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 PHARMACEUTICALS, INC.
1001 BRICKELL BAY DRIVE, 25TH FLOOR
MIAMI, FL 33131
(305) 577-3464
March 15, 1999
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 Hyatt Regency Coral
Gables, 50 Alhambra Plaza, Coral Gables, FL 33134 on Thursday, April 15, 1999,
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 15.
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 THURSDAY, APRIL 15, 1999
------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders ("Annual
Meeting") of Kos Pharmaceuticals, Inc. (the "Company") will be held at the Hyatt
Regency Coral Gables, 50 Alhambra Plaza, Coral Gables, FL 33134 on Thursday,
April 15, 1999, at 10:00 A.M., for the following purposes:
1. To elect eight directors of the Company to serve until the 2000 Annual
Meeting of Shareholders;
2. To approve the Kos Pharmaceuticals, Inc. 1999 Employee Stock Purchase
Plan;
3. To ratify the appointment of Arthur Andersen LLP as the Company's
independent certified public accountants for the fiscal year ending
December 31, 1999; and
4. 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 1, 1999, 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 15, 1999
<PAGE>
KOS PHARMACEUTICALS, INC.
1001 BRICKELL BAY DRIVE, 25TH FLOOR
MIAMI, FLORIDA 33131
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 15, 1999
----------------
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 Thursday, April 15, 1999, at the Hyatt Regency Coral
Gables, 50 Alhambra Plaza, Coral Gables, FL 33134, 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 15, 1999. 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 2000 Annual
Meeting of Shareholders;
2. To approve the Kos Pharmaceuticals, Inc. 1999 Employee Stock Purchase
Plan;
3. To ratify the appointment of Arthur Andersen LLP as the Company's
independent certified public accountants for the fiscal year ending
December 31, 1999; and
4. 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, (b) to approve the Kos Pharmaceuticals, Inc. 1999 Employee Stock Purchase
Plan and (c) 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 1, 1999, 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 17,731,504 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 approve the Kos
Pharmaceuticals, Inc. 1999 Employee Stock Purchase Plan, to ratify the
appointment of Arthur Andersen LLP as the Company's independent certified public
accountants for the year ending December 31, 1999, 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.
2
<PAGE>
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.
3
<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 19, 1999, 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 17,731,504 Shares
outstanding on February 19, 1999. 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
------------------------------------------
PERCENTAGE
TOTAL SHARES OF OUTSTANDING
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED SHARES
- ------------------------ ------------------ --------------
<S> <C> <C>
Michael Jaharis(1)................................................ 9,007,570 50.8%
Daniel M. Bell(2)................................................. 643,776 3.6%
Robert E. Baldini(3).............................................. 100,001 *
David J. Bova(4).................................................. 281,301 1.6%
Duncan H. Cocroft(5).............................................. 25,000 *
Frederick A. Sexton(6)............................................ 36,423 *
John Brademas, Ph.D.(7)........................................... 15,000 *
Steven Jaharis, M.D.(8)........................................... 38,001 *
Louis C. Lasagna, M.D.(9)......................................... 15,000 *
Mark Novitch, M.D.(10)............................................ 17,000 *
Frederick B. Whittemore(11)....................................... 15,000 *
All Executive Officers and Directors
as a group (11 persons)(12)...................................... 10,194,072 55.4%
5% SHAREHOLDERS:
The Capital Group Companies, Inc.(13)............................. 1,239,800 7.0%
333 South Hope Street
Los Angeles, CA 90071
</TABLE>
- ----------
* Less than 1 percent
(1) Includes 437,501 shares 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 318,750 shares of Common Stock that may be purchased by Mr. Bell
pursuant to options that are currently exercisable. Does not include any
shares of Common Stock owned by Kos Holdings, Inc. or Kos Investments,
Inc., in which Mr. Bell has an indirect ownership of less than ten percent
interest through Kos Investments, Inc.
(3) Includes 100,000 shares of Common Stock that may be purchased by Mr.
Baldini pursuant to an option that is currently exercisable.
(4) Includes 127,500 shares of Common Stock that may be purchased by Mr. Bova
pursuant to options that are currently exercisable.
(5) Consists of 25,000 shares of Common Stock that may be purchased by Mr.
Cocroft pursuant to options that are currently exercisable.
(6) Includes 36,250 shares of Common Stock that may be purchased by Mr. Sexton
pursuant to options that are currently exercisable. Also includes 172
shares of Common Stock owned by Mr. Sexton's wife, with respect to which
Mr. Sexton disclaims beneficial ownership.
(7) Consists of 15,000 shares of Common Stock that may be purchased by Dr.
Brademas pursuant to options that are currently exercisable.
(8) Includes 13,000 shares of Common Stock that may be purchased by Dr. Jaharis
pursuant to an option that is currently exercisable. Does not include any
shares of Common Stock owned by Kos Holdings, Inc. or Kos Investments, Inc.
in which Dr. Jaharis has an indirect ownership interest through Kos
Investments, Inc. of less than ten percent.
(9) Consists of 15,000 shares of Common Stock that may be purchased by Dr.
Lasagna pursuant to options that are currently exercisable.
(10) Consists of 15,000 shares of Common Stock that may be purchased by Dr.
Novitch pursuant to options that are currently exercisable.
(11) Consists of 15,000 shares of Common Stock that may be purchased by Mr.
Whittemore pursuant to options that are currently exercisable.
(12) Includes 680,500 shares of Common Stock issuable upon exercise of options
that are currently exercisable.
(13) 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.
4
<PAGE>
PROPOSAL 1:
ELECTION OF DIRECTORS
At the Annual Meeting, eight directors are to be elected to hold office
until the 2000 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 2000 ANNUAL MEETING OF SHAREHOLDERS AND
UNTIL THEIR RESPECTIVE SUCCESSORS ARE DULY ELECTED AND QUALIFIED.
<TABLE>
<CAPTION>
1998 DIRECTORS AGE POSITION WITH THE COMPANY
- -------------- --- -------------------------
<S> <C> <C>
Michael Jaharis 70 Chairman of the Board
Daniel M. Bell 56 President and Chief Executive Officer
Robert E. Baldini 68 Vice Chairman of the Board, Chief Sales and
Marketing Officer
John Brademas, Ph.D. 72 Director(1)
Steven Jaharis, M.D. 39 Director(1)(2)
Louis C. Lasagna, M.D. 76 Director(1)
Mark Novitch, M.D. 66 Director(2)
Frederick B. Whittemore 68 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.
5
<PAGE>
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
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 Evanston Northwestern Healthcare. 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 on the scientific advisory board of Data Edge, Inc., Advance
Biofactures Corp., P&J Brands, Inc., and serves as a consultant to Astra U.S.A.
Inc., a subsidiary of Astra AB.
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.,
Maxcor Financial Group, Inc., Sunlife of New York, and Southern Pacific
Petroleum N.L.
6
<PAGE>
<TABLE>
<CAPTION>
OTHER 1998 EXECUTIVE OFFICERS
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
<S> <C> <C>
David J. Bova 53 Senior Vice President, Research and Development
Duncan H. Cocroft 55 Senior Vice President, Chief Administrative Officer
Frederick A. Sexton 39 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 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.
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, 1998, the Board of Directors held five
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
financial 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, 1998, 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.
7
<PAGE>
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, 1998,
the Compensation and Stock Option Committee held one meeting. 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.
COMPENSATION OF DIRECTORS
Each non-employee director of the Company is entitled to receive a fee of
$2,000 for attendance at each meeting of the Board of Directors. In addition,
each non-employee director is entitled to receive $1,000 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 outside director of the Company is granted an option to purchase
15,000 shares of Common Stock upon election to the Board, receives options to
purchase 15,000 shares effective on each director's anniversary date and 3,000
shares effective on the date of the Company's Annual Shareholders' Meeting.
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 year ended
December 31, 1998, 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.
8
<PAGE>
EXECUTIVE COMPENSATION
The following table summarizes the compensation during the fiscal years
ended December 31, 1998, 1997 and 1996, earned by the Company's Chief Executive
Officer and the four other highest paid executive officers of the Company during
1998 (collectively the "Named Executive Officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
-------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------------- -------------------------- ---------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND SALARY BONUS COMPENSATION AWARD(S) OPTIONS/SARS PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($) ($)(3)
- ------------------ ------- -------- ------------- ------------- ---------- --------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Daniel M. Bell 1998 345,800 150,000(1) - - 25,000(1) - 20,487(4)
President and CEO 1997 287,500 300,000(2) - - 75,000(2) - 16,405(4)
1996 248,000 150,000 - - 750,000(5) - 4,209
Robert E. Baldini 1998 217,000 - 66,000(6) - 25,000(1) - -
Vice-Chairman of 1997 61,000 - 25,000(6) - - - -
Board of 1996 - - 37,500(6) - 200,000 - -
Directors
David J. Bova 1998 238,300 10,000(1) 65,000(7) - 25,000(8) - 1,264
Senior V. P., 1997 213,750 21,100(2) 28,900(7) - 10,000(2) - 1,077
Research and 1996 190,000 25,000 - - - - 1,350
Development
Duncan H. Cocroft 1998 200,000 75,000(9) - - 25,000(8) - 1,388
Senior V.P. and 1997 67,000 - - - 100,000(10) - 36,917(11)
Chief 1996 - - - - - - -
Administrative
Officer
Frederick A. Sexton 1998 197,500 40,000(1) - - 25,000(8) - 433
Vice President, 1997 170,000 65,000(2) - - 25,000(2) - 81
Technical Ops. 1996 145,000 35,500 - - 40,000 - 21,565(11)
</TABLE>
- ----------
(1) Awarded by the Company's Board of Directors on February 18, 1999.
(2) Awarded by the Company's Board of Directors on February 19, 1998.
(3) Consists of life insurance premiums, unless otherwise stated.
(4) Consists of life insurance premiums and automobile lease expenses of
$12,140 and $11,100 for 1998 and 1997, respectively, for Mr. Bell.
(5) 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 20, 1996 to June 20, 2006. Other material terms of
the options, including the exercise price, were not changed.
(6) Represents consulting fees paid to Mr. Baldini.
(7) Consists of a royalty, based on net sales of the NIASPAN/registered
trademark/product, payable to Mr. Bova under his employment agreement.
(8) Includes 5,000 options awarded by the Company's Board of Directors on
February 18, 1999. (9) Includes $15,000 awarded by the Company's Board of
Directors on February 18, 1999.
(10) Includes 20,000 options awarded by the Company's Board of Directors on
February 19, 1998.
(11) Consists of life insurance premiums and relocation expenses paid by the
Company for Mr. Cocroft and Mr. Sexton of $36,900 and $21,431,
respectively.
9
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth option grants to the Named Executive
Officers during the year ended December 31, 1998:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATE OF
-------------------------------------------------------------- STOCK PRICE APPRECIATION
NUMBER OF SECURITIES % OF TOTAL OPTIONS EXERCISE OR FOR OPTION TERM(1)
UNDERLYING OPTIONS GRANTED EMPLOYEES BASE PRICE EXPIRATION ---------------------------------
NAME GRANTED (#) IN FISCAL YEAR ($/SHARE) DATE 0%($) 5%($) 10%($)
- ---- -------------------- ------------------ ----------- ---------- ------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Daniel M. Bell............ 75,000 7% $11.16 2/18/08 - $526,385 $1,333,962
David J. Bova............. 10,000 1% 11.16 2/18/08 - 70,185 177,862
20,000 2% 5.06 9/23/08 - 63,644 161,287
Duncan H. Cocroft......... 20,000 2% 11.16 2/18/08 - 140,369 355,723
20,000 2% 5.06 9/23/08 - 63,644 161,287
Frederick A. Sexton....... 25,000 2% 11.16 2/18/08 - 175,462 444,654
20,000 2% 5.06 9/23/08 - 63,644 161,287
</TABLE>
- ----------
* Less than 1% of total options granted during the year ended December 31, 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
The following table provides information about the number of aggregated
option exercises during the last fiscal year and value of options held by the
Named Executive Officers at December 31, 1998:
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND YEAR-END OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS
ACQUIRED ON VALUE FISCAL YEAR-END AT FISCAL YEAR-END ($)(1)
EXERCISE REALIZED --------------------------- ---------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ ------------- ----------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Daniel M. Bell..................... 300,000 $2,145,000 318,750 56,250 $1,584,000 $ -
Robert E. Baldini.................. - - 100,000 100,000 - -
David J. Bova...................... 150,000 1,335,938 127,500 27,500 641,250 16,400
Duncan H. Cocroft.................. - - 25,000 95,000 - 16,400
Frederick A. Sexton................ - - 36,250 48,750 - 16,400
</TABLE>
- ----------
(1) The option value is based on the difference between the fair market value of
the shares on December 31, 1998, which was $5.88 per share, and the option
exercise price per share, multiplied by the number of shares of Common Stock
subject to the option.
10
<PAGE>
<TABLE>
<CAPTION>
TEN-YEAR OPTION REPRICINGS
LENGTH OF
NUMBER OF ORIGINAL
SECURITIES MARKET PRICE EXERCISE OPTION TERM
UNDERLYING OF STOCK AT PRICE AT REMAINING AT
OPTIONS TIME OF TIME OF NEW DATE OF
REPRICED OR REPRICING OR REPRICING OR EXERCISE REPRICING OR
NAME DATE AMENDED AMENDMENT AMENDMENT PRICE AMENDMENT
- ---- ------------ -------------- --------------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Duncan H. Cocroft 2/19/98 80,000 $11.16 $35.44 $11.16 115 months
</TABLE>
COMPENSATION AND STOCK OPTION COMMITTEE REPORT ON OPTION REPRICING
On February 19, 1998, and October 1, 1998, the Compensation and Stock
Option Committee of the Board of Directors approved reductions in the exercise
prices of certain outstanding stock options to $11.16 (for all employees except
employee-Directors and Directors of the Company), and to $5.06 (for all
employees except Company officers and Directors), respectively, the fair market
value of the Company's Common Stock on those dates. The reduction in the
exercise price affected options to purchase 1,880,565 shares of Common Stock
with a weighted average exercise price of $16.94.
As set forth in the Kos Pharmaceuticals, Inc. 1996 Stock Option Plan, stock
options are intended to provide incentives to the Company's officers and
employees. The Compensation and Stock Option Committee believes that such equity
incentives are a significant factor in the Company's ability to attract, retain
and motivate employees who are critical to the Company's long-term success. The
Compensation and Stock Option Committee believed that, at their original
exercise prices, the disparity between the exercise price of these options and
recent market prices for the Company's Common Stock did not provide meaningful
incentives to the employees holding these options. The Compensation and Stock
Option Committee approved the repricing of these options as a means of ensuring
that optionees will continue to have meaningful equity incentives to work toward
the success of the Company. The Compensation and Stock Option Committee deemed
the adjustment to be in the best interest of the Company and its shareholders.
No stock options held by directors were repriced.
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.
On September 24, 1998, the Company's Board of Directors approved a Company
match to employees' contributions to the Kos Savings Plan, effective January 1,
1999. The Company's matching contribution will be limited to 50% of an
employee's 401(k) contribution, not to exceed 3% of such employee's compensation
or $5,000 per employee for any given year.
11
<PAGE>
EMPLOYEE STOCK PURCHASE PLAN
On November 19, 1998, subject to shareholder approval by the Company's
shareholders, the Board of Directors approved the implementation of the Kos
Pharmaceuticals, Inc. 1999 Employee Stock Purchase Plan (the "Stock Purchase
Plan") effective February 15, 1999. Under the Stock Purchase Plan, an eligible
employee may purchase Common Stock at a 15% discount by contributing to the
Stock Purchase Plan, through payroll deductions, up to 10% of such employee's
annual compensation. Each employee's total contributions will be limited to
$25,000 per year. Employee payroll deductions will be accumulated for six-month
periods at the end of which shares of the Company's stock will be purchased
under the Stock Purchase Plan. All employees of the Company with at least 90
days of continuous service at the beginning of each six-month offering period
are eligible to participate in that offering period. Subject to shareholder
approval, 1,000,000 shares of Common Stock will be made available for purchase
under the Stock Purchase Plan. See Proposal 2.
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's base annual compensation, currently at
$350,000, is 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 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 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 Mr. Bova's termination
with the Company. The Company recorded $65,000 of royalty expense for the year
ended December 31, 1998, under this agreement with Mr. Bova. This agreement
prohibits Mr. Bova from competing with the Company for a period of two years
after the end of the term of the agreement. Mr. Bova continues to be employed by
the Company, although not pursuant to any employment agreement.
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.
12
<PAGE>
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 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. The factors that the
Compensation and Stock Option Committee considered in determining Mr. Bell's
base and bonus compensation and annual stock option award for the 1998 fiscal
year 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 successfully commercialize the Company's first product,
NIASPAN/registered trademark/. The Compensation and Stock Option Committee
believes that the Company, in large part due to Mr. Bell's efforts, had achieved
several solid accomplishments in 1998. The Company made five significant
regulatory filings, the Company's research and development efforts resulted in
significant progress on four new products, and the Company's medical office
conducted three national medical symposia focused on the treatment of lipid
disorders. In addition, the Company completed the planned expansion of its sales
force and achieved increasing sales levels of its NIASPAN/registered trademark/
product.
Frederick B. Whittemore, Chairman
Steven Jaharis, M.D.
Mark Novitch, M.D.
13
<PAGE>
PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return on the
Company's Common Stock during the years ended December 31, 1998 and 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.
<TABLE>
<CAPTION>
COMPARISON OF 22-MONTH CUMULATIVE TOTAL RETURNS
- --------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31,
BASE ----------------------
COMPANY/INDEX DATE* 1997 1998
- ------------------------ --------- ---------- --------
<S> <C> <C> <C>
Kos Pharmaceuticals, Inc. $100 $103 $39
Nasdaq Stock Market (U.S.) Index 100 121 170
Nasdaq Pharmaceutical Index 100 95 121
</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.
14
<PAGE>
PROPOSAL 2:
APPROVAL OF THE KOS PHARMACEUTICALS, INC. 1999 EMPLOYEE STOCK
PURCHASE PLAN
The Board of Directors recommends a vote "FOR" the Kos Pharmaceuticals,
Inc. 1999 Employee Stock Purchase Plan (the "Stock Purchase Plan"). The full
text of the Stock Purchase Plan is attached to this Proxy Statement as Appendix
A, and you are urged to refer to it for a complete description of the Stock
Purchase Plan. The summary of the principal features of the Stock Purchase Plan,
which follows, is qualified by reference to Appendix A.
The purpose of the Stock Purchase Plan is to provide eligible employees of
the Company and its designated subsidiaries with an opportunity to purchase
Common Stock of the Company through accumulated payroll deductions.
The Company has reserved 1,000,000 shares of Kos Common Stock to be issued
pursuant to the Stock Purchase Plan subject to approval by the Company's
shareholders.
PRINCIPAL FEATURES OF THE STOCK PURCHASE PLAN
ADMINISTRATION
The Stock Purchase Plan is administered by the Board of Directors of the
Company or a committee of members of the Board appointed by the Board. The Board
or its committee shall have full and exclusive discretionary authority to
construe, interpret and apply the terms of the Stock Purchase Plan, to determine
eligibility and to adjudicate all disputed claims filed under the Stock Purchase
Plan. Every finding, decision and determination made by the Board or its
committee shall, to the full extent permitted by law, be final and binding upon
all parties. The Company will pay all expenses incurred in the administration of
the Stock Purchase Plan.
SECURITIES SUBJECT TO THE STOCK PURCHASE PLAN
The Stock Purchase Plan covers 1,000,000 shares of the Company's Common
Stock, subject to adjustment as discussed below. If the total number of shares
that would otherwise be subject to purchase on a Purchase Date (as defined
below) exceeds the number of shares then available under the Stock Purchase
Plan, the Board will make a pro rata allocation of the shares remaining
available.
The Stock Purchase Plan provides that, in the event of any increase,
reduction, or change or exchange of shares of Common Stock for a different
number or kind of shares or other securities of the Company by reason of
specified events, the Board will determine the appropriate adjustments, if any,
to be made under the Stock Purchase Plan, including without limitation
adjustments to the number of shares of Common Stock remaining for issuance under
the Stock Purchase Plan, as well as the price per share of Common Stock
scheduled to be purchased during the then current Offering Period under the
Stock Purchase Plan. In the event of the dissolution or liquidation of the
Company, the Offering Period will terminate immediately prior to the
consummation of such action, unless otherwise provided by the Board. In the
event of a sale of all or substantially all of the assets of the Company, or the
merger of the Company, each outstanding option shall be assumed or an equivalent
option substituted by the successor corporation or a parent or subsidiary of the
successor corporation. In the event that the successor corporation refuses to
assume or substitute for the option, the Offering Period will terminate prior to
the Company's sale or merger.
15
<PAGE>
ELIGIBILITY
An "Eligible Employee" is any person who has been regularly employed for at
least 90 days by the Company or one of its designated subsidiaries on a given
enrollment date and is regularly scheduled to work at least twenty hours per
week and at least five months per year.
OFFERING PERIOD
An "Offering Period" is each period of approximately six months, commencing
on the first Trading Day on or after January 1 and terminating on the last
Trading Day occurring in the period ending the following June 30, or commencing
on the first Trading Day on or after July 1 and terminating on the last Trading
Day occurring in the period ending with the following December 31. A "Trading
Day" is a day on which national stock exchanges and the Nasdaq System are open
for trading. The first Offering Period shall commence on the first Trading Day
on or after February 15, 1999.
ENROLLMENT
Each Eligible Employee is entitled to participate in the Stock Purchase
Plan as of the first day of the Offering Period following the date on which the
employee first becomes an Eligible Employee. On the first day of each Offering
Period, each participant in such Offering Period shall be granted an option to
purchase on the last day of the Offering Period up to a number of shares of the
Common Stock determined by dividing such participant's payroll deductions
accumulated during the Offering Period and retained in the participant's account
as of the last day of the Offering Period by the applicable purchase price. No
participant shall be granted an option under the Stock Purchase Plan (i) if,
immediately after the grant, the participant would own stock and/or hold
outstanding options to purchase stock possessing five percent or more of the
total combined voting power or value of all classes of stock of the Company or
any subsidiary of the Company, or (ii) which permits his or her rights to
purchase stock under all employee stock purchase Stock Purchase Plans of the
Company and its subsidiaries to accrue at a rate that exceeds $25,000 worth of
stock for each calendar year in which such option is outstanding at any time.
PAYROLL DEDUCTIONS
Except as otherwise provided below, a participant may, in accordance with
rules adopted by the Board, authorize a payroll deduction of any whole
percentage from one percent to ten percent of compensation (as defined below)
each pay period. "Compensation" means all base straight time gross earnings and
commissions, excluding payments for shift premium, overtime, incentive
compensation, incentive payments, bonuses and other compensation. All payroll
deductions made by a participant will be credited to the participant's account
under the Stock Purchase Plan. No interest shall accrue on the payroll
deductions credited to a participant's account. A participant may not make any
additional payments into the account.
PURCHASE OF STOCK
Unless a participant withdraws from the Stock Purchase Plan, the
participant's election to purchase shares will be exercised automatically on the
last business day of the applicable Offering Period (the "Purchase Date") and
the maximum number of full shares will be purchased for the participant at the
applicable purchase price with the accumulated payroll deductions in the
participant's account. The purchase price per share of the Common Stock subject
to an offering will be 85 percent of the fair market value of a share of Common
Stock on the first day of the Offering Period or the Purchase Date, whichever is
lower (the "Purchase Price"). Fair market value of a share, on a given date, is
the closing price per share reported on the applicable securities exchange or
quotation system.
16
<PAGE>
DIVIDENDS AND VOTING
Each participant will have the right to receive dividends and to vote with
respect to shares purchased as soon as practicable after the Purchase Date for
such shares.
WITHDRAWAL; TERMINATION OF EMPLOYMENT
A participant may withdraw all, but not less than all, the payroll
deductions credited to his or her account that have not been used to purchase
shares of Common Stock under the Stock Purchase Plan at any time by giving
written notice to the Company. All payroll deductions credited to the
participant's account will be paid to a participant promptly after receipt of
the participant's notice of withdrawal. In the event of such a withdrawal, the
participant's eligibility to participate in the Stock Purchase Plan for the
Offering Period in which the withdrawal occurs will be automatically terminated
and no further payroll deductions for the purchase of shares of Common Stock
will be made for the participant during such Offering Period.
Upon termination of a participant's employment with the Company or a
designated subsidiary during the Offering Period for any reason, including
voluntary termination, retirement or death, the payroll deductions credited to
the participant's account (that have not been used to purchase shares of Common
Stock) will be returned to the participant or, in the case of such participant's
death, to the person or persons entitled thereto. The participant's eligibility
to participate in the Stock Purchase Plan will be automatically terminated.
TRANSFERABILITY
Neither payroll deductions credited to a participant's account nor any
rights to purchase or to receive shares under the Stock Purchase Plan may be
assigned, transferred, pledged or otherwise disposed of by the participant of in
any way (other than by will, the laws of descent and distribution). Any such
attempt at assignment, transfer, pledge or other disposition will be without
effect, except that the Company may treat such act as an election to withdraw
funds.
AMENDMENT; TERMINATION
Subject to the provisions of this section, the Stock Purchase Plan shall
remain in effect for a term of ten years after the earlier of the Stock Purchase
Plan's adoption by the Board or its approval by the shareholders of the Company.
The Board may terminate or amend the Stock Purchase Plan at any time, except
that the Company shall obtain shareholder approval in such manner and to such a
degree as is required in order to comply with Rule 16b-3 under the Securities
Exchange Act of 1934, as amended, or under Section 423 of the Code (or any
successor rule or provision or any other applicable law or regulation).
Termination or amendment of the Stock Purchase Plan will not adversely affect
purchase rights during the then current Offering Period without the written
consent of the affected participant.
CERTAIN FEDERAL INCOME TAX EFFECTS
The following is a brief summary of the principal federal income tax
consequences of participating in the Stock Purchase Plan under present laws and
regulations. THIS SUMMARY IS NOT INTENDED TO BE EXHAUSTIVE AND, AMONG OTHER
THINGS, DOES NOT DESCRIBE STATE, LOCAL OR FOREIGN INCOME AND OTHER TAX
CONSEQUENCES. The Stock Purchase Plan is intended to be an "employee stock
purchase plan" as defined in Section 423 of the Code. Amounts deducted from a
participant's pay under the Stock Purchase Plan are included in the
participant's compensation subject to federal income and social security taxes.
A participant will not recognize any additional income at the time he or she
elects to participate in the Stock Purchase Plan or purchases shares of Common
Stock under the Stock Purchase Plan.
17
<PAGE>
If shares of Common Stock are sold after the expiration of two years or
more from the first day of the Offering Period in which such shares were
purchased under the Stock Purchase Plan and one year or more from the Purchase
Date, any profit up to 15 percent of the market value of the shares at the
beginning of the Offering Period is taxable as ordinary income, and any further
profit is taxable as long-term capital gain and any loss is treated as long-term
capital loss. Shares of Common Stock sold or otherwise disposed of, including by
way of gifts, before the expiration of two years from the first day of the
Offering Period in which such shares were purchased under the Stock Purchase
Plan and one year or more from the Purchase Date are considered disqualifying
dispositions.
If the participant disposes of shares of Common Stock prior to the
expiration of two years from the date of grant (first day of the Offering
Period) and prior to the expiration of one year from the Purchase Date, the
difference between the price paid by the participant and the market value of the
shares at the date of purchase (last day of the Offering Period in which the
shares were purchased) is taxable as ordinary income and the difference between
the amount received by the participant on the disposition of such shares and the
market value of the shares at the date of purchase is treated as short-term
capital gain or loss (or long-term capital gain or loss if the shares have been
held more than one year). In addition, the Company will be entitled to a tax
deduction for the difference between the price paid by the participant and the
market value of the shares at the date of purchase (last day of the Offering
Period in which the shares were purchased). Therefore, if the participant
disposes of any shares received under the Stock Purchase Plan within the time
frame described above, the participant must notify the Company of the
disposition by forwarding the sale information to the Company. It is important
that the Company track such dispositions for its own tax filings. At any time,
the Company may, but will not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to the sale or early disposition of
shares by the participant.
NEW PLAN BENEFITS
Because levels of participation, rates of deferral and the eventual
purchase price are not presently known, the future benefits to be distributed
under the Stock Purchase Plan are not determinable at this time.
VOTES REQUIRED AND BOARD RECOMMENDATION
The Stock Purchase Plan provides employees of the Company and its
subsidiaries with an opportunity to purchase the shares of Kos Common Stock
through payroll deductions. The Board of Directors believes that ownership of
Kos Common Stock by its employees will provide incentives for the employees to
contribute materially to the continued success of the Company. The favorable
vote of a majority of shares present and voting at the Annual Meeting on this
proposal is required for approval of the Stock Purchase Plan.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE KOS
PHARMACEUTICALS, INC. 1999 EMPLOYEE STOCK PURCHASE PLAN.
18
<PAGE>
PROPOSAL 3:
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, 1998. 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, 1999. 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.
19
<PAGE>
ANNUAL REPORT
The Company's 1998 Annual Report to Shareholders, including financial
statements for the year ended December 31, 1998, 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 2000
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 15, 1999.
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.
20
<PAGE>
APPENDIX A
KOS PHARMACEUTICALS, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
I. PURPOSE. The purpose of the Plan is to provide employees of Kos
Pharmaceuticals, Inc. and its Designated Subsidiaries with an
opportunity to purchase Common Stock of the Company through accumulated
payroll deductions. It is the intention of the Company that the Plan
qualify as an "employee stock purchase plan" under Section 423 of the
Internal Revenue Code of 1986, as amended (the "Code"). The provisions
of the Plan shall be construed so as to extend and limit participation
in a manner consistent with the requirements of Section 423 of the
Code.
II. DEFINITIONS.
A. "Board" shall mean the Board of Directors of the Company.
B. "Common Stock" shall mean the common stock of the Company, par
value $.01 per share.
C. "Company" shall mean Kos Pharmaceuticals, Inc., a Florida
corporation.
D. "Compensation" shall mean all base straight time gross
earnings and commissions, exclusive of payments for overtime,
shift premium, incentive compensation, incentive payments,
bonuses and other compensation.
E. "Designated Subsidiary" shall mean any subsidiary that has
been designated by the Board from time to time in its sole
discretion as eligible to participate in the Plan.
F. "Employee" shall mean any individual (i) who is an employee of
the Company for federal income tax withholding purposes, and
(ii) who has completed at least 90 days of service for the
Company, and (iii) whose customary employment with the Company
is at least twenty (20) hours per week and more than five (5)
months in any calendar year. For purposes of the Plan, the
employment relationship shall be treated as continuing intact
while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave
exceeds 90 days and the individual's right to re-employment is
not guaranteed either by statute or by contract, the
employment relationship shall be deemed to have terminated on
the 91st day of such leave.
G. "Enrollment Date" shall mean the first day of each Offering
Period.
H. "Exercise Date" shall mean the last day of each Offering
Period.
I. "Fair Market Value" shall mean the value of the Common Stock.
If the Common Stock is listed on any established stock
exchange or a national market system, including without
limitation the National Market System of the National
Association of Securities Dealers, Inc. Automated Quotation
System ("Nasdaq"), the Fair Market Value of a share of Common
Stock shall be the closing sales price for a share of Common
Stock (or the closing bid, if no sales were reported), as
quoted on such system or exchange (or the exchange with the
greater volume of trading in Common Stock) on the day of such
determination as reported in the WALL STREET JOURNAL or such
other source as the Board deems reliable. In the absence of an
established market for the Common Stock, the Fair Market Value
of a share of Common Stock shall be determined in good faith
by the Board.
I
<PAGE>
J. "Offering Period" shall mean, except as otherwise provided
herein, a period of approximately six (6) months, commencing
on the first Trading Day on or after January 1 and terminating
on the last Trading Day occurring in the period ending the
following June 30, or commencing on the first Trading Day on
or after July 1 and terminating on the last Trading Day
occurring in the period ending with the following December 31.
The duration of Offering Periods may be changed pursuant to
Section 4 of the Plan.
K. "Plan" shall mean Kos Pharmaceuticals, Inc. 1999 Employee
Stock Purchase Plan, as set forth herein and as amended from
time to time.
L. "Purchase Price" shall mean an amount equal to eighty-five
percent (85%) of the Fair Market Value of a share of Common
Stock on the Enrollment Date or on the Exercise Date,
whichever is lower.
M. "Reserves" shall mean the number of shares of Common Stock
covered by each option under the Plan that have not yet been
exercised and the number of shares of Common Stock that have
been authorized for issuance under the Plan but not yet placed
under option.
N. "Subsidiary" shall mean a corporation, domestic or foreign, of
which not less than 50 percent of the voting shares are held
by the Company or a Subsidiary, whether or not such
corporation now exists or is hereafter organized or acquired
by the Company or a Subsidiary.
O. "Trading Day" shall mean a day on which national stock
exchanges and Nasdaq are open for trading.
III. ELIGIBILITY.
A. INITIAL ELIGIBILITY. Any Employee who shall be employed by the
Company on the date his or her participation in the Plan is to
become effective shall be eligible to participate in offerings
under the Plan that commence on or after such Employee becomes
a participant in the Plan.
B. RESTRICTIONS ON PARTICIPATION. Notwithstanding any provisions
of the Plan to the contrary, no Employee shall be granted an
option under the plan:
(i) if, immediately after the grant, such Employee (or
any other person whose stock would be attributed to
such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company, and/or hold
outstanding options to purchase such stock,
possessing five percent (5%) or more of the total
combined voting power or value of all classes of the
capital stock of the Company or of any Subsidiary; or
(ii) that permits his or her rights to purchase stock
under all employee stock purchase plans of the
Company and its subsidiaries to accrue at a rate that
exceeds twenty-five thousand dollars ($25,000) in
fair market value of stock (determined at the time
such option is granted) for each calendar year in
which such option is outstanding.
II
<PAGE>
C. COMMENCEMENT OF PARTICIPATION. An eligible Employee may become
a participant by completing an authorization for payroll
deduction on the form provided by the Company and filing with
the office of the Treasurer of the Company on or before the
date set therefor by the Board, which date shall be prior to
the Enrollment Date for the Offering Period. Payroll
deductions for a participant shall commence on the applicable
Enrollment Date when his authorization for a payroll deduction
becomes effective and shall end on the Exercise Date of the
Offering Period to which such authorization is applicable
unless sooner terminated by the participant as provided in
Section 8(a) of the Plan.
IV. OFFERING PERIODS. Except as otherwise provided herein, the Plan shall
be implemented by consecutive six (6) month Offering Periods. The first
Offering Period shall commence on the first Trading Day on or after
February 1, 1999. The Board shall have the power to change the duration
of Offering Periods (including the commencement dates thereof) with
respect to future Offering Periods without stockholder approval if such
change is announced at least five (5) days prior to the scheduled
beginning of the first Offering Period to be affected thereafter.
V. PAYROLL DEDUCTIONS.
A. AMOUNT OF DEDUCTION. At the time a participant files his or
her subscription agreement, he or she shall elect to have
payroll deductions made on each pay day during the time he is
a participant in an Offering Period in an amount not to exceed
ten percent (10%) of the Compensation that he or she receives
on each pay day during the Offering Period.
B. PARTICIPANT'S ACCOUNT. All payroll deductions made for a
participant shall be credited to his or her account under the
Plan and shall be made in whole percentages of Compensation
only. A participant may not make any additional payments into
his or her account.
C. CHANGES IN PAYROLL DEDUCTION. A participant may discontinue
his or her participation in the Plan as provided in Section
8(a) of the Plan, or may increase or decrease the rate of his
or her payroll deductions during the Offering Period by
completing or filing with the Company a new subscription
agreement authorizing a change in the payroll deduction rate.
The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The
change in rate shall be effective with the first full payroll
period following five (5) business days after the Company's
receipt of the new subscription agreement unless the Company
elects to process a given change in participation more
quickly. A participant's subscription agreement shall remain
in effect for successive Offering Periods unless terminated as
provided in Section 10 hereof.
VI. GRANT OF OPTION. On the Enrollment Date of each Offering Period, a
participant shall be deemed to have received an option to purchase on
each Exercise Date during such Offering Period at the applicable
Purchase Price a maximum number of shares of Common Stock determined by
dividing such participant's payroll deductions accumulated prior to
such Exercise Date and retained in the participant's account as of the
Exercise Date by the applicable Purchase Price.
III
<PAGE>
VII. EXERCISE OF OPTION.
(a) AUTOMATIC EXERCISE. Unless a participant withdraws all of the
payroll deductions credited to his or her account prior
thereto as provided in Section 8 of the Plan, his or her
option for the purchase of Common Stock with payroll
deductions made during an Offering Period shall be deemed to
have been exercised automatically on the Exercise Date
applicable to such Offering Period for the purchase of a
number of full shares of Common Stock that the accumulated
payroll deductions in his or her account at that time will
purchase at the applicable option price (but not in excess of
the number of shares for which options have been granted to
the participant under Section 6 of the Plan). No fractional
shares shall be purchased; any payroll deductions accumulated
in a participant's account that are not sufficient to purchase
a full share shall be retained in the participant's account
for the subsequent Offering Period, subject to earlier
withdrawal by the participant as provided in Section 8 of the
Plan. Any other monies left over in a participant's account
after the Exercise Date shall be returned to the participant.
During a participant's lifetime, a participant's option to
purchase shares hereunder is exercisable only by him or her.
(b) DELIVERY. As promptly as practicable after the Exercise Date
of each Offering Period, the Company shall arrange the
delivery to each participant, as appropriate, including, but
not limited to, direct deposit into a book entry account or
brokerage account, the shares purchased upon exercise of his
or her option.
VIII. WITHDRAWAL.
A. GENERAL. A participant may withdraw all of the payroll
deductions credited to his or her account and not yet used to
exercise his or her option under the Plan at any time during
an Offering Period by giving written notice to the Company in
the form of a notice of withdrawal provided by the Company
promptly after receipt of notice of withdrawal. All of the
participant's payroll deductions credited to his or her
account shall be paid to such participant, such participant's
option for the Offering Period shall be automatically
terminated, and no further payroll deductions for the purchase
of shares shall be made for such Offering Period.
B. EFFECT ON SUBSEQUENT PARTICIPATION. A participant's withdrawal
of the payroll deductions credited to his or her account shall
not have any effect upon his or her eligibility to participate
in any similar plan that may hereafter be adopted by the
Company or in succeeding Offering Periods that commence after
the termination of the Offering Period from which the
participant withdraws. If, however, a participant withdraws
the payroll deductions credited to his or her account during
an Offering Period, payroll deductions shall not resume at the
beginning of the succeeding Offering Period unless the
participant delivers to the Company a new subscription
agreement prior to the commencement of such succeeding
Offering Period.
IV
<PAGE>
C. TERMINATION OF EMPLOYMENT. Upon a participant's ceasing to be
an Employee, for any reason, he or she shall be deemed to have
elected to withdraw from the Plan and the payroll deductions
credited to such participant's account during the Offering
Period but not yet used to exercise the option shall be
returned to such participant or, in the case of his or her
death, to the person or persons entitled thereto under Section
12 of the Plan, and such participant's option shall be
automatically terminated. Notwithstanding the preceding
sentence, a participant who receives payment in lieu of notice
of employment shall be treated as continuing to be an Employee
for the participant's customary number of hours per week of
employment during the period in which the participant is
subject to such payment in lieu of notice.
IX. INTEREST. No interest shall accrue on the payroll deductions of a
participant in the Plan.
X. STOCK.
A. MAXIMUM SHARES. The maximum number of shares of the Company's
Common Stock that shall be made available for sale under the
Plan shall be one million (1,000,000) shares, subject to
adjustment upon changes in capitalization of the Company as
provided in Section 16 of the Plan. If, on a given Exercise
Date, the number of shares with respect to which options are
to be exercised exceeds the number of shares available under
the Plan, the Company shall make a pro rata allocation of the
shares remaining available for purchase in as uniform a manner
as shall be practicable and as it shall determine to be
equitable, and the balance of payroll deductions credited to
the account of each participant shall be returned to him or
her as promptly as possible.
B. PARTICIPANT'S INTEREST IN OPTION STOCK. The participant shall
have no interest or voting right in shares covered by his or
her option until such option has been exercised.
C. REGISTRATION OF STOCK. Shares to be delivered to a participant
under the Plan shall be registered in the name of the
participant or in the name of the participant and his or her
spouse as joint tenants with right of survivorship.
XI. ADMINISTRATION. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or
its committee shall have full and exclusive discretionary authority to
construe, interpret and apply the terms of the Plan, to determine
eligibility and to adjudicate all disputed claims filed under the Plan.
Every finding, decision and determination made by the Board or its
committee shall, to the full extent permitted by law, be final and
binding upon all parties.
V
<PAGE>
XII. DESIGNATION OF BENEFICIARY. A participant may file a written
designation of a beneficiary who is to receive shares and cash, if any,
from the participant's account under the Plan in the event of such
participant's death subsequent to an Exercise Date on which the option
is exercised but prior to delivery to such participant of such shares
and cash. In addition, a participant may file a written designation of
a beneficiary who is to receive any cash from the participant's account
under the Plan in the event of such participant's death prior to
exercise of the option. If a participant is married and the designated
beneficiary is not the spouse, spousal consent shall be required for
such designation to be effective. Such designation of beneficiary may
be changed by the participant at any time by written notice. In the
event of the death of the participant and in the absence of a
beneficiary validly designated under the Plan who is living at the time
of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the
participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may
deliver such shares and/or cash to the spouse or to any one or more
dependents or relatives of such participant, or, if no spouse,
dependent or relative is known to the Company, then to such other
person as the Company may designate.
XIII. TRANSFERABILITY. Neither payroll deductions credited to a participant's
account nor any rights with regard to the exercise of an option or to
receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of
descent and distribution) by the participant. Any such attempt at
assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to
withdraw funds from an Offering Period in accordance with Section 8 of
the Plan.
XIV. USE OF FUNDS. All payroll deductions received or held by the Company
under the Plan may be used by the Company for any corporate purpose,
and the Company shall not be obligated to segregate such payroll
deductions.
XV. REPORTS. Individual accounts shall be maintained for each participant
in the Plan. Statements of account shall be given to participating
Employees at least annually, which statements shall set forth the
amounts of payroll deductions, the Purchase Price, the number of shares
purchased and the remaining cash balance, if any.
XVI. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, LIQUIDATION,
MERGER OR ASSET SALE.
A. CHANGES IN CAPITALIZATION. Subject to any required action by
the shareholders of the Company, (i) the Reserves, (ii) the
maximum number of shares each participant may purchase during
each Offering Period, (iii) the Purchase Price per share, and
(iv) the number of shares of Common Stock covered by each
option under the Plan that has not yet been exercised shall be
proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected
without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the
Company shall not be deemed to have been "effected without
receipt of consideration." Such adjustment shall be made by
the Board, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein,
no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be
made with respect to, the number or price of shares of Common
Stock subject to an option.
VI
<PAGE>
B. DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period
then in progress shall be shortened by setting a new Exercise
Date (the "New Exercise Date"), and shall terminate
immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the
Board. The New Exercise Date shall be before the date of the
Company's proposed dissolution or liquidation. The Board shall
notify each participant in writing, at least ten (10) business
days prior to the New Exercise Date, that the Exercise Date
for the participant's option has been changed to the New
Exercise Date and that the participant's option shall be
exercised automatically on the New Exercise Date, unless prior
to such date the participant has withdrawn the payroll
deductions credited to his or her account as provided in
Section 8 of the Plan.
C. MERGER OR ASSET SALE. In the event of a proposed sale of all
or substantially all of the assets of the Company, or the
merger of the Company with or into another corporation, the
Company shall use its best efforts to have each outstanding
option assumed or an equivalent option substituted by the
successor corporation or a parent or Subsidiary of the
successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option,
the Company shall set a New Exercise Date and any Offering
Periods then in progress shall end on the New Exercise Date.
The New Exercise Date shall be the date immediately prior to
the date of the Company's proposed sale or merger. The Board
shall notify each participant in writing, at least ten (10)
business days prior to the New Exercise Date, that the
Exercise Date for the participant's option has been changed to
the New Exercise Date and that the participant's option shall
be exercised automatically on the New Exercise Date, unless
prior to such date the participant has withdrawn the payroll
deductions credited to his or her account as provided in
Section 8 of the Plan.
XVII. AMENDMENT OR TERMINATION. The Board of Directors of the Company may at
any time and for any reason terminate or amend the Plan. Except as
provided in Section 16 of the Plan, no such termination can affect
options previously granted; provided, that an Offering Period may be
shortened by the Board of Directors to an earlier Exercise Date and the
Plan may be terminated immediately thereafter if the Board determines
that the termination of the Plan is in the best interests of the
Company and its shareholders. Except as provided in Section 16 of the
Plan, no amendment may make any change in any option theretofore
granted that adversely affects the rights of any participant. To the
extent necessary to comply with Section 423 of the Code (or any
successor rule or provision or any other applicable law, regulation or
stock exchange rule), the Company shall obtain shareholder approval for
any amendment to the Plan in such a manner and to such a degree as
required. Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected,"
the Board (or its committee) shall be entitled to change Offering
Periods, limit the frequency and/or number of changes in the amount
withheld during an Offering Period, establish the exchange ratio
applicable to amounts designated by a participant in order to adjust
for delays or mistakes in the Company's processing of properly
completed withholding elections, establish reasonable waiting and
adjustment periods and/or accounting and crediting procedures to ensure
that amounts applied toward purchase of Common Stock for each
participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or
procedures as the Board (or its committee) determines in its sole
discretion advisable that are consistent with the Plan.
XVIII. NOTICES. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have
been duly given when received in the form specified by the Company at
the location, or by the person, designated by the Company for the
receipt thereof.
VII
<PAGE>
XIX. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued with
respect to an option unless the exercise of such option and the
issuance and delivery of such shares pursuant thereto shall comply with
all applicable provisions of law, domestic or foreign, including,
without limitation, the Securities Act of 1933, as amended, the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
rules and regulations promulgated thereunder, and the requirements of
any stock exchange upon which the shares may be listed, and shall be
further subject to the approval of counsel for the Company with respect
to such compliance. As a condition to the exercise of an option, the
Company may require the person exercising such option to represent and
warrant at the time of any such exercise that the shares are being
purchased only for investment and without any present intention to sell
or distribute such shares if, in the opinion of counsel for the
Company, such a representation is required by any of the aforementioned
applicable provisions of law. The terms and conditions of options
granted under the Plan to, and the purchase of shares by, persons
subject to Section 16 of the Exchange Act shall comply with the
applicable provisions of Rule 16b-3 under the Exchange Act. This Plan
shall be deemed to contain, and such options shall contain, and the
shares issued upon exercise thereof shall be subject to, such
additional conditions and restrictions as may be required by Rule 16b-3
under the Exchange Act to qualify for the maximum exemption from
Section 16 of the Exchange Act with respect to Plan transactions.
XX. TAX WITHHOLDING. At the time the option is exercised, in whole or in
part, or at the time some or all of the Company's Common Stock issued
under the Plan is disposed of, the participant must make adequate
provision for the Company's federal, state or other tax withholding
obligations, if any, that arise upon the exercise of the option or the
disposition of the Common Stock. At any time, the Company may, but
shall not be obligated to, withhold from the participant's compensation
the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to
the Company any tax deductions attributable to sale or early
disposition of Common Stock by the Employee.
XXI. TERM OF PLAN. The Plan shall become effective upon the earlier to occur
of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of
ten (10) years unless terminated under Section 17 of the Plan.
VIII
<PAGE>
KOS PHARMACEUTICALS, INC.
ANNUAL MEETING OF SHAREHOLDERS, APRIL 15, 1999
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 1, 1999, at the Annual Meeting of Shareholders to be
held on April 15, 1999, or any adjournment thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR USE AT
THE 1999 ANNUAL MEETING OF THE COMPANY'S SHAREHOLDERS.
(TO BE SIGNED ON REVERSE SIDE.)
<PAGE>
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF SHAREHOLDERS
KOS PHARMACEUTICALS, INC.
APRIL 15, 1999
Please Detach and Mail in the Envelope Provided
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2 AND 3.
A [X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
<TABLE>
<S> <C> <C> <C>
WITHHOLD
FOR AUTHORITY
all nominees to vote for all nominees NOMINEES:
listed at right listed at right 1. Michael Jaharis [ ]
PROPOSAL 1: 2. Daniel M. Bell [ ]
ELECTION OF [ ] [ ] 3. Robert E. Baldini [ ]
DIRECTORS 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 [ ]
</TABLE>
PROPOSAL 2: APPROVAL OF THE KOS PHARMACEUTICALS, FOR AGAINST ABSTAIN
INC. 1999 EMPLOYEE STOCK PURCHASE PLAN. [ ] [ ] [ ]
PROPOSAL 3: TO RATIFY THE APPOINTMENT OF ARTHUR
ANDERSEN LLP AS INDEPENDENT AUDITORS. [ ] [ ] [ ]
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.
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 name 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.
