SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to \s 240.142-11/copyright/ or \s 240.142-12
[ ] Confidential, For Use of the Commission Only
(as permitted by Rule 14a-6(e) (2))
KOS PHARMACEUTICALS, INC.
(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on the table below per Exchange Act Rules 14a-6(I)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
[KOS LETTERHEAD]
March 25, 1998
To Our Shareholders:
On behalf of the Board of Directors of Kos Pharmaceuticals, Inc. (the
"Company"), I cordially invite you to attend the Annual Meeting of Shareholders
of the Company (the "Annual Meeting") to be held at The Hotel
Inter-Continental, 100 Chopin Plaza, Miami, Florida 33131 on April 27, 1998, at
10:00 A.M., local time. A Notice of the Annual Meeting, form of proxy, and a
Proxy Statement containing information about the matters to be acted upon at
the Annual Meeting are enclosed.
We urge you to attend the Annual Meeting. It is an excellent opportunity
for the Company's management to discuss the Company's progress with you in
person.
Whether in person or by proxy, it is important that your shares be
represented at the Annual Meeting. To ensure your participation in the Annual
Meeting, regardless of whether you intend to attend in person, please complete,
sign, date, and return the enclosed proxy promptly. If you attend the Annual
Meeting, you may revoke your proxy at that time and vote in person, even if you
have previously returned your form of proxy, by following the procedures set
forth in the Proxy Statement.
We look forward to seeing you on April 27.
Yours truly,
/S/ DANIEL M. BELL
-----------------------
Daniel M. Bell
President and
Chief Executive Officer
<PAGE>
KOS PHARMACEUTICALS, INC.
1001 BRICKELL BAY DRIVE, 25TH FLOOR
MIAMI, FLORIDA 33131
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MONDAY, APRIL 27, 1998
----------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders ("Annual
Meeting") of Kos Pharmaceuticals, Inc. (the "Company") will be held at The
Hotel Inter-Continental, 100 Chopin Plaza, Miami, Florida 33131 on April 27,
1998, at 10:00 A.M., for the following purposes:
1. To elect eight directors of the Company to serve until the 1999 Annual
Meeting of Shareholders;
2. To ratify the appointment of Arthur Andersen LLP as the Company's
independent certified public accountants for the fiscal year ending
December 31, 1998; and
3. To transact such other business as may properly come before the meeting
or any adjournment or postponements thereof.
The Board of Directors has fixed the close of business on March 12, 1998,
as the record date for determining those shareholders entitled to notice of,
and to vote at, the Annual Meeting and any adjournments or postponements
thereof.
ALL SHAREHOLDERS ARE INVITED TO ATTEND THE ANNUAL MEETING IN PERSON. THOSE
SHAREHOLDERS WHO ARE UNABLE TO ATTEND ARE RESPECTFULLY URGED TO EXECUTE AND
RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE. SHAREHOLDERS WHO
EXECUTE A PROXY CARD MAY NEVERTHELESS ATTEND THE ANNUAL MEETING, REVOKE THEIR
PROXY, AND VOTE THEIR SHARES IN PERSON.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ Daniel M. Bell
DANIEL M. BELL
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Miami, Florida
March 25, 1998
<PAGE>
KOS PHARMACEUTICALS, INC.
1001 BRICKELL BAY DRIVE, 25TH FLOOR
MIAMI, FLORIDA 33131
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 27, 1998
----------------
PROXY STATEMENT
----------------
TIME, DATE, AND PLACE OF ANNUAL MEETING
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Kos Pharmaceuticals, Inc. (the "Company") of proxies
from the holders of the Company's Common Stock, par value $.01 per share (the
"Common Stock"), for use at the Annual Meeting of Shareholders of the Company
to be held at 10:00 A.M. on April 27, 1998, at The Hotel Inter-Continental, 100
Chopin Plaza, Miami, Florida 33131, and at any adjournments or postponements
thereof (the "Annual Meeting"), pursuant to the enclosed Notice of Annual
Meeting.
The approximate date this Proxy Statement and the enclosed form of proxy
are first being sent to shareholders is March 25, 1998. Shareholders should
review the information provided herein in conjunction with the Company's Annual
Report to Shareholders, which accompanies this Proxy Statement. The Company's
principal executive offices are located at 1001 Brickell Bay Drive, 25th Floor,
Miami, Florida 33131, and its telephone number is (305) 577-3464.
INFORMATION CONCERNING PROXY
The enclosed proxy is solicited on behalf of the Company's Board of
Directors. The giving of a proxy does not preclude the right to vote in person
should any shareholder giving the proxy so desire. Shareholders have an
unconditional right to revoke their proxy at any time prior to the exercise
thereof, either in person at the Annual Meeting or by filing with the Company's
Secretary at the Company's headquarters a written revocation or duly executed
proxy bearing a later date; however, no such revocation will be effective until
written notice of the revocation is received by the Company at or prior to the
Annual Meeting.
The cost of preparing, assembling, and mailing this Proxy Statement, the
Notice of Annual Meeting of Shareholders, and the enclosed proxy will be borne
by the Company. In addition to the use of mail, employees of the Company may
solicit proxies personally and by telephone. The Company's employees will
receive no compensation for soliciting proxies other than their regular
salaries. The Company may request banks, brokers, and other custodians,
nominees, and fiduciaries to forward copies of the proxy material to their
principals and to request authority for the execution of proxies. The Company
may reimburse such persons for their expenses in so doing.
<PAGE>
PURPOSES OF THE ANNUAL MEETING
At the Annual Meeting, the Company's shareholders will consider and act
upon the following matters:
1. To elect eight directors of the Company to serve until the 1999 Annual
Meeting of Shareholders;
2. To ratify the appointment of Arthur Andersen LLP as the Company's
independent certified public accountants for the year ending December
31, 1998; and
3. To transact such other business as may properly come before the Meeting
or any adjournment or postponements thereof.
Unless contrary instructions are indicated on the enclosed proxy, all
shares represented by valid proxies received pursuant to this solicitation (and
which have not been revoked in accordance with the procedures set forth herein)
will be voted (a) for the election of the respective nominees for director
named below and (b) in favor of the appointment of Arthur Andersen LLP as the
Company's independent certified public accountants. In the event a shareholder
specifies a different choice by means of the enclosed proxy, such shareholder's
shares will be voted in accordance with the specification so made.
OUTSTANDING VOTING SECURITIES AND VOTING RIGHTS
The Board of Directors has set the close of business on March 12, 1997, as
the record date (the "Record Date") for determining shareholders of the Company
entitled to notice of and to vote at the Annual Meeting. As of the Record Date,
there were 17,165,695 shares of Common Stock issued and outstanding, all of
which are entitled to be voted at the Annual Meeting. Each share of Common
Stock is entitled to one vote on each matter submitted to shareholders for
approval at the Annual Meeting.
The attendance, in person or by proxy, of the holders of a majority of the
outstanding shares of Common Stock entitled to vote at the Annual Meeting is
necessary to constitute a quorum. Directors will be elected by plurality of the
votes cast by the shares of Common Stock represented in person or by proxy at
the Annual Meeting. The affirmative votes of the holders of a majority of the
shares of Common Stock represented in person or by proxy at the Annual Meeting
will be required for approval of the proposals to elect eight directors of the
Company to serve until the 1999 Annual Meeting of Shareholders, ratify the
appointment of Arthur Andersen LLP as the Company's independent certified
public accountants for the year ending December 31, 1998, and any other matter
that may be submitted to a vote of the shareholders. If less than a majority of
the outstanding shares entitled to vote are represented at the Annual Meeting,
a majority of the shares so represented may adjourn the Annual Meeting to
another date, time or place, and notice need not be given of the new date, time
or place if the new date, time or place is announced at the Meeting before
adjournment is taken.
Prior to the Annual Meeting, the Company will select one or more
inspectors of election for the Meeting. Such inspector(s) shall determine the
number of shares of Common Stock represented at the Meeting, the existence of a
quorum, and the validity and effect of proxies, and shall receive, count, and
tabulate ballots and votes, and determine the results thereof. Abstentions will
be considered as shares present and entitled to vote at the Annual Meeting and
will be counted as votes cast at the Annual Meeting, but will not be counted as
votes cast for or against any given matter.
A broker or nominee holding shares registered in its name, or in the name
of its nominee, which are beneficially owned by another person and for which it
has not received instructions as to voting from the beneficial owner, may have
discretion to vote the beneficial owner's shares with respect to the election
of directors and other matters addressed at the Annual Meeting. Any such shares
that are not represented at the Annual Meeting, either in person or by proxy,
will not be considered to have cast votes on any matters addressed at the
Annual Meeting.
2
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT AND
CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information with respect to
beneficial ownership of the Common Stock as of February 28, 1998, by: (i) each
person known to the Company to beneficially own more than 5% of the Common
Stock; (ii) the Company's Named Executive Officers (as defined below); and
(iii) all directors and executive officers of the Company as a group. The
calculation of the Percentage of Outstanding Shares is based on 17,165,695
Shares outstanding on February 28, 1998. Except as otherwise indicated, each
shareholder named has sole voting and investment power with respect to such
shareholder's shares.
<TABLE>
<CAPTION>
AMOUNT OF BENEFICIAL OWNERSHIP
OF COMMON STOCK
------------------------------------------
TOTAL SHARES PERCENTAGE OF
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED OUTSTANDING SHARES
- ----------------------------------------------- -------------------- -------------------
<S> <C> <C>
Michael Jaharis(1) ............................ 8,570,070 49.9%
Daniel M. Bell(2) ............................. 600,026 3.4%
Robert E. Baldini(3) .......................... 50,001 *
David J. Bova(4) .............................. 279,101 1.6%
Anthony J. Cutie, Ph.D.(5) .................... 50,201 *
David L. Heatherman(6) ........................ 10,001 *
Frederick A. Sexton(7) ........................ 20,173 *
John Brademas, Ph.D. .......................... -- --
Steven Jaharis, M.D.(8) ....................... 5,001 *
Louis C. Lasagna, M.D. ........................ -- --
Mark Novitch, M.D. ............................ -- --
Frederick B. Whittemore ....................... -- --
All Executive Officers and Directors
as a group (13 persons)(9) ................... 9,584,574 52.7%
5% SHAREHOLDERS:
The Capital Group Companies, Inc.(10) ......... 1,413,700 8.2%
333 South Hope Street
Los Angeles, CA 90071
</TABLE>
- ----------------
<TABLE>
<S> <C>
* Less than 1 percent
(1) Includes one share that Mr. Jaharis owns jointly with his wife, 7,610,000 shares held by Kos Holdings, Inc., and
960,069 shares held by Kos Investments, Inc. Mr. Jaharis is the controlling shareholder of both Kos Holdings, Inc.
and Kos Investments, Inc.
(2) Includes 600,000 shares of Common Stock that may be purchased by Mr. Bell pursuant to an option, which is currently
exercisable. Does not include any shares of Common Stock owned by Kos Holdings, Inc., in which Mr. Bell has an
indirect ownership of less than ten percent interest through Kos Investments, Inc.
(3) Consists of 50,000 shares of Common Stock that may be purchased by Mr. Baldini pursuant to an option, which is
currently exercisable.
(4) Includes 275,000 shares of Common Stock that may be purchased by Mr. Bova pursuant to an option, which is currently
exercisable.
(5) Includes 50,000 shares of Common Stock that may be purchased by Dr. Cutie pursuant to an option, which is currently
exercisable. Also includes 200 shares of Common Stock owned by Dr. Cutie's son, with respect to which Dr. Cutie
disclaims beneficial ownership.
(6) Includes 10,000 shares of Common Stock that may be purchased by Mr. Heatherman pursuant to an option, which is
currently exercisable.
(7) Consists of 20,000 shares of Common Stock that may be purchased by Mr. Sexton pursuant to an option, which is
currently exercisable. Also includes 172 shares of Common Stock owned by Mr. Sexton's wife, with respect to which
Mr. Sexton disclaims beneficial ownership.
(8) Consists of 5,000 shares of Common Stock that may be purchased by Dr. Jaharis pursuant to an option, which is
currently exercisable. Does not include any shares of Common Stock owned by Kos Holdings, Inc. in which Dr. Jaharis
has an indirect ownership interest through Kos Investments, Inc. of less than ten percent.
(9) Includes 1,010,000 shares of Common Stock issuable upon exercise of options which are currently exercisable.
(10) As reported in the most recent Schedule 13G filed by The Capital Group Companies, Inc. ("Capital Group"). As noted in
its most recently filed Schedule 13G, Capital Group does not have sole voting power over the Company's Common Stock
that may be beneficially owned by Capital Group, and Capital Group has disclaimed beneficial ownership of all such
shares.
</TABLE>
3
<PAGE>
PROPOSAL 1:
ELECTION OF DIRECTORS
At the Annual Meeting, eight directors are to be elected to hold office
until the 1999 Annual Meeting of Shareholders and until their successors have
been elected and qualified. The eight nominees for election as directors are
Michael Jaharis, Daniel M. Bell, Robert E. Baldini, John Brademas, Steven
Jaharis, Louis C. Lasagna, Mark Novitch, and Frederick B. Whittemore. Each
nominee is currently a member of the Board of Directors. Information concerning
each of the nominees is set forth below. The persons named in the enclosed
proxy card have advised that, unless otherwise directed on the proxy card, they
intend to vote FOR the election of the nominees. Should any nominee become
unable or unwilling to accept nomination or election for any reason, votes will
be cast for a substitute nominee designated by the Board of Directors, which
has no reason to believe the nominees named will be unable or unwilling to
serve if elected.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE NOMINEES AS
DIRECTORS TO SERVE UNTIL THE COMPANY'S 1999 ANNUAL MEETING OF SHAREHOLDERS AND
UNTIL THEIR RESPECTIVE SUCCESSORS ARE DULY ELECTED AND QUALIFIED.
DIRECTORS
<TABLE>
<CAPTION>
1997 DIRECTORS AGE POSITION WITH THE COMPANY
- ------------------------- ----- --------------------------------------------
<S> <C> <C>
Michael Jaharis 69 Chairman of the Board
Daniel M. Bell 55 President and Chief Executive Officer
Robert E. Baldini 67 Vice Chairman of the Board, Chief Sales and
Marketing Officer
John Brademas, Ph.D. 71 Director(1)
Steven Jaharis, M.D. 38 Director(1)(2)
Louis C. Lasagna, M.D. 75 Director(1)
Mark Novitch, M.D. 65 Director(2)
Frederick B. Whittemore 67 Director(1)(2)
</TABLE>
- ----------------
(1) Member of Audit Committee
(2) Member of Compensation and Stock Option Committee
MICHAEL JAHARIS, a founder of the Company, has, since its inception and
until the Company's Initial Public Offering of its Common Stock ("IPO"), 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, Inc. and Kos Holdings, Inc., 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, Inc. and Kos Holdings,
Inc. and as a director of two private companies in which Kos Investments, Inc.
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, as a senior marketing consultant to the Company since April 1996, and as
the Company's Chief Sales and Marketing Officer since February 1998. In these
positions, Mr. Baldini serves as an executive officer of the Company. In
4
<PAGE>
addition to performing services for the Company, Mr. Baldini serves as a
consultant to, and director of, private and public pharmaceutical and medical
device companies. Mr. Baldini is a director of Ascent Pediatrics, Inc. 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.
JOHN BRADEMAS, PH.D. has served as a Director of the Company since the
completion of the Company's IPO. 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., Oxford University Press-USA, 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 served as a Director of the Company since the
completion of the Company's IPO. 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, R. P. Scherer Corp., and serves on the scientific advisory board of
BioSpecifics Technologies Corporation.
MARK NOVITCH, M.D. has served as a Director of the Company since the
completion of the Company's IPO. Dr. Novitch served as Professor of Health Care
Sciences at George Washington University from 1994 to 1997 and presently serves
as Adjunct Professor. 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 served as a Director of the Company since the
completion of the Company's IPO. Mr. Whittemore has been with Morgan Stanley
Group since 1958 and presently serves as Advisory Director. Mr. Whittemore also
serves as a director of Chesapeake Energy Corporation, PartnerRe Holdings,
Ltd., Integon, Inc., Ecofin Limited, Maxcor Financial Group, Inc., Sunlife of
New York, and Southern Pacific Petroleum N.L.
OTHER 1997 EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ------------------------- ----- ----------------------------------------------------
<S> <C> <C>
David J. Bova 52 Senior Vice President, Research and Development
Duncan H. Cocroft 54 Senior Vice President, Chief Administrative Officer
Anthony J. Cutie, Ph.D. 54 Vice President, Aerosol Research & Development
David L. Heatherman 51 Vice President, Sales
Frederick A. Sexton 38 Vice President, Technical Operations
</TABLE>
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, Research and 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 Director of Product Development. Prior to
1981, Mr. Bova was employed by the USV pharmaceutical operation of Revlon
Healthcare.
DUNCAN H. COCROFT, joined the Company in September 1997 and serves as
Senior Vice President, Chief Administrative Officer. Mr. Cocroft most recently
served as Vice President and Chief Financial
5
<PAGE>
Officer of International Multifoods Corporation from 1990 to 1997. He
previously served as Vice President and Treasurer for SmithKline Beecham plc.,
from 1987 to 1990. Mr. Cocroft also served as Vice President and Treasurer of
PHH Group, Inc., from 1979 to 1987.
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 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.
DAVID L. HEATHERMAN joined the Company in July 1996 and serves as Vice
President, Sales. Mr. Heatherman worked for Schering-Plough from 1972 to 1996
in several sales and marketing positions, including Senior Product Promotion
Director, Regional Sales Director, and 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.
THE BOARD OF DIRECTORS AND BOARD COMMITTEES
During the year ending December 31, 1997, the Board of Directors held 6
regularly scheduled and special meetings. During such year, all directors
attended at least 75 percent of the meetings of the Company's Board of
Directors and committees of which they were a member. In addition to attending
meetings, directors discharge their responsibilities through review of Company
reports to directors and correspondence and telephone conferences with the
Company's executive officers, key employees, and others regarding matters of
interest to the Company.
AUDIT COMMITTEE
The Audit Committee reviews the scope and results of the annual audit of
the Company's consolidated financial statements conducted by the Company's
independent certified public accountants, the scope of other services provided
by the Company's independent certified public accountants, proposed changes in
the Company's financial accounting standards and principles, and the Company's
policies and procedures with respect to its internal accounting, auditing and
financing controls. The Audit Committee also examines and considers other
matters relating to the financial affairs and accounting methods of the
Company, including selection and retention of the Company's independent
certified public accountants. During the year ending December 31, 1997, the
Audit Committee held one regularly scheduled meeting. Dr. Brademas, Dr.
Jaharis, Dr. Lasagna, and Mr. Whittemore, each of whom is a non-employee
director of the Company, constitute the Audit Committee.
COMPENSATION AND STOCK OPTION COMMITTEE
The Compensation and Stock Option Committee is responsible for
administering the Company's executive compensation, including base salaries,
bonuses and awards of stock options. During the year ending December 31, 1997,
the Compensation and Stock Option Committee did not meet separately as a
committee, but deliberated and took action during meetings of the full Board of
Directors. Dr. Jaharis, Dr. Novitch and Mr. Whittemore, each of whom is a
non-employee director of the Company, constitute the Compensation and Stock
Option Committee.
6
<PAGE>
COMPENSATION OF DIRECTORS
Each non-employee 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 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.
Each non-employee 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.
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. The Company, however, leases an
automobile for Mr. Jaharis' use.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's directors and executive officers, and persons who
beneficially own more than ten percent of a registered class of the Company's
equity securities, to file with the Securities and Exchange Commission (the
"Commission") initial reports of beneficial ownership and reports of changes in
beneficial ownership of the Company's Common Stock. The rules promulgated by
the Commission under Section 16(a) of the Exchange Act require those persons to
furnish the Company with copies of all reports filed with the Commission
pursuant to Section 16(a).
Based solely upon a review of Forms 3, Forms 4, and Forms 5 and amendments
thereto furnished to the Company pursuant to Rule 16a-3(e) during the
transition period from July 1, 1997, to December 31, 1997, all directors,
executive officers and greater-than-ten-percent beneficial owners have filed
with the Commission on a timely basis all reports required to be filed under
Section 16(a) of the Exchange Act.
7
<PAGE>
EXECUTIVE COMPENSATION
The following table summarizes the compensation during the fiscal years
ended December 31, 1995, 1996 and 1997, earned by the Company's Chief Executive
Officer and the four other highest paid executive officers of the Company
during 1997 (collectively the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------------------------- --------------------------------------
AWARDS PAYOUTS
---------------------------- ---------
SECURITIES
OTHER RESTRICTED UNDERLYING
ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
NAME AND SALARY BONUS COMPENSATION AWARD(S) SARS PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($) ($)(2)
- ----------------------- ------ --------- ---------------- -------------- ------------ --------------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Daniel M. Bell 1997 287,500 300,000(1) -- -- 75,000(1) -- 16,405(4)
President and CEO 1996 248,000 150,000 -- -- 750,000(3) -- 4,209
1995 246,000 -- -- -- -- -- 3,823
David J. Bova 1997 213,750 21,100(1) 28,900(6) -- 10,000(1) -- 1,077
Senior V. P., 1996 190,000 25,000 -- -- -- -- 1,350
Research and 1995 185,000 -- -- -- -- -- 761
Development
Anthony J. Cutie 1997 157,500 -- -- -- -- -- 6,303
Vice President, 1996 143,750 -- -- -- -- -- 6,852
Aerosol Research 1995 131,250 5,208 -- -- -- -- 7,945
and Development
David L. Heatherman 1997 151,400 60,000 -- -- -- -- 25,154(5)
Vice President, Sales 1996 68,750 10,000 -- -- 40,000 -- 367
1995 -- -- -- -- -- -- --
Frederick A. Sexton 1997 170,000 65,000(1) -- -- 25,000(1) -- 81
Vice President, 1996 145,000 35,500 -- -- 40,000 -- 21,565(5)
Technical Operations 1995 -- -- -- -- -- -- --
</TABLE>
- ----------------
(1) Awarded by the Company's Board of Directors on February 19, 1998.
(2) Consists of life insurance premiums, unless otherwise stated.
(3) The options were originally 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.
(4) Consists of life insurance premiums and $12,140 of automobile lease
expenses for Mr. Bell.
(5) Consists of life insurance premiums and relocation expenses paid by the
Company for Mr. Heatherman and Mr. Sexton of $25,098 and $21,431,
respectively.
(6) Consists of a royalty, based on net sales of the NIASPAN/registered
trademark/ product, payable to Mr. Bova under his employment agreement.
8
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
There were no options to purchase Common Stock granted to the Named
Executive Officers during the year ended December 31, 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
The following table provides information about the number of aggregated
option exercises during the last fiscal year and value of options held by the
Named Executive Officers at December 31, 1997:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS
ACQUIRED VALUE FISCAL YEAR-END(#) AT FISCAL YEAR-END($)(1)
ON EXERCISE REALIZED ------------------------------- ------------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------- ------------- ------------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Daniel M. Bell .............. 150,000 $6,001,500 600,000 -- $8,904,000 $ --
David J. Bova ............... -- -- 275,000 -- 4,039,750 --
Anthony J. Cutie ............ -- -- 50,000 -- 772,000 --
David L. Heatherman ......... -- -- 10,000 30,000 4,400 13,200
Frederick A. Sexton ......... -- -- 10,000 30,000 84,400 253,200
</TABLE>
- ----------------
(1) The option value is based on the difference between the fair market value
of the shares on December 31, 1997, which was $15.44 per share, and the
option exercise price per share, multiplied by the number of shares of
Common Stock subject to the option.
401(K) PLAN
The Company's Internal Revenue Code Section 401(k) Plan, called the Kos
Savings Plan, became effective on January 1, 1994. Each employee who has
completed at least 90 days of service with the Company and has attained age 21
is eligible to make pre-tax elective deferral contributions each year not
exceeding the lesser 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.
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 performance. 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.
David J. Bova entered into an employment agreement with the Company that
expired December 31, 1997, but pursuant to which the Company has continuing
obligations to Mr. Bova. The
9
<PAGE>
agreement provides that Mr. Bova receive royalties in an amount equal to one
percent of the net sales of the Company's NIASPAN/registered trademark/ product
and its combination Nicostatin/trademark/ 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. As of December 31, 1997, the Company had accrued royalties
under this agreement of approximately $29,000. The agreement prohibits Mr. Bova
from competing with the Company for a period of two years after the end of the
term of the agreement.
The Company entered into an employment agreement with Anthony J. Cutie,
Ph.D. dated as of June 20, 1996, pursuant to which Dr. Cutie serves as Vice
President, Aerosol Research and Development. This agreement constitutes an
amendment and restatement of a previous employment agreement with Dr. Cutie,
dated September 1, 1993. Under the agreement, the term of Dr. Cutie's
employment terminates on December 31, 1999, unless earlier terminated for
cause, upon the death and disability of Dr. Cutie, or, at the election of Dr.
Cutie, 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, and Dr. Cutie may elect to extend the term of
the agreement for up to eight years, during which period Dr. Cutie may serve
the Company as a consultant. The agreement provides that Dr. Cutie receive a
base salary of $165,000 per year, commencing July 1, 1997, which amount may be
increased by the Company. In addition, the agreement provides that Dr. Cutie
receive royalties in an amount equal to one percent of the net sales of the
Company's aerosol products formulated by Dr. Cutie through December 31, 2005,
up to a cap of $1,500,000. The agreement provides that, under certain
circumstances, the royalty amount may be reduced to 0.5% of net sales. The
agreement also provides that under certain circumstances, the Company's
obligation to pay royalties may cease upon Dr. Cutie's termination. The
agreement prohibits Dr. Cutie from competing with the Company during the term
of the agreement and for a period of two years after the termination thereof.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the Company's IPO on March 12, 1997, at which time the Board of
Directors established the Compensation and Stock Option Committee, 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.
Following March 12, 1997, all decisions regarding compensation of the Company's
executive officers have been subject to the authority of the Compensation and
Stock Option Committee.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation and Stock Option Committee is responsible for determining
compensation levels, including bonuses, for the officers of the Company other
than executive officers, and awarding stock options to such officers. The
Compensation and Stock Option Committee recommends to the Board of Directors
the cash and equity compensation of the Company's executive officers. Dr.
Jaharis, Dr. Novitch, and Mr. Whittemore, each of whom is a non-employee
director of the Company, constitute the Compensation and Stock Option
Committee.
In determining the compensation of the Company's executive officers, the
Compensation and Stock Option Committee takes into account all factors that it
considers relevant, including business conditions in general and the Company's
performance during the year in light of such conditions, the market
compensation for executives of similar background and experience, and the
performance of the specific executive officer under consideration and the
business area of the Company for which such executive officer is responsible.
The structure of each executive compensation package is weighted towards
incentive forms of compensation so that such executive's interests are aligned
with the interests of the shareholders of the Company. The Compensation and
Stock Option Committee believes that granting stock options provides an
additional incentive to executive officers to continue in the service of the
10
<PAGE>
Company and gives them an interest similar to shareholders in the success of
the Company. The compensation program for executive officers consists of grants
of stock options, in addition to base salaries and bonuses.
The Company has entered into an employment agreement dated as of July 1,
1996, with Mr. Bell, the Company's President and Chief Executive Officer. As
President and Chief Executive Officer, Mr. Bell's bonus and stock option
compensation is directly related to corporate performance. A portion of Mr.
Bell's compensation for the year ended December 31, 1997, was determined by the
Board of Directors prior to the establishment of the Compensation and Stock
Option Committee. The factors that both the Board of Directors and the
Compensation and Stock Option Committee considered in determining Mr. Bell's
compensation were as follows. Mr. Bell is a co-founder of the Company and has
been primarily responsible, since its inception, for managing the Company in
its effort to develop and obtain regulatory approval to market its first
product, NIASPAN/registered trademark/. Mr. Bell has also been primarily
responsible for many of the significant milestones achieved by the Company in
1997, including the Company's receiving marketing clearance from the U.S. Food
and Drug Administration for the Company's first product, NIASPAN/registered
trademark/; the creation of a sales organization capable of launching and
marketing the NIASPAN/registered trademark/ product; overseeing the scale-up of
the Company's manufacturing facilities to support the sale of
NIASPAN/registered trademark/; and managing the continued progress of the
Company's products under development. In addition, Mr. Bell was instrumental in
the success of the Company's public offerings, that raised approximately $110
million for the Company.
Frederick B. Whittemore, Chairman
Steven Jaharis, M.D.
Mark Novitch, M.D.
11
<PAGE>
PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return on
the Company's Common Stock during the year ended December 31, 1997, with the
cumulative total shareholder return of companies comprising the Nasdaq Stock
Market (U.S.) Index and the total shareholder return of a peer group of
companies comprising the Nasdaq Pharmaceutical Index, which includes
pharmaceutical companies traded on the Nasdaq Stock Market. The Company will
provide shareholders, upon request, with a list of the companies included in
the Nasdaq Pharmaceutical Index. The Company commenced public trading on March
7, 1997, and, therefore, the graph and table include data only since such date
(except for Nasdaq Indexes, which commence on February 28, 1997). The graph
assumes an initial investment of $100 and reinvestment of all dividends.
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
COMPARISON OF 10-MONTH CUMULATIVE TOTAL RETURNS
- -----------------------------------------------------------------------------
YEAR ENDED
COMPANY/INDEX BASE DATE* DECEMBER 31, 1997
- ----------------------------------------- ------------ ------------------
<S> <C> <C>
Kos Pharmaceuticals, Inc. $100 $103
Nasdaq Stock Market (U.S.) Index 100 121
Nasdaq Pharmaceutical Index 100 95
</TABLE>
----------------
* Reflects $100 invested on March 7, 1997, in Kos stock and $100
invested on February 28, 1997, in each index, including reinvestment
of dividends.
12
<PAGE>
PROPOSAL 2:
RATIFY THE APPOINTMENT OF THE COMPANY'S INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The firm of Arthur Andersen LLP, certified public accountants, served as
the Company's independent certified public accountants for the year ended
December 31, 1997. Arthur Andersen LLP has advised the Company that the firm
does not have any direct or indirect financial interest in the Company or its
subsidiary, nor has such firm had any such interest in connection with the
Company or its subsidiary during the past year, other than in its capacity as
the Company's independent certified public accountants. The Board of Directors
has appointed Arthur Andersen LLP as the Company's independent certified public
accountants for the fiscal year ending December 31, 1998. Although the Board is
not required to do so, it is submitting its selection of the Company's
independent certified public accountants for ratification at the Annual Meeting,
in order to ascertain the views of its shareholders. The Board will not be bound
by the vote of the shareholders; however, if the selection is not ratified, the
Board would reconsider its selection. Representatives of Arthur Andersen LLP may
be present at the Annual Meeting. These representatives will have the
opportunity to make a statement if they desire to do so and will be available to
respond to appropriate questions from shareholders.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS THAT THE COMPANY'S SHAREHOLDERS VOTE
"FOR" RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE COMPANY'S
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.
ANNUAL REPORT
The Company's 1997 Annual Report to Shareholders, including financial
statements for the year ended December 31, 1997, is being distributed to all
shareholders of the Company together with this Proxy Statement, in satisfaction
of the requirements of the Securities and Exchange Commission. Additional
copies of such report are available upon request. To obtain such additional
copies, please contact the Company's Investor Relations Department at (305)
577-3464.
SHAREHOLDER PROPOSALS
Pursuant to Rule 14a-8 under the Exchange Act, shareholders of the Company
may present proper proposals for inclusion in the Company's Proxy Statement and
for consideration at the next annual meeting by submitting their proposals to
the Company in a timely manner. Any shareholder of the Company who wishes to
present a proposal for inclusion in the Proxy Statement for action at the 1999
Annual Meeting of Shareholders must comply with the Company's Bylaws and the
rules and regulations of the Securities and Exchange Commission then in effect.
Such proposal must have been mailed to the Company at its offices at 1001
Brickell Bay Drive, 25th Floor, Miami, Florida 33131, Attention: Secretary, and
must be received by the Company before November 25, 1998.
OTHER MATTERS
The Board of Directors is not aware of any other matters to come before
the Meeting. If, however, any other matters properly come before the Meeting,
it is the intention of the persons named in the enclosed form of proxy to vote
said proxy in accordance with their judgment in such matters.
13
<PAGE>
KOS PHARMACEUTICALS, INC.
ANNUAL MEETING OF SHAREHOLDERS, APRIL 27, 1998
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Michael Jaharis and Daniel M. Bell, as
Proxies, with full power to act without the other and each with power of
substitution, and hereby authorizes them, to represent and vote, as designated
on the reverse side of this card, all shares of Common Stock of Kos
Pharmaceuticals, Inc. (the "Company") held of record by the undersigned at the
close of business on March 12, 1998, at the Annual Meeting of Shareholders to
be held on April 27, 1998, or any adjournment thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR USE AT THE
1998 ANNUAL MEETING OF THE COMPANY'S SHAREHOLDERS.
(TO BE SIGNED ON REVERSE SIDE)
- --------------------------------------------------------------------------------
A [X] PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2
PROPOSAL 1: ELECTION OF DIRECTORS
FOR all nominees listed at right [ ]
WITHHOLD AUTHORITY to vote for all nominees listed at right [ ]
NOMINEES:
1. Michael Jaharis [ ]
2. Daniel M. Bell [ ]
3. Robert E. Baldini [ ]
4. John Brademas, Ph.D. [ ]
5. Steven Jaharis, M.D. [ ]
6. Louis C. Lasagna, M.D. [ ]
7. Mark Novitch, M.D. [ ]
8. Frederick B. Whittemore [ ]
(Instruction: To withhold authority to vote for any individual nominee, mark
the box next to the nominee's name at right).
Should any nominee decline or be unable to accept such nomination to serve as a
director, an event that the Company does not currently anticipate, the persons
named in the enclosed proxy reserve the right, in their discretion, to vote for
a lesser number or for substitute nominees designated by the Board of Directors.
PROPOSAL 2: TO RATIFY THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT
AUDITORS
FOR [ ]
AGAINST [ ]
ABSTAIN [ ]
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR ALL PROPOSALS.
PLEASE CHECK HERE IF YOU EXPECT TO ATTEND THE ANNUAL MEETING OF SHAREHOLDERS.[ ]
SIGNATURES: ________________________ ________________________________
Date: ________________________
NOTE: PLEASE SIGN EXACTLY AS NAMED OR NAMES APPEAR ON STOCK CERTIFICATE (AS
INDICATED HEREON). WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE
OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF THE SIGNATURE IS BY A
CORPORATION, SIGN THE FULL COMPANY NAME BY A DULY AUTHORIZED OFFICER.
