) by
means of a unanimous written consent of the Board of Directors of the
Corporation dated as of February 25, 1997, in accordance with the terms of
Section 607.0821 of the Florida Statutes.
IN WITNESS WHEREOF, the undersigned has executed these Articles of
Incorporation this 25 day of February, 1997.
/S/ DANIEL M. BELL
---------------------------------
Daniel M. Bell, President
-4-
<PAGE>
CERTIFICATE TO AMENDED AND RESTATED ARTICLES OF
INCORPORATION OF KOS PHARMACEUTICALS, INC.
The undersigned, Daniel M. Bell, President of KOS
PHARMACEUTICALS, INC., a Florida corporation (the "Corporation"), does hereby
certify as follows:
1. In accordance with Section 607.1003 of the Florida Statutes,
the Board of Directors of the Corporation recommended by
written consent on February 25, 1997, that the sole
shareholder of the Corporation approve, and the sole
shareholder having approved at a meeting held February 25,
1997, the number of votes cast for the amendment by the sole
shareholder being sufficient for such approval, in accordance
with Sections 607.1003 and 607.1006 of the Florida Statutes,
the amendment and restatement of the Corporation's Articles of
Incorporation as attached hereto.
2. The undersigned officer of the Corporation has been duly
authorized to submit these Amended and Restated Articles of
Incorporation of the Corporation to the Department of State of
Florida for filing in accordance with Section 607.1007,
Florida Statutes.
KOS PHARMACEUTICALS, INC.
By:/S/ DANIEL M. BELL
--------------------------------
Daniel M. Bell, President
EXHIBIT 3.2
AMENDED AND RESTATED
BY-LAWS
OF
KOS PHARMACEUTICALS, INC.
ARTICLE I
SHAREHOLDERS
Section 1.1 ANNUAL MEETINGS. An annual meeting of shareholders shall be
held for the election of Directors at such date, time and place either within or
without the State of Florida as may be designated by the Board of Directors from
time to time. To the extent notice has been provided in accordance with sections
1.4 and 1.12, any other proper business may be transacted at the annual meeting.
Section 1.2 SPECIAL MEETINGS. Special meetings of the shareholders of
the Corporation for any purpose or purposes may be called at any time by (i) the
Chairman of the Board of Directors, the President of the Corporation or a
majority of the Board of Directors or (ii) upon delivery of one or more written
demands for a meeting describing the purpose or purposes for the meeting and
signed and dated by the holders of not less than 50 percent of all votes
entitled to be cast on any issue proposed to be considered at such special
meeting. Special meetings of shareholders of the Corporation may not be called
by any other person or persons. At any special meeting of shareholders, only
such business shall be conducted, and only such proposals shall be acted upon,
as shall be set forth in the notice of such special meeting.
Section 1.3 SHAREHOLDER ACTION. Any action required or permitted to be
taken at any annual or special meeting of the shareholders of the Corporation
may be taken only upon the vote of shareholders at a duly convened meeting of
shareholders in accordance with the Articles of Incorporation and these By-Laws,
and may not be taken by written consent of shareholders.
Section 1.4 NOTICE OF MEETINGS. Whenever shareholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given which shall state the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called. Unless otherwise provided by law, the written notice of any meeting
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each shareholder entitled to vote at such meeting. If
mailed, such notice shall be deemed to be given when deposited in the United
States mail, postage prepaid, directed to the shareholder at such shareholders'
addresses as they appear on the records of the Corporation.
<PAGE>
Section 1.5 ADJOURNMENTS. Any meeting of shareholders, annual or
special, may be adjourned from time to time, to reconvene at the same or some
other place, and notice need not be given of any such adjourned meeting if the
time and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the Corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
Section 1.6 QUORUM. At each meeting of shareholders, except where
otherwise provided by law or the Articles of Incorporation or these By-laws, the
holders of a majority of the outstanding shares of stock entitled to vote on a
matter at the meeting, present in person or represented by proxy, shall
constitute a quorum. For purposes of the foregoing, where a separate vote by
class or classes is required for any matter, the holders of a majority of the
outstanding shares of such class or classes, present in person or represented by
proxy, shall constitute a quorum to take action with respect to that vote on
that matter. Two or more classes or series of stock shall be considered a single
class if the holders thereof are entitled to vote together as a single class at
the meeting. In the absence of a quorum of the holders of any class of stock
entitled to vote on a matter, the holders of such class so present or
represented may, by majority vote, adjourn the meeting of such class from time
to time in the manner provided by Section 1.5 of these By-laws until a quorum of
such class shall be so present or represented. Shares of its own capital stock
belonging on the record date for the meeting to the Corporation or to another
corporation, if a majority of the shares entitled to vote in the election of
Directors of such other corporation is held, directly or indirectly, by the
Corporation, shall neither be entitled to vote nor be counted for quorum
purposes; provided, however, that the foregoing shall not limit the right of the
Corporation to vote stock, including but not limited to its own stock, held by
it in a fiduciary capacity.
Section 1.7 ORGANIZATION. Meetings of shareholders shall be presided
over by the Chairman of the Board of Directors, if any, or in the absence of the
Chairman of the Board of Directors by the Vice Chairman of the Board of
Directors, if any, or in the absence of the Vice Chairman of the Board of
Directors by the President, or in the absence of the President, by a Vice
President, or in the absence of the foregoing persons by a chairman designated
by the Board of Directors, or in the absence of such designation by a chairman
chosen at the meeting. The Secretary, or in the absence of the Secretary an
Assistant Secretary, shall act as secretary of the meeting, but in the absence
of the Secretary and any Assistant Secretary, the chairman of the meeting may
appoint any person to act as secretary of the meeting.
The order of business at each such meeting shall be as determined by
the chairman of the meeting. The chairman of the meeting shall have the right
and authority to prescribe such rules, regulations and procedures and to do all
such acts and things as are necessary or desirable for the proper conduct of the
meeting, including, without limitation, the establishment of procedures for the
maintenance of order and safety, limitations on the time allotted to questions
or comments
2
<PAGE>
on the affairs of the Corporation, restrictions on entry to such meeting after
the time prescribed for the commencement thereof and the opening and closing of
the voting polls.
Section 1.8 INSPECTORS. Prior to any meeting of stockholders, the Board
of Directors or the President shall appoint one or more inspectors to act at
such meeting and make a written report thereof and may designate one or more
persons as alternate inspectors to replace any inspector who fails to act. If no
inspector or alternate is able to act at the meeting of shareholders, the person
presiding at the meeting shall appoint one or more inspectors to act at the
meeting. Each inspector, before entering upon the discharge of his or her
duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his or her
ability. The inspectors shall ascertain the number of shares outstanding and the
voting power of each, determine the shares represented at the meeting and the
validity of proxies and ballots, count all votes and ballots, determine and
retain for a reasonable period a record of the disposition of any challenges
made to any determination by the inspectors and certify their determination of
the number of shares represented at the meeting and their count of all votes and
ballots. The inspectors may appoint or retain other persons to assist them in
the performance of their duties. The time of the opening and closing of the
polls for each matter upon which the shareholders will vote at a meeting shall
be announced at the meeting. No ballot, proxy or vote, nor any revocation
thereof or change thereto, shall be accepted by the inspectors after the closing
of the polls. In determining the validity and counting of proxies and ballots,
the inspectors shall be limited to an examination of the proxies, any envelopes
submitted therewith, any information provided by a shareholder who submits a
proxy by telegram, cablegram or other electronic transmission from which it can
be determined that the proxy was authorized by the shareholder, ballots and the
regular books and records of the corporation, and they may also consider other
reliable information for the limited purpose of reconciling proxies and ballots
submitted by or on behalf of banks, brokers, their nominees or similar persons
which represent more votes than the holder of a proxy is authorized by the
record owner to cast or more votes than the shareholder holds of record. If the
inspectors consider other reliable information for such purpose, they shall, at
the time they make their certification, specify the precise information
considered by them, including the person or persons from whom they obtained the
information, when the information was obtained, the means by which the
information was obtained and the basis for the inspectors' belief that such
information is accurate and reliable.
Section 1.9 VOTING; PROXIES. Unless otherwise provided in the Articles
of Incorporation, each shareholder entitled to vote at any meeting of
shareholders shall be entitled to one vote for each share of stock held by such
shareholder which has voting power upon the matter in question. If the Articles
of Incorporation provides for more or less than one vote for any share on any
matter, every reference in these By-laws to a majority or other proportion of
stock shall refer to such majority or other proportion of the votes of such
stock. Each shareholder entitled to vote at a meeting of shareholders may
authorize another person or persons to act for such shareholder by proxy, but no
such proxy shall be voted or acted upon after eleven months from its date,
unless the proxy provides for a longer period. A duly executed proxy shall be
irrevocable if it states that it is irrevocable and if, and only as long as, it
is coupled with an interest sufficient in law to support an irrevocable power,
regardless of whether the interest with which it is coupled
3
<PAGE>
is an interest in the stock itself or an interest in the Corporation generally.
A shareholder may revoke any proxy which is not irrevocable by attending the
meeting and voting in person or by filing an instrument in writing revoking the
proxy or another duly executed proxy bearing a later date with the Secretary of
the Corporation. Voting at meetings of shareholders need not be by written
ballot unless the holders of a majority of the outstanding shares of all classes
of stock entitled to vote thereon present in person or represented by proxy at
such meeting shall so determine. Directors shall be elected by a plurality of
the votes of the shares present in person or represented by proxy at the meeting
and entitled to vote on the election of Directors. In all other matters, unless
otherwise provided by law or by the Articles of Incorporation or these Bylaws,
the affirmative vote of the holders of a majority of the shares present in
person or represented by proxy at the meeting and entitled to vote on the
subject matter shall be the act of the shareholders. Where a separate vote by
class or classes is required, the affirmative vote of the holders of a majority
of the shares of such class or classes present in person or represented by proxy
at the meeting shall be the act of such class or classes, except as otherwise
provided by law or by the Articles of Incorporation or these By-laws.
Section 1.10 FIXING DATE FOR DETERMINATION OF SHAREHOLDERS OF RECORD.
In order that the Corporation may determine the shareholders entitled to notice
of or to vote at any meeting of shareholders or any adjournment thereof, the
Board of Directors may fix a record date, which record date shall not precede
the date upon which the resolution fixing the record date is adopted by the
Board of Directors, and which record date shall not be more than sixty (60) nor
less than ten (10) days before the date of such meeting. If no record date is
fixed by the Board of Directors, the record date for determining shareholders
entitled to notice of or to vote at a meeting of shareholders shall be at the
close of business on the day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held. A determination of shareholders of record
entitled to notice of or to vote at a meeting of shareholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
In order that the Corporation may determine the shareholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights or the shareholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty (60) days prior to
such action. If no record date is fixed, the record date for determining
shareholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
Section 1.11 LIST OF SHAREHOLDERS ENTITLED TO VOTE. The Secretary shall
prepare and make, at least ten (10) days before every meeting of shareholders, a
complete list of the shareholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each shareholder and the number
of shares registered in the name of each shareholder. Such list shall be open to
the examination of any shareholder, for any purpose germane to the
4
<PAGE>
meeting, during ordinary business hours, for a period of at least ten days prior
to the meeting, either at a place within the city where the meeting is to be
held, which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any shareholder who is present.
Section 1.12 ADVANCE NOTICE OF SHAREHOLDER PROPOSALS. At any annual or
special meeting of shareholders, proposals by shareholders and persons nominated
for election as Directors by shareholders shall be considered only if advance
notice thereof has been timely given as provided herein and such proposals or
nominations are otherwise proper for consideration under applicable law and the
Articles of Incorporation and By-laws of the Corporation. Notice of any proposal
to be presented by any shareholder or of the name of any person to be nominated
by any shareholder for election as a Director of the Corporation at any meeting
of shareholders shall be delivered to the Secretary of the Corporation at its
principal executive office not less than sixty (60) nor more than ninety (90)
days prior to the date of the meeting; provided, however, that if the date of
the meeting is first publicly announced or disclosed (in a public filing or
otherwise) less than seventy (70) days prior to the date of the meeting, such
advance notice shall be given not more than ten (10) days after such date is
first so announced or disclosed. Public notice shall be deemed to have been
given more than seventy (70) days in advance of the annual meeting if the
Corporation shall have previously disclosed, in these By-laws or otherwise, that
the annual meeting in each year is to be held on a determinable date, unless and
until the Board of Directors determines to hold the meeting on a different date.
Any shareholder who gives notice of any such proposal shall deliver therewith
the text of the proposal to be presented and a brief written statement of the
reasons why such shareholder favors the proposal and setting forth such
shareholder's name and address, the number and class of all shares of each class
of stock of the Corporation beneficially owned by such shareholder and any
material interest of such shareholder in the proposal (other than as a
shareholder). Any shareholder desiring to nominate any person for election as a
Director of the Corporation shall deliver with such notice a statement in
writing setting forth the name of the person to be nominated, the number and
class of all shares of each class of stock of the Corporation beneficially owned
by such person, the information regarding such person required by paragraphs
(a), (e) and (f) of Item 401 of Regulation S-K adopted by the Securities and
Exchange Commission (or the corresponding provisions of any regulation
subsequently adopted by the Securities and Exchange Commission applicable to the
Corporation), such person's signed consent to serve as a Director of the
Corporation if elected, such shareholder's name and address and the number and
class of all shares of each class of stock of the Corporation beneficially owned
by such shareholder. As used herein, shares "beneficially owned" shall mean all
shares as to which such person, together with such person's affiliates and
associates (as defined in Rule 12b-2 under the Securities Exchange Act of 1934),
may be deemed to beneficially own pursuant to Rules 13d-3 and 13d-5 under the
Securities Exchange Act of 1934, as well as all shares as to which such person,
together with such person's affiliates and associates, has the right to become
the beneficial owner pursuant to any agreement or understanding, or upon the
exercise of warrants, options or rights to convert or exchange (whether such
rights are exercisable immediately or only after the passage of time or the
occurrence of conditions). The person presiding at the meeting, in addition to
making any other determinations
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that may be appropriate to the conduct of the meeting, shall determine whether
such notice has been duly given and shall direct that proposals and nominees not
be considered if such notice has not been given.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1 POWERS; NUMBER; QUALIFICATIONS. The business and affairs of
the Corporation shall be managed by or under the direction of the Board of
Directors, except as may be otherwise provided by law or in the Articles of
Incorporation. The Board of Directors shall consist of not less than three (3)
or more than fifteen (15) members, the number thereof to be determined from time
to time by the Board of Directors. Directors need not be shareholders. The
number of directors may be increased or decreased from time to time by action of
the Board of Directors, but no decrease shall have the effect of shortening the
term of any incumbent director.
Section 2.2 ELECTION; TERM OF OFFICE; RESIGNATION; REMOVAL; VACANCIES.
Any Director may resign at any time upon written notice to the Board of
Directors or to the President or the Secretary of the Corporation. Such
resignation shall take effect at the time specified therein, and unless
otherwise specified therein no acceptance of such resignation shall be necessary
to make it effective. Subject to the rights, if any, of the holders of shares of
preferred stock then outstanding, any Director or the entire Board of Directors
may be removed by the shareholders of the Corporation at any annual or special
meeting of shareholders, only for cause in accordance with the provisions of the
Articles of Incorporation, by the affirmative vote of the holders of 60 percent
of the shares then generally entitled to vote at an election of Directors,
voting together as a single class. Unless otherwise provided in the Articles of
Incorporation or these By-laws, vacancies and newly created directorships
resulting from any increase in the authorized number of Directors elected by all
of the shareholders having the right to vote as a single class or from any other
cause shall be filled by a majority of the Directors then in office, although
less than a quorum, or by the sole remaining Director. Any Director elected or
appointed to fill a vacancy shall hold office until the next election of
Directors and until his or her successor is elected and qualified or until his
or her earlier resignation or removal in accordance with the Articles of
Incorporation and these By-laws.
Section 2.3 REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held at such places within or without the State of Florida and
at such times as the Board of Directors may from time to time determine, and if
so determined notice thereof need not be given.
Section 2.4 SPECIAL MEETINGS. Special meetings of the Board of
Directors may be held at any time or place within or without the State of
Florida whenever called by the Chairman of the Board of Directors, if any, by
the Vice Chairman of the Board of Directors, if any, by the President or by any
three Directors. Reasonable notice thereof shall be given by the person or
persons calling the meeting.
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Section 2.5 PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE
PERMITTED. Unless otherwise restricted by the Articles of Incorporation or these
By-laws, members of the Board of Directors, or any committee designated by the
Board of Directors, may participate in a meeting of the Board of Directors or of
such committee, as the case may be, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
By-law shall constitute presence in person at such meeting.
Section 2.6 QUORUM; VOTE REQUIRED FOR ACTION. Subject to the Articles
of Incorporation, at all meetings of the Board of Directors one-third of the
entire Board of Directors shall constitute a quorum for the transaction of
business. The vote of a majority of the Directors present at a meeting at which
a quorum is present shall be the act of the Board of Directors unless the
Articles of Incorporation or these By-laws shall require a vote of a greater
number. In case at any meeting of the Board of Directors a quorum shall not be
present, the members of the Board of Directors present may adjourn the meeting
from time to time until a quorum shall be present.
Section 2.7 ORGANIZATION. Meetings of the Board of Directors shall be
presided over by the Chairman of the Board of Directors, if any, or in the
absence of the Chairman of the Board of Directors by the Vice Chairman of the
Board of Directors, if any, or in the absence of the Vice Chairman of the Board
of Directors by the President, or in his absence by a chairman chosen at the
meeting. The Secretary, or in the absence of the Secretary an Assistant
Secretary, shall act as secretary of the meeting, but in the absence of the
Secretary and any Assistant Secretary, the chairman of the meeting may appoint
any person to act as secretary of the meeting.
Section 2.8 ACTION BY DIRECTORS WITHOUT A MEETING. Unless otherwise
restricted by the Articles of Incorporation or these By-laws, any action
required or permitted to be taken at any meeting of the Board of Directors, or
of any committee thereof, may be taken without a meeting if all members of the
Board of Directors or of such committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board of Directors or committee.
Section 2.9 COMPENSATION OF DIRECTORS. Unless otherwise restricted by
the Articles of Incorporation or these By-laws, the Board of Directors shall
have the authority to fix the compensation of Directors.
ARTICLE III
COMMITTEES
Section 3.1 COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the whole Board of Directors, designate one or more
committees, each committee to consist of one or more of the Directors of the
Corporation. The Board of Directors may designate one or more Directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. Any such committee, to the extent
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provided in the resolution of the Board of Directors or in these By-laws, shall
have and may exercise all the powers and authority of the Board of Directors in
the management of the business and affairs of the Corporation, and may authorize
the seal of the Corporation to be affixed to all papers which may require it;
but no such committee shall have the power or authority in reference to amending
the Articles of Incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of shares
of stock adopted by the Board of Directors, fix the designations and any of the
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the Corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
or any other series of the same or any other class or classes of stock of the
Corporation or fix the number of shares of any series of stock or authorize the
increase or decrease of the shares of any series), adopting an agreement of
merger or consolidation, recommending to the shareholders the sale, lease or
exchange of all or substantially all of the Corporation's property and assets,
recommending to the shareholders a dissolution of the Corporation or a
revocation of a dissolution or amending these By-laws; and, unless the
resolution, these By-laws or the Articles of Incorporation expressly so
provides, no such committee shall have the power or authority to declare a
dividend, to authorize the issuance of stock, to adopt a certificate of
ownership and merger or to remove or indemnify Directors.
Section 3.2 COMMITTEE RULES. Unless the Board of Directors otherwise
provides, each committee designated by the Board of Directors may adopt, amend
and repeal rules for the conduct of its business. In the absence of a provision
by the Board of Directors or a provision in the rules of such committee to the
contrary, a majority of the entire authorized number of members of such
committee shall constitute a quorum for the transaction of business, the vote of
a majority of the members present at a meeting at the time of such vote if a
quorum is then present shall be the act of such committee, and in other respects
each committee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to Article II of these By-laws.
ARTICLE IV
OFFICERS
Section 4.1 OFFICERS; ELECTION. As soon as practicable after the annual
meeting of shareholders in each year, the Board of Directors shall elect a
President, a Chief Executive Officer, and a Secretary, and it may, if it so
determines, elect from among its members a Chairman of the Board of Directors
and a Vice Chairman of the Board of Directors. The Board of Directors may also
elect one or more Vice Presidents, one or more Assistant Vice Presidents, one or
more Assistant Secretaries, a Treasurer and one or more Assistant Treasurers and
such other officers as the Board of Directors may deem desirable or appropriate
and may give any of them such further designations or alternate titles as it
considers desirable. Any number of offices may be held by the same person unless
the Articles of Incorporation or these By-laws otherwise provide.
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Section 4.2 TERM OF OFFICE; RESIGNATION; REMOVAL; VACANCIES. Unless
otherwise provided in the resolution of the Board of Directors electing any
officer, each officer shall hold office until his or her successor is elected
and qualified or until his or her earlier resignation or removal. Any officer
may resign at any time upon written notice to the Board of Directors or to the
President or the Secretary of the Corporation. Such resignation shall take
effect at the time specified therein, and unless otherwise specified therein no
acceptance of such resignation shall be necessary to make it effective. The
Board of Directors may remove any officer with or without cause at any time. Any
such removal shall be without prejudice to the contractual rights of such
officer, if any, with the Corporation, but the election of an officer shall not
of itself create contractual rights. Any vacancy occurring in any office of the
Corporation by death, resignation, removal or otherwise may be filled by the
Board of Directors at any regular or special meeting or by unanimous written
consent of the Board of Directors.
Section 4.3 POWERS AND DUTIES. The officers of the Corporation shall
have such powers and duties in the management of the Corporation as shall be
stated in these By-laws or in a resolution of the Board of Directors which is
not inconsistent with these By-laws and, to the extent not so stated, as
generally pertain to their respective offices, subject to the control of the
Board of Directors. The Secretary shall have the duty to record the proceedings
of the meetings of the shareholders, the Board of Directors and any committees
in a book to be kept for that purpose. The Board of Directors may require any
officer, agent or employee to give security for the faithful performance of his
or her duties.
ARTICLE V
STOCK
Section 5.1 CERTIFICATES. Every holder of stock in the Corporation
shall be entitled to have a certificate signed by or in the name of the
Corporation by the Chairman or Vice Chairman of the Board of Directors, if any,
or the President or a Vice President, and by the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary, of the Corporation,
representing the number of shares of stock in the Corporation owned by such
holder. If such certificate is manually signed by one officer or manually
countersigned by a transfer agent or by a registrar, any other signature on the
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if such person were such officer, transfer agent or registrar at the date of
issue.
If the Corporation is authorized to issue more than one class of stock
or more than one series of any class, the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications or restrictions of such preferences
and/or rights shall be set forth in full or summarized on the face or back of
the certificate which the Corporation shall issue to represent such class or
series of stock,
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provided that, except as otherwise provided by law, in lieu of the foregoing
requirements, there may be set forth on the face or back of the certificate
which the Corporation shall issue to represent such class or series of stock a
statement that the Corporation will furnish without charge to each shareholder
who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
Section 5.2 LOST, STOLEN OR DESTROYED STOCK CERTIFICATES: ISSUANCE OF
NEW CERTIFICATES. The Corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it, alleged to have been lost,
stolen or destroyed, and the Corporation may require the owner of the lost,
stolen or destroyed certificate, or such owner's legal representative, to give
the Corporation a bond sufficient to indemnify it against any claim that may be
made against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
ARTICLE VI
Section 6.1 RIGHT TO INDEMNIFICATION. Any person, his heirs, or
personal representative, made, or threatened to be made a party to any
threatened, pending, or completed action or proceeding, whether civil, criminal,
administrative, regulatory, or investigative ("Proceeding") because he is or was
a director or officer of this Corporation or serves or served any other
corporation or other enterprise in any capacity at the request of this
Corporation, shall be indemnified by this Corporation, to the full extent
permitted by the Florida Business Corporation Act; provided, however, that the
Corporation shall indemnify any such person seeking indemnity in connection with
a Proceeding (or part thereof) initiated by such person only if such Proceeding
(or part thereof) was authorized by the Board of Directors of the Corporation.
In discharging his duty, any director or officer, when acting in good faith, may
rely upon information, opinions, reports, or statements, including financial
statements and other financial data, in each case prepared or presented by (1)
one or more officers or employees of the Corporation whom the director or
officer reasonably believes to be reliable and competent in the matters
presented, (2) counsel, public accountants, or other persons as to matters that
the director or officer believes to be within that person's professional or
expert competence, or (3) in the case of a director, a committee of the board of
directors upon which he does not serve, duly designated according to law, as to
matters within its designated authority, if the director reasonably believes
that the committee is competent.
Section 6.2 ADVANCES. The rights set forth above in this Article VI
shall include the right to be paid by the Corporation expenses incurred in
defending or being represented in any such Proceeding in advance of its final
disposition; provided, however, that the payment of such expenses incurred by a
director or officer because he is or was a director of this Corporation or
serves or served any other corporation or enterprise in any capacity at the
request of this Corporation (and not in any other capacity in which service was
or is rendered by such person while a director or officer, including service to
an employee benefit plan) in advance of the final disposition of such
Proceeding, shall be made only upon delivery to the Corporation of an
undertaking, by or on behalf of such director or
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officer, to repay all amounts so advanced if it should be determined ultimately
that such director or officer is not entitled to be indemnified under this
Article VI or otherwise.
Section 6.3 CONTRACT RIGHT. All rights to indemnification, including
advancement of expenses, shall be deemed to be provided by a contract between
the Corporation and the director or officer who serves in such capacity at any
time while this Article VI and other relevant provisions of the Florida Business
Corporation Act and other applicable law, if any, are in effect, such that any
repeal or modification thereof shall not adversely affect any right existing at
the time of such repeal or modification.
Section 6.4 RIGHT TO BRING SUIT. If a claim under the preceding
paragraphs of this Article VI is not paid in full by the Corporation within 90
days after a written claim therefor has been received by the Corporation, the
claimant may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim and, if successful in whole or in part,
the claimant shall be entitled to be paid also the expense, including attorney's
fees, of prosecuting such claim. It shall be a defense to any such action (other
than an action brought to enforce a claim for expenses incurred in defending any
Proceeding in advance of its final disposition where the required undertaking
has been tendered to the Corporation) that the claimant has not met the
applicable standard of conduct which makes it permissible under the Florida
Business Corporation Act for the Corporation to indemnify the claimant for the
amount claimed, but the burden of proving such defense shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its shareholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he has met the applicable
standard of conduct set forth in the Florida Business Corporation Act, nor an
actual determination by the Corporation (including its Board of Directors,
independent legal counsel, or its shareholders) that the claimant had not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that claimant had not met the applicable standard of conduct.
Section 6.5 NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any
person by this Article VI shall not be exclusive of any other right which such
person may have or hereafter acquire under any statute, provision of these
Bylaws, the Articles of Incorporation, agreement, vote of shareholders or
disinterested directors or otherwise.
Section 6.6 INSURANCE. The Corporation may maintain insurance, at its
expense, for the purpose of indemnifying itself and any director, officer,
employee or agent of the Corporation or another corporation, partnership, trust
or other enterprise, whether or not the Corporation would have the power to
provide such indemnity under the Florida Business Corporation Act.
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ARTICLE VII
MISCELLANEOUS
Section 7.1 FISCAL YEAR. The fiscal year of the Corporation shall be
determined by the Board of Directors.
Section 7.2 SEAL. The Corporation may have a corporate seal which shall
have the name of the Corporation inscribed thereon and shall be in such form as
may be approved from time to time by the Board of Directors. The corporate seal
may be used by causing it or a facsimile thereof to be impressed or affixed or
in any other manner reproduced.
Section 7.3 WAIVER OF NOTICE OF MEETINGS OF SHAREHOLDERS, DIRECTORS AND
COMMITTEES. Whenever notice is required to be given by law or under any
provision of the Articles of Incorporation or these By-laws, a written waiver
thereof, signed by the person entitled to notice, whether before or after the
time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the shareholders,
Directors or members of a committee of Directors need be specified in any
written waiver of notice unless so required by the Articles of Incorporation or
these By-laws.
Section 7.4 INTERESTED DIRECTORS; QUORUM. No contract or transaction
between the Corporation and one or more of its Directors or officers, or between
the Corporation and any other corporation, partnership, association or other
organization in which one or more of its Directors or officers are Directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the Director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or her or their
votes are counted for such purpose, if: (1) the material facts as to his or her
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested Directors, even though the
disinterested Directors be less than a quorum; or (2) the material facts as to
his or her relationship or interest and as to the contract or transaction are
disclosed or are known to the shareholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
shareholders; or (3) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof or the shareholders. Common or interested
Directors may be counted in determining the presence of a quorum at a meeting of
the Board of Directors or of a committee which authorizes the contract or
transaction.
Section 7.5 FORM OF RECORDS. Any records maintained by the Corporation
in the regular course of its business, including its stock ledger, books of
account and minute books, may be kept
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on, or be in the form of, punch cards, magnetic tape, photographs,
microphotographs or any other information storage device, provided that the
records so kept can be converted into clearly legible form within a reasonable
time. The Corporation shall so convert any records so kept upon the request of
any person entitled to inspect the same.
Section 7.6 AMENDMENT OF BY-LAWS. The Board of Directors is expressly
authorized to amend, repeal or adopt any By-law of and for the Corporation. The
holders of voting stock shall to the extent such power is at the time conferred
on them by applicable law, also have the power, by the affirmative vote of the
holders of at least 60% of the outstanding shares of capital stock of the
Corporation then entitled to vote generally in the election of directors, voting
together as a single class, to make, alter, amend or repeal any By-law of and
for the Corporation.
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EXHIBIT 5
March 5, 1997
Kos Pharmaceuticals, Inc.
1001 Brickell Bay Drive, Suite 2502
Miami, Florida 33131
Re: Registration Statement on Form S-1 (File No. 333-17991)
Gentlemen:
We refer to the Registration Statement (the "Registration Statement") on
Form S-1 (File No. 333-17991), filed by Kos Pharmaceuticals, Inc. (the
"Company") with the Securities and Exchange Commission, for the purpose of
registering under the Securities Act of 1933 an aggregate of 4,025,000 shares
of the Company's common stock, par value $.01 per share (the "Common Stock"),
to be offered to the public pursuant to a proposed underwriting agreement
(the "Underwriting Agreement") between the Company and Cowen & Company, Dillon,
Read & Co. Inc. and Salomon Brothers, Inc, as representatives of a group of
underwriters.
In connection with the foregoing registration, we have acted as counsel for
the Company, and have examined originals, or copies certified to our
satisfaction, of all such corporate records of the Company, certificates of
public officials, and representatives of the Company, and other documents as
we deemed necessary to require as a basis for the opinion hereafter expressed.
Based upon the foregoing, and having regard for legal considerations that
we deem relevant, it is our opinion that:
The Common Stock will be, when and if issued in accordance with the
Underwriting Agreement and the Company's Amended and Restated Articles of
Incorporation, duly authorized, legally issued, and fully paid and
non-assessable.
<PAGE>
Kos Pharmaceuticals, Inc.
March 5, 1997
Page Two
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement, and to the use of our name in the Prospectus
constituting a part thereof in connection with the matters, including certain
intellectual property matters, referred to under the caption "Legal Matters." In
giving this consent, we do not thereby admit that we are included within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended, or the rules and regulations promulgated thereunder.
Very truly yours,
HOLLAND & KNIGHT
By: /S/ STEVEN SONBERG
------------------------
Steven Sonberg
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
DEVELOPMENT AGREEMENT
THIS AGREEMENT is made by and between Kos Pharmaceuticals, Inc., a
corporation of the State of Florida, with a place of business at 1001 South
Bayshore Drive, Suite 2502, Miami, FL 33131 (hereinafter referred to as "Kos")
and Fuisz Technologies Ltd., a corporation of the State of Delaware with a place
of business at 3810 Concorde Parkway, Suite 100, Chantilly, VA 22021
(hereinafter referred to as "Fuisz").
WHEREAS, Fuisz has over a period of years conducted research and
development work and developed proprietary technology which is useful to make
controlled-release formulations for pharmaceutical compounds; and
WHEREAS Kos has interests in developing, manufacturing and marketing
once-a-day oral solid dosage forms of Captopril (as hereinafter defined), based
on Fuisz proprietary technology; and
WHEREAS, Fuisz and Kos are each willing to undertake a Development
Program (as hereinafter defined) for development of the foregoing products for
commercial marketing and sale.
Now, therefore, the parties agree as follows:
The definitions as used herein are set forth in Article 1 of the
License Agreement and Appendix A attached hereto and incorporated herein by
reference.
ARTICLE 1 - DEVELOPMENT PROGRAM
1.1 Fuisz and Kos shall jointly undertake using reasonable best
efforts a Development Program to develop one or more Products for Commercial
Sale. It is understood that this Development Program is primarily for the
purposes of developing and producing Products and shall be carried out generally
in accordance with Appendix B.
1.2 Each party shall appoint a Program Manager for overall management of
the Development Program and such Program Managers shall by mutual agreement
provide the direction of the program and the scope of work to be undertaken
under the Development Program; provided, however, that Kos shall determine the
focus of work which the Program Managers mutually agree can be carried out
under the
<PAGE>
Development Program, within the guidelines set forth in Appendix B. The initial
Program Manager for Kos shall be designated within thirty (30) days and the
initial Program Manager for Fuisz shall be Martynn Sheehan. Each party may
change the designated Program Manager upon written notice to the other party of
such change.
1.3 During the term of the Development Program Fuisz shall periodically
provide to Kos samples of materials for evaluation by Kos. Kos shall promptly
evaluate such samples and provide guidance to Fuisz for further work based on
the results of such evaluations. During the Development Program term, Program
Managers or representatives of the parties shall meet from time to time to
discuss planning and progress of the Development Program to carry out efficient
and effective activities. Fuisz shall provide project updates to Kos verbally
and/or in written form every four (4) weeks during the Development Program, and
shall provide a written report upon completion of the Development Program. All
such discussions and activities shall be considered as carried out under the
Development Program.
1.4 Kos shall supply to Fuisz, at Kos's cost and expense, materials
including Captopril which Kos believes are essential for carrying out the
Development Program. All such materials supplied by Kos shall be materials
approved for human uses unless otherwise specifically designated and Kos shall
supply MSDS sheets where necessary for the processing of such materials. Fuisz
shall advise Kos from time to time of its requirements for such materials for
the Development Program.
1.5 Upon termination of each Phase of the Development Program, Fuisz
shall provide to Kos quantities of prototype Products processed using Technology
which demonstrate the best results obtained under the Development Program. Kos
shall provide to Fuisz all data, information and conclusions generated during
the Development Program relating to the Development Program and/or Technology
including without limitation ******************** and any other mutually agreed
pre-defined data, and Fuisz shall have the ****************** to use all such
data, information and conclusions; provided, however, that Fuisz shall not
utilize such data, information and conclusions to the detriment of the
competitive position of Kos or inappropriately identify Kos in any publicity
concerning same.
1.6 In the event special processing or manufacturing equipment
specifically modified or adapted for use with Technology is requested by Kos to
be used under the Development Program, Kos shall provide such equipment to Fuisz
for the duration of the Development Program.
1.7 All activities in connection with the Development Program shall be
carried out by each party in strict compliance with any applicable federal,
state or local laws, regulations or guidelines governing such activities.
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1.8 In addition to the funding under Article 3, Kos shall pay for the
cost of all materials including Captopril used in the Development Program and
approved by Kos (to the extent such materials are not provided and fully paid by
Kos), and Kos shall pay for the costs of all shipping, packing, customs, duties
and customs clearances associated with shipment of materials and/or equipment to
or from Fuisz or for, or resulting from work under, the Development Program. In
addition, Kos shall pay for the reasonable costs of travel of Fuisz personnel at
the prior request and approval of Kos in connection with meetings, activities or
reviews of activities under the Development Program.
1.9 All equipment, supplies and other items purchased by either party
for the conduct of the Development Program, shall be the sole and exclusive
property of the purchasing party. For purposes hereof, all such items purchased
by Fuisz with funds provided by Kos shall be deemed to be items purchased and
owned by *****.
ARTICLE 2 - TERM AND TERMINATION OF THE DEVELOPMENT PROGRAM
2.1 The initial term of Phase I of the Development Program shall be
*********** weeks from the Effective Date. The parties shall use reasonable
efforts to carry out the Development Program during such initial term. However,
if due to unforseen circumstances unavoidable delays attributable solely to
Fuisz are encountered, or force majeure events are encountered in carrying out
activities, the initial term of the Development Program shall be extended for a
time equal to the delay at no additional cost to Kos. The Development Program
shall be automatically extended on a week by week basis after the initial term
provided that Kos may terminate the Development Program anytime after the
initial term or at the end of each successive weekly extension of the
Development Program, and Fuisz may terminate the Development Program at the end
of the twelfth (12th) weekly extension thereof or at the end of each successive
weekly extension thereafter, respectively upon seven (7) calendar days advance
notice in writing to the other party.
2.2 If either party shall default, fail to perform, or otherwise commit
a breach of a material obligation or any covenant contained herein with respect
to the Development Program, and shall fail to remedy such default, failure to
perform or breach within sixty (60) days after its receipt of written notice
thereof from the other party, such other party may terminate the Development
Program and incur no further obligation hereunder, it being understood, however,
that if within such sixty (60) days after receipt of such notice, the party in
default shall have rectified its default, then the Development Program and the
terms hereof relating to the Development Program shall be restored as if no
termination of the Development Program had occurred. The term of this Agreement
(or any extension thereof) shall be tolled by the time required by the
defaulting party to cure the default.
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2.3 This Agreement shall commence upon the Effective Date and terminate
at the end of the term of the Development Program, including any extensions
thereof.
2.4 Except for Kos and Fuisz jointly owned technology and patents and
Fuisz solely owned technology and patents, Fuisz hereby acknowledges that it
shall not have the right, following expiration of the Development Agreement
term, to use technology to the extent obtained from Kos, patents based thereon
or any materials to the extent obtained from Kos, for any purpose without
obtaining a license from Kos, which license Kos, in its sole discretion, may
grant or deny.
2.5 Except as set forth in the License Agreement and except for Kos and
Fuisz jointly owned technology and patents and Kos solely owned technology and
patents, Kos hereby acknowledges that it shall not have the right, following
expiration of the Development Agreement term, to use Technology to the extent
obtained from Fuisz, patents based thereon or any materials to the extent
obtained from Fuisz, for any purpose without obtaining a license from Fuisz,
which license Fuisz, in its sole discretion, may grant or deny.
ARTICLE 3 - FUNDING OF THE DEVELOPMENT PROGRAM
3.1 Kos shall provide total funding for the Development Program as set
forth in Appendix B, in the amount of **************************************8
*****************************************************************************
************************* of which shall be paid to Fuisz within ********* days
of the Effective Date, and ******************************** of which shall be
paid within *********** days following the end of Phase 1 and
******************************** of which shall be paid within ********* days
following completion of the ********************* of Appendix B. This amount of
funding may be increased by mutual agreement. This funding shall not include the
cost of the ********************* which shall be funded and paid for
*************. In the event Kos chooses to proceed to Phase 2 and/or Phase 3 as
set forth in Appendix B, unless Fuisz determines further development is not
feasible, Kos shall pay to Fuisz additional amounts commensurate with the
activity involved and as mutually agreed, consistent with the cost of Phase 1
and with the level of activity, for Phase 2 and for Phase 3, payable within
*********** days of commencement of the phases.
3.2 In the event the Development Program is extended by mutual written
agreement of the parties, each successive one (1) week extension after the
initial term shall be funded and paid to Fuisz in advance at a rate of
********************************** per week with respect to extension of Phase
I, and with respect to Phases 2 and 3, such weekly amounts as are consistent
with the additional funding set forth in Section 3.1; provided, however, that if
the man-day charges for work carried out at Fuisz during the initial term are
less than the funding actually paid
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under the initial term (exclusive of charges under Section 1.8) then additional
funding for such extensions under this Section 3.2 shall not be invoiced or due
until such time as the man-day charges equal such funding provided for the
initial term. Other costs as set forth in Section 1.8 associated with successive
weekly extensions incurred under the Development Program, shall be invoiced once
each month and will be due net thirty (30) days from date of mailing of the
invoice.
3.3 All work done at Fuisz shall be at *************** rates of Fuisz
for pharmaceutical development work. Verification of the man-days charges for
work under the Development Program and the schedule of applicable existing
charge rates shall be made available to Kos at reasonable intervals upon written
request. In the event Kos requests work be done in excess of the current funding
during the initial term of the Development Agreement or any extensions thereof,
Fuisz shall invoice Kos for such excess work on a monthly basis. In the event
either party terminates the Development Program, Kos shall be obligated to pay
Fuisz for all work done by Fuisz under the Development Program up to the date of
termination, and if terminated by Kos for breach by Fuisz, Fuisz shall refund
any advanced funding payments made by Kos in excess of payments for work done.
ARTICLE 4 - MERCHANTABILITY, FITNESS FOR PURPOSE AND
LIMITATIONS OF LIABILITY
4.1 The parties recognize that this is an agreement for services and not
for the sale of goods. Therefore, except as provided in this Article 4, Fuisz
makes no warranties, express or implied, regarding the quality or quantity of
any Product produced under this Agreement or materials purchased to support work
performed under this Agreement which are not specifically identified in writing
as to source or quality by Kos prior to purchase, provided that Fuisz represents
and warrants that as of the time of delivery, all Products supplied to Kos which
are labeled cGMP Sample shall conform to the specifications mutually agreed to
in writing by the parties, shall be manufactured using Current Good
Manufacturing Practices as defined in regulations promulgated by the FDA under
the Federal Food, Drug and Cosmetic Act (the "Act"), shall contain only
materials that are GRAS, and shall not be adulterated or misbranded within the
meaning of the Act. FUISZ EXPRESSLY DISCLAIMS ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
4.2 In the performance of the duties contemplated hereunder, the status
of the parties including employees and agents of each, shall be that of
independent contractors and not as employees, agents or fiduciaries of the other
party, and neither party shall have the right to make commitments for or on
behalf of the other party.
4.3 Each party shall be responsible for the safety of its employees and
agents with respect to activities relating to the Development Program under this
Agreement and for liability for damages or personal injuries, including death,
resulting from such
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activities without any warranty, liability or indemnification on the part of the
other party.
ARTICLE 5 - FORCE MAJEURE
5.1 Neither Fuisz nor Kos shall be liable for delay or failure in the
performance of the obligations contained in this Agreement arising solely from
any one or more of the following matters: (a) acts of God, or public enemy or
war (declared or undeclared); (b) acts of governmental authorities, of
quasi-governmental authorities, or the United States, or any political
subdivision thereof, or of any department or agency thereof, or regulations or
restrictions imposed by law or by court action, except as they may result from
the unreasonable failure of Fuisz or Kos to perform as required hereunder; (c)
acts of persons, other than employees or agents of the parties, engaged in
subversive activities or sabotage; (d) fires, floods, explosions or other
catastrophes; (e) epidemics or quarantine restrictions; (f) strikes, or similar
labor disruptions; (g) freight embargoes, or interruption of transportation; (h)
unusually severe weather; (i) delays of a supplier of Fuisz or Kos due to any of
the above causes or events; or (j) any other extraordinary causes, similar or
dissimilar, beyond the control of the party concerned; and provided that due
diligence is exercised to cure such cause and resume performance, and the time
for performance by such party shall be extended by a period of any such delay.
ARTICLE 6 - CONFIDENTIALITY
6.1 CONFIDENTIALITY; EXCEPTIONS - Except to the extent expressly
authorized by this Agreement, and except as provided in Section 6.2, or
otherwise agreed in writing, the parties shall, for the term of this Agreement
and for five (5) years thereafter, keep confidential and shall not publish or
otherwise disclose, or use for any purpose, any Confidential Information
furnished to one party by the other party pursuant to this Agreement, except to
the extent that it can be established by competent evidence that such
Confidential Information:
(a) was already known to the receiving party, other than under
an obligation of confidentiality, at the time of disclosure by the other party;
(b) was generally available to the public or otherwise part of
the public domain at the time of its disclosure to the receiving party;
(c) became generally available to the public or became
otherwise part of the public domain after its disclosure and other than through
any act or omission of the receiving party in breach of this Agreement;
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(d) was disclosed to the receiving party, other than under an
obligation of confidentiality, by a third party who had no obligation to the
disclosing party not to disclose such Confidential Information to others; or
(e) is independently developed by or on behalf of the
receiving party by individuals not having access to such Confidential
Information.
Each party may disclose the other's Confidential Information to the
extent such disclosure is reasonably necessary in filing or prosecuting patent
applications, prosecuting or defending litigation, or is necessary to be
disclosed in connection with the marketing or sale of a Product or is necessary
to be disclosed to comply with applicable governmental regulations; provided,
however, that if a party is required to make any such disclosure of the other
party's Confidential Information it shall, except where impracticable for
necessary disclosures, for example to health authorities, give reasonable
advance notice to the other party of such disclosure requirement and, except to
the extent inappropriate in the case of patent applications, shall use
reasonable efforts to secure confidential treatment of such Confidential
Information required to be disclosed.
6.2 All trade secrets provided to a party under this Agreement by the
other party, as defined under the Uniform Trade Secrets Act of the United
States, or the trade secret laws of applicable national countries, which are
provided by one party to the other party hereunder and identified in writing as
trade secrets, shall be maintained in confidence, without limitation of time,
and will be used only for purposes of work under this Agreement or
commercialization of Products under the provisions of this Agreement.
6.3 Each party may also disclose the other's Confidential Information
and trade secrets to an Affiliate, agent or consultant on a need-to-know basis,
who is under an obligation of confidentiality and non-use at least substantially
equivalent to the obligations of this Article 6, a party disclosing the other
party's Confidential Information or trade secrets to such Affiliate, agent or
consultant shall notify the other party of the identity of such Affiliate, agent
or consultant.
ARTICLE 7 - INVENTIONS AND PATENTS
7.1 Inventions and any patent applications and patents based on
Inventions made under or as a result of work done under the Development Program
or as a result of evaluations or analysis of samples under the Development
Program shall be owned as follows:
(a) if invented solely by the staff of Fuisz or their
consultants or jointly by employees of Fuisz and their consultants, ownership
shall rest in Fuisz;
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<PAGE>
(b) if invented solely by the staff of Kos or their
consultants or jointly by employees of Kos and their consultants and such
Inventions are based upon or directly related to Technology, ownership shall
rest in Fuisz; otherwise, ownership shall rest in Kos and Fuisz shall have
irrevocable, paid up, non-exclusive rights thereunder;
(c) if invented jointly by employees of Kos and/or Kos
consultants and employees of Fuisz and/or Fuisz' consultants ("Joint
Invention"), ownership shall rest jointly in Fuisz and Kos.
7.2 Patent and copyright procurement activity in regard to Inventions
shall be pursued at the discretion and expense of the owner or designee set
forth in Section 7.1 except that procurement activities with respect to Joint
Inventions shall be pursued at the discretion and equally shared expense of
Fuisz and Kos. Each party, however, shall notify the other upon the preparation
of any written invention report and/or the filing of any patent or copyright
application based on an Invention, provide the other with a copy of any such
Invention report, or patent or copyright application based on an Invention, and
any issued patent or statutory copyright granted thereon, and on request update
the other as to the status of any such patent or copyright application. Neither
party shall be liable with respect to any claims or damages arising from any
act, or failure to act, in regard to the preparation, prosecution or maintenance
of any such patent applications or patents. Each party shall sign documents to
vest or maintain title to patents and/or copyrights in the owner designated in
Section 7.1, and provide all reasonable assistance to the other with respect to
preparation and prosecution of such patents and copyrights as may be necessary.
7.3 As to Inventions owned by Kos and/or Fuisz in accordance with
Section 7.1, each party shall furnish to the other all information and data in
its possession reasonably necessary to obtain patents and copyrights on such
Inventions and, upon request, shall review applications for such patents and
copyrights. In the event the Program Manager or the owner or designee decides
that additional examples are necessary to obtain patents on Inventions, the
other party shall cooperate by providing any such examples relating to use of
the Invention as may reasonably be requested by the owner or designee, provided
that the owner or designee shall reimburse the other party for the reasonable
costs of generating such examples for individually owned Inventions where the
Program Managers do not agree to fund generation of such additional examples.
ARTICLE 8 - GENERAL PROVISIONS
8.1 INDEPENDENT CONTRACTORS. Nothing in this Agreement shall be deemed
to create an agency, employer-employee, partnership or joint venture
relationship between the parties. The status of the parties shall be, for all
purposes, independent
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contractors. Neither party shall have the right to control the work of the
other's employees and/or agents.
8.2 NO OTHER IMPLIED LICENSES. Except as provided in the License
Agreement each party understands that this Agreement does not include any
assurance that the other party has granted or will grant any license, option or
right to it, and the other party reserves the right to enter into exclusive
licenses or business arrangements with other parties for any or all of its
technology.
8.3 AMENDMENTS. No addition to, deletion from or modification of any of
the provisions of this Agreement shall be binding upon the parties unless made
in writing and signed by a duly authorized representative of each party. Any
such additions, deletions or modifications shall refer specifically to this
Agreement.
8.4 ASSIGNMENT. This Agreement is unassignable by either Kos or Fuisz
except with the prior written consent of the other; provided, however, that it
may be assigned without consent to a corporate successor of Kos or Fuisz or to a
person or corporation acquiring all or substantially all of the business and
assets of Kos or Fuisz to which this Agreement relates. All or any portion of
Technology shall be assignable by Fuisz; provided, however, that in the event of
any such assignment, any such assignee shall accept and agree in writing to be
bound by all of the terms and conditions of this Agreement relating to such
assigned rights.
8.5 APPLICABLE LAW. This Agreement shall be governed by, construed and
enforced in accordance with the laws of the State of Delaware, United States of
America, without reference to its conflict of laws provisions.
8.6 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed duly given when personally delivered or sent by
registered or certified mail, return receipt requested, postage prepaid, or by
cable confirmed by letter as aforesaid, as follows:
Notice to Fuisz: Notice to Kos:
Fuisz Technologies Ltd. Kos Pharmaceuticals, Inc.
3810 Concorde Parkway 1001 South Bayshore Drive
Suite 100 Suite 2502
Chantilly, VA 22021 Miami, FL 33131
ATTN: Richard C. Fuisz ATTN: President
President and CEO
With a copy to:
James L. Wilcox
Vice President & General Counsel
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or to such other address as either party may hereafter designate in writing by
like notice.
8.7 ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding of the parties with regard to the subject matter hereof and
supersedes all prior discussions, representations and understandings with
respect thereto, whether written or oral.
8.8 SURVIVAL. The rights and obligations of either party under Articles
6 and 7 shall survive the termination of this Agreement.
8.9 PUBLIC ANNOUNCEMENTS. Except as required by law or in connection
with private or public offerings to raise capital or as required for documents
to be filed with the Securities and Exchange Commission (a "Permitted Public
Announcement"), neither party shall make any public announcement concerning this
Agreement or the subject matter hereof without the prior written consent of the
other; provided, however, that in any event, each party shall have the right to
refer, in such announcement required by law or in any private or public offering
documents, to the status of this Agreement or of the Development Agreement and
to state that the license hereunder has been granted, together with a
generalized description of the nature and extent of such license. All such
announcements shall be made available by the announcing party to the other party
at least five (5) business days in advance of the announcement for review and
comment by the other party
8.10 This Agreement shall be executed in one or more counterparts, each
of which shall for all purposes be deemed to be an original and all of which
shall constitute the same instrument subject to the time limitations imposed in
those sections.
8.11 ALTERNATIVE DISPUTE RESOLUTION.
(a) In the event of any dispute, controversy or claim arising
out of or relating to this Agreement (unless such dispute, controversy or claim
involves an issue of patent validity), Kos or Fuisz shall employ alternative
dispute resolution procedures in an effort to avoid litigation over any such
dispute, controversy or claim. Any such dispute, controversy or claim hereunder
shall, prior to submission to such alternative dispute resolution proceedings,
be referred to representatives of management (hereinafter "Management
Representatives") of the respective parties for resolution.
(b) Any such dispute that shall not have been resolved
pursuant to paragraph 8.11(a) ninety (90) days after reference to such
Management Representatives, or otherwise by agreement between the parties, shall
be referred to arbitration in accordance with the rules of the American
Arbitration Association. The arbitration tribunal shall consist of three (3)
arbitrators. The party initiating arbitration
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shall nominate one (1) arbitrator (who shall not be affiliated with such party)
in the request for arbitration and the other party shall nominate a second
arbitrator (who shall not be affiliated with such party) in the answer thereto.
The two (2) arbitrators so named will then jointly appoint the third (3rd)
arbitrator as chairman of the arbitration tribunal. If a party fails to nominate
its arbitrator as chairman of the arbitration tribunal or if the arbitrators
named by the parties fail to agree on the person to be named as chairman within
sixty (60) days, the Office of the American Arbitration Association in
Washington, DC, USA shall make the necessary appointments of an arbitrator or
the chairman of the tribunal. The award of the arbitration tribunal shall be
final and judgment upon such an award may be entered in any competent court or
application may be made to any competent court for judicial acceptance of such
an award and an order of enforcement. In the event of any procedural matter not
covered by the aforesaid Rules, the procedural law of the State of Delaware,
United States of America, shall govern.
8.12 For so long as he is employed by Fuisz, Fuisz shall provide the
services of Dr. Michael Myers, or an appropriate substitute designated by Fuisz
and acceptable to Kos, who shall be primarily responsible for carrying out the
responsibilities of Fuisz under the Development Program.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed by its duly authorized officer as of the Effective Date.
KOS PHARMACEUTICALS, INC. FUISZ TECHNOLOGIES LTD.
/S/ DANIEL M. BELL /S/ RICHARD C. FUISZ
- ------------------------------------ -------------------------------------
Daniel M. Bell Richard C. Fuisz, M.D.
President President and CEO
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APPENDIX A
"CONFIDENTIAL INFORMATION" shall mean all business or technical information,
including, without limitation, all photographs, records, methods, processes,
techniques, equipment, and all know how and trade secrets, provided by one party
to the other party under the provisions of this Agreement.
"EFFECTIVE DATE" shall mean the Effective Date of the License Agreement.
"INVENTION" shall mean any discovery or invention conceived, made or reduced to
practice in the performance of work under the Development Program or resulting
from the IN VITRO evaluation or analysis of samples produced under the
Development Program.
"LICENSE AGREEMENT" shall mean the Option and License Agreement between Kos and
Fuisz relating to Captopril and having the same Effective Date as this
Agreement.
<PAGE>
APPENDIX B
DEVELOPMENT PROGRAM SCHEDULE
PHASE 1 - **********
(a) Preformulation - *******
- Drug Physicochemical Characterization
- Excipient compatibility Studies
- Qualitative Formulation Selection
(b) Formulation Assessment - *******
- Quantitative Formulation Development
- *********************
- *******************
- Finished Product
- Manufacture and Testing of a Range of Batches at each stage
- Informal Stability Assessment
- Analytical Methodology Validation
(c) Process Initiation - *******
- Initial Processing Parameter Characterization Studies
- Formulation Reproducibility Studies
(d) Product Characterization - *******
- Manufacture under GMP condition of Product(s) for pilot
pharmacokinetic study
- Release of Product(s) for the pilot pharmacokinetic study
- Pilot stability evaluation
PHASE 2 - **********
(a) Formulation Optimization - ********
- Optimization of Formulations Through Batch Reproducibility
Studies at Initial Scale-up Level for:
- *********************
- *******************
- Finished Product
(b) Process Development - ********
- Evaluation of Pilot Scale-up Manufacturing Process and
Definition of Operating Parameters
<PAGE>
APPENDIX B (CONT.)
(c) Product Characterization - *******
- Manufacture of Pilot Scale Product(s) for Confirmatory
Pharmacokinetic Study and Clinical Studies
- Formal Stability Testing
PHASE 3
(a) Commercialization -
- Scale-up to Commercial Scale Manufacturing
- Process Validation
- Manufacture of Pivotal Pharmacokinetic and Clinical batches
(as Appropriate)
- Pivotal Stability in Finish Packaging Configuration
Status: Duration and Costing to be defined.
14
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
OPTION/LICENSE AGREEMENT
THIS AGREEMENT is made by and between Kos Pharmaceuticals, Inc., a
corporation of the State of Florida, with a place of business at 1001 South
Bayshore Drive, Suite 2502, Miami, FL 33131, and Fuisz Technologies Ltd., a
corporation of the State of Delaware with a place of business at 3810 Concorde
Parkway, Suite 100, Chantilly, VA 22021.
WHEREAS, Fuisz has over a period of years conducted research and
development work and developed proprietary technology which is useful to make
controlled-release formulations for pharmaceutical compounds and;
WHEREAS Kos has interests in developing, manufacturing and marketing
once-a-day oral solid dosage forms of Captopril (as hereinafter defined), based
on such proprietary technology of Fuisz.
NOW, THEREFORE the parties agree as follows:
ARTICLE 1- DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
set forth in this Article:
1.1 "AFFILIATE" shall mean any company, partnership, joint venture or
other entity of which at least fifty percent (50%) of the voting rights
attaching to ordinary share capital is exercisable directly or indirectly by a
party to this Agreement alone or jointly, and any company, partnership, joint
venture or other entity over which a party to this Agreement directly or
indirectly exercises effective management control.
1.2 "COMMERCIAL SALE" shall mean any sale, trade or barter which
transfers title, to an independent third party purchaser, to any Licensed
Product by or on behalf of Kos or by or on behalf of a Sublicensee of Kos
including, but not limited to, a third party under a supply arrangement or
similar arrangement.
1.3 "LICENSED PRODUCT" shall mean any Product, the process of using or
the manufacture, use or sale of which, but for a license granted hereunder,
would infringe any Valid Claim, or which is based upon, derived from or uses any
Technology; provided, however, that Licensed Product shall not include
*********** Technology except as set forth in Article 5.
<PAGE>
1.4 "PRODUCT(S)" shall mean once-a-day oral solid dosage forms
containing Captopril for human consumption, made in whole or in part by
**************, ******************************************** or other
Technologies of Fuisz under the Development Program. Products shall not include
immediate release or other non-prolonged release oral solid dosage forms of
Captopril.
1.5 "******* TECHNOLOGY" shall mean Fuisz technology and processes where
********* materials are converted to *********** materials, materials made by
such processes and applications of materials made by such processes and
apparatus used to carry out such processes.
1.6 "********* TECHNOLOGY" shall mean technology relating to *********
processes including *********** and ********** processes, materials made by such
processes, applications of materials made by such processes and apparatus used
to carry out such processes.
1.7 "TECHNOLOGY" shall mean any and all inventions, improvements,
discoveries, claims, formulae, processes, trade secrets, technologies, know-how,
patents and patent applications conceived or reduced to practice during the
Development Agreement, and which are owned by Fuisz and I) incorporated in or
necessary for the manufacture, use or sale of Licensed Products or II) disclosed
and claimed in any patent or patent application included in Licensed Patents.
1.8 "LICENSED PATENTS" shall mean: I) the patents and patent
applications set forth in Appendix A; and II) any and all extensions, renewals,
continuations, continuations-in-part, divisions, patents-of-additions, reissues,
reexaminations, supplementary protection certificates or foreign counterparts of
any of the foregoing; and III) any and all patents which are granted on any I)
and II); and IV) any and all patents and patent applications owned or controlled
or licensable by Fuisz with the right to sublicense without payment of any kind
to a third party which contain claims, the practice of which would infringe the
claims of a patent or patent application included in I), II) or III), or which
are based upon or derived from Technology.
1.9 "TERRITORY" shall mean Worldwide.
1.10 "NET SALES" shall mean the gross invoice price of Commercial Sales
by Kos and Sublicensees of all Licensed Products, less deductions for
transportation and insurance charges, rebates, returns and allowances (actually
paid or allowed by Kos and Sublicensees), customary discounts (whether in cash
or trade), and sales or other taxes when included in the gross invoice price,
but not including taxes assessed on income derived from such Commercial Sales.
1.11 "VALID CLAIM" shall mean a claim of an issued and unexpired
Licensed Patent which has not been held invalid or unenforceable by decision of
a court or
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other governmental agency of competent jurisdiction, unappealable or unappealed
within the time allowed for appeal, and which is not admitted to be invalid
through disclaimer or dedication to the public.
1.12 "SUBLICENSEE" shall mean third parties to whom Kos has granted a
sublicense to make, use or sell any Licensed Product.
1.13 "DEVELOPMENT AGREEMENT" shall mean the Development Agreement
(having the same Effective Date as this Agreement) between the parties and all
extensions, amendments and renewals thereof.
1.14 "DEVELOPMENT PROGRAM" shall mean research and development and other
activities performed by Fuisz and Kos pursuant to the terms of Article 1 and
Appendix B of the Development Agreement.
1.15 "CAPTOPRIL" shall mean the compound Captopril in dosages to be
mutually agreed by Fuisz and Kos.
1.16 "FDA" shall mean the Food and Drug Administration of the United
States.
1.17 "KOS" shall mean Kos Pharmaceuticals, Inc. and its Affiliates.
1.18 "FUISZ" shall mean Fuisz Technologies Ltd. and its Affiliates.
1.19 "EFFECTIVE DATE" shall mean April 1, 1996.
1.20 "GRANT BACK TECHNOLOGY" shall mean any and all inventions,
improvements, discoveries, claims, formulae, processes, trade secrets,
technologies, know-how, patents and patent applications based upon or directly
related to Technology, which are: a) conceived or first reduced to practice by
Kos during the period beginning with Effective Date and ending upon termination
of this Agreement; and b) owned or controlled by Kos or licensed to Kos with the
right to sublicense.
1.21. "********* TECHNOLOGY" shall mean technology relating to ********
processes including ********* and ********* processes for making ********** of
materials such as *********** and *****, including such ********** and coatings
and processes for coating such ************.
ARTICLE 2 -OPTION/LICENSE GRANT
2.1 OPTION GRANT TO KOS. Subject to the terms and conditions of this
Agreement, Fuisz grants to Kos an option to obtain an exclusive, royalty bearing
license under Technology and Licensed Patents to make, have made, use, sell and
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<PAGE>
have sold Licensed Products throughout the Territory, including the right to
grant sublicenses; provided, however that no licenses or rights are granted or
implied for ********** Technology, except as set forth in Article 5 hereof. Such
option shall be exercisable by Kos, provided all payments have been made in full
to Fuisz as provided in paragraphs 3.1(a) and 3.1(b) of this Agreement, by Kos
giving written notice to Fuisz of exercise within the term of the Development
Agreement. In the event Kos does not exercise its option as provided herein,
this Agreement and all rights granted to Kos hereunder shall terminate.
2.2 LICENSE GRANT TO KOS. Upon exercise of the option as set forth in
Section 2.1, the terms and conditions of this Agreement pertaining to the
license grant hereunder shall automatically come into full force and effect.
2.3 PAYMENT OF FEES. The option and licenses granted hereunder shall be
subject to the timely payment of the applicable fees and royalties as provided
under Articles 3, 4 and 6 of this Agreement.
2.4 LICENSE GRANT TO FUISZ. Kos hereby grants to Fuisz a non-exclusive,
fully paid, irrevocable worldwide license (including the right to grant
sublicenses) under Grant Back Technology to make, have made, use, sell and have
sold products and to practice processes; provided, however, that in the exercise
of such license right Fuisz shall not do so to the detriment of the competitive
position of Kos or inappropriately identify Kos in any publicity concerning
same.
2.5 MANUFACTURING TECHNOLOGY ACCESS AND SUPPORT. Following payment of
the Manufacturing Technology Access and Support Fee under Section 3.2, Fuisz
shall make available to Kos the essential aspects of Technology necessary to
produce Licensed Products commercially. The Manufacturing Technology Access and
Support Fee shall include up to *************** days of a senior professional or
the equivalent thereof retained by Fuisz to assist in technical support related
to manufacturing of Licensed Products. In the event additional technical
manufacturing support is desired by Kos, at the request of Kos, and upon mutual
agreement on the prices at which such consultants and equipment shall be
provided to Kos, Fuisz shall make available to Kos consultants and equipment
useful for the manufacture of Licensed Products. The cost of such consultants
and equipment shall be in addition to any other fees due or payable under the
provisions of this Agreement.
2.6 For a period beginning upon the Effective Date and ending **********
following termination of the Development Program, Fuisz shall grant to Kos the
first right of negotiation of a license under Technology or Licensed Patents for
additional modification of Captopril ,and Captopril in combination with other
compounds. Kos shall notify Fuisz within such period of its desire to negotiate
such a license, and thereafter the parties shall negotiate in good faith toward
execution of a definitive agreement embodying such license.
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ARTICLE 3 - FEES
3.1 OPTION/LICENSE FEES. In addition to the payments under Section 4.1,
Kos shall make the following lump sum payments to Fuisz in consideration of the
option and licenses granted hereunder, such lump sum payments not being
creditable except as otherwise expressly provided herein toward royalty or other
payments due hereunder:
(a) *************************************** as an option fee,
due and payable within thirty (30) days of the Effective Date;
(b) *********************************************, due and
payable following the end of Phase II of the Development Program or six (6)
months after the end of Phase I of the Development Program, whichever first
occurs; and
(c) *************************************************** as a
license fee, ********* of which shall be due and payable within ten (10) days
following the acceptance by the FDA of the first application submitted for
approval to sell a Licensed Product, and ************************** of which
shall be due and payable upon approval by the FDA of an application to sell a
Licensed Product.
3.2 MANUFACTURING TECHNOLOGY ACCESS AND SUPPORT FEE. In consideration of
the disclosure of Technology to Kos by Fuisz relating to manufacturing of
Licensed Products under Section 2.5, Kos shall pay to Fuisz such amounts as are
negotiated and agreed by the parties in good faith.
ARTICLE 4 - ROYALTIES & MINIMUM ROYALTIES
4.1 RUNNING ROYALTY
(a) As additional consideration for the grant of the licenses
provided hereunder, Kos shall pay Fuisz a running royalty of *****************
of Net Sales of Licensed Product commencing on the first Commercial Sale of
Licensed Product by Kos or its Sublicensees.
(b) Although the parties intend to secure patents covering
Licensed Products, except as otherwise provided hereunder, the royalty required
under this Article 4 shall be payable with respect to each Licensed Product
until this Agreement expires as to such Licensed Product pursuant to Section
10.1, notwithstanding the existence or non-existence of Licensed Patents
covering any Licensed Product.
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4.2 OBLIGATION TO PAY RUNNING ROYALTY. The obligation to pay running
royalty to Fuisz under this Article 4 shall be imposed only once with respect to
the same unit of Licensed Product regardless of the number of Licensed Patents
or aspects of Technology pertaining thereto. There shall be no obligation to pay
running royalties to Fuisz under this Article 4 on sales of Licensed Products
between Kos and its Affiliates and its Sublicensees but in such instances the
obligation to pay running royalty shall arise based on Net Sales by Kos or its
Affiliates or its Sublicensees. Payments due under this Article 4 shall be
deemed to accrue when Licensed Products are shipped or billed, whichever event
shall first occur.
4.3 MINIMUM ROYALTIES
(a) The licenses granted to Kos under this Agreement shall be
subject, on a calendar year basis, to payment of annual minimum royalties to
Fuisz by Kos as follows, twenty five percent (25%) of which shall be due and
payable within sixty (60) days following the end of each calendar quarter
commencing one (1) year following approval by the FDA to sell a Licensed
Product:
Year 1 - ********************************
Year 2 - ********************************
Year 3 - ********************************
Year 4 - ********************************
Years 5 through 9 - *********************
(b) In the event Kos or its Sublicensees shall fail to make
significant Commercial Sales or fail to use reasonable commercial efforts to
sell a Licensed Product in a country within five (5) years following the date of
first Commercial Sale anywhere in the Territory, Fuisz shall be entitled to
terminate in their entirety all licenses and rights granted hereunder to Kos in
such country upon written notice to Kos.
ARTICLE 5 - FUISZ SUPPLY OF ************
In the event Kos requests in writing that Fuisz supply to Kos Captopril
produced utilizing *********** Technology for use in Licensed Product, Fuisz
shall, for a period of **************** following such request negotiate in good
faith with Kos toward execution of a definitive commercial supply and/or
manufacture agreement under reasonable commercial terms for the supply of such
form of Captopril at a transfer price to Kos not to exceed the standard cost of
manufacture in accordance with the usual accounting procedures of Fuisz
**************** **************************. In the event Kos and Fuisz execute
such a definitive agreement, such agreement shall include a limited license to
Kos to utilize such form of Captopril in the manufacture of Licensed Products
and to sell and have
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sold such Licensed Products, which incorporate such form of Technology, and
provisions for the supply of such form of Captopril in the event Fuisz fails to
or cannot supply them. In the event Kos and Fuisz fail to execute such a
definitive agreement within such **********************, the provisions of this
Article 5 shall cease to be in effect thereafter. No further license or rights
shall be granted or implied to Kos with respect to *********** Technology.
ARTICLE 6 - PAYMENTS AND REPORTS
6.1 PAYMENT - All running royalty payments due under Section 4.1 shall
be paid ******** within ************* of the end ************* each calendar
year during the term of this Agreement. Each such payment shall be accompanied
by a statement of the type of each Licensed Product sold and the total Net Sales
of each such Licensed Product during such quarter, and the amount of royalty due
on such Net Sales.
6.2 MODE OF PAYMENT - Kos shall pay all royalty payments required under
this Agreement in the United States in United States Dollars. The royalty
payments due shall be translated at the rate of exchange at which United States
Dollars are listed in THE WALL STREET JOURNAL for the currency of the country in
which the royalty is accrued on the last business day of the quarter of each
calendar year in which Net Sales are made. If the transfer or the conversion
into United States Dollar equivalents in any such instance is not lawful or
possible, the payment of such part of the royalty as is necessary shall be made
by the deposit thereof, in the currency of the country where the sales were made
on which the royalty was based, to the credit and account of Fuisz or its
nominee in any commercial bank or trust company of its choice located in that
country, prompt notice of which shall be given by Kos to Fuisz.
6.3 TAXES - All taxes, assessments, fees and charges, if any, levied on
Kos, its Affiliates, or its Sublicensees under income tax laws or regulations
with respect to payments due to Fuisz hereunder shall be for the account of
Fuisz and if required to be withheld by the payer will be deducted by Kos, its
Affiliates, and/or its Sublicensees from such payments due to Fuisz. Receipts,
if available, for all such taxes, assessments, fees and charges advanced by Kos,
its Affiliates, and/or its Sublicensees to the taxing authorities shall be
secured by Kos, its Affiliates, and/or its Sublicensees and sent to Fuisz.
6.4 RECORDS RETENTION - Kos shall keep for *************** following the
royalty payment period to which they relate, complete and accurate records
pertaining to the manufacture, use and sale of Licensed Products in sufficient
detail to permit Fuisz to confirm the accuracy of Net Sales, royalty
calculations and payments under this Agreement.
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6.5 AUDIT REQUEST - At the request of Fuisz, Kos shall permit an
independent, certified public accountant appointed by Fuisz and acceptable to
Kos, at reasonable times and not more than **** each calendar year to: I)
determine, with respect to any calendar year ending not more than
*************** prior to such request, the correctness of any report or payment
made under this Agreement; or II) obtain information as to the royalty payable
for any calendar year in the case of failure of Kos to report or pay pursuant to
this Agreement. Results of any such examination shall be made available to both
parties. Fuisz shall bear the full cost of any such audit unless such audit
shall result in a determination that royalties have been underpaid by more than
*****************, in which case Kos shall bear the full cost of such audit.
6.6 FAILURE TO MAKE PAYMENTS - In the event that any payments due under
this Agreement are not made in accordance with the dates set forth hereunder,
Fuisz shall provide Kos written notice of such non-payment. Except as otherwise
specified in this Agreement, if such payments are not made within sixty (60)
days after receipt by Kos of such written notice from Fuisz, Fuisz shall have
the right to terminate this Agreement by sending written notice thereof to Kos,
which notice shall be effective immediately. Any licenses or rights granted
under this Agreement shall thereafter revert to Fuisz.
ARTICLE 7 - REPRESENTATIONS AND WARRANTIES; INFRINGEMENT AND ENFORCEMENT
7.1 REPRESENTATIONS AND WARRANTIES - Fuisz hereby represents and
warrants that:
(a) To the best of its knowledge: (I) it has the full power
and right to grant the rights and licenses set forth herein; and (II) that there
are no encumbrances on Technology or Licensed Patents which could have a
material adverse effect on the right of Kos to manufacture, use or sell Licensed
Products; and
(b) It has no existing agreements with any third party which
are in conflict with the rights granted to Kos pursuant to this Agreement.
7.2 PATENT ENFORCEMENT. Each party shall notify the other of any
infringement of Licensed Patents of which it becomes aware during the term of
this Agreement. Fuisz shall have the first right, but not the duty, to institute
patent infringement actions against third parties based on any Licensed Patent
under this Agreement, provided that Kos may join in any such actions at the
expense of Kos insofar as Kos may have a claim for lost profits. Fuisz shall
promptly notify Kos of its intention to prosecute any substantial and clear acts
of infringement of Licensed Patents. If Fuisz does not institute an infringement
proceeding against such an infringer, Kos shall have the right, but not the
duty, to institute such an action. The
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costs and expenses of any such action (including fees of attorneys and other
professionals) shall be borne by the party instituting the action, or, if the
parties elect to cooperate in instituting and maintaining such action, such
costs and expenses shall be borne by the parties in such proportions as they may
agree in writing. Each party shall execute all necessary and proper documents
and take such actions as shall be appropriate to allow the other party to
institute and prosecute such infringement actions and render such assistance as
reasonably required by the party enforcing such patents. Any award paid by a
third party as a result of such an infringement action (whether by way of
settlement or otherwise) shall be paid to the Party who instituted and
maintained such action, or if both Parties instituted and maintained such
action, such award shall be allocated among the Parties in proportion to their
respective contributions to the costs and expenses incurred in such action.
7.3 INFRINGEMENT ACTION BY THIRD PARTIES
(a) In the event of the institution of any suit by a third
party against Kos for patent infringement involving the manufacture, use, sale,
distribution or marketing of any Licensed Product, provided the basis of such
suit is the practice by Kos of a Licensed Patent or Technology licensed
hereunder, Kos shall promptly notify Fuisz in writing of such suit. Kos shall
have the right to defend such suit at its own expense, and Fuisz shall assist
and cooperate with Kos, at Kos's expense, to the extent necessary in the defense
of such suit. During the pendency of such action, Kos shall continue to make all
payments due under this Agreement.
(b) If Kos finally prevails in any such suit because it is
held not to be infringing any patents belonging to such third party or because
such third party's patent is held invalid, Kos shall continue to pay royalty as
set forth in Article 4, ***
**************************************************************
**************************************************************
**************************************************************
*******************************************************.
(c) If Kos finally loses in any such infringement action,
whether by judgment, award, decree or settlement, and is required to pay a
royalty (including lump sum fees) to a third party, Kos shall continue to pay
royalty as set forth in Article 4 with respect to such Licensed Product in the
country which is the subject of such action,
**************************************************************
**************************************************************
**************************************************************
**************************************************************
************************************************.
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(d) Any ********************************************
***************************************************************************
**********************.
7.4 Fuisz does not represent or warrant that the Licensed Patents are
valid or that the use of Licensed Patents and Technology by Kos will not
infringe any patent or other rights of any third party, and Fuisz shall not be
obligated to defend or hold harmless Kos or its Affiliates or Sublicensees or
any other entity or person against any suit, damage, claim or demand based on
actual or alleged invalidity or infringement of any patent or other rights owned
by a third party, or any unfair trade practice, resulting from the exercise or
use of any right granted hereunder.
ARTICLE 8 - CONFIDENTIALITY
8.1 CONFIDENTIALITY; EXCEPTIONS - Except to the extent expressly
authorized by this Agreement, and except as provided in Section 8.2, or
otherwise agreed in writing, the parties shall, for the term of this Agreement
and five (5) years thereafter, keep confidential and shall not publish or
otherwise disclose, or use for any purpose, any information furnished to one
party by the other party pursuant to this Agreement, except to the extent that
it can be established by competent evidence that such information:
(a) was already known to the receiving party, other than under
an obligation of confidentiality, at the time of disclosure by the other party;
(b) was generally available to the public or otherwise part of
the public domain at the time of its disclosure to the receiving party;
(c) became generally available to the public or otherwise part
of the public domain after its disclosure and other than through any act or
omission of the receiving party in breach of this Agreement;
(d) was disclosed to the receiving party, other than under an
obligation of confidentiality, by a third party who had no obligation to the
disclosing party not to disclose such information to others; or
(e) is independently developed by or on behalf of its
receiving party by individuals not having access to such information.
Each party may disclose the other's information to the extent such
disclosure is reasonably necessary in filing or prosecuting patent applications,
prosecuting or defending litigation, or is necessary to be disclosed in
connection with the marketing
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or sale of a Licensed Product or is necessary to be disclosed to comply with
applicable governmental regulations, provided that if a party is required to
make any such disclosure of the other party's secret or confidential information
it shall, except where impracticable for necessary disclosures, for example to
health authorities, give reasonable advance notice to the other party of such
disclosure requirement and, except to the extent inappropriate in the case of
patent applications, shall use reasonable efforts to secure confidential
treatment of such information required to be disclosed.
8.2 It is understood that trade secrets provided to a party under this
Agreement and under the Development Agreement may have a significant factor in
producing Licensed Products and in the lead time for Licensed Products to be
introduced into the market-place. All such trade secrets, as defined under the
Uniform Trade Secrets Act of the United States, or the trade secret laws of
applicable national countries as applicable, which are provided by one party to
the other party hereunder and identified in writing as trade secrets, shall be
maintained in confidence, without limitation of time, and will be used only for
purposes of work under the Development Agreement or commercialization of
products under the provisions of this Agreement.
8.3 With respect to confidential information, know how and trade secrets
disclosed on or after the Effective Date by one party to the other party under
the provisions of this Agreement, the provisions of this Agreement shall govern
and prevail. In the event of any conflict between this Agreement and any other
agreement between the parties, with respect to confidential information relating
to the Field disclosed on or after the Effective Date, the terms of this
Agreement shall govern and prevail.
8.4 Each party may also disclose the other's confidential information
and trade secrets to an Affiliate, agent or consultant who has a need to know
such confidential information or trade secrets, and who is under a written
obligation of confidentiality and non-use at least substantially equivalent to
the obligations of this Article 8. A party disclosing the other party's
information or trade secrets to such Affiliate, agent or consultant shall notify
the other party of the identity of such Affiliate, agent or consultant, and
provide the other party with a draft of the proposed confidentiality agreement
with such Affiliate, agent or consultant and allow the other party to make
whatever changes it deems necessary to such agreement in order to protect its
confidential information and trade secrets.
ARTICLE 9 - INDEMNIFICATION
9.1 (a) *** shall defend, indemnify and hold *****, its directors,
officers and employees, harmless from and against any and all claims, suits or
demands for
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liability, damages, losses, costs and expenses (including the costs and expenses
of attorneys and other professionals) arising out of third party claims or suits
or demands resulting from the manufacture, use or sale of Licensed Products by
************************************* pursuant to this Agreement.
(b) Each party (the "Indemnifying Party") shall defend,
indemnify and hold the other party and its directors, officers and employees,
harmless from and against any and all claims, suits, and demands for liability,
damages, losses, costs and expenses (including the costs and expenses of
attorneys and other professionals) arising out of or resulting from the
inaccuracy of any representation or the breach by the Indemnifying Party of any
warranty, covenant or agreement contained in this Agreement.
9.2 NOTICE - In the event that either party seeks indemnification under
this Article 9, such party shall: I) promptly inform the indemnifying party of
any claim, suit or demand threatened or filed, II) permit the indemnifying party
to assume direction and control of the defense of such claims, suit or demand
resulting therefrom (including the right to obtain a settlement thereof at the
sole discretion of the indemnifying party), and III) cooperate as requested (at
the expense of the indemnifying party) in the defense of such claims, suit or
demand.
9.3 LIMITATIONS. An indemnifying party's (including sublicensees)
obligations under this Article 9 shall not extend to any claims, suits or
demands for liability, damages, losses, costs or expenses arising from the
indemnified party's failure to comply with the terms and conditions of this
Agreement, or of the Development Agreement, to the extent arising from the
negligence or willful misconduct of the indemnified party, its agents or
employees.
ARTICLE 10 - TERM; TERMINATION
10.1 TERM. This Agreement shall commence as of the Effective Date of
this Agreement and, unless sooner terminated as provided hereunder, shall expire
seventeen (17) years thereafter or upon the expiration of the last to expire
Valid Claim of a Licensed Patent, whichever period is longer.
10.2 BREACH. Failure by either party to comply with any material
obligation contained in this Agreement shall entitle the other party to give to
the party in default notice specifying the nature of the default and requiring
it to cure such default. If such default is not cured within sixty (60) days
after the receipt of such notice (or, if such default cannot be cured within
such sixty (60) day period, if the party in default does not commence and
diligently continue actions to cure such default), the notifying party shall be
entitled, without prejudice to any of its other rights conferred by this
Agreement, and in addition to any other remedies available to it by
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law or in equity, to terminate this Agreement by giving written notice to take
effect within thirty (30) days after such notice unless the defaulting party
cures such default within said thirty (30) days. The right of either party to
terminate this Agreement, as hereinabove provided, shall not be affected in any
way by its waiver or failure to take action with respect to any previous
default.
10.3 TERMINATION BY KOS. Kos shall have the right to terminate this
Agreement by giving notice in writing to Fuisz of such termination. Such
termination shall be effective ninety (90) days from the date such notice is
given, and all Kos's rights hereunder associated therewith shall cease as of
that date, subject to Section 10.4.
10.4 RIGHT TO SELL STOCK ON HAND. Upon the termination of this Agreement
for any reason other than a failure to cure a material breach of this Agreement
by Kos, Kos and its Affiliates shall have the right for one (1) year, or such
longer period as the parties may agree in writing, to dispose of all Licensed
Products or substantially completed Licensed Products then on hand, and running
royalty shall be paid to Fuisz with respect to such Licensed Products as though
such termination had not occurred.
10.5 TERMINATION OF SUBLICENSES. Upon termination of this Agreement, all
sublicenses granted by Kos under the provisions of this Agreement shall
terminate simultaneously, subject, nevertheless, to Section 10.4.
10.6 INSOLVENCY OR BANKRUPTCY. a) Either party may, in addition to any
other remedies available to it by law or in equity, terminate this Agreement by
written notice to the other party in the event the other party shall have become
insolvent or bankrupt, or shall have made an assignment for the benefit of its
creditors, or there shall have been appointed a trustee or receiver of the other
party or for all or a substantial part of its property, or any case or
proceeding shall have been commenced or other action taken by or against the
other party in bankruptcy or seeking reorganization, liquidation, dissolution,
winding-up arrangement, composition or readjustment of its debts or any other
relief under any bankruptcy, insolvency, reorganization or other similar act or
law of any jurisdiction now or hereafter in effect, or there shall have been
issued a warrant of attachment, execution, distraint or similar process against
any substantial part of the property of the other party, and any such event
shall have continued for sixty (60) days undismissed, unbonded and undischarged;
or b) all rights and licenses granted under or pursuant to this Agreement by
Fuisz to Kos are, and shall otherwise be deemed to be, for the purposes of
Article 365(n) of title 11, U.S. Code ("Bankruptcy Code") license rights to
"intellectual property" as defined under Article 101(60) of the Bankruptcy Code.
Kos, as a licensee of such right under this Agreement, shall retain and may
fully exercise all of its rights and election under the Bankruptcy Code.
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10.7 EFFECT OF TERMINATION.
(a) Following the expiration of any license granted under this
Agreement, Kos, and its Sublicensees shall have the royalty-free non-exclusive
right to continue to use the Licensed Patents and Technology for the
manufacture, use and sale of Licensed Products as heretofore licensed.
(b) Upon the termination of this Agreement by Fuisz other than
as provided in paragraph 10.7(a), Kos and its Sublicensees shall promptly: I)
return to Fuisz all relevant records, materials or confidential information
concerning the Licensed Patents and Technology relating to Licensed Product in
any country in the possession or control of Kos or any of its Sublicensees
provided, however, that a copy of such confidential information shall be
retained by Kos's legal department solely for reference as to its obligations
hereunder.
10.8 SURVIVING RIGHTS. Termination of this Agreement shall not terminate
Kos's obligation to pay all royalties which shall have accrued hereunder. The
parties' obligations under Articles 7, 8 and 9 and Sections 2.4, 4.1, 4.2, 6.4
and 10.4 shall survive termination.
10.9 ACCRUED RIGHTS, SURVIVING OBLIGATIONS. Termination, relinquishment
or expiration of this Agreement for any reason shall be without prejudice to any
rights which shall have accrued to the benefit of either party prior to such
termination, relinquishment or expiration. Such termination, relinquishment or
expiration shall not relieve either party from obligations which are expressly
indicated to survive termination or expiration of this Agreement.
ARTICLE 11 - MISCELLANEOUS PROVISIONS
11.1 STATUS OF PARTIES. The parties are independent contractors and
nothing in this Agreement is intended or shall be deemed to constitute a
partnership, agency, employer-employee or joint venture relationship between the
parties. Neither party shall incur any debts or make any commitments for the
other, except to the extent, if at all, specifically provided herein.
11.2 ASSIGNMENT. This Agreement is unassignable by either Kos or Fuisz
except with the prior written consent of the other, except that it may be
assigned without consent to a corporate successor of Kos or Fuisz or to a person
or corporation acquiring all or substantially all of the business and assets of
Kos or Fuisz to which this Agreement relates. All or any portion of Licensed
Patents and Technology shall be assignable by Fuisz; provided, however, that in
the event of any such assignment, any such assignee shall accept and agree in
writing to be bound by all of the terms and conditions of this Agreement
relating to such assigned rights.
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11.3 FURTHER ACTIONS. Each party agrees to execute, acknowledge and
deliver such further instruments, and to do all such other acts, as may be
necessary or appropriate in order to carry out the purposes and intent of this
Agreement.
11.4 FORCE MAJEURE. Neither party shall be liable to the other for any
loss or damages or shall have any right to terminate this Agreement for any
default or delay attributable to any act of God, flood, fire, explosion, strike,
lockout, labor dispute, shortage of raw materials, casualty or accident, war
(declared or undeclared), revolution, civil commotion, act of public enemies,
blockage or embargo, injunction, law, order, proclamation, regulation,
ordinance, demand or requirement of any government or subdivision, authority or
representative of any such government, or any other cause beyond the reasonable
control of such party, if the party affected shall give prompt notice thereof to
the other party. The party giving such notice shall thereupon be excused from
such of its obligations hereunder as it is thereby disabled from performing for
so long as it is so disabled and for thirty (30) days thereafter.
11.5 TRADEMARKS. Except as otherwise provided herein, neither party
shall have any right, express or implied, to use in any manner the name or other
designation of the other party or any other trade name or trademark of the other
party in connection with this Agreement. Kos shall place an appropriate legend
on all packaging material associated with Licensed Product indicating that such
Licensed Product was produced under license granted by Fuisz Technologies Ltd.
11.6 PUBLIC ANNOUNCEMENTS. Except as required by law or in connection
with private or public offerings to raise capital or as required for documents
to be filed with the Securities and Exchange Commission (a "Permitted Public
Announcement"), neither party shall make any public announcement concerning this
Agreement or the subject matter hereof without the prior written consent of the
other; provided, however, that in any event, each party shall have the right to
refer, in such announcement required by law or in any private or public offering
documents, to the status of this Agreement or of the Development Agreement and
to state that the license hereunder has been granted, together with a
generalized description of the nature and extent of such license. All such
announcements shall be made available by the announcing party to the other party
at least five (5) business days in advance of the announcement for review and
comment by the other party.
11.7 NOTICES. All notices and other communications required or permitted
to be given under or in connection with this Agreement shall be in writing, and
shall be deemed given if delivered personally or by facsimile transmission
(receipt verified), express courier service (signature required), telexed, or
mailed by registered or certified mail (return receipt requested), postage
prepaid, to the parties at the following addresses (or at such other address for
a party as shall be specified by like notice; provided, that notices of a change
or address shall be effective only upon receipt thereof):
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NOTICE TO FUISZ: NOTICE TO KOS:
Fuisz Technologies Ltd. Kos Pharmaceuticals, Inc.
ATTN: Richard C. Fuisz, M.D. ATTN: President
President and CEO 1001 South Bayshore Drive
3810 Concorde Parkway Suite 2502
Suite 100 Miami, FL 33131
Chantilly, VA 22021
With a copy to:
Fuisz Technologies Ltd.
ATTN: James L. Wilcox
Vice President and
General Counsel
3810 Concorde Parkway
Suite 100
Chantilly, VA 22021
11.8 AMENDMENT. No amendment, modification or supplement of any
provision of this Agreement shall be valid or effective unless made in writing
and signed by a duly authorized officer of each party.
11.9 WAIVER. No provision of this Agreement shall be waived by any act,
omission or knowledge of a party or its agents or employees except by an
instrument in writing expressly waiving such provision and signed by the waiving
party.
11.10 COUNTERPARTS. This Agreement shall be executed simultaneously in
two counterparts, either one of which need not contain the signature of more
than one party, but both such counterparts taken together shall constitute one
and the same agreement.
11.11 DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement
are for convenience only, and shall be of no force or effect in construing or
interpreting any of the provisions of this Agreement.
11.12 GOVERNING LAW. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of Delaware without regard to its
choice of law principles.
11.13 SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable regulations or law, such provision will be
ineffective only to the extent of such prohibition or invalidity without
invalidating the remainder of this Agreement.
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In the event of such prohibition or invalidity, the parties hereto shall
negotiate in good faith to modify this Agreement, but only to the extent
necessary to render the terms and conditions of this Agreement valid and
enforceable, giving full regard to all applicable regulations or laws and the
intent and purposes of the parties in entering into this Agreement.
11.14 COMPLIANCE WITH LAW. Nothing in this Agreement shall be deemed to
permit a party to export, reexport or otherwise transfer any Technology
transferred hereunder or Licensed Products manufactured therefrom without
compliance with applicable laws.
11.15 ENTIRE AGREEMENT OF THE PARTIES. This Agreement and the
Development Agreement constitutes and contains the entire understanding and
agreement of the parties and cancels and supersedes any and all prior
negotiations, correspondence, understandings and agreements, whether oral or
written, between the parties, respecting the subject matter hereof.
11.16 ALTERNATIVE DISPUTE RESOLUTION.
(a) In the event of any dispute, controversy or claim arising
out of or relating to this agreement (unless such dispute, controversy or claim
involves an issue of the validity of Licensed Patents), Kos or Fuisz shall
employ alternative dispute resolution procedures in an effort to avoid
litigation over any such dispute, controversy or claim. Any such dispute,
controversy or claim hereunder shall, prior to submission to such alternative
dispute resolution proceedings, be referred to representatives of management
(hereinafter "management representatives") of the respective parties for
resolution.
(b) Any such dispute that shall not have been resolved
pursuant to Section 11.16(a) ninety (90) days after reference to such management
representatives, or otherwise by agreement between the parties, shall be
referred to arbitration in accordance with the rules of the American Arbitration
Association. The arbitration tribunal shall consist of three (3) arbitrators.
The party initiating arbitration shall nominate one (1) arbitrator (who shall
not be affiliated with such party) in the request for arbitration and the other
party shall nominate a second arbitrator (who shall not be affiliated with such
party) in the answer thereto. The two (2) arbitrators so named will then jointly
appoint the third (3rd) arbitrator as chairman of the arbitration tribunal. If a
party fails to nominate its arbitrator as chairman of the arbitration tribunal
or if the arbitrators named by the parties fail to agree on the person to be
named as chairman within sixty (60) days, the Office of the American Arbitration
Association in Washington, DC, USA shall make the necessary appointments of an
arbitrator or the chairman of the tribunal. The award of the arbitration
tribunal shall be final and judgment upon such an award may be entered in any
competent court or application may be made to any competent court for judicial
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acceptance of such an award and an order of enforcement. In the event of any
procedural matter not covered by the aforesaid Rules, the procedural law of the
State of Delaware, United States of America, shall govern.
11.17 PRODUCT LIABILITY. In addition to the indemnification provided
under Article 9, Kos accepts full responsibility for and assumes all risk of
damage or injury to persons and to property arising out of the manufacture,
having manufactured, use or sale of Licensed Products by Kos or its Sublicenses.
Kos shall maintain product liability insurance in an amount of at least
***************************** to cover any and all such potential claims with
the exception of those claims arising directly from the use of *******
Technology supplied by Fuisz pursuant to Article 5, and shall hold harmless,
save and indemnify Fuisz from and against any and all personal injury, property
damage, product liability or similar claims, costs, damages, losses,
liabilities, attorneys fees and all judgments of any kind arising out of
the manufacture, having manufactured, use or sale of Licensed Products by
Kos or its Sublicenses.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed by its duly authorized officer as of the Effective Date.
KOS PHARMACEUTICALS, INC. FUISZ TECHNOLOGIES LTD.
/S/ DANIEL M. BELL /S/ RICHARD C. FUISZ
- ------------------ ------------------------
Daniel M. Bell Richard C. Fuisz, M.D.
President President and CEO
18
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APPENDIX A
PATENTS
- - Rapidly Dissoluble Medicinal Dosage Unit and Method of Manufacture
U.S. Patent No. 4,855,326 issued 08/08/89 (F-005)
- - Method of Producing Compacted Dispersable Systems
U.S. Patent No. 4,997,856 issued 04/05/91 (F-030)
- - Moderated Spun Fibrous System and Method of Manufacture
U.S. Patent No. 5,034,421 issued 07/23/91 (F-019)
- - Method & Apparatus for Flash Flow Processing having Feed Rate Control
U.S. Patent No. 5,346,377 issued 09/13/94 (F-115)
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APPENDIX A (CONT.)
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CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
DEVELOPMENT AGREEMENT
THIS AGREEMENT is made by and between Kos Pharmaceuticals, Inc., a
corporation of the State of Florida, with a place of business at 1001 South
Bayshore Drive, Suite 2502, Miami, FL 33131 (hereinafter referred to as "Kos")
and Fuisz Technologies Ltd., a corporation of the State of Delaware with a place
of business at 3810 Concorde Parkway, Suite 100, Chantilly, VA 22021
(hereinafter referred to as "Fuisz").
WHEREAS, Fuisz has over a period of years conducted research and
development work and developed proprietary technology which is useful to make
controlled-release formulations for pharmaceutical compounds; and
WHEREAS Kos has interests in developing, manufacturing and marketing
once-a-day oral solid dosage forms of IS-5-MN (as hereinafter defined), based on
Fuisz proprietary technology; and
WHEREAS, Fuisz and Kos are each willing to undertake a Development
Program (as hereinafter defined) for development of the foregoing products for
commercial marketing and sale.
Now, therefore, the parties agree as follows:
The definitions as used herein are set forth in Article 1 of the
License Agreement and Appendix A attached hereto and incorporated herein by
reference.
ARTICLE 1 - DEVELOPMENT PROGRAM
1.1 Fuisz and Kos shall jointly undertake using reasonable best efforts
a Development Program to develop one or more Products for Commercial Sale. It is
understood that this Development Program is primarily for the purposes of
developing and producing Products and shall be carried out generally in
accordance with Appendix B.
1.2 Each party shall appoint a Program Manager for overall management of
the Development Program and such Program Managers shall by mutual agreement
provide the direction of the program and the scope of work to be undertaken
under the Development Program; provided, however, that Kos shall determine the
focus of work which the Program Managers mutually agree can be carried out under
the
<PAGE>
Development Program, within the guidelines set forth in Appendix B. The initial
Program Manager for Kos shall be designated within thirty (30) days and the
initial Program Manager for Fuisz shall be Martynn Sheehan. Each party may
change the designated Program Manager upon written notice to the other party of
such change.
1.3 During the term of the Development Program Fuisz shall periodically
provide to Kos samples of materials for evaluation by Kos. Kos shall promptly
evaluate such samples and provide guidance to Fuisz for further work based on
the results of such evaluations. During the Development Program term, Program
Managers or representatives of the parties shall meet from time to time to
discuss planning and progress of the Development Program to carry out efficient
and effective activities. Fuisz shall provide project updates to Kos verbally
and/or in written form every four (4) weeks during the Development Program, and
shall provide a written report upon completion of the Development Program. All
such discussions and activities shall be considered as carried out under the
Development Program.
1.4 Kos shall supply to Fuisz, at Kos's cost and expense, materials
including IS-5-MN which Kos believes are essential for carrying out the
Development Program. All such materials supplied by Kos shall be materials
approved for human uses unless otherwise specifically designated and Kos shall
supply MSDS sheets where necessary for the processing of such materials. Fuisz
shall advise Kos from time to time of its requirements for such materials for
the Development Program.
1.5 Upon termination of each Phase of the Development Program, Fuisz
shall provide to Kos quantities of prototype Products processed using Technology
which demonstrate the best results obtained under the Development Program. Kos
shall provide to Fuisz all data, information and conclusions generated during
the Development Program relating to the Development Program and/or Technology
including without limitation ******************** and any other mutually agreed
pre-defined data, and Fuisz shall have the ****************** to use all such
data, information and conclusions; provided, however, that Fuisz shall not
utilize such data, information and conclusions to the detriment of the
competitive position of Kos or inappropriately identify Kos in any publicity
concerning same.
1.6 In the event special processing or manufacturing equipment
specifically modified or adapted for use with Technology is requested by Kos to
be used under the Development Program, Kos shall provide such equipment to Fuisz
for the duration of the Development Program.
1.7 All activities in connection with the Development Program shall be
carried out by each party in strict compliance with any applicable federal,
state or local laws, regulations or guidelines governing such activities.
2
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1.8 In addition to the funding under Article 3, Kos shall pay for the
cost of all materials including IS-5-MN used in the Development Program and
approved by Kos (to the extent such materials are not provided and fully paid by
Kos), and Kos shall pay for the costs of all shipping, packing, customs, duties
and customs clearances associated with shipment of materials and/or equipment to
or from Fuisz or for, or resulting from work under, the Development Program. In
addition, Kos shall pay for the reasonable costs of travel of Fuisz personnel at
the prior request and approval of Kos in connection with meetings, activities or
reviews of activities under the Development Program.
1.9 All equipment, supplies and other items purchased by either party
for the conduct of the Development Program, shall be the sole and exclusive
property of the purchasing party. For purposes hereof, all such items purchased
by Fuisz with funds provided by Kos shall be deemed to be items purchased and
owned by *****.
ARTICLE 2 - TERM AND TERMINATION OF THE DEVELOPMENT PROGRAM
2.1 The initial term of Phase I of the Development Program shall be
***************** from the Effective Date. The parties shall use reasonable
efforts to carry out the Development Program during such initial term. However,
if due to unforseen circumstances unavoidable delays attributable solely to
Fuisz are encountered, or force majeure events are encountered in carrying out
activities, the initial term of the Development Program shall be extended for a
time equal to the delay at no additional cost to Kos. The Development Program
shall be automatically extended on a week by week basis after the initial term
provided that Kos may terminate the Development Program anytime after the
initial term or at the end of each successive weekly extension of the
Development Program, and Fuisz may terminate the Development Program at the end
of the twelfth (12th) weekly extension thereof or at the end of each successive
weekly extension thereafter, respectively upon seven (7) calendar days advance
notice in writing to the other party.
2.2 If either party shall default, fail to perform, or otherwise commit
a breach of a material obligation or any covenant contained herein with respect
to the Development Program, and shall fail to remedy such default, failure to
perform or breach within sixty (60) days after its receipt of written notice
thereof from the other party, such other party may terminate the Development
Program and incur no further obligation hereunder, it being understood, however,
that if within such sixty (60) days after receipt of such notice, the party in
default shall have rectified its default, then the Development Program and the
terms hereof relating to the Development Program shall be restored as if no
termination of the Development Program had occurred. The term of this Agreement
(or any extension thereof) shall be tolled by the time required by the
defaulting party to cure the default.
3
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2.3 This Agreement shall commence upon the Effective Date and terminate
at the end of the term of the Development Program, including any extensions
thereof.
2.4 Except for Kos and Fuisz jointly owned technology and patents and
Fuisz solely owned technology and patents, Fuisz hereby acknowledges that it
shall not have the right, following expiration of the Development Agreement
term, to use technology to the extent obtained from Kos, patents based thereon
or any materials to the extent obtained from Kos, for any purpose without
obtaining a license from Kos, which license Kos, in its sole discretion, may
grant or deny.
2.5 Except as set forth in the License Agreement and except for Kos and
Fuisz jointly owned technology and patents and Kos solely owned technology and
patents, Kos hereby acknowledges that it shall not have the right, following
expiration of the Development Agreement term, to use Technology to the extent
obtained from Fuisz, patents based thereon or any materials to the extent
obtained from Fuisz, for any purpose without obtaining a license from Fuisz,
which license Fuisz, in its sole discretion, may grant or deny.
ARTICLE 3 - FUNDING OF THE DEVELOPMENT PROGRAM
3.1 Kos shall provide total funding for Phase 1 of the Development
Program as set forth in Appendix B, in the amount of
****************************
******************************************************************************
******************* of which shall be paid to Fuisz within *********** days of
the Effective Date, and ******************************** of which shall be paid
within ************************ following the end of Phase 1 and
****************************************** of which shall be paid within
**************** following completion of the Phase 1 ******************* of
Appendix B. This amount of funding may be increased by mutual agreement. This
funding shall not include the cost of the ******************* which shall be
funded and paid for ************. In the event Kos chooses to proceed to Phase 2
and/or Phase 3 as set forth in Appendix B, unless Fuisz determines further
development is not feasible, Kos shall pay to Fuisz additional amounts
commensurate with the activity involved and as mutually agreed, consistent with
the cost of Phase 1 and with the level of activity, for Phase 2 and for Phase 3
payable within **************** of commencement of the phases.
3.2 In the event the Development Program is extended by mutual written
agreement of the parties, each successive one (1) week extension after the
initial term shall be funded and paid to Fuisz in advance at a rate of
************************************ per week with respect to extension of Phase
I, and with respect to Phases 2 and 3, such weekly amounts as are consistent
with the additional funding set forth in Section 3.1; provided, however, that if
the man-day charges for
4
<PAGE>
work carried out at Fuisz during the initial term are less than the funding
actually paid under the initial term (exclusive of charges under Section 1.8)
then additional funding for such extensions under this Section 3.2 shall not be
invoiced or due until such time as the man-day charges equal such funding
provided for the initial term. Other costs as set forth in Section 1.8
associated with successive weekly extensions incurred under the Development
Program, shall be invoiced once each month and will be due net thirty (30) days
from date of mailing of the invoice.
3.3 All work done at Fuisz shall be at ************** rates of Fuisz for
pharmaceutical development work. Verification of the man-days charges for work
under the Development Program and the schedule of applicable existing charge
rates shall be made available to Kos at reasonable intervals upon written
request. In the event Kos requests work be done in excess of the current funding
during the initial term of the Development Agreement or any extensions thereof,
Fuisz shall invoice Kos for such excess work on a monthly basis. In the event
either party terminates the Development Program, Kos shall be obligated to pay
Fuisz for all work done by Fuisz under the Development Program up to the date of
termination, and if terminated by Kos for breach by Fuisz, Fuisz shall refund
any advanced funding payments made by Kos in excess of payments for work done.
ARTICLE 4 - MERCHANTABILITY, FITNESS FOR PURPOSE AND
LIMITATIONS OF LIABILITY
4.1 The parties recognize that this is an agreement for services and not
for the sale of goods. Therefore, except as provided in this Article 4, Fuisz
makes no warranties, express or implied, regarding the quality or quantity of
any Product produced under this Agreement or materials purchased to support work
performed under this Agreement which are not specifically identified in writing
as to source or quality by Kos prior to purchase, provided that Fuisz represents
and warrants that as of the time of delivery, all Products supplied to Kos which
are labeled cGMP Sample shall conform to the specifications mutually agreed to
in writing by the parties, shall be manufactured using Current Good
Manufacturing Practices as defined in regulations promulgated by the FDA under
the Federal Food, Drug and Cosmetic Act (the "Act"), shall contain only
materials that are GRAS, and shall not be adulterated or misbranded within the
meaning of the Act. FUISZ EXPRESSLY DISCLAIMS ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
4.2 In the performance of the duties contemplated hereunder, the status
of the parties including employees and agents of each, shall be that of
independent contractors and not as employees, agents or fiduciaries of the other
party, and neither party shall have the right to make commitments for or on
behalf of the other party.
5
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4.3 Each party shall be responsible for the safety of its employees and
agents with respect to activities relating to the Development Program under this
Agreement and for liability for damages or personal injuries, including death,
resulting from such activities without any warranty, liability or
indemnification on the part of the other party.
ARTICLE 5 - FORCE MAJEURE
5.1 Neither Fuisz nor Kos shall be liable for delay or failure in the
performance of the obligations contained in this Agreement arising solely from
any one or more of the following matters: (a) acts of God, or public enemy or
war (declared or undeclared); (b) acts of governmental authorities, of
quasi-governmental authorities, or the United States, or any political
subdivision thereof, or of any department or agency thereof, or regulations or
restrictions imposed by law or by court action, except as they may result from
the unreasonable failure of Fuisz or Kos to perform as required hereunder; (c)
acts of persons, other than employees or agents of the parties, engaged in
subversive activities or sabotage; (d) fires, floods, explosions or other
catastrophes; (e) epidemics or quarantine restrictions; (f) strikes, or similar
labor disruptions; (g) freight embargoes, or interruption of transportation; (h)
unusually severe weather; (i) delays of a supplier of Fuisz or Kos due to any of
the above causes or events; or (j) any other extraordinary causes, similar or
dissimilar, beyond the control of the party concerned; and provided that due
diligence is exercised to cure such cause and resume performance, and the time
for performance by such party shall be extended by a period of any such delay.
ARTICLE 6 - CONFIDENTIALITY
6.1 CONFIDENTIALITY; EXCEPTIONS - Except to the extent expressly
authorized by this Agreement, and except as provided in Section 6.2, or
otherwise agreed in writing, the parties shall, for the term of this Agreement
and for five (5) years thereafter, keep confidential and shall not publish or
otherwise disclose, or use for any purpose, any Confidential Information
furnished to one party by the other party pursuant to this Agreement, except to
the extent that it can be established by competent evidence that such
Confidential Information:
(a) was already known to the receiving party, other than under
an obligation of confidentiality, at the time of disclosure by the other party;
(b) was generally available to the public or otherwise part of
the public domain at the time of its disclosure to the receiving party;
6
<PAGE>
(c) became generally available to the public or became
otherwise part of the public domain after its disclosure and other than through
any act or omission of the receiving party in breach of this Agreement;
(d) was disclosed to the receiving party, other than under an
obligation of confidentiality, by a third party who had no obligation to the
disclosing party not to disclose such Confidential Information to others; or
(e) is independently developed by or on behalf of the
receiving party by individuals not having access to such Confidential
Information.
Each party may disclose the other's Confidential Information to the
extent such disclosure is reasonably necessary in filing or prosecuting patent
applications, prosecuting or defending litigation, or is necessary to be
disclosed in connection with the marketing or sale of a Product or is necessary
to be disclosed to comply with applicable governmental regulations; provided,
however, that if a party is required to make any such disclosure of the other
party's Confidential Information it shall, except where impracticable for
necessary disclosures, for example to health authorities, give reasonable
advance notice to the other party of such disclosure requirement and, except to
the extent inappropriate in the case of patent applications, shall use
reasonable efforts to secure confidential treatment of such Confidential
Information required to be disclosed.
6.2 All trade secrets provided to a party under this Agreement by the
other party, as defined under the Uniform Trade Secrets Act of the United
States, or the trade secret laws of applicable national countries, which are
provided by one party to the other party hereunder and identified in writing as
trade secrets, shall be maintained in confidence, without limitation of time,
and will be used only for purposes of work under this Agreement or
commercialization of Products under the provisions of this Agreement.
6.3 Each party may also disclose the other's Confidential Information
and trade secrets to an Affiliate, agent or consultant on a need-to-know basis,
who is under an obligation of confidentiality and non-use at least substantially
equivalent to the obligations of this Article 6, a party disclosing the other
party's Confidential Information or trade secrets to such Affiliate, agent or
consultant shall notify the other party of the identity of such Affiliate, agent
or consultant.
ARTICLE 7 - INVENTIONS AND PATENTS
7.1 Inventions and any patent applications and patents based on
Inventions made under or as a result of work done under the Development Program
or as a result
7
<PAGE>
of evaluations or analysis of samples under the Development Program shall be
owned as follows:
(a) if invented solely by the staff of Fuisz or their
consultants or jointly by employees of Fuisz and their consultants, ownership
shall rest in Fuisz;
(b) if invented solely by the staff of Kos or their
consultants or jointly by employees of Kos and their consultants and such
Inventions are based upon or directly related to Technology, ownership shall
rest in Fuisz; otherwise, ownership shall rest in Kos and Fuisz shall have
irrevocable, paid up, non-exclusive rights thereunder;
(c) if invented jointly by employees of Kos and/or Kos
consultants and employees of Fuisz and/or Fuisz' consultants ("Joint
Invention"), ownership shall rest jointly in Fuisz and Kos.
7.2 Patent and copyright procurement activity in regard to Inventions
shall be pursued at the discretion and expense of the owner or designee set
forth in Section 7.1 except that procurement activities with respect to Joint
Inventions shall be pursued at the discretion and equally shared expense of
Fuisz and Kos. Each party, however, shall notify the other upon the preparation
of any written invention report and/or the filing of any patent or copyright
application based on an Invention, provide the other with a copy of any such
Invention report, or patent or copyright application based on an Invention, and
any issued patent or statutory copyright granted thereon, and on request update
the other as to the status of any such patent or copyright application. Neither
party shall be liable with respect to any claims or damages arising from any
act, or failure to act, in regard to the preparation, prosecution or maintenance
of any such patent applications or patents. Each party shall sign documents to
vest or maintain title to patents and/or copyrights in the owner designated in
Section 7.1, and provide all reasonable assistance to the other with respect to
preparation and prosecution of such patents and copyrights as may be necessary.
7.3 As to Inventions owned by Kos and/or Fuisz in accordance with
Section 7.1, each party shall furnish to the other all information and data in
its possession reasonably necessary to obtain patents and copyrights on such
Inventions and, upon request, shall review applications for such patents and
copyrights. In the event the Program Manager or the owner or designee decides
that additional examples are necessary to obtain patents on Inventions, the
other party shall cooperate by providing any such examples relating to use of
the Invention as may reasonably be requested by the owner or designee, provided
that the owner or designee shall reimburse the other party for the reasonable
costs of generating such examples for individually owned Inventions where the
Program Managers do not agree to fund generation of such additional examples.
8
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ARTICLE 8 - GENERAL PROVISIONS
8.1 INDEPENDENT CONTRACTORS. Nothing in this Agreement shall be deemed
to create an agency, employer-employee, partnership or joint venture
relationship between the parties. The status of the parties shall be, for all
purposes, independent contractors. Neither party shall have the right to control
the work of the other's employees and/or agents.
8.2 NO OTHER IMPLIED LICENSES. Except as provided in the License
Agreement each party understands that this Agreement does not include any
assurance that the other party has granted or will grant any license, option or
right to it, and the other party reserves the right to enter into exclusive
licenses or business arrangements with other parties for any or all of its
technology.
8.3 AMENDMENTS. No addition to, deletion from or modification of any of
the provisions of this Agreement shall be binding upon the parties unless made
in writing and signed by a duly authorized representative of each party. Any
such additions, deletions or modifications shall refer specifically to this
Agreement.
8.4 ASSIGNMENT. This Agreement is unassignable by either Kos or Fuisz
except with the prior written consent of the other; provided, however, that it
may be assigned without consent to a corporate successor of Kos or Fuisz or to a
person or corporation acquiring all or substantially all of the business and
assets of Kos or Fuisz to which this Agreement relates. All or any portion of
Technology shall be assignable by Fuisz; provided, however, that in the event of
any such assignment, any such assignee shall accept and agree in writing to be
bound by all of the terms and conditions of this Agreement relating to such
assigned rights.
8.5 APPLICABLE LAW. This Agreement shall be governed by, construed and
enforced in accordance with the laws of the State of Delaware, United States of
America, without reference to its conflict of laws provisions.
8.6 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed duly given when personally delivered or sent by
registered or certified mail, return receipt requested, postage prepaid, or by
cable confirmed by letter as aforesaid, as follows:
Notice to Fuisz: Notice to Kos:
Fuisz Technologies Ltd. Kos Pharmaceuticals, Inc.
3810 Concorde Parkway 1001 South Bayshore Drive
Suite 100 Suite 2502
Chantilly, VA 22021 Miami, FL 33131
ATTN: Richard C. Fuisz ATTN: President
9
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President and CEO
With a copy to:
James L. Wilcox
Vice President & General Counsel
or to such other address as either party may hereafter designate in writing by
like notice.
8.7 ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding of the parties with regard to the subject matter hereof and
supersedes all prior discussions, representations and understandings with
respect thereto, whether written or oral.
8.8 SURVIVAL. The rights and obligations of either party under Articles
6 and 7 shall survive the termination of this Agreement.
8.9 PUBLIC ANNOUNCEMENTS. Except as required by law or in connection
with private or public offerings to raise capital or as required for documents
to be filed with the Securities and Exchange Commission (a "Permitted Public
Announcement"), neither party shall make any public announcement concerning this
Agreement or the subject matter hereof without the prior written consent of the
other; provided, however, that in any event, each party shall have the right to
refer, in such announcement required by law or in any private or public offering
documents, to the status of this Agreement or of the Development Agreement and
to state that the license hereunder has been granted, together with a
generalized description of the nature and extent of such license. All such
announcements shall be made available by the announcing party to the other party
at least ***************** days in advance of the announcement for review and
comment by the other party
8.10 This Agreement shall be executed in one or more counterparts, each
of which shall for all purposes be deemed to be an original and all of which
shall constitute the same instrument subject to the time limitations imposed in
those sections.
8.11 ALTERNATIVE DISPUTE RESOLUTION.
(a) In the event of any dispute, controversy or claim arising
out of or relating to this Agreement (unless such dispute, controversy or claim
involves an issue of patent validity), Kos or Fuisz shall employ alternative
dispute resolution procedures in an effort to avoid litigation over any such
dispute, controversy or claim. Any such dispute, controversy or claim hereunder
shall, prior to submission to such alternative dispute resolution proceedings,
be referred to representatives of management (hereinafter "Management
Representatives") of the respective parties for resolution.
10
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(b) Any such dispute that shall not have been resolved
pursuant to paragraph 8.11(a) ninety (90) days after reference to such
Management Representatives, or otherwise by agreement between the parties, shall
be referred to arbitration in accordance with the rules of the American
Arbitration Association. The arbitration tribunal shall consist of three (3)
arbitrators. The party initiating arbitration shall nominate one (1) arbitrator
(who shall not be affiliated with such party) in the request for arbitration and
the other party shall nominate a second arbitrator (who shall not be affiliated
with such party) in the answer thereto. The two (2) arbitrators so named will
then jointly appoint the third (3rd) arbitrator as chairman of the arbitration
tribunal. If a party fails to nominate its arbitrator as chairman of the
arbitration tribunal or if the arbitrators named by the parties fail to agree on
the person to be named as chairman within sixty (60) days, the Office of the
American Arbitration Association in Washington, DC, USA shall make the necessary
appointments of an arbitrator or the chairman of the tribunal. The award of the
arbitration tribunal shall be final and judgment upon such an award may be
entered in any competent court or application may be made to any competent court
for judicial acceptance of such an award and an order of enforcement. In the
event of any procedural matter not covered by the aforesaid Rules, the
procedural law of the State of Delaware, United States of America, shall govern.
8.12 For so long as he is employed by Fuisz, Fuisz shall provide the
services of Dr. Michael Myers, or an appropriate substitute designated by Fuisz
and acceptable to Kos, who shall be primarily responsible for carrying out the
responsibilities of Fuisz under the Development Program.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed by its duly authorized officer as of the Effective Date.
KOS PHARMACEUTICALS, INC. FUISZ TECHNOLOGIES LTD.
/S/ DANIEL M. BELL /S/ RICHARD C. FUISZ
- -------------------------------- ---------------------------------
Daniel M. Bell Richard C. Fuisz, M.D.
President President and CEO
11
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APPENDIX A
"CONFIDENTIAL INFORMATION" shall mean all business or technical information,
including, without limitation, all photographs, records, methods, processes,
techniques, equipment, and all know how and trade secrets, provided by one party
to the other party under the provisions of this Agreement.
"EFFECTIVE DATE" shall mean the Effective Date of the License Agreement.
"INVENTION" shall mean any discovery or invention conceived, made or reduced to
practice in the performance of work under the Development Program or resulting
from the IN VITRO evaluation or analysis of samples produced under the
Development Program.
"LICENSE AGREEMENT" shall mean the Option and License Agreement between Kos and
Fuisz relating to IS-5-MN and having the same Effective Date as this Agreement.
<PAGE>
APPENDIX B
DEVELOPMENT PROGRAM SCHEDULE
PHASE 1 - **********
(a) Preformulation - *******
- Drug Physicochemical Characterization
- Excipient compatibility Studies
- Qualitative Formulation Selection
(b) Formulation Assessment - *******
- Quantitative Formulation Development
- *********************
- *******************
- Finished Product
- Manufacture and Testing of a Range of Batches at each stage
- Informal Stability Assessment
- Analytical Methodology Validation
(c) Process Initiation - *******
- Initial Processing Parameter Characterization Studies
- Formulation Reproducibility Studies
(d) Product Characterization - *******
- Manufacture under GMP condition of Product(s) for pilot
pharmacokinetic study
- Release of Product(s) for the pilot pharmacokinetic study
- Pilot stability evaluation
PHASE 2 - **********
(a) Formulation Optimization - ********
- Optimization of Formulations Through Batch Reproducibility
Studies at Initial Scale-up Level for:
- *********************
- *******************
- Finished Product
(b) Process Development - ********
- Evaluation of Pilot Scale-up Manufacturing Process and
Definition of Operating Parameters
<PAGE>
APPENDIX B (CONT.)
(c) Product Characterization - *******
- Manufacture of Pilot Scale Product(s) for Confirmatory
Pharmacokinetic Study and Clinical Studies
- Formal Stability Testing
PHASE 3
(a) Commercialization -
- Scale-up to Commercial Scale Manufacturing
- Process Validation
- Manufacture of Pivotal Pharmacokinetic and Clinical batches
(as Appropriate)
- Pivotal Stability in Finish Packaging Configuration
Status: Duration and Costing to be defined.
14
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
OPTION/LICENSE AGREEMENT
THIS AGREEMENT is made by and between Kos Pharmaceuticals, Inc., a
corporation of the State of Florida, with a place of business at 1001 South
Bayshore Drive, Suite 2502, Miami, FL 33131, and Fuisz Technologies Ltd., a
corporation of the State of Delaware with a place of business at 3810 Concorde
Parkway, Suite 100, Chantilly, VA 22021.
WHEREAS, Fuisz has over a period of years conducted research and
development work and developed proprietary technology which is useful to make
controlled-release formulations for pharmaceutical compounds and;
WHEREAS Kos has interests in developing, manufacturing and marketing
once-a-day oral solid dosage forms of IS-5-MN (as hereinafter defined), based on
such proprietary technology of Fuisz.
NOW, THEREFORE the parties agree as follows:
ARTICLE 1- DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
set forth in this Article:
1.1 "AFFILIATE" shall mean any company, partnership, joint venture or
other entity of which at least fifty percent (50%) of the voting rights
attaching to ordinary share capital is exercisable directly or indirectly by a
party to this Agreement alone or jointly, and any company, partnership, joint
venture or other entity over which a party to this Agreement directly or
indirectly exercises effective management control.
1.2 "COMMERCIAL SALE" shall mean any sale, trade or barter which
transfers title, to an independent third party purchaser, to any Licensed
Product by or on behalf of Kos or by or on behalf of a Sublicensee of Kos
including, but not limited to, a third party under a supply arrangement or
similar arrangement.
1.3 "LICENSED PRODUCT" shall mean any Product, the process of using or
the manufacture, use or sale of which, but for a license granted hereunder,
would infringe any Valid Claim, or which is based upon, derived from or uses any
Technology; provided, however, that Licensed Product shall not include
*********** Technology except as set forth in Article 5.
<PAGE>
1.4 "PRODUCT(S)" shall mean once-a-day oral solid dosage forms
containing IS-5-MN for human consumption, made in whole or in part by
*****************, **************************************** or other
Technologies of Fuisz under the Development Program. Products shall not include
immediate release or other non-prolonged release oral solid dosage forms of
IS-5-MN.
1.5 "******** TECHNOLOGY" shall mean Fuisz technology and processes
where ********* materials are converted to *********** materials, materials made
by such processes and applications of materials made by such processes and
apparatus used to carry out such processes.
1.6 "********** TECHNOLOGY" shall mean technology relating to ********
processes including *********** and ********** processes, materials made by such
processes, applications of materials made by such processes and apparatus used
to carry out such processes.
1.7 "TECHNOLOGY" shall mean any and all inventions, improvements,
discoveries, claims, formulae, processes, trade secrets, technologies, know-how,
patents and patent applications conceived or reduced to practice during the
Development Agreement, and which are owned by Fuisz and I) incorporated in or
necessary for the manufacture, use or sale of Licensed Products or II) disclosed
and claimed in any patent or patent application included in Licensed Patents.
1.8 "LICENSED PATENTS" shall mean: I) the patents and patent
applications set forth in Appendix A; and II) any and all extensions, renewals,
continuations, continuations-in-part, divisions, patents-of-additions, reissues,
reexaminations, supplementary protection certificates or foreign counterparts of
any of the foregoing; and III) any and all patents which are granted on any I)
and II); and IV) any and all patents and patent applications owned or controlled
or licensable by Fuisz with the right to sublicense without payment of any kind
to a third party which contain claims, the practice of which would infringe the
claims of a patent or patent application included in I), II) or III), or which
are based upon or derived from Technology.
1.9 "TERRITORY" shall mean Worldwide.
1.10 "NET SALES" shall mean the gross invoice price of Commercial Sales
by Kos and Sublicensees of all Licensed Products, less deductions for
transportation and insurance charges, rebates, returns and allowances (actually
paid or allowed by Kos and Sublicensees), customary discounts (whether in cash
or trade), and sales or other taxes when included in the gross invoice price,
but not including taxes assessed on income derived from such Commercial Sales.
1.11 "VALID CLAIM" shall mean a claim of an issued and unexpired
Licensed Patent which has not been held invalid or unenforceable by decision of
a court or
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other governmental agency of competent jurisdiction, unappealable or unappealed
within the time allowed for appeal, and which is not admitted to be invalid
through disclaimer or dedication to the public.
1.12 "SUBLICENSEE" shall mean third parties to whom Kos has granted a
sublicense to make, use or sell any Licensed Product.
1.13 "DEVELOPMENT AGREEMENT" shall mean the Development Agreement
(having the same Effective Date as this Agreement) between the parties and all
extensions, amendments and renewals thereof.
1.14 "DEVELOPMENT PROGRAM" shall mean research and development and other
activities performed by Fuisz and Kos pursuant to the terms of Article 1 and
Appendix B of the Development Agreement.
1.15 "IS-5-MN" shall mean the compound isosorbide-5-mononitrate in
dosages to be mutually agreed by Fuisz and Kos.
1.16 "FDA" shall mean the Food and Drug Administration of the United
States.
1.17 "KOS" shall mean Kos Pharmaceuticals, Inc. and its Affiliates.
1.18 "FUISZ" shall mean Fuisz Technologies Ltd. and its Affiliates.
1.19 "EFFECTIVE DATE" shall mean April 29, 1996.
1.20 "GRANT BACK TECHNOLOGY" shall mean any and all inventions,
improvements, discoveries, claims, formulae, processes, trade secrets,
technologies, know-how, patents and patent applications based upon or directly
related to Technology, which are: a) conceived or first reduced to practice by
Kos during the period beginning with Effective Date and ending upon termination
of this Agreement; and b) owned or controlled by Kos or licensed to Kos with the
right to sublicense.
1.21. "*********** TECHNOLOGY" shall mean technology relating to
******** processes including *********** and ********** processes for making
************ of materials such as ********** and *****, including such
************ and coatings and processes for coating such ************.
ARTICLE 2 -OPTION/LICENSE GRANT
2.1 OPTION GRANT TO KOS. Subject to the terms and conditions of this
Agreement, Fuisz grants to Kos an option to obtain an exclusive, royalty bearing
license under Technology and Licensed Patents to make, have made, use, sell and
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have sold Licensed Products throughout the Territory, including the right to
grant sublicenses; provided, however that no licenses or rights are granted or
implied for *********** Technology, except as set forth in Article 5 hereof.
Such option shall be exercisable by Kos, provided all payments have been made in
full to Fuisz as provided in paragraphs 3.1(a) and 3.1(b) of this Agreement, by
Kos giving written notice to Fuisz of exercise within the term of the
Development Agreement. In the event Kos does not exercise its option as provided
herein, this Agreement and all rights granted to Kos hereunder shall terminate.
2.2 LICENSE GRANT TO KOS. Upon exercise of the option as set forth in
Section 2.1, the terms and conditions of this Agreement pertaining to the
license grant hereunder shall automatically come into full force and effect.
2.3 PAYMENT OF FEES. The option and licenses granted hereunder shall be
subject to the timely payment of the applicable fees and royalties as provided
under Articles 3, 4 and 6 of this Agreement.
2.4 LICENSE GRANT TO FUISZ. Kos hereby grants to Fuisz a non-exclusive,
fully paid, irrevocable worldwide license (including the right to grant
sublicenses) under Grant Back Technology to make, have made, use, sell and have
sold products and to practice processes; provided, however, that in the exercise
of such license right Fuisz shall not do so to the detriment of the competitive
position of Kos or inappropriately identify Kos in any publicity concerning
same.
2.5 MANUFACTURING TECHNOLOGY ACCESS AND SUPPORT. Following payment of
the Manufacturing Technology Access and Support Fee under Section 3.2, Fuisz
shall make available to Kos the essential aspects of Technology necessary to
produce Licensed Products commercially. The Manufacturing Technology Access and
Support Fee shall include up to *************** days of a senior professional or
the equivalent thereof retained by Fuisz to assist in technical support related
to manufacturing of Licensed Products. In the event additional technical
manufacturing support is desired by Kos, at the request of Kos, and upon mutual
agreement on the prices at which such consultants and equipment shall be
provided to Kos, Fuisz shall make available to Kos consultants and equipment
useful for the manufacture of Licensed Products. The cost of such consultants
and equipment shall be in addition to any other fees due or payable under the
provisions of this Agreement.
2.6 For a period beginning upon the Effective Date and ending **********
following termination of the Development Program, Fuisz shall grant to Kos the
first right of negotiation of a license under Technology or Licensed Patents for
additional modification of IS-5-MN ,and IS-5-MN in combination with other
compounds. Kos shall notify Fuisz within such period of its desire to negotiate
such a license, and thereafter the parties shall negotiate in good faith toward
execution of a definitive agreement embodying such license.
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ARTICLE 3 - FEES
3.1 OPTION/LICENSE FEES. In addition to the payments under Section 4.1,
Kos shall make the following lump sum payments to Fuisz in consideration of the
option and licenses granted hereunder, such lump sum payments not being
creditable except as otherwise expressly provided herein toward royalty or other
payments due hereunder:
(a) *************************************** as an option fee,
due and payable within thirty (30) days of the Effective Date;
(b) *********************************************, due and
payable following the end of Phase II of the Development Program or six (6)
months after the end of Phase I of the Development Program, whichever first
occurs; and
(c) **************************************** as a license fee,
************ of which shall be due and payable within ten (10) days following
the acceptance by the FDA of the first application submitted for approval to
sell a Licensed Product, and the ********************** of which shall be due
and payable upon approval by the FDA of an application to sell a Licensed
Product; fifty percent (50%) of which shall be creditable toward running royalty
due hereunder.
3.2 MANUFACTURING TECHNOLOGY ACCESS AND SUPPORT FEE. In consideration of
the disclosure of Technology to Kos by Fuisz relating to manufacturing of
Licensed Products under Section 2.5, Kos shall pay to Fuisz such amounts as are
negotiated and agreed by the parties in good faith.
ARTICLE 4 - ROYALTIES & MINIMUM ROYALTIES
4.1 RUNNING ROYALTY
(a) As additional consideration for the grant of the licenses
provided hereunder, Kos shall pay Fuisz a running royalty of ******************
of Net Sales of Licensed Product commencing on the first Commercial Sale of
Licensed Product by Kos or its Sublicensees.
(b) Although the parties intend to secure patents covering
Licensed Products, except as otherwise provided hereunder, the royalty required
under this Article 4 shall be payable with respect to each Licensed Product
until this Agreement expires as to such Licensed Product pursuant to Section
10.1, notwithstanding the existence or non-existence of Licensed Patents
covering any Licensed Product.
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4.2 OBLIGATION TO PAY RUNNING ROYALTY. The obligation to pay running
royalty to Fuisz under this Article 4 shall be imposed only once with respect to
the same unit of Licensed Product regardless of the number of Licensed Patents
or aspects of Technology pertaining thereto. There shall be no obligation to pay
running royalties to Fuisz under this Article 4 on sales of Licensed Products
between Kos and its Affiliates and its Sublicensees but in such instances the
obligation to pay running royalty shall arise based on Net Sales by Kos or its
Affiliates or its Sublicensees. Payments due under this Article 4 shall be
deemed to accrue when Licensed Products are shipped or billed, whichever event
shall first occur.
4.3 MINIMUM ROYALTIES
(a) The licenses granted to Kos under this Agreement shall be
subject, on a calendar year basis, to payment of annual minimum royalties to
Fuisz by Kos as follows, twenty five percent (25%) of which shall be due and
payable within sixty (60) days following the end of each calendar quarter
commencing one (1) year following approval by the FDA to sell a Licensed
Product:
Year 1 - ************************************
Year 2 - ************************************
Year 3 - ************************************
Year 4 - ************************************
Year 5 - ************************************
(b) In the event Kos or its Sublicensees shall fail to make
significant Commercial Sales or fail to use reasonable commercial efforts to
sell a Licensed Product in a country within five (5) years following the date of
first Commercial Sale anywhere in the Territory, Fuisz shall be entitled to
terminate in their entirety all licenses and rights granted hereunder to Kos in
such country upon written notice to Kos.
ARTICLE 5 - FUISZ SUPPLY OF **************
In the event Kos requests in writing that Fuisz supply to Kos IS-5-MN
produced utilizing ********** Technology for use in Licensed Product, Fuisz
shall, for a period of **************** following such request negotiate in good
faith with Kos toward execution of a definitive commercial supply and/or
manufacture agreement under reasonable commercial terms for the supply of such
form of IS-5-MN at a transfer price to Kos not to exceed the standard cost of
manufacture in accordance with the usual accounting procedures of Fuisz
************************* ******************. In the event Kos and Fuisz execute
such a definitive agreement, such agreement shall include a limited license to
Kos to utilize such form of IS-5-MN in the manufacture of Licensed Products and
to sell and have sold such
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Licensed Products, which incorporate such form of Technology, and provisions for
the supply of such form of IS-5-MN in the event Fuisz fails to or cannot supply
them. In the event Kos and Fuisz fail to execute such a definitive agreement
within such *******************, the provisions of this Article 5 shall cease to
be in effect thereafter. No further license or rights shall be granted or
implied to Kos with respect to *********** Technology.
ARTICLE 6 - PAYMENTS AND REPORTS
6.1 PAYMENT - All running royalty payments due under Section 4.1 shall
be paid ********* within *************** of the end of ************ of each
calendar year during the term of this Agreement. Each such payment shall be
accompanied by a statement of the type of each Licensed Product sold and the
total Net Sales of each such Licensed Product during such quarter, and the
amount of royalty due on such Net Sales.
6.2 MODE OF PAYMENT - Kos shall pay all royalty payments required under
this Agreement in the United States in United States Dollars. The royalty
payments due shall be translated at the rate of exchange at which United States
Dollars are listed in THE WALL STREET JOURNAL for the currency of the country in
which the royalty is accrued on the last business day of the quarter of each
calendar year in which Net Sales are made. If the transfer or the conversion
into United States Dollar equivalents in any such instance is not lawful or
possible, the payment of such part of the royalty as is necessary shall be made
by the deposit thereof, in the currency of the country where the sales were made
on which the royalty was based, to the credit and account of Fuisz or its
nominee in any commercial bank or trust company of its choice located in that
country, prompt notice of which shall be given by Kos to Fuisz.
6.3 TAXES - All taxes, assessments, fees and charges, if any, levied on
Kos, its Affiliates, or its Sublicensees under income tax laws or regulations
with respect to payments due to Fuisz hereunder shall be for the account of
Fuisz and if required to be withheld by the payer will be deducted by Kos, its
Affiliates, and/or its Sublicensees from such payments due to Fuisz. Receipts,
if available, for all such taxes, assessments, fees and charges advanced by Kos,
its Affiliates, and/or its Sublicensees to the taxing authorities shall be
secured by Kos, its Affiliates, and/or its Sublicensees and sent to Fuisz.
6.4 RECORDS RETENTION - Kos shall keep for *************** following the
royalty payment period to which they relate, complete and accurate records
pertaining to the manufacture, use and sale of Licensed Products in sufficient
detail to permit Fuisz to confirm the accuracy of Net Sales, royalty
calculations and payments under this Agreement.
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6.5 AUDIT REQUEST - At the request of Fuisz, Kos shall permit an
independent, certified public accountant appointed by Fuisz and acceptable to
Kos, at reasonable times and not more ************** calendar year to: I)
determine, with respect to any calendar year ending not more than
*************** prior to such request, the correctness of any report or payment
made under this Agreement; or II) obtain information as to the royalty payable
for any calendar year in the case of failure of Kos to report or pay pursuant to
this Agreement. Results of any such examination shall be made available to both
parties. Fuisz shall bear the full cost of any such audit unless such audit
shall result in a determination that royalties have been underpaid by more than
*****************, in which case Kos shall bear the full cost of such audit.
6.6 FAILURE TO MAKE PAYMENTS - In the event that any payments due under
this Agreement are not made in accordance with the dates set forth hereunder,
Fuisz shall provide Kos written notice of such non-payment. Except as otherwise
specified in this Agreement, if such payments are not made within
sixty (60) days after receipt by Kos of such written notice from Fuisz, Fuisz
shall have the right to terminate this Agreement by sending written notice
thereof to Kos, which notice shall be effective immediately. Any licenses or
rights granted under this Agreement shall thereafter revert to Fuisz.
ARTICLE 7 - REPRESENTATIONS AND WARRANTIES; INFRINGEMENT AND ENFORCEMENT
7.1 REPRESENTATIONS AND WARRANTIES - Fuisz hereby represents and
warrants that:
(a) To the best of its knowledge: (I) it has the full power
and right to grant the rights and licenses set forth herein; and (II) that there
are no encumbrances on Technology or Licensed Patents which could have a
material adverse effect on the right of Kos to manufacture, use or sell Licensed
Products; and
(b) It has no existing agreements with any third party which
are in conflict with the rights granted to Kos pursuant to this Agreement.
7.2 PATENT ENFORCEMENT. Each party shall notify the other of any
infringement of Licensed Patents of which it becomes aware during the term of
this Agreement. Fuisz shall have the first right, but not the duty, to institute
patent infringement actions against third parties based on any Licensed Patent
under this Agreement, provided that Kos may join in any such actions at the
expense of Kos insofar as Kos may have a claim for lost profits. Fuisz shall
promptly notify Kos of its intention to prosecute any substantial and clear acts
of infringement of Licensed Patents. If Fuisz does not institute an infringement
proceeding against such an infringer, Kos shall have the right, but not the
duty, to institute such an action. The
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costs and expenses of any such action (including fees of attorneys and other
professionals) shall be borne by the party instituting the action, or, if the
parties elect to cooperate in instituting and maintaining such action, such
costs and expenses shall be borne by the parties in such proportions as they may
agree in writing. Each party shall execute all necessary and proper documents
and take such actions as shall be appropriate to allow the other party to
institute and prosecute such infringement actions and render such assistance as
reasonably required by the party enforcing such patents. Any award paid by a
third party as a result of such an infringement action (whether by way of
settlement or otherwise) shall be paid to the Party who instituted and
maintained such action, or if both Parties instituted and maintained such
action, such award shall be allocated among the Parties in proportion to their
respective contributions to the costs and expenses incurred in such action.
7.3 INFRINGEMENT ACTION BY THIRD PARTIES
(a) In the event of the institution of any suit by a third
party against Kos for patent infringement involving the manufacture, use, sale,
distribution or marketing of any Licensed Product, provided the basis of such
suit is the practice by Kos of a Licensed Patent or Technology licensed
hereunder, Kos shall promptly notify Fuisz in writing of such suit. Kos shall
have the right to defend such suit at its own expense, and Fuisz shall assist
and cooperate with Kos, at Kos's expense, to the extent necessary in the defense
of such suit. During the pendency of such action, Kos shall continue to make all
payments due under this Agreement.
(b) If Kos finally prevails in any such suit because it is
held not to be infringing any patents belonging to such third party or because
such third party's patent is held invalid, Kos shall continue to pay royalty as
set forth in Article 4, ***
******************************************************************************
******************************************************************************
******************************************************************************
***************************************************************.
(c) If Kos finally loses in any such infringement action,
whether by judgment, award, decree or settlement, and is required to pay a
royalty (including lump sum fees) to a third party, Kos shall continue to pay
royalty as set forth in Article 4 with respect to such Licensed Product in the
country which is the subject of such action,
***************************************************************
***************************************************************
***************************************************************
*****************************************.
(d) Any ********************************************
***************************************************************
*****************************************.
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7.4 Fuisz does not represent or warrant that the Licensed Patents are
valid or that the use of Licensed Patents and Technology by Kos will not
infringe any patent or other rights of any third party, and Fuisz shall not be
obligated to defend or hold harmless Kos or its Affiliates or Sublicensees or
any other entity or person against any suit, damage, claim or demand based on
actual or alleged invalidity or infringement of any patent or other rights owned
by a third party, or any unfair trade practice, resulting from the exercise or
use of any right granted hereunder.
ARTICLE 8 - CONFIDENTIALITY
8.1 CONFIDENTIALITY; EXCEPTIONS - Except to the extent expressly
authorized by this Agreement, and except as provided in Section 8.2, or
otherwise agreed in writing, the parties shall, for the term of this Agreement
and for five (5) years thereafter, keep confidential and shall not publish or
otherwise disclose, or use for any purpose, any information furnished to one
party by the other party pursuant to this Agreement, except to the extent that
it can be established by competent evidence that such information:
(a) was already known to the receiving party, other than under
an obligation of confidentiality, at the time of disclosure by the other party;
(b) was generally available to the public or otherwise part of
the public domain at the time of its disclosure to the receiving party;
(c) became generally available to the public or otherwise part
of the public domain after its disclosure and other than through any act or
omission of the receiving party in breach of this Agreement;
(d) was disclosed to the receiving party, other than under an
obligation of confidentiality, by a third party who had no obligation to the
disclosing party not to disclose such information to others; or
(e) is independently developed by or on behalf of its
receiving party by individuals not having access to such information.
Each party may disclose the other's information to the extent such
disclosure is reasonably necessary in filing or prosecuting patent applications,
prosecuting or defending litigation, or is necessary to be disclosed in
connection with the marketing or sale of a Licensed Product or is necessary to
be disclosed to comply with applicable governmental regulations, provided that
if a party is required to make any such disclosure of the other party's secret
or confidential information it shall, except where
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impracticable for necessary disclosures, for example to health authorities, give
reasonable advance notice to the other party of such disclosure requirement and,
except to the extent inappropriate in the case of patent applications, shall use
reasonable efforts to secure confidential treatment of such information required
to be disclosed.
8.2 It is understood that trade secrets provided to a party under this
Agreement and under the Development Agreement may have a significant factor in
producing Licensed Products and in the lead time for Licensed Products to be
introduced into the market-place. All such trade secrets, as defined under the
Uniform Trade Secrets Act of the United States, or the trade secret laws of
applicable national countries as applicable, which are provided by one party to
the other party hereunder and identified in writing as trade secrets, shall be
maintained in confidence, without limitation of time, and will be used only for
purposes of work under the Development Agreement or commercialization of
products under the provisions of this Agreement.
8.3 With respect to confidential information, know how and trade secrets
disclosed on or after the Effective Date by one party to the other party under
the provisions of this Agreement, the provisions of this Agreement shall govern
and prevail. In the event of any conflict between this Agreement and any other
agreement between the parties, with respect to confidential information relating
to the Field disclosed on or after the Effective Date, the terms of this
Agreement shall govern and prevail.
8.4 Each party may also disclose the other's confidential information
and trade secrets to an Affiliate, agent or consultant who has a need to know
such confidential information or trade secrets, and who is under a written
obligation of confidentiality and non-use at least substantially equivalent to
the obligations of this Article 8. A party disclosing the other party's
information or trade secrets to such Affiliate, agent or consultant shall notify
the other party of the identity of such Affiliate, agent or consultant, and
provide the other party with a draft of the proposed confidentiality agreement
with such Affiliate, agent or consultant and allow the other party to make
whatever changes it deems necessary to such agreement in order to protect its
confidential information and trade secrets.
ARTICLE 9 - INDEMNIFICATION
9.1 (a) *** shall defend, indemnify and hold *****, its directors,
officers and employees, harmless from and against any and all claims, suits or
demands for liability, damages, losses, costs and expenses (including the costs
and expenses of attorneys and other professionals) arising out of third party
claims or suits or demands
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resulting from the manufacture, use or sale of Licensed Products by
*********************************** pursuant to this Agreement.
(b) Each party (the "Indemnifying Party") shall defend,
indemnify and hold the other party and its directors, officers and employees,
harmless from and against any and all claims, suits, and demands for liability,
damages, losses, costs and expenses (including the costs and expenses of
attorneys and other professionals) arising out of or resulting from the
inaccuracy of any representation or the breach by the Indemnifying Party of any
warranty, covenant or agreement contained in this Agreement.
9.2 NOTICE - In the event that either party seeks indemnification under
this Article 9, such party shall: I) promptly inform the indemnifying party of
any claim, suit or demand threatened or filed, II) permit the indemnifying party
to assume direction and control of the defense of such claims, suit or demand
resulting therefrom (including the right to obtain a settlement thereof at the
sole discretion of the indemnifying party), and III) cooperate as requested (at
the expense of the indemnifying party) in the defense of such claims, suit or
demand.
9.3 LIMITATIONS. An indemnifying party's (including sublicensees)
obligations under this Article 9 shall not extend to any claims, suits or
demands for liability, damages, losses, costs or expenses arising from the
indemnified party's failure to comply with the terms and conditions of this
Agreement, or of the Development Agreement, to the extent arising from the
negligence or willful misconduct of the indemnified party, its agents or
employees.
ARTICLE 10 - TERM; TERMINATION
10.1 TERM. This Agreement shall commence as of the Effective Date of
this Agreement and, unless sooner terminated as provided hereunder, shall expire
seventeen (17) years thereafter or upon the expiration of the last to expire
Valid Claim of a Licensed Patent, whichever period is longer.
10.2 BREACH. Failure by either party to comply with any material
obligation contained in this Agreement shall entitle the other party to give to
the party in default notice specifying the nature of the default and requiring
it to cure such default. If such default is not cured within sixty (60) days
after the receipt of such notice (or, if such default cannot be cured within
such sixty (60) day period, if the party in default does not commence and
diligently continue actions to cure such default), the notifying party shall be
entitled, without prejudice to any of its other rights conferred by this
Agreement, and in addition to any other remedies available to it by law or in
equity, to terminate this Agreement by giving written notice to take effect
within thirty (30) days after such notice unless the defaulting party cures such
default
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within said thirty (30) days. The right of either party to terminate this
Agreement, as hereinabove provided, shall not be affected in any way by its
waiver or failure to take action with respect to any previous default.
10.3 TERMINATION BY KOS. Kos shall have the right to terminate this
Agreement by giving notice in writing to Fuisz of such termination. Such
termination shall be effective ninety (90) days from the date such notice is
given, and all Kos's rights hereunder associated therewith shall cease as of
that date, subject to Section 10.4.
10.4 RIGHT TO SELL STOCK ON HAND. Upon the termination of this Agreement
for any reason other than a failure to cure a material breach of this Agreement
by Kos, Kos and its Affiliates shall have the right for one (1) year, or such
longer period as the parties may agree in writing, to dispose of all Licensed
Products or substantially completed Licensed Products then on hand, and running
royalty shall be paid to Fuisz with respect to such Licensed Products as though
such termination had not occurred.
10.5 TERMINATION OF SUBLICENSES. Upon termination of this Agreement, all
sublicenses granted by Kos under the provisions of this Agreement shall
terminate simultaneously, subject, nevertheless, to Section 10.4.
10.6 INSOLVENCY OR BANKRUPTCY. a) Either party may, in addition to any
other remedies available to it by law or in equity, terminate this Agreement by
written notice to the other party in the event the other party shall have become
insolvent or bankrupt, or shall have made an assignment for the benefit of its
creditors, or there shall have been appointed a trustee or receiver of the other
party or for all or a substantial part of its property, or any case or
proceeding shall have been commenced or other action taken by or against the
other party in bankruptcy or seeking reorganization, liquidation, dissolution,
winding-up arrangement, composition or readjustment of its debts or any other
relief under any bankruptcy, insolvency, reorganization or other similar act or
law of any jurisdiction now or hereafter in effect, or there shall have been
issued a warrant of attachment, execution, distraint or similar process against
any substantial part of the property of the other party, and any such event
shall have continued for sixty (60) days undismissed, unbonded and undischarged;
or b) all rights and licenses granted under or pursuant to this Agreement by
Fuisz to Kos are, and shall otherwise be deemed to be, for the purposes of
Article 365(n) of title 11, U.S. Code ("Bankruptcy Code") license rights to
"intellectual property" as defined under Article 101(60) of the Bankruptcy Code.
Kos, as a licensee of such right under this Agreement, shall retain and may
fully exercise all of its rights and election under the Bankruptcy Code.
10.7 EFFECT OF TERMINATION.
(a) Following the expiration of any license granted under this
Agreement, Kos, and its Sublicensees shall have the royalty-free non-exclusive
right to continue
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to use the Licensed Patents and Technology for the manufacture, use and sale of
Licensed Products as heretofore licensed.
(b) Upon the termination of this Agreement by Fuisz other than
as provided in paragraph 10.7(a), Kos and its Sublicensees shall promptly: I)
return to Fuisz all relevant records, materials or confidential information
concerning the Licensed Patents and Technology relating to Licensed Product in
any country in the possession or control of Kos or any of its Sublicensees
provided, however, that a copy of such confidential information shall be
retained by Kos's legal department solely for reference as to its obligations
hereunder.
10.8 SURVIVING RIGHTS. Termination of this Agreement shall not terminate
Kos's obligation to pay all royalties which shall have accrued hereunder. The
parties' obligations under Articles 7, 8 and 9 and Sections 2.4, 4.1, 4.2, 6.4
and 10.4 shall survive termination.
10.9 ACCRUED RIGHTS, SURVIVING OBLIGATIONS. Termination, relinquishment
or expiration of this Agreement for any reason shall be without prejudice to any
rights which shall have accrued to the benefit of either party prior to such
termination, relinquishment or expiration. Such termination, relinquishment or
expiration shall not relieve either party from obligations which are expressly
indicated to survive termination or expiration of this Agreement.
ARTICLE 11 - MISCELLANEOUS PROVISIONS
11.1 STATUS OF PARTIES. The parties are independent contractors and
nothing in this Agreement is intended or shall be deemed to constitute a
partnership, agency, employer-employee or joint venture relationship between the
parties. Neither party shall incur any debts or make any commitments for the
other, except to the extent, if at all, specifically provided herein.
11.2 ASSIGNMENT. This Agreement is unassignable by either Kos or Fuisz
except with the prior written consent of the other, except that it may be
assigned without consent to a corporate successor of Kos or Fuisz or to a person
or corporation acquiring all or substantially all of the business and assets of
Kos or Fuisz to which this Agreement relates. All or any portion of Licensed
Patents and Technology shall be assignable by Fuisz; provided, however, that in
the event of any such assignment, any such assignee shall accept and agree in
writing to be bound by all of the terms and conditions of this Agreement
relating to such assigned rights.
11.3 FURTHER ACTIONS. Each party agrees to execute, acknowledge and
deliver such further instruments, and to do all such other acts, as may be
necessary or appropriate in order to carry out the purposes and intent of this
Agreement.
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11.4 FORCE MAJEURE. Neither party shall be liable to the other for any
loss or damages or shall have any right to terminate this Agreement for any
default or delay attributable to any act of God, flood, fire, explosion, strike,
lockout, labor dispute, shortage of raw materials, casualty or accident, war
(declared or undeclared), revolution, civil commotion, act of public enemies,
blockage or embargo, injunction, law, order, proclamation, regulation,
ordinance, demand or requirement of any government or subdivision, authority or
representative of any such government, or any other cause beyond the reasonable
control of such party, if the party affected shall give prompt notice thereof to
the other party. The party giving such notice shall thereupon be excused from
such of its obligations hereunder as it is thereby disabled from performing for
so long as it is so disabled and for thirty (30) days thereafter.
11.5 TRADEMARKS. Except as otherwise provided herein, neither party
shall have any right, express or implied, to use in any manner the name or other
designation of the other party or any other trade name or trademark of the other
party in connection with this Agreement. Kos shall place an appropriate legend
on all packaging material associated with Licensed Product indicating that such
Licensed Product was produced under license granted by Fuisz Technologies Ltd.
11.6 PUBLIC ANNOUNCEMENTS. Except as required by law or in connection
with private or public offerings to raise capital or as required for documents
to be filed with the Securities and Exchange Commission (a "Permitted Public
Announcement"), neither party shall make any public announcement concerning this
Agreement or the subject matter hereof without the prior written consent of the
other; provided, however, that in any event, each party shall have the right to
refer, in such announcement required by law or in any private or public offering
documents, to the status of this Agreement or of the Development Agreement and
to state that the license hereunder has been granted, together with a
generalized description of the nature and extent of such license. All such
announcements shall be made available by the announcing party to the other party
at least five (5) business days in advance of the announcement for review and
comment by the other party.
11.7 NOTICES. All notices and other communications required or permitted
to be given under or in connection with this Agreement shall be in writing, and
shall be deemed given if delivered personally or by facsimile transmission
(receipt verified), express courier service (signature required), telexed, or
mailed by registered or certified mail (return receipt requested), postage
prepaid, to the parties at the following addresses (or at such other address for
a party as shall be specified by like notice; provided, that notices of a change
or address shall be effective only upon receipt thereof):
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NOTICE TO FUISZ: NOTICE TO KOS:
Fuisz Technologies Ltd. Kos Pharmaceuticals, Inc.
ATTN: Richard C. Fuisz, M.D. ATTN: President
President and CEO 1001 South Bayshore Drive
3810 Concorde Parkway Suite 2502
Suite 100 Miami, FL 33131
Chantilly, VA 22021
With a copy to:
Fuisz Technologies Ltd.
ATTN: James L. Wilcox
Vice President and
General Counsel
3810 Concorde Parkway
Suite 100
Chantilly, VA 22021
11.8 AMENDMENT. No amendment, modification or supplement of any
provision of this Agreement shall be valid or effective unless made in writing
and signed by a duly authorized officer of each party.
11.9 WAIVER. No provision of this Agreement shall be waived by any act,
omission or knowledge of a party or its agents or employees except by an
instrument in writing expressly waiving such provision and signed by the waiving
party.
11.10 COUNTERPARTS. This Agreement shall be executed simultaneously in
two counterparts, either one of which need not contain the signature of more
than one party, but both such counterparts taken together shall constitute one
and the same agreement.
11.11 DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement
are for convenience only, and shall be of no force or effect in construing or
interpreting any of the provisions of this Agreement.
11.12 GOVERNING LAW. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of Delaware without regard to its
choice of law principles.
11.13 SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable regulations or law, such provision will be
ineffective only to the extent of such prohibition or invalidity without
invalidating the remainder of this Agreement.
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In the event of such prohibition or invalidity, the parties hereto shall
negotiate in good faith to modify this Agreement, but only to the extent
necessary to render the terms and conditions of this Agreement valid and
enforceable, giving full regard to all applicable regulations or laws and the
intent and purposes of the parties in entering into this Agreement.
11.14 COMPLIANCE WITH LAW. Nothing in this Agreement shall be deemed to
permit a party to export, reexport or otherwise transfer any Technology
transferred hereunder or Licensed Products manufactured therefrom without
compliance with applicable laws.
11.15 ENTIRE AGREEMENT OF THE PARTIES. This Agreement and the
Development Agreement constitutes and contains the entire understanding and
agreement of the parties and cancels and supersedes any and all prior
negotiations, correspondence, understandings and agreements, whether oral or
written, between the parties, respecting the subject matter hereof.
11.16 ALTERNATIVE DISPUTE RESOLUTION.
(a) In the event of any dispute, controversy or claim arising
out of or relating to this agreement (unless such dispute, controversy or claim
involves an issue of the validity of Licensed Patents), Kos or Fuisz shall
employ alternative dispute resolution procedures in an effort to avoid
litigation over any such dispute, controversy or claim. Any such dispute,
controversy or claim hereunder shall, prior to submission to such alternative
dispute resolution proceedings, be referred to representatives of management
(hereinafter "management representatives") of the respective parties for
resolution.
(b) Any such dispute that shall not have been resolved
pursuant to Section 11.16(a) ninety (90) days after reference to such management
representatives, or otherwise by agreement between the parties, shall be
referred to arbitration in accordance with the rules of the American Arbitration
Association. The arbitration tribunal shall consist of three (3) arbitrators.
The party initiating arbitration shall nominate one (1) arbitrator (who shall
not be affiliated with such party) in the request for arbitration and the other
party shall nominate a second arbitrator (who shall not be affiliated with such
party) in the answer thereto. The two (2) arbitrators so named will then jointly
appoint the third (3rd) arbitrator as chairman of the arbitration tribunal. If a
party fails to nominate its arbitrator as chairman of the arbitration tribunal
or if the arbitrators named by the parties fail to agree on the person to be
named as chairman within sixty (60) days, the Office of the American Arbitration
Association in Washington, DC, USA shall make the necessary appointments of an
arbitrator or the chairman of the tribunal. The award of the arbitration
tribunal shall be final and judgment upon such an award may be entered in any
competent court or application may be made to any competent court for judicial
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acceptance of such an award and an order of enforcement. In the event of any
procedural matter not covered by the aforesaid Rules, the procedural law of the
State of Delaware, United States of America, shall govern.
11.17 PRODUCT LIABILITY. In addition to the indemnification provided
under Article 9, Kos accepts full responsibility for and assumes all risk of
damage or injury to persons and to property arising out of the manufacture,
having manufactured, use or sale of Licensed Products by Kos or its Sublicenses.
Kos shall maintain product liability insurance in an amount of at least
************************** to cover any and all such potential claims with the
exception of those claims arising directly from the use of ***********
Technology supplied by Fuisz pursuant to Article 5, and shall hold harmless,
save and indemnify Fuisz from and against any and all personal injury, property
damage, product liability or similar claims, costs, damages, losses,
liabilities, attorneys fees and all judgments of any kind arising out of the
manufacture, having manufactured, use or sale of Licensed Products by Kos or its
Sublicenses.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed by its duly authorized officer as of the Effective Date.
KOS PHARMACEUTICALS, INC. FUISZ TECHNOLOGIES LTD.
/S/ DANIEL M. BELL /S/ RICHARD C. FUISZ
- --------------------------------- ----------------------------------
Daniel M. Bell Richard C. Fuisz, M.D.
President President and CEO
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APPENDIX A
PATENTS
- - Rapidly Dissoluble Medicinal Dosage Unit and Method of Manufacture
U.S. Patent No. 4,855,326 issued 08/08/89 (F-005)
- - Method of Producing Compacted Dispersable Systems
U.S. Patent No. 4,997,856 issued 04/05/91 (F-030)
- - Moderated Spun Fibrous System and Method of Manufacture
U.S. Patent No. 5,034,421 issued 07/23/91 (F-019)
- - Method & Apparatus for Flash Flow Processing having Feed Rate Control
U.S. Patent No. 5,346,377 issued 09/13/94 (F-115)
******************
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EXHIBIT 10.20
THE COMPANY HAS OMITTED CERTAIN CONFIDENTIAL INFORMATION FROM THIS DOCUMENT.
ASTERISKS DENOTE SUCH OMISSIONS.
LICENSE AGREEMENT
This License Agreement (this "Agreement") is made effective February 7,
1997, by and between Upsher-Smith Laboratories, Inc., a Minnesota corporation
("USL"), having its principal offices at 14905 23rd Avenue North, Minneapolis,
Minnesota 55447, and Kos Pharmaceuticals, Inc., a Florida corporation ("Kos"),
having its principal offices at 1001 Brickell Bay Drive, Suite 2502, Miami,
Florida 33131.
RECITALS
A. USL is the sole and exclusive owner, by way of
assignment, of the entire right, title and interest in
and to U.S. Patent No. 5,126,145 issued to Evenstad, et.
al. on June 30, 1992 and entitled "Controlled Release
Tablet Containing Water Soluble Medicament" and to U.S.
Patent No. 5,268,181 issued to O'Neill, et. al. on
December 7, 1993 and entitled "Method of Using Niacin to
Control Nocturnal Cholesterol Synthesis."
B. Kos is the sole and exclusive owner, by way of
assignment, of the entire right, title and interest in
and to U.S. patent application entitled ***************
****************************************************
***************** which was assigned Serial No.
********** and filed on ****************.
C. The United States Patent and Trademark Office (the "PTO")
has referred certain claims contained in the Kos U.S.
patent application, Serial No. **********, to the PTO's
Board of Patent Interference for determination of whether
to declare an interference proceeding between such claims
and certain claims contained in the USL U.S. Patent No.
5,268,181, as set forth in Exhibit A attached hereto
(hereinafter the "Potential Interference").
D. In order to avoid the cost and delays of various
conflicts, including the Potential Interference, between
the parties, and regardless of whether the ultimate
resolution of such conflicts would require such licenses,
(i) Kos desires to acquire a license under the two above
listed patents owned by USL for the purpose of
developing, manufacturing, using and selling products and
methods covered by one or more claims in such USL patents
and USL desires to grant to Kos such a license, and (ii)
USL desires to acquire a license under the above
referenced U.S. patent application owned by Kos for the
purpose of developing, manufacturing, using and selling
products and methods covered by the claims of a patent
maturing from such U.S. patent application and Kos
desires to grant to USL such a license.
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THE COMPANY HAS OMITTED CERTAIN CONFIDENTIAL INFORMATION FROM THIS DOCUMENT.
ASTERISKS DENOTE SUCH OMISSIONS.
AGREEMENT
ARTICLE 1. DEFINITIONS
The following capitalized terms shall have the meanings assigned to
them below.
1.1 "Evenstad Patent" shall mean U.S. Patent No. 5,126,145 of
Evenstad, et. al. entitled Controlled Release Tablet Containing
Water Soluble Medicament, any and all continuation, continuation-
in-part, divisional, provisional, reissue, re-examination,
extension, and renewal applications for U.S. patent and U.S.
patents maturing therefrom, and any and all corresponding foreign
patent applications, PCT and EPC applications and foreign patents
issued therefrom, as listed on Exhibit B attached hereto.
1.2 "O'Neill Patent" shall mean U.S. Patent No. 5,268,181 of
O'Neill, et. al. entitled Method of Using Niacin to Control
Nocturnal Cholesterol Synthesis, any and all continuation,
continuation-in-part, divisional, provisional, reissue, re-
examination, extension, renewal applications for U.S. patent and
U.S. patents maturing therefrom, and any and all corresponding
foreign patent applications, PCT and EPC applications and foreign
patents issued therefrom, as listed on Exhibit C attached hereto.
1.3 "Kos Patent Appln" shall mean U.S. patent application entitled
***************************************************************************
******** which was assigned Serial No. ********** and filed ****************,
which is a continuation-in- part of U.S. patent application entitled *********
*************************************************************************, which
was assigned Serial No. ********** and filed on ******************, which is now
abandoned, and any and all continuation, continuation-in-part, divisional,
reissue, reexamination, extension, provisional, renewal applications for U.S.
patent and U.S. patents maturing therefrom, and any and all corresponding
foreign patent applications, PCT and EPC applications and foreign patents issued
therefrom, as listed on Exhibit D attached hereto. The parties agree that Kos
Patent Appln shall not include any new inventions claimed in a patent
application with an effective filing date after the effective date of this
Agreement, regardless of whether such new invention relates to niacin or methods
of use of niacin.
1.4 "License Agreement Year" shall mean each calendar year commencing
on January 1 and ending on December 31 during the term of this Agreement.
1.5 "Licensed Patent(s)" shall mean the Evenstad Patent and the O'Neill
Patent. The parties agree that Licensed Patents shall not include any new
inventions claimed in a patent application with an effective filing date after
the effective date of this
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THE COMPANY HAS OMITTED CERTAIN CONFIDENTIAL INFORMATION FROM THIS DOCUMENT.
ASTERISKS DENOTE SUCH OMISSIONS.
Agreement, regardless of whether such new invention relates to niacin or methods
of use of niacin.
1.6 "Licensed Product" shall mean any product or part thereof the
manufacture, sale, offer for sale, use, importation, or distribution of which is
covered by a valid and enforceable claim of a Licensed Patent; provided that
such product contains, or relates to the administration of, niacin.
1.7 "License Quarter" shall mean the periods consisting of three
consecutive calendar months commencing on the first day of January, April, July
and October during each License Agreement Year.
1.8 "Net Sales" of Licensed Products shall mean the gross revenues
generated by the sales by Kos to the final customer of Kos of Licensed Products
less (i) all shipping, freight, duties, taxes, and trade discounts actually
allowed in the ordinary course of Kos' business, and (ii) the aggregate sales
price of products reasonably credited or refunded to the purchaser or customer
for returned, spoiled, damaged, outdated, or defective goods.
1.9 "Niaspan(R) Product" shall mean any oral sustained release product
which contains niacin as the principal active medicament and which is
administered once-a-day at night.
1.10 "Sublicensee" shall mean, with respect to USL, any person or
entity to which USL has granted a sublicense in accordance with the provisions
of Section 6.2 and, with respect to Kos, any person or entity to which Kos has
granted a sublicense in accordance with the provisions of Section 2.2.
1.11 "Territory" shall mean worldwide.
1.12 "USL Product" shall mean any product formulated, designed or
otherwise developed by or for USL in which its manufacture, use or sale is
covered by a Licensed Patent.
ARTICLE 2. GRANT OF LICENSE TO KOS
2.1 LICENSE. USL hereby grants and Kos hereby accepts an exclusive,
except for USL's rights pursuant to Section 2.3, license (the "License") to (i)
develop, have developed, make, have made, use, modify, enhance, export, import,
distribute, transfer, offer for sale and sell Licensed Products, and (ii) grant
sublicenses as provided in Section 2.2 hereof, in the Territory.
2.2 SUBLICENSES. The License shall be non-transferable, except as
permitted under Section 11.1; provided, however, that Kos shall have the right
to grant sublicenses of its rights under this License Agreement to allow third
parties to manufacture, sell, use
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THE COMPANY HAS OMITTED CERTAIN CONFIDENTIAL INFORMATION FROM THIS DOCUMENT.
ASTERISKS DENOTE SUCH OMISSIONS.
or distribute Licensed Products designed, formulated, or otherwise developed by
or for Kos.
2.3 USL RIGHTS. USL expressly reserves to itself the following rights,
and no others: (i) the right to make, use and sell any USL Product; (ii) the
right to have any USL Product manufactured by an agent or designee of USL for
re-sale by USL; (iii) the right to have any USL Product in which its
manufacture, use or sale is not covered by a claim in the Kos Patent Appln sold,
distributed, or marketed on behalf of USL in the Unites States by a third party
either alone or in conjunction with USL; and (iv) the right to license to third
parties the right to make, use, or sell USL Products outside the United States.
ARTICLE 3. CONSIDERATION FOR LICENSE
3.1 LICENSE FEE. As consideration for entering into this
Agreement, Kos shall pay USL the aggregate amount of three million U.S. dollars
($3,000,000), which amount shall be payable as follows: (i) One million
dollars ($1,000,000) shall be paid upon the execution of this Agreement,
(ii) One million dollars ($1,000,000) shall be due and payable on December 31,
1997, and (iii) One million dollars ($1,000,000) shall be due and payable on the
first anniversary of the date of this Agreement. The foregoing amount is
non-refundable, and shall not be credited against any payments otherwise due
under this Agreement.
3.2 ROYALTY PAYMENTS.
3.2.1 As additional consideration for entering into this
Agreement, Kos shall pay USL a royalty of ***************** of Net Sales by Kos
of Licensed Products sold in the Territory. USL agrees that Kos' obligation to
pay the ** royalty on Net Sales of Licensed Products shall be limited to only
those countries in which USL maintains a valid and enforceable Licensed Patent.
3.2.2 As additional consideration for entering into this
Agreement, during the period commencing on the effective date of this Agreement
and ending on the fourth anniversary of such date, Net Sales by Kos of a
Niaspan(R) Product in the United States shall be included in the Net Sales of
Licensed Products in the United States irrespective of whether the Niaspan(R)
Product is covered by a claim in a Licensed Patent; provided that Kos' payment
or agreement to pay a royalty on Net Sales of any Niaspan(R) Product shall not
be deemed or construed to be an admission by Kos, and shall not serve as the
basis for an inference, that the manufacture, distribution, use, importation, or
sale by Kos of any Niaspan(R) Product infringes any claim contained in a
Licensed Patent. In the event USL exercises its rights under a Licensed Patent
pursuant to clause (iii) of Section 2.3, Kos shall not be obligated to pay any
royalty on such sales of any Niaspan(R) Product
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THE COMPANY HAS OMITTED CERTAIN CONFIDENTIAL INFORMATION FROM THIS DOCUMENT.
ASTERISKS DENOTE SUCH OMISSIONS.
unless such product otherwise constitutes a Licensed Product and Kos is
obligated under Section 3.2.1 to pay a royalty on such sales of such product.
3.2.3 The four year royalty payments on "Niaspan(R) Products"
(Section 3.2.2) and, during the four year period commencing on the effective
date of this Agreement and ending on the earlier to occur of the fourth
anniversary of such date or the date on which USL exercises its rights under a
Licensed Patent pursuant to clause (iii) of Section 2.3, the "Minimum Royalty
Payments" (Section 3.3) shall be due and payable regardless of the status or the
continued existence of the Licensed Patents, and the right to receive such
payments is a material inducement to cause USL to enter into this Agreement.
3.3 MINIMUM ROYALTY PAYMENTS. Commencing with the 1998 License
Agreement Year and extending for the remainder of the term of this Agreement, in
order to maintain this Agreement in full force and effect Kos shall pay USL an
annual minimum royalty (the "Minimum Royalty") in the aggregate amount of ***
**********************************************. In the event that during any
such year the aggregate amount of royalty payments payable by Kos under Section
3.2 are less than the Minimum Royalty, Kos shall pay USL the difference between
such royalty payments and the Minimum Royalty at the same time Kos pays the
royalties payable by Kos for the License Quarter ending on December 31 of such
year.
3.4 CAP ON ROYALTY PAYMENTS. Notwithstanding Section 3.2, (i) in no
event shall Kos be obligated to pay royalty payments in excess of an aggregate
of *********************************************************** during any
License Agreement Year on the Net Sales of Licensed Products sold in the United
States, and (ii) in no event shall Kos be obligated to pay royalty payments in
excess of an aggregate of **********************************************
************ during any License Agreement Year on the Net Sales of Licensed
Products sold in all countries in the Territory other than the United States.
3.5 SALES BY SUBLICENSEE. With respect to sales of a Licensed Product
by a Sublicensee, Kos shall pay USL the royalty payment calculated in accordance
with Section 3.2 based upon the Net Sales of such product by such Sublicensee.
3.6 INVOICES, TAXES & TIMING OF ROYALTY PAYMENTS. All sales of a
Licensed Product shall be deemed to have been made when invoiced. All royalties
shall be paid in United States dollars and shall be reduced by the aggregate
amount of taxes that Kos is required to deduct therefrom by a governmental
agency (e.g. sales or use taxes, or mandatory withholding taxes on royalties),
and Kos shall, if so required by USL, furnish to USL such evidence as may be
necessary to claim double taxation relief. Any tax credits resulting from any
such required deduction of taxes shall belong to
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THE COMPANY HAS OMITTED CERTAIN CONFIDENTIAL INFORMATION FROM THIS DOCUMENT.
ASTERISKS DENOTE SUCH OMISSIONS.
USL. Royalties shall be paid quarterly within 60 days following the end of each
License Quarter and on termination of this Agreement within 60 days of the date
on which such termination took effect.
3.7 CURRENCY EXCHANGE. If any Licensed Product sold by Kos
is invoiced in a currency other than U.S. dollars, then for the
purpose of calculating royalties payable hereunder such currency
shall be converted to U.S. dollars at the middle market spot rate
therefor published in THE WALL STREET JOURNAL (U.S. Edition) on the
last day of the License Quarter for which such payment is due.
3.8 INTEREST. USL shall provide Kos with prompt written notice of any
overdue payments owed by Kos. Payments required under this Agreement shall, if
overdue and not paid within ten (10) days of the due date, bear interest from
such due date until payment at an annual rate equal two (2) percentage points
above the prime lending rate charged by Chase Manhattan Bank, N.A. The payment
of such interest shall not foreclose USL from exercising any other rights it may
have because any payment is late.
ARTICLE 4. REPORTS, RECORDS & ACCOUNTING
4.1 REPORTS. Kos will deliver to USL on or before sixty (60) days
following the end of each License Quarter a written report stating (i) the
amount of gross and Net Sales of Licensed Products in the United States,
including in reasonable detail the permitted deductions from such gross sales,
(ii) the aggregate amount of gross and Net Sales of Licensed Products in
countries other than the United States on a country by country basis, including
in reasonable detail the permitted deductions from such gross sales, and (iii)
the amount of royalties payable by Kos. Each such report shall be accompanied by
the royalty payment due for such License Quarter, as provided in Article 3.
Notwithstanding any other provision in this Section 4.1, Kos shall not be
obligated to provide all or a portion of such a report following a License
Quarter, other than following the final License Quarter of each License
Agreement Year, in the event that Kos is not obligated to pay a royalty under
this Agreement following such License Quarter on account of the operation of
Section 3.4. All payments and reports due under this Agreement shall be made in
person or via the United States mail or private carrier to the following
address:
Upsher-Smith Laboratories, Inc.
14905 23rd Avenue North
Minneapolis, Minnesota 55447
Facsimile No. (612) 476-4026
Attention: President
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THE COMPANY HAS OMITTED CERTAIN CONFIDENTIAL INFORMATION FROM THIS DOCUMENT.
ASTERISKS DENOTE SUCH OMISSIONS.
4.2 RECORDS. For a period of three (3) years, Kos shall keep at its
principal place of business true and accurate records of all sales of Licensed
Products in accordance with generally accepted accounting principles and in such
a form and manner that all royalties owed to USL may be accurately determined;
provided that Kos shall not destroy any such records if there is then pending
any audit or if the parties are engaged in litigation with each other. Kos shall
furnish USL copies of such records upon USL's request, which shall not be made
more often than once per License Agreement Year. USL shall keep all such records
confidential.
4.3 AUDIT OF RECORDS. USL shall have the right, from time to time at
reasonable times during normal business hours through an independent certified
public accountant reasonably acceptable to Kos (it being agreed by the parties
that the independent accounting firm performing the audit of Kos for such year
shall be reasonably acceptable to Kos), to examine the records of Kos in order
to verify the calculation of any royalties payable under this Agreement. Such
examination and verification shall not occur more than once each License
Agreement Year and once during the calendar year immediately following
termination of this Agreement. Unless otherwise agreed to in writing by Kos, the
fees and expenses of performing such examination and verification shall be borne
by USL. If such examination reveals an underpayment by Kos of more than five
percent (5%) for any License Quarter examined, Kos shall pay USL the amount of
such underpayment plus interest and shall reimburse USL for all reasonable
expenses of the accountant performing the examination. Any accountant entitled
hereunder to examine the books and other records of Kos shall not disclose any
information relating to the business of Kos, except such as should properly be
contained in any statement of account to USL required hereunder.
ARTICLE 5. POTENTIAL INTERFERENCE
5.1 EXCHANGE OF EVIDENCE. Kos and USL, promptly following the
declaration of an interference by the Board of Interference of the PTO, shall
diligently and in good faith exchange in confidence evidence of invention as to
the claims that are subject to the interference, and their respective attorneys
shall attempt to determine priority of invention in accordance with the laws of
the United States and the Rules of Practice of the PTO. Such evidence shall
include, without limitation, testimony by sworn and notarized affidavit.
Photographic copies of notebook pages or other records and an uncertified copy
of any application involved in this exchange and of other documents, or
photographs of exhibits may be introduced into evidence in lieu of originals and
have the same force and effect as though the originals themselves had been
introduced; provided, however, that during the course of this exchange, the
originals will be available for inspection by opposing counsel during business
hours at the offices of the
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THE COMPANY HAS OMITTED CERTAIN CONFIDENTIAL INFORMATION FROM THIS DOCUMENT.
ASTERISKS DENOTE SUCH OMISSIONS.
respective attorneys of the parties. The attorneys for the parties may agree to
an informal exchange of proofs; provided, however, that any evidence shall be
submitted in affidavit form to the PTO in the event that a determination of
priority cannot be agreed upon by the parties hereto.
5.2 CONCESSION OF PRIORITY. The party that owns an application or
patent, the applicant or patentee of which is determined by the attorneys for
the respective parties not to be the first inventor under the laws of the United
States and the Rules of Practice of the PTO as to the claims which are subject
to such interference shall cause to be executed an agreement that concedes
priority, and shall file such agreement with the PTO, with a copy delivered to
the other party, along with any and all papers necessary to concede priority as
to such claims and invention and to abandon any contest as to such claims and
invention. Such agreement and papers shall set forth the facts upon which the
concession of priority is based.
5.3 DETERMINATION OF PRIORITY. In the event that a determination of
priority is not agreed upon by the attorneys for the parties, the question of
priority, including evidence exchanged by the parties pursuant to Section 5.1,
which shall be stipulated to the extent possible, shall, upon declaration, if
any, of an interference by the Board of Patent Interference of the PTO, be
submitted to the PTO for determination as to priority in accordance with the PTO
rules of practice governing interferences, i.e., 37 CFR Sections 1.601 ET SEQ.
The determination of the Board of Patent Interference of the PTO on priority
shall be final and unappealable.
ARTICLE 6. USL LICENSE
6.1 GRANT OF LICENSE TO USL. Kos hereby grants to USL and only USL a
perpetual, worldwide, royalty-free, non-exclusive license to make, use and sell
any USL Product covered by a claim in a Kos Patent Appln or a patent that issues
from a Kos Patent Appln.
6.2 SUBLICENSES OF USL LICENSE. The license granted to USL under
Section 6.1 shall be non-assignable and non-transferable; provided, however,
that USL shall have the right to grant sublicenses of such license to a supplier
for the sole purpose of supplying USL Products to USL for re-sale by USL through
its normal channels of distribution.
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6.3 SURVIVAL OF USL LICENSE. The rights granted USL under this Article
6 shall survive any termination of this Agreement pursuant to Sections 10.1,
10.2, or, in connection with a material breach of this Agreement by Kos, 10.3.
ARTICLE 7. PATENTS & PATENT LITIGATION
7.1 MAINTENANCE OF PATENTS. USL shall use its best efforts to prosecute
and maintain each of the Licensed Patents in all countries where such
application or patent has been filed or issued. USL shall keep Kos informed, on
a timely basis, of changes to the status of the Licensed Patents. USL shall be
solely responsible for all expenses incurred in connection with the prosecution
and maintenance of such applications and patents.
7.2 INFRINGEMENT BY THIRD PARTIES. In the event that any of the
Licensed Patents is infringed by a third party, the parties shall promptly meet
and discuss the infringement and decide how they wish to proceed to abate the
infringement. If the parties reach an agreement with regard to the enforcement
of such Licensed Patent, USL shall proceed with enforcement of the Licensed
Patent (alone or jointly with Kos) and the recovery shall be shared in the same
manner as the parties have agreed to share the costs of litigation. If USL fails
to diligently prosecute such action or if USL is unwilling to proceed with the
enforcement of the Licensed Patent for more than ninety (90) days, or such
shorter period of time as may be necessary to ensure there is no waiver of
rights, following notice of infringement, Kos shall have the right to initiate
such litigation in its own name and at its expense. In such event, Kos shall be
entitled to all recovery. In all cases, USL shall have the right to fully
participate in the litigation at its expense. Kos shall not have any right to
offset the costs of litigation against royalties (whether earned or not) unless
otherwise agreed in writing between the parties. When either party litigates
under this paragraph, the other party shall be kept informed of such activities
in writing at least every License Quarter, and it shall not settle or otherwise
compromise any claim or proceedings without providing prior written notice to
the other party hereto. Each party shall immediately inform the other party of
any acts that do or could constitute infringement of a Licensed Patent.
7.3 CHALLENGE. In the event that (i) the validity of both Licensed
Patents is challenged in any country other than the United States by a third
party, and (ii) the royalty payments made by Kos during the immediately
preceding License Agreement Year on Net Sales of Licensed Products outside the
United States did not exceed the cap on such royalty payments pursuant to
Section 3.4, Kos shall have the right to escrow all royalties owed under
Sections 3.2 and 3.3 on the Net Sales of Licensed Products in such country
during the pendency of such challenge. In the event that one or both
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Licensed Patents survive such challenge and there is at least one surviving
claim that covers the Licensed Products in accordance with Section 1.6, Kos
shall immediately pay all such escrowed royalties to USL plus accrued interest
thereon. In the event that one or both Licensed Patents survive any such
challenge, but no surviving claims cover the Licensed Product pursuant to
Section 1.6, or in the event that neither Licensed Patent survives any such
challenge, then USL agrees that Kos shall be entitled to keep all such escrowed
royalties plus accrued interest thereon.
7.4 ACTIONS BY THIRD PARTIES.
7.4.1 Subject to Section 7.4.2, Kos shall have the exclusive
right to defend, settle or compromise all litigation (including actions, suits
and proceedings before judicial or administrative tribunals, and arbitration
proceedings) in which Kos, its officers, directors or shareholders,
Sublicensees, or its vendees are charged by virtue of the manufacture, use or
sale of a Licensed Product under this Agreement with infringement of any
intellectual property rights of third parties.
7.4.2 If any third party shall bring an action against Kos,
its officers, directors or shareholders, Sublicensees or its vendees for
infringement of any patent or rights thereunder of such third party, by reason
of the manufacture, use or sale of a Licensed Product by Kos, Sublicensees, or
their customers (ultimate or in privity or otherwise), Kos shall promptly give
written notice to USL of the institution of such action. Kos shall be solely
responsible for the costs and expenses of defending such infringement actions.
Kos shall be entitled, in its sole discretion, but after consultation with USL,
to settle or compromise any infringement action against Kos or Sublicensees
relating to a Licensed Product.
ARTICLE 8. CONFIDENTIALITY
8.1 CONFIDENTIALITY. Except as specifically provided in this Agreement,
and except as may be required by law or by a governmental agency, each of Kos
and USL agrees that it will not, directly or indirectly, disseminate, disclose,
or otherwise make available, to any third party other than by Kos or USL to a
Sublicensee: (i) the terms of this Agreement; or (ii) any information contained
in the Kos Patent Appln or the Licensed Patents, or any other information
pertaining to the Kos Patent Appln, the Licensed Patents or a Licensed Product.
Each of Kos and USL further agrees that it will take all steps reasonably
necessary to carry out this obligation, until such information is, or becomes,
available or generally known to the public other than due to disclosure by such
party and without any restrictions as to disclosure from a third party which has
the right to make such disclosure. The provisions hereof shall survive the
termination of
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this Agreement. Each of the parties shall have the right to disclose relevant
provisions of this Agreement to investors, potential investors, lenders,
regulatory authorities, and other appropriate business contacts that reasonably
require disclosure of such provisions so long as the disclosure of such
provisions is covered by a confidentiality agreement that is consistent with the
confidentiality provisions contained in this Article 8.
8.2 PRESS RELEASES. Except as permitted under this Section 8.2, neither
party shall issue a press release or public statement regarding the existence of
this Agreement or the terms thereof. Notwithstanding Section 8.1, Kos may issue
a press release or otherwise publicize this Agreement; provided that Kos
provides USL with five (5) days prior written notice of such press release or
publication. Nothing herein shall prohibit any disclosures by either party
required by law, such as those required under the securities laws of the United
States, but in such event the disclosing party shall seek confidential treatment
to the extent feasible.
ARTICLE 9. REPRESENTATIONS, WARRANTIES & COVENANTS.
9.1 REPRESENTATIONS, WARRANTIES & COVENANTS OF USL. USL represents and
warrants that: (i) it has full right, power and authority to enter into this
License Agreement and to grant the licenses granted to Kos under Article 2; (ii)
it has not assigned, transferred, conveyed, licensed, pledged or otherwise
encumbered any of its right, title and interest, in whole or in part, in the
Licensed Patents to any third party; (iii) it is the sole and exclusive owner of
the Licensed Patents, which ownership is free and clear of any liens, charges
and encumbrances; (iv) to the best of USL's knowledge, no aspect of this License
Agreement or any USL Product infringes upon any rights owned or possessed by any
third party; (v) to the best of USL's knowledge, the Licensed Patents are valid
and enforceable; (vi) there are no claims, judgments or settlements to be paid
by USL or any pending claims or litigation against or threatened by or against
USL relating to the Licensed Patents; (vii) it has no agreement with any third
party which conflicts in any way with its obligations to Kos under this
Agreement; and (viii) USL agrees not to assert against Kos any niacin patent
having an effective filing date prior to the effective date of this Agreement,
the use of which is required for the ordinary practice of the rights herein
licensed, but only to the extent of such requirement.
9.2 REPRESENTATIONS, WARRANTIES & COVENANTS OF KOS. Kos represents and
warrants that: (i) it has full right, power and authority to enter into this
Agreement and to grant the license granted to USL under Article 6; (ii) it has
not assigned, transferred, conveyed, licensed, pledged or otherwise encumbered
any of its right, title and interest, in whole or in part, in the
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Kos Patent Appln to any third party; (iii) it is the sole and exclusive owner of
the Kos Patent Appln, which ownership is free and clear of any liens, charges
and encumbrances; (iv) to the best of Kos's knowledge, no aspect of this License
Agreement or the Niaspan(R) Product infringes upon any rights owned or possessed
by any third party; (v) there are no claims, judgments or settlements to be paid
by Kos or any pending claims or litigation against or threatened by or against
Kos relating to the Kos Patent Appln; (vi) it has no agreement with any third
party which conflicts in any way with its obligations to USL under this
Agreement; and (vii) Kos agrees not to assert against USL any niacin patent
having an effective filing date prior to the effective date of this Agreement,
the use of which is required for the ordinary practice of the rights herein
licensed, but only to the extent of such requirement.
ARTICLE 10. TERM & TERMINATION
10.1 TERM. The term of this Agreement, unless terminated as provided
herein, shall remain in effect in each country in the Territory for so long as
at least one of the Licensed Patents is valid and enforceable in such country.
10.2 TERMINATION BY KOS. Kos may terminate this Agreement at any time
following the fourth anniversary of the date of this Agreement upon thirty (30)
days prior written notice.
10.3 TERMINATION UPON BREACH. Either party may provide the other with
written notice of a material breach of this Agreement by the other party and the
breaching party shall have sixty (60) days from the date on which it receives
such notice in which to cure such breach. In the event that such breach is not
cured on a timely basis, the non-breaching party shall have the right to
terminate this Agreement upon ten (10) days prior written notice.
ARTICLE 11. MISCELLANEOUS.
11.1 ASSIGNMENT. This Agreement shall not be assignable by
either party hereto without the prior written consent of the other
party hereto; provided that (i) Kos may assign without USL's
consent all of Kos' rights under this Agreement in connection with
a merger in which Kos is not the surviving entity or in connection
with a sale or transfer of substantially all of the assets of Kos,
(ii) USL may assign without Kos' consent all of USL's rights under
this Agreement, except for the license granted to USL under Article
6, in connection with a merger in which USL is not the surviving
entity or in connection with a sale or transfer of substantially
all of the assets of USL, and (iii) either party may assign,
without the consent of the other party, its rights under this
Agreement to a wholly-owned subsidiary of such party. Any
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attempted assignment not in accordance with and permitted by this Section 11.1
shall be void.
11.2 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of Florida.
11.3 FAILURE TO ENFORCE. The failure of either party at any time, or
for any period of time, to enforce any of the provisions of this Agreement shall
not be construed as a waiver of such provisions or as a waiver of the right of
such party thereafter to enforce each and every such provision.
11.4 NOTICES. Any notice required to be given under this Agreement is
properly provided if in writing and either hand delivered, transmitted via
facsimile with a confirming copy sent by first class mail, or sent by express or
certified mail, postage prepaid, to the parties at the following addresses,
unless another address is provided in accordance with the provisions of this
Section 11.5:
If to Kos: 1001 Brickell Bay Drive
Suite 2502
Miami, Florida 33131
Facsimile No. (305) 577-4596
Attention: President
with a copy to: Holland & Knight LLP
One East Broward Boulevard
Fort Lauderdale, Florida 33301
Facsimile No. (954) 463-2030
Attention: Steven Sonberg, Esq.
If to USL: 14905 23rd Avenue North
Minneapolis, Minnesota 55447
Facsimile No. (612) 476-4026
Attention: President
with a copy to: Merchant & Gould
3100 Norwest Center
Minneapolis, Minnesota 55402
Facsimile No. (612) 332-9081
Attention: Cecil Schmidt, Esq.
11.5 SEVERABILITY. All rights and restrictions contained herein may be
exercised and shall be applicable and binding only to the extent that they do
not violate any applicable laws and are intended to be limited to the extent
necessary so that they will not render this Agreement illegal, invalid or
unenforceable. If any provision or portion of any provision of this Agreement
not essential to the commercial purpose of this Agreement shall be held to be
illegal, invalid or unenforceable by a court of competent
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jurisdiction, it is the intention of the parties that the remaining provisions
or portions thereof shall constitute their agreement with respect to the subject
matter hereof, and all such remaining provisions or portions thereof shall
remain in full force and effect. To the extent legally permissible, any illegal,
invalid or unenforceable provision of this Agreement shall be replaced by a
valid provision which will implement the commercial purpose of the illegal,
invalid or unenforceable provision. In the event that any provision essential to
the commercial purpose of this Agreement for either is held to be illegal,
invalid or unenforceable and cannot be replaced by a valid provision which will
implement the commercial purpose of this Agreement, such party may terminate
this Agreement by giving written notice to the other party.
11.6 HEADINGS. The headings as to contents of particular paragraphs of
this Agreement are inserted for convenience only and shall not be construed as a
part of this Agreement or as a limitation on the scope of any terms or
provisions of this Agreement.
11.7 INTEGRATION. This Agreement constitutes the entire agreement
between the parties hereto as of the Effective Date hereof, and there are no
understandings, representations or warranties of any kind with respect thereto
except as expressly set forth herein. No modification of this Agreement shall be
effective unless in writing and duly executed on behalf of each of the parties
hereto.
11.8 ACCEPTANCE BY FAX & COUNTERPARTS. This Agreement shall be
accepted, effective and binding, for all purposes, when the parties shall have
signed and transmitted to each other, which may be by telecopier, copies of the
signature pages thereto. This Agreement may be executed in multiple
counterparts, each of which shall together constitute one and the same
instrument.
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The parties hereto have caused this Agreement to be executed in
duplicate by their duly authorized representatives as of the date first written
above.
KOS PHARMACEUTICALS, INC.,
a Florida corporation.
/s/ Daniel M. Bell
----------------------------------
Daniel M. Bell, President
UPSHER-SMITH LABORATORIES,
INC., a Minnesota
corporation.
/s/ Ian Troup
----------------------------------
Ian Troup, President
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EXHIBIT A
Possible Interference Notification
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ASTERISKS DENOTE SUCH OMISSIONS.
EXHIBIT B
Evenstad Patent
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EXHIBIT C
O'Neill Patent
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EXHIBIT D
Kos Patent Appln
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use
of our report (and to all references to our Firm) included in or made a part
of this registration statement.
ARTHUR ANDERSEN LLP
Miami, Florida,
March 5, 1997.
