SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
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 Rule 14a-11(c) or Rule 14a-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)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
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)(1) 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:
[ ] 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 10, 2000
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 Intercontinental
Miami, 100 Chopin Plaza, Miami, Florida on Tuesday, April 11, 2000, 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 on 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.
It is important that your shares be represented at the Annual Meeting,
whether in person or by proxy. To facilitate your participation in the Annual
Meeting, regardless of whether you plan to attend in person, please complete,
sign, date, and promptly return the enclosed proxy. 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 11.
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 TUESDAY, APRIL 11, 2000
------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders ("Annual
Meeting") of Kos Pharmaceuticals, Inc. (the "Company") will be held at the Hotel
Intercontinental Miami, 100 Chopin Plaza, Miami, Florida on Tuesday, April 11,
2000, at 10:00 A.M., for the following purposes:
1. To elect eight directors of the Company to serve until the
2001 Annual Meeting of Shareholders;
2. To consider and vote on a proposal to amend the Kos
Pharmaceuticals, Inc. 1996 Stock Option Plan to increase from
4,000,000 to 7,000,000 the number of shares of the Company's
Common Stock that may be issued thereunder;
3. To ratify the appointment of Arthur Andersen LLP as the
Company's independent certified public accountants for the
fiscal year ending December 31, 2000; 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, 2000, 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. ALL
SHAREHOLDERS ALSO 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 10, 2000
<PAGE>
KOS PHARMACEUTICALS, INC.
1001 BRICKELL BAY DRIVE, 25TH FLOOR
MIAMI, FLORIDA 33131
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 11, 2000
----------------
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 Tuesday, April 11, 2000, at the Hotel Intercontinental
Miami, 100 Chopin Plaza, Miami, Florida, 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 10, 2000. 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.
1
<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
2001 Annual Meeting of Shareholders;
2. To consider and vote on a proposal to amend the Kos
Pharmaceuticals, Inc. 1996 Stock Option Plan to increase from
4,000,000 to 7,000,000 the number of shares of the Company's
Common Stock that may be issued thereunder;
3. To ratify the appointment of Arthur Andersen LLP as the
Company's independent certified public accountants for the
fiscal year ending December 31, 2000; 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 AMEND the Kos Pharmaceuticals, Inc. 1996 Stock Option Plan to
increase from 4,000,000 to 7,000,000 the number of shares of the Company's
Common Stock that may be issued thereunder, and (c) IN FAVOR OF the appointment
of Arthur Andersen LLP as the Company's independent certified public accountants
for the fiscal year ending December 31, 2000. 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, 2000, 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 18,251,529 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 amend the Kos Pharmaceuticals,
Inc. 1996 Stock Option Plan to increase from 4,000,000 to 7,000,000 the number
of shares of the Company's Common Stock that may be issued thereunder, to ratify
the appointment of Arthur Andersen LLP as the Company's independent certified
public accountants for the fiscal year ending December 31, 2000, 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.
2
<PAGE>
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, 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.
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 25, 2000, 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 18,162,217 shares
outstanding on February 25, 2000. 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
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED OUTSTANDING
- ------------------------ ------------------ -----------
<S> <C> <C>
Michael Jaharis(1)................................................ 15,804,882 64.0%
Daniel M. Bell(2)................................................. 672,555 3.6%
Robert E. Baldini(3).............................................. 161,540 *
David J. Bova(4).................................................. 223,006 1.2%
Frederick A. Sexton(5)............................................ 59,824 *
John Brademas, Ph.D.(6)........................................... 33,000 *
Steven Jaharis, M.D.(7)........................................... 73,001 *
Louis C. Lasagna, M.D.(6)......................................... 33,000 *
Mark Novitch, M.D.(8)............................................. 35,000 *
Frederick B. Whittemore(6)........................................ 33,000 *
All Executive Officers and Directors
as a group (10 persons)(9)....................................... 17,128,808 67.2%
5% SHAREHOLDERS:
Capital Group International, Inc. and
Capital Guardian Trust Company(10)................................ 1,761,400 9.7%
11100 Santa Monica Blvd.
Los Angeles, CA 90025
</TABLE>
- ---------------------------
* Less than 1 percent
(1) Includes 717,501 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. It also includes
6,517,312 shares which may be issued upon the conversion into Common
Stock of borrowings outstanding as of December 31, 1999 ($32,000,000),
under the Company's September 1, 1999, credit facility with Mr.
Jaharis.
(2) Includes 343,750 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 156,250 shares of Common Stock that may be purchased by Mr.
Baldini pursuant to options that are currently exercisable.
(4) Includes 101,250 shares of Common Stock that may be purchased by Mr.
Bova pursuant to options that are currently exercisable.
(5) Includes 58,750 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.
(6) Consists of shares of Common Stock that may be purchased pursuant to
options that are currently exercisable.
(7) Includes 28,000 shares of Common Stock that may be purchased by Dr.
Jaharis 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 Dr. Jaharis has an indirect ownership
interest through Kos Investments, Inc. of less than ten percent.
(8) Includes 33,000 shares of Common Stock that may be purchased by Dr.
Novitch pursuant to options that are currently exercisable.
(9) Includes 820,000 shares of Common Stock issuable upon exercise of
options that are currently exercisable, and 6,517,312 shares which may
be issued upon the conversion into Common Stock of borrowings
outstanding as of December 31, 1999 ($32,000,000), under the Company's
September 1, 1999, credit facility with Mr. Jaharis.
(10) As reported in the most recent Schedule 13G filed by Capital Group
International, Inc. and Capital Guardian Trust Company ("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 2001 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 2001 ANNUAL MEETING OF SHAREHOLDERS AND
UNTIL THEIR RESPECTIVE SUCCESSORS ARE DULY ELECTED AND QUALIFIED.
<TABLE>
<CAPTION>
1999 DIRECTORS AGE POSITION WITH THE COMPANY
- -------------- --- -------------------------
<S> <C> <C>
Michael Jaharis 71 Chairman of the Board
Daniel M. Bell 57 President and Chief Executive Officer
Robert E. Baldini 69 Vice Chairman of the Board and Chief Sales and
Marketing Officer
John Brademas, Ph.D. 73 Director(1)
Steven Jaharis, M.D. 40 Director(1)(2)
Louis C. Lasagna, M.D. 77 Director(1)
Mark Novitch, M.D. 67 Director(2)
Frederick B. Whittemore 69 Director(1)(2)
</TABLE>
- --------------------
(1) Member of Audit Committee
(2) Member of Compensation and Stock Option Committee
MICHAEL JAHARIS, a founder of the Company, funded the operations of the
Company since its inception and until the Company's Initial Public Offering of
its Common Stock ("IPO") and has served since its inception 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 Oxford University Press-USA 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
serves on the Board of Overseers of Tufts University School of Medicine. 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 Whitehall
Laboratories, a subsidiary of American Home Products Corporation, and to Servier
Amerique Company.
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
Dean Witter 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>
OTHER 1999 EXECUTIVE OFFICERS(*)
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
<S> <C> <C>
David J. Bova 54 Senior Vice President, Research and Development
Frederick A. Sexton 40 Vice President, Technical Operations
</TABLE>
- -------------
(*) Duncan H. Cocroft formerly served as an executive officer of the Company.
He resigned from all officer positions effective July 30, 1999.
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.
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, 1999, the Board of Directors held four
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, 1999, 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, 1999,
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 5,000
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.
CERTAIN RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS
On July 1, 1998, the Company entered into a $30 million credit facility
(the "Credit Facility") with Michael Jaharis. Borrowings under the Credit
Facility, which totaled $30 million at December 31, 1999, bear interest at the
prime rate (8.5% as of December 31, 1999). On December 21, 1999, Mr. Jaharis
agreed to extend the maturity date of the Credit Facility from December 31, 2000
to December 31, 2002. The Company incurred $2,181,000 and $68,000 of interest
expense under the Credit Facility for the years ended December 31, 1999 and
1998, respectively.
On September 1, 1999, the Company formally agreed to the terms of an
additional $50 million funding arrangement initially committed to by Mr. Jaharis
on October 7, 1998 (the "Supplemental Credit Facility"). Borrowings under the
Supplemental Credit Facility totaled $32 million as of December 31, 1999, bear
interest at the prime rate, are convertible (at $4.91 per share) into shares of
the Company's Common Stock, and will be due December 31, 2003. The Company
incurred $1,025,000 of interest expense under the Supplemental Credit Facility
for the year ended December 31, 1999.
On December 21, 1999, Mr. Jaharis agreed to extend another $50 million loan
to the Company (the "Standby Facility"). Borrowings made under the Standby
Facility will be due June 30, 2005 and are subject to most of the terms and
conditions of borrowings made under the Supplemental Credit Facility. Borrowings
made under the Standby Facility are not, however, convertible into shares of the
Company's Common Stock. In lieu of a conversion feature, the Company has granted
to Mr. Jaharis warrants to purchase 6,000,000 shares of the Company's Common
Stock at $5.00 per share, which approximates the market value of the Company's
Common Stock on the effective date of the Standby
8
<PAGE>
Facility. The warrants contain a non-detachable feature and are exercisable at
any time until June 30, 2006. The Company had no borrowings outstanding under
the Standby Facility as of December 31, 1999.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Plan and subsequent actions by the Board of Directors provide that each
non-employee director was in 1999 granted an option to purchase 15,000 shares of
Common Stock on the anniversary date of such director's initial election to the
Company's Board of Directors and was granted an option to purchase 3,000 shares
of Common Stock on the date of such director's reelection to the Company's Board
of Directors. Each of Messrs. Brademas, Lasagna, Novitch and Whittemore received
such grants on March 12, 1999 and April 15, 1999, respectively. Steven Jaharis
received such grants on July 1, 1999 and April 15, 1999, respectively. In
addition, Messrs. Bell, Baldini, Bova, Sexton, and Juan F. Rodriguez, each an
officer of the Company, received an annual stock option grant in 1999 in
connection with their employment by the Company. Messrs. Bell and Baldini
received 25,000 options on February 18, 1999, and Messrs. Bova, Sexton, and
Rodriguez received 5,000 options on that same date. The Company has historically
assumed primary responsibility for advising its directors and officers as to
their obligations under Section 16(a) of the Exchange Act. Section 16(a)
requires that a Form 4 or Form 5 be filed reporting such grants. Such filings
should have occurred not later than February 14, 2000. While preparing Forms 5
and related materials in February 2000, Company representatives inadvertently
failed to note that a filing had not been made with respect to the foregoing
grants. In the course of completing this Proxy Statement, Company
representatives noticed this oversight and appropriate Forms 5 were subsequently
filed.
9
<PAGE>
EXECUTIVE COMPENSATION
The following table summarizes the compensation earned for the fiscal years
ended December 31, 1999, 1998 and 1997, by the Company's Chief Executive Officer
and the four other highest paid executive officers of the Company during 1999
(collectively the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
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 ($) ($) ($) ($) (#) ($) ($)(1)
- ------------------ ------- -------- ------------- ------------- ---------- --------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Daniel M. Bell 1999 350,000 150,000(2) - - 75,000(2) - 21,276(3)
President and CEO 1998 345,800 150,000(4) - - 25,000(4) - 20,487(3)
1997 287,500 300,000(5) - - 75,000(5) - 16,405(3)
Robert E. Baldini 1999 200,000 75,000(2) 100,000(6) - 100,000(2) - -
Vice-Chairman of 1998 217,000 - 66,000(6) - 25,000(4) - -
Board of Directors 1997 61,000 - 25,000(6) - - - -
David J. Bova 1999 249,200 - 336,000(7) - 25,000(2) - 3,228
Senior V. P., 1998 238,300 10,000(4) 130,400(7) - 25,000(8) - 1,264
Research and 1997 213,750 21,100(5) 28,900(7) - 10,000(5) - 1,077
Development
Duncan H. Cocroft 1999 139,000(9) - - - - - 3,334
Senior V.P. and 1998 200,000 75,000(10) - - 25,000(8) - 1,388
Chief 1997 67,000 - - 100,000(11) - 36,917(12)
Administrative
Officer
Frederick A. Sexton 1999 213,800 40,000(2) - - 25,000(2) - 1,457
Vice President, 1998 197,500 40,000(4) - - 25,000(8) - 433
Technical Ops. 1997 170,000 65,000(5) - - 25,000(5) - 81
</TABLE>
- ----------------
(1) Consists of life insurance premiums, unless otherwise stated.
(2) Awarded by the Company's Board of Directors on February 7, 2000.
(3) Consists of life insurance premiums and automobile lease expenses of
$11,100, $12,140 and $11,100 for 1999, 1998 and 1997, respectively, for Mr.
Bell.
(4) Awarded by the Company's Board of Directors on February 18, 1999.
(5) Awarded by the Company's Board of Directors on February 19, 1998.
(6) Represents consulting fees paid to Mr. Baldini.
(7) Consists of a royalty, based on net sales of the Company's
NIASPAN/registered trademark/ product, payable to Mr. Bova under his 1992
employment agreement.
(8) Includes 5,000 options awarded by the Company's Board of Directors on
February 18, 1999.
(9) Mr. Cocroft formerly served as an executive officer of the Company. He
resigned from all officer positions effective July 30, 1999.
(10) Includes $15,000 awarded by the Company's Board of Directors on February
18, 1999.
(11) Includes 20,000 options awarded by the Company's Board of Directors on
February 19, 1998.
(12) Consists of life insurance premiums and relocation expenses paid by the
Company for Mr. Cocroft of $36,900.
10
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth options to the Named Executive Officers
granted during the year ended December 31, 1999:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATE OF
----------------------------------------------------------- STOCK PRICE APPRECIATION
NUMBER OF SECURITIES % OF TOTAL OPTIONS EXERCISE OR FOR OPTION TERM(1)
UNDERLYING OPTIONS GRANTED TO EMPLOYEES BASE PRICE EXPIRATION ------------------------
NAME GRANTED (#)(1) IN FISCAL YEAR ($/SHARE) DATE 0%($) 5%($) 10%($)
- ---- --------------------- -------------------- ----------- ---------- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Daniel M. Bell............ 25,000 4% $5.75 2/17/09 - $90,404 $229,100
Robert E. Baldini......... 25,000 4% 5.75 2/17/09 - 90,404 229,100
David J. Bova............. 5,000 1% 5.75 2/17/09 - 18,081 45,820
Duncan H. Cocroft(2)...... 5,000 1% 5.75 2/17/09 - 18,081 45,820
Frederick A. Sexton....... 5,000 1% 5.75 2/17/09 - 18,081 45,820
</TABLE>
- ----------------
(1) Stock option grants vest at 25% per year on each anniversary of the date of
grant.
(2) Mr. Cocroft formerly served as an executive officer of the Company. He
resigned from all officer positions effective July 30, 1999.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
The following table provides information about the number of aggregated
option exercises during the last fiscal year and value of options held by the
Named Executive Officers at December 31, 1999:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS
ACQUIRED ON VALUE FISCAL YEAR-END AT FISCAL YEAR-END ($)(1)
EXERCISE REALIZED --------------------------- ---------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ ------------- ----------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Daniel M. Bell..................... - - 318,750 81,250 $1,507,500 $ -
Robert E. Baldini.................. - - 150,000 75,000 - -
David J. Bova...................... 35,000 122,500 97,500 27,500 441,575 8,475
Duncan H. Cocroft(2)............... - - - - - -
Frederick A. Sexton................ - - 41,250 48,750 2,825 8,475
</TABLE>
- --------------
(1) The option value is based on the difference between the fair market value
of the shares on December 31, 1999, which was $5.63 per share, and the
option exercise price per share, multiplied by the number of shares of
Common Stock subject to the option.
(2) Mr. Cocroft formerly served as an executive officer of the Company. He
resigned from all officer positions effective July 30, 1999.
11
<PAGE>
TEN-YEAR OPTION REPRICINGS
There were no option repricings for Named Executive Officers during the
year ended December 31, 1999.
401(K) PLAN
The Company's Internal Revenue Code Section 401(k) Plan, known as the Kos
Savings Plan, became effective on January 1, 1994. Each employee who has
completed at least 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% of the employee's
compensation for the year. Beginning on January 1, 1999, the Company began
matching employee contributions to the Kos Savings Plan. The Company's matching
contribution to the Kos Savings Plan is made in the form of previously unissued
Common Stock. The Company matches employee contributions up to 50% of an
employee's 401(k) contribution, and not to exceed 3% of such employee's
compensation or $5,000 per employee for any given year. An employee is always
100% vested in the employee's elective deferral contributions to the Kos Savings
Plan and is vested up to 100% in the Company matching contribution portion of
such plan at 25% per year of employment.
EMPLOYEE STOCK PURCHASE PLAN
On February 15, 1999, the Company implemented the Kos Pharmaceuticals, Inc.
1999 Employee Stock Purchase Plan (the "Stock Purchase Plan"). 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
are limited to $25,000 per year. Employee payroll deductions are accumulated for
six-month periods at the end of which shares of the Company's Common Stock are
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. The Company has
reserved 1,000,000 shares of Common Stock for future purchase by employees under
the Stock Purchase 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'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.
12
<PAGE>
David J. Bova entered into an employment agreement with the Company in
1992. The employment agreement expired on December 31, 1997. Pursuant to the
employment agreement, however, 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 $336,000 of royalty expense for the year ended
December 31, 1999, 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 an employment agreement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
All decisions regarding compensation of the Company's executive officers
are subject to the authority of the Compensation and Stock Option Committee. 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.
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, awarding stock options to such officers, and for
recommending to the Board of Directors the cash and equity compensation of the
Company's executive officers.
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 1999 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. 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 1999. The Company nearly tripled sales of the Company's
NIASPAN product, made significant progress in the development of the
13
<PAGE>
Company's NICOSTATIN product, completed a co-promotion arrangement with Knoll
Pharmaceutical Company, achieved a lower-than-budgeted loss for the year,
obtained an HDL indication for NIASPAN, achieved widespread formulary acceptance
for NIASPAN, and had several other accomplishments.
Frederick B. Whittemore, Chairman
Steven Jaharis, M.D.
Mark Novitch, M.D.
14
<PAGE>
PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return on the
Company's Common Stock during the years ended December 31, 1999, 1998 and 1997
(from March 7, 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 graph assumes an initial investment of
$100 and reinvestment of all dividends.
[GRAPHIC OMITTED]
COMPARISON OF 34-MONTH CUMULATIVE TOTAL RETURNS
- --------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31,
BASE ----------------------------
COMPANY/INDEX DATE* 1997 1998 1999
- ------------------------ --------- ------ ------ ------
Kos Pharmaceuticals, Inc. $100 $103 $39 $38
Nasdaq Stock Market (U.S.) Index 100 121 170 308
Nasdaq Pharmaceutical Index 100 95 121 225
- ---------------
* Reflects $100 invested on March 7, 1997, in Kos stock and $100 invested on
February 28, 1997, in each index, including reinvestment of dividends.
15
<PAGE>
PROPOSAL 2:
APPROVAL OF AMENDMENT TO THE KOS PHARMACEUTICALS, INC. 1996 STOCK OPTION PLAN
On February 7, 2000, the Board of Directors adopted, subject to shareholder
approval, an amendment to the Kos Pharmaceuticals, Inc. 1996 Stock Option Plan
(the "Plan") to increase from 4,000,000 to 7,000,000 the number of shares of the
Company's Common Stock that may be issued thereunder. As of December 31, 1999,
options to purchase 3,708,800 shares of Common Stock had been granted under the
Plan, of which 3,077,840 shares of Common Stock were outstanding as of that
date. The closing trade price for the Company's Common Stock on December 31,
1999, was $5.63.
The purpose of the Plan is to promote the interests of the Company and its
shareholders, to promote the Company's success by providing an additional
incentive to employees to continue in the service of the Company, and to give
employees an interest similar to shareholders in the success of the Company. The
Company has exhausted the number of shares of Common Stock that were originally
reserved for issuance under the Plan.
GENERAL. The Plan is not subject to the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), nor is it a qualified plan under Section
401(a) of the Internal Revenue Code of 1986, as amended (the "Code"). The Plan
was adopted in June 1996. In addition to the Plan, the Company has written
agreements with each of the Plan participants describing the terms of the
grants.
PURPOSE. The purpose of the Plan is to provide incentives in the form of
grants of stock options to employees and other persons who contribute materially
to the success and profitability of the Company. The grants will recognize and
reward outstanding individual performances and contributions and will give such
persons a proprietary interest in the Company, thus enhancing their personal
interest in the Company's continued success and progress. The Company expects
that the Plan will also assist the Company and its subsidiaries in attracting
and retaining key persons. Furthermore, the Plan will provide the Company
flexibility and the means to reward directors and other non-employees who render
valuable contributions to the Company.
ADMINISTRATION OF THE PLAN. The Plan is administered by a stock option
committee (the "Committee") appointed by the Company's Board of Directors (the
"Board") and is comprised of not fewer than two members who are "disinterested
persons" within the meaning of Rule 16b-3 under the Securities Exchange Act of
1934, as amended (the "1934 Act"), and "outside directors" within the meaning of
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code") and
the regulations thereunder. The Committee has the authority to interpret the
Plan, to establish, amend, and rescind any rules and regulations relating to the
Plan, to prescribe the form of any agreement or instrument executed in
connection with the Plan, and to make all other determinations necessary or
advisable for the administration of the Plan. All such interpretations, rules,
regulations and determinations shall be conclusive and binding on all persons
and for all purposes. A majority of the full Committee constitutes a quorum for
purposes of administering the Plan, and all determinations of the Committee
shall be made by a majority of the members present at a meeting at which a
quorum is present or by the unanimous written consent of the Committee. Neither
the Board nor the Committee, however, shall have any discretion with respect to
Options granted to Outside Directors pursuant to the Plan.
SECURITIES SUBJECT TO THE PLAN. The Board of Directors of the Company
recommends that the number of shares of Common Stock available for issuance be
increased to 7,000,000 shares.
16
<PAGE>
Currently, an aggregate of 4,000,000 shares of Common Stock have been reserved
for issuance under the Plan, subject to adjustment to give effect to future
changes in the number of outstanding shares of Common Stock of the Company by
virtue of a merger, consolidation, recapitalization, reclassification,
combination, stock dividend, stock split, or other similar change. Shares issued
pursuant to exercises of options granted under the Plan shall be issued from the
Company's authorized but unissued Common Stock or from issued shares that have
been reacquired by the Company.
ELIGIBILITY. Each person who performs or has in the past performed services
for the Company or a subsidiary of the Company, whether as a director, officer,
employee, consultant or other independent contractor, and any person who
performs services relating to the Company in his or her capacity as an employee
or independent contractor of a corporation or other entity that provides
services for the Company is eligible to participate in the Plan.
DISCRETIONARY STOCK OPTION GRANTS. Participants in the Plan are eligible to
receive grants of stock options, as determined by the Committee, or the Board of
Directors, in its sole and absolute discretion. Awards of stock options pursuant
to the Plan may be in the form of incentive stock options or nonqualified stock
options. An incentive stock option is an option that qualifies as an "incentive
stock option" under Section 422 of the Code. A nonqualified stock option is an
option that does not qualify as an incentive stock option. Only participants who
are employees of the Company are eligible to receive grants of incentive stock
options. Stock options may be granted under the Plan on such terms and
conditions not inconsistent with the provisions of the Plan and in such form as
the Committee deems appropriate at the time of grant. Summarized below are
certain provisions of the Plan relating to the discretionary grant of stock
options.
EXERCISE PRICE. Except with respect to option grants to Major
Shareholders (as defined below), the exercise price of each share of
the Company's Common Stock subject to an incentive stock option shall
equal the exercise price designated by the Committee on the date the
option is granted, but shall not be less than the fair market value of
the Common Stock on the date the option is granted. In general, "fair
market value" with respect to a particular date is defined as the
average of the high and low sale prices of the Common Stock as reported
by the National Association of Securities Dealers Automated Quotation
System on that date. If trading in the Common Stock or a price
quotation does not occur on the date as of which fair market value is
being determined, the next preceding date on which the Common Stock was
traded or a price was quoted shall determine the fair market value. If
the Common Stock is not publicly traded on the date as of which fair
market value is being determined, the Board of Directors of the Company
shall determine the fair market value of the Common Stock as of that
date, using such factors as the Board of Directors considers relevant,
such as the price at which recent sales have been made, the book value
of the Common Stock, and the Company's current and projected earnings.
An incentive stock option granted to an individual who, on the date of
grant, owns stock equal to more than 10% of the total combined voting
power of all classes of stock of the Company or any parent or
subsidiary of the Company (a "Major Shareholder"), shall be granted at
an exercise price of 110% of the fair market value of the Company's
Common Stock on the date of grant.
Unless otherwise provided by the Committee, with the approval of a
majority of the Board, in establishing the terms of the option at
grant, the exercise price with respect to each share of the Common
Stock subject to a nonqualified stock option will not be less than the
fair market value of the share on the date of grant.
17
<PAGE>
TIME OF EXERCISE. An option shall be exercisable only to the
extent it is vested. Unless otherwise provided for by the Committee in
establishing the terms of the option at grant, each option granted
under the Plan shall become vested according to the following schedule
based on the anniversary of the date of grant:
ANNIVERSARY OF DATE OF GRANT PERCENT VESTED
---------------------------- --------------
Prior to 1st anniversary 0%
1st 25%
2nd 50%
3rd 75%
4th 100%
The Committee, in its sole and absolute discretion, may accelerate
the vesting of any option at any time.
EXPIRATION OF OPTIONS. In general, each incentive stock option
shall expire on the earliest of (i) ten years from the date of its
grant, or such earlier date as may be set by the Committee in
establishing the terms of the option, (ii) in the case of a Major
Shareholder, five years from the date of grant, or such earlier date as
may be set by the Committee in establishing the terms of the option,
(iii) one year after the date of the option holder's death, or (iv) in
the event of termination of employment for any reason other than death
or retirement at age 65, 30 days following the last day that the option
holder is employed by the Company.
In general, each nonqualified stock option shall expire on the
sooner of (i) ten years from the date of its grant, or such earlier or
later date as may be set by the Committee in establishing the terms of
the option, (ii) one year after the date of the option holder's death,
(iii) in the case of total and permanent disability of an option holder
resulting in termination of employment with the Company, one year after
the option holder's last day of employment, (iv) in the event of normal
retirement from the Company, 90 days after the last day of the option
holder's employment, or (v) in the event of termination of employment
for any reason other than death, disability or normal retirement,
immediately following the last day that the option holder is employed
by the Company.
In the event of a change of a control of the Company (as defined
in the Plan), the Company's Board of Directors may vote to immediately
terminate or accelerate the exercisability of the options. If the
options are terminated, the Company shall pay the option holders a cash
payment equal to the difference between the exercise price and the fair
market value of the shares that would have been subject to the
terminated option.
TRANSFERABILITY. No option granted under the Plan is assignable
or transferable by a participant other than by will or by the laws of
descent and distribution.
STOCK OPTION GRANTS TO OUTSIDE DIRECTORS.
INITIAL GRANTS. Any Outside Director elected by the shareholders of
the Company subsequent to the effective date of the Plan shall be
automatically granted an option to purchase five thousand (5,000)
shares of Common Stock on the date of such Outside Director's election
to the Board. Any Outside Director appointed by the Board subsequent to
the effective date of the Plan shall be automatically granted an option
to purchase five thousand (5,000) shares of Common Stock on the date
such Outside Director's appointment to the Board becomes
18
<PAGE>
effective. In addition, the Company's Board of Directors has approved
the grant to each Outside Director of an option to purchase an
additional ten thousand (10,000) shares of Common Stock on such date.
ANNUAL GRANTS. Under the terms of the Plan, each Outside Director
shall automatically be granted, effective each anniversary of his
appointment to the Board, an option to purchase three thousand (3,000)
shares of Common Stock. The Board of Directors has approved the grant
to each Outside Director of an option to purchase an additional two
thousand (2,000) shares of Common Stock on such date.
EXERCISE PRICE. The exercise price of each share subject to an
option granted to an Outside Director shall be the fair market value of
the Common Stock on the date the option is granted.
EXERCISE OF OPTIONS. Each option granted to an Outside Director
shall become exercisable on the first anniversary of the date of grant
and may be exercised by the Outside Director for a period of ten (10)
years from the date of grant; provided, however, that in the event of
the death of an Outside Director, the Option shall be exercisable only
within the twelve (12) months next succeeding the date of death, and
then only (i) by the executor or administrator of the Outside
Director's estate or by the person or persons to whom the Outside
Director's rights under the Option shall pass by the Outside Director's
will or the laws of descent and distribution, and (ii) if and to the
extent that the Outside Director was entitled to exercise the Option at
the date of the Outside Director's death, provided that in no event
shall the Option be exercisable more than ten (10) years after the date
of grant.
RESTRICTIONS ON RESALE. Any person who is not an "affiliate" of the
Company generally may reoffer or resell shares of Common Stock received upon
exercise of an option without restriction under the Securities Act of 1933 (the
"Securities Act"). In contrast, any person receiving shares of Common Stock upon
exercise of an option who is an "affiliate" of the Company generally may reoffer
or resell such shares only pursuant to (i) a registration statement filed under
the Securities Act (the Company having no obligation to file such a registration
statement), (ii) an appropriate exemption from the registration requirements of
the Securities Act, or (iii) Rule 144 under the Securities Act.
DURATION OF PLAN. Awards may be granted under the Plan only during the ten
years immediately following the effective date of the Plan. Accordingly, options
may not be granted under the Plan after June 20, 2006.
AMENDMENT AND TERMINATION. The Board of Directors may alter, amend, or
terminate the Plan from time to time without approval of the shareholders.
However, without shareholder approval, no amendment will be effective that: (i)
materially increases the benefits accruing to participants under the Plan; (ii)
increases the aggregate number of shares that may be delivered under the Plan;
(iii) materially modifies the eligibility requirements for participation in the
Plan; (iv) amends the requirements of (i)-(iii) of this paragraph; or (v)
amends, modifies or deletes the provisions of the Plan relating to stock option
grants to Outside Directors. Any amendment, whether with or without shareholder
approval, that alters the terms or provisions of an award granted before the
amendment (unless the alteration is expressly permitted under the Plan) will be
effective only with the consent of the participant to whom the award was granted
or the holder currently entitled to exercise it.
DESIGNATION OF BENEFICIARY. Each participant shall designate a beneficiary
to receive, in the event of the participant's death, any rights to which the
participant may be entitled under the Plan. Designation of a beneficiary by a
participant shall be made in writing and shall be filed with the
19
<PAGE>
Committee. If no such beneficiary is designated or if the beneficiary so
designated does not survive the participant, the estate of such participant
shall be deemed to be his beneficiary. A participant may, by written notice to
the Committee, change his beneficiary designation.
FEDERAL INCOME TAX CONSEQUENCES.
INCENTIVE STOCK OPTIONS. If an incentive stock option is granted
to a participant in accordance with the terms of the Plan, no income
will be recognized by such participant at the time the option is
granted.
Generally, upon exercise of an incentive stock option granted
under the Plan, a participant will not recognize any income and the
Company will not be entitled to a deduction for tax purposes. However,
the difference between the purchase price and the fair market value of
the shares of stock received on the date of exercise will be treated as
a positive adjustment in determining alternative minimum taxable
income, which may subject the participant to the alternative minimum
tax. The disposition of shares acquired upon exercise of an incentive
stock option under the Plan will ordinarily result in long-term or
short-term capital gain or loss (depending on the applicable holding
period). Generally, however, if the participant disposes of shares of
stock acquired upon exercise of an incentive stock option within two
years after the date of grant or within one year after the date of
exercise (a "disqualifying disposition"), the participant will
recognize ordinary income, and the Company will be entitled to a
deduction for tax purposes in the amount of the excess of the fair
market value of the shares on the date of exercise over the purchase
price (or, in certain circumstances, the gain on sale, if less). Any
excess of the amount realized by the participant on the disqualifying
disposition over the fair market value of the shares on the date of
exercise of such option will ordinarily constitute capital gain.
Delivery of shares upon exercise of an incentive stock option
granted under the Plan is subject to any required withholding taxes. A
person exercising such an option may, as a condition precedent to
receiving the shares, be required to pay the Company a cash amount
equal to the amount of required withholdings.
NONQUALIFIED STOCK OPTIONS. A participant who receives a grant of
a non-qualified stock option in accordance with the terms of the Plan
will recognize income at the time the option is granted unless the
option does not have a readily ascertainable fair market value and the
grant of the option does not constitute a transfer of the underlying
stock.
Upon exercise of a non-qualified stock option granted under the
Plan, a participant will recognize as ordinary income the excess of the
fair market value of the shares of stock received on the date of
exercise over the option exercise price. Upon the sale of the stock by
the participant, the difference between the amount realized in the sale
and the fair market value of the stock on the date the option was
exercised is generally recognized by the participant as a capital gain
or loss. Upon the exercise of the option, the Company receives a
deduction equal to the amount included in income by the participant.
Delivery of shares upon exercise of an incentive stock option
granted under the Plan is subject to any required withholding taxes. A
person exercising such an option may, as a condition precedent to
receiving the shares, be required to pay the Company a cash amount
equal to the amount of required withholdings.
20
<PAGE>
The foregoing statements are intended to summarize the general
principles of current federal income tax law applicable to grants of
options under the Plan. It is emphasized that, while the Company
believes that the foregoing statements are correct based on existing
provisions of the Code and the interpretations thereof, no assurance
can be given that legislative, administrative, or judicial changes or
interpretations will not occur that would modify such statements. Also,
individual financial situations may vary and state and local taxation
may be significant.
OPTIONS GRANTED UNDER PLAN
The following table sets forth certain information relating to options to
purchase Common Stock granted under the Plan as of December 31, 1999.
<TABLE>
<CAPTION>
EXERCISE NUMBER OF
NAME AND POSITION PRICE(1) OPTIONS GRANTED
----------------- ------------ --------------------
<S> <C> <C>
Daniel M. Bell........................................... $1.68 850,000
President and Chief Executive Officer
Robert E. Baldini........................................ 6.86 225,000
Vice Chairman of the Board of Directors
David J. Bova............................................ 6.90 35,000
Senior V.P., Research and Development
Duncan H. Cocroft(2)..................................... 9.97 125,000
Senior V.P. and Chief Administrative Officer
Frederick A. Sexton...................................... 7.66 90,000
Vice President, Technical Operations
Executive Group.......................................... 3.25 1,200,000
Non-Executive Director Group............................. 8.66 258,000
Director Nominees........................................ 3.91 1,333,000
Non-Executive Officer Employee Group..................... 7.29 598,000
</TABLE>
------------
(1) Reflects the weighted average exercise price of all options
granted to such person or group.
(2) Mr. Cocroft formerly served as an executive officer of the
Company. He resigned from all officer positions effective
July 30, 1999.
ADDRESS FOR ADDITIONAL INFORMATION. Additional information concerning the
Plan and its administration by the Committee may be obtained by contacting Kos
Pharmaceuticals, Inc., 1001 Brickell Bay Drive, 25th Floor, Miami, Florida,
33131, Attention: President, telephone number (305) 577-3464.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE AMENDMENT TO
THE KOS PHARMACEUTICALS, INC. 1996 STOCK OPTION PLAN.
21
<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, 1999. 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, 2000. 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.
22
<PAGE>
ANNUAL REPORT
The Company's 1999 Annual Report to Shareholders, including financial
statements for the year ended December 31, 1999, 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) 523-3620.
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 2001
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, 2000.
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.
23
<PAGE>
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF SHAREHOLDERS
KOS PHARMACEUTICALS, INC.
APRIL 11, 2000
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: APPROVE THE AMENDMENT TO THE KOS FOR AGAINST ABSTAIN
PHARMACEUTICALS, INC. 1996 STOCK OPTION 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.