<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 6, 1996
REGISTRATION NO. 333-04313
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ALGOS PHARMACEUTICAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 2834 22-3142274
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
COLLINGWOOD PLAZA
4900 ROUTE 33
NEPTUNE, NEW JERSEY 07753-6804
(908) 938-5959
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JOHN W. LYLE
ALGOS PHARMACEUTICAL CORPORATION
COLLINGWOOD PLAZA
4900 ROUTE 33
NEPTUNE, NEW JERSEY 07753-6804
(908) 938-5959
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
RAYMOND Y. LIN THOMAS E. CONSTANCE
LATHAM & WATKINS MARK B. SEGALL
885 THIRD AVENUE, SUITE 1000 KRAMER, LEVIN, NAFTALIS & FRANKEL
NEW YORK, NEW YORK 10022 919 THIRD AVENUE
(212) 906-1200 NEW YORK, NEW YORK 10022
(212) 715-9100
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable on or after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
________________________________________________________________________________
<PAGE>
<PAGE>
CROSS-REFERENCE SHEET
(PURSUANT TO ITEM 501(b) OF REGULATION S-K SHOWING THE LOCATION IN THE
PROSPECTUS OF THE RESPONSES TO THE ITEMS OF PART I OF FORM S-1).
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION LOCATION AND CAPTION IN PROSPECTUS
----------------------- ------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside Front Cover Page
of Prospectus...................................................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of Prospectus.............. Inside Front and Outside Back Cover
Pages
3. Summary Information, Risk Factors and Ratio of Earnings to Fixed
Charges............................................................ Prospectus Summary; Risk Factors
4. Use of Proceeds...................................................... Use of Proceeds
5. Determination of Offering Price...................................... Underwriting
6. Dilution............................................................. Dilution
7. Selling Security Holders............................................. Not Applicable
8. Plan of Distribution................................................. Underwriting
9. Description of Securities to be Registered........................... Description of Capital Stock
10. Interests of Named Experts and Counsel............................... Legal Matters; Experts
11. Information with Respect to the Registrant........................... Outside Front Cover Pages;
Prospectus Summary; Risk Factors;
Capitalization; Dividend Policy;
Dilution; Selected Financial
Information; Management's
Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Management
and Key Scientific Advisors;
Principal Stockholders; Certain
Relationships and Related
Transactions; Description of
Capital Stock; Shares Eligible For
Future Sale; Underwriting;
Additional Information; Financial
Statements
12. Disclosure of Commission Position on Indemnification for Securities
Act Liabilities.................................................... Not Applicable
</TABLE>
<PAGE>
<PAGE>
Subject to Completion, dated August 30, 1996
PROSPECTUS
3,500,000 SHARES
ALGOS
PHARMACEUTICAL
[LOGO] CORPORATION
COMMON STOCK
---------------------------
All of the shares of Common Stock (the 'Common Stock') of Algos
Pharmaceutical Corporation ('Algos'or the 'Company') offered hereby (the
'Offering') are being sold by the Company. At the request of the Company, the
Underwriters have reserved 300,000 shares of Common Stock for sale at the
initial public offering price to certain of the Company's employees and certain
other persons. If such shares are not purchased by such employees or other
persons they will be offered by the Underwriters to the public upon the terms
and conditions set forth in this Prospectus. See 'Underwriting.'
Johnson & Johnson Development Corporation, an affiliate of Johnson &
Johnson, has expressed an interest in purchasing 10% of the Offering, up to $6.5
million worth of the shares of Common Stock offered hereby, at the public
offering price.
Prior to the Offering, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price will be
between $14.00 and $16.00 per share. See 'Underwriting' for information relating
to the factors to be considered in determining the initial public offering
price. Subject to notice of issuance, the Common Stock has been approved for
quotation on the Nasdaq National Market under the symbol 'ALGO.'
---------------------------
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE 'RISK FACTORS' BEGINNING ON PAGE 6.
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION,
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions (1) Company (2)
<S> <C> <C> <C>
Per Share.................................... $ $ $
Total(3)..................................... $ $ $
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See 'Underwriting.'
(2) Before deducting expenses payable by the Company estimated at $800,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 525,000 additional shares on the same terms and conditions as set forth
above, solely to cover over-allotments, if any. If such option is exercised
in full, the total Price to Public, Underwriting Discounts and Commissions
and Proceeds to Company will be $ , $ and
$ , respectively. See 'Underwriting.'
---------------------------
The shares of Common Stock offered by this Prospectus are offered by the
Underwriters, subject to prior sale, to withdrawal, cancellation or modification
of the offer without notice, to delivery and to acceptance by the Underwriters
and to certain further conditions. It is expected that delivery of certificates
representing the shares of Common Stock will be made at the offices of Lehman
Brothers Inc., New York, New York, on or about , 1996.
---------------------------
LEHMAN BROTHERS COWEN & COMPANY
, 1996
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR OFFERS
TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL
PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
STATES.
<PAGE>
<PAGE>
The following table lists the Company's ten products in development that
have reached Phase II clinical trials or are scheduled for Phase II or Phase III
clinical trials in 1996, their respective intended therapeutic indications and
current stage of development. There can be no assurance that any of these
products will be developed successfully or approved by the FDA.
<TABLE>
<CAPTION>
ALGOS PRODUCTS IN DEVELOPMENT
PRODUCT INDICATION STAGE OF DEVELOPMENT
------- ---------- --------------------
<S> <C> <C>
NARCOTIC ANALGESICS
MorphiDex'tm' Moderate to severe Pivotal Phase II clinical trial
pain (primarily cancer pain) completed.
Additional Phase II and III clinical
trials in progress or scheduled in
1996.
Two Phase I/II clinical trials
completed.
HydrocoDex SR'tm' and HydrocoDex Moderate to moderately severe pain Phase II clinical trial scheduled in
Plus'tm' (primarily post-operative, 1996.
musculoskeletal and trauma-related
pain)
OxycoDex'tm' Moderate to moderately severe pain Phase II clinical trial in progress.
(primarily post-operative pain) Additional Phase II clinical trial
scheduled in 1996.
NON-NARCOTIC ANALGESICS
Ibuprofen/NMDA Antagonist Over-the-counter ('OTC') analgesic Phase II clinical trial completed.
Combination Additional Phase II clinical trial
scheduled in 1996.
Acetaminophen/NMDA Antagonist OTC analgesic Phase II clinical trial in progress.
Combination
ANESTHETICS
Lidocaine/NMDA Antagonist Extended duration anesthetic Phase I/II clinical trial scheduled
Combination in 1996.
OTHERS
Urge Urinary Incontinence Treatment Urge urinary incontinence Phase II clinical trial in progress.
Opiate Addiction Treatment Opiate addiction Phase II clinical trial scheduled in
1996.
Cocaine Addiction Treatment Cocaine addiction Phase II clinical trial scheduled in
1996.
</TABLE>
The following are trademarks of the Company: MorphiDex'tm', HydrocoDex
SR'tm', HydrocoDex Plus'tm' and OxycoDex'tm'.
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMPANY'S
COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE>
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the financial statements
and notes thereto appearing elsewhere in this Prospectus. Unless otherwise
indicated, all information in the Prospectus (i) gives effect to a 8.30-for-1
stock split in the form of a stock dividend declared in May 1996, and (ii)
assumes no exercise of the Underwriters' over-allotment option.
THE COMPANY
Algos Pharmaceutical Corporation ('Algos' or the 'Company') is a leader in
developing a new generation of proprietary pain management products. The Company
develops its proprietary pain management products by combining existing
analgesic or anesthetic drugs with N-methyl-D-aspartate ('NMDA') antagonist
drugs that have been approved for human use in other applications. Independent
research and the Company's pre-clinical studies and clinical trials conducted to
date have shown that the Company's products may significantly improve pain
relief over currently available analgesics, including narcotic drugs such as
morphine, hydrocodone and oxycodone and non-narcotic analgesics such as
acetaminophen (e.g. Tylenol'r'), ibuprofen (e.g. Advil'r') and naproxen (e.g.
Aleve'r'). The Company is also developing a local anesthetic product that has
the potential to provide greater anesthetic effect with longer and more
controlled duration than existing products. The Company's analgesic and
anesthetic products will target markets with combined 1995 U.S. sales estimated
at $6.4 billion. In addition, the Company is using its NMDA antagonist
technology to develop products to treat urge urinary incontinence and opiate and
cocaine addiction.
The Company believes that its analgesic and anesthetic products have the
potential for more rapid market introduction than many other new drugs because
(i) the Company's products combine existing drugs whose separate safety profiles
are known and established and (ii) clinical trials for new analgesics and
anesthetics historically have achieved statistically significant results with
fewer patients than may be required for many other drugs. As a result, the
Company currently anticipates that it will file its first New Drug Application
('NDA') with the Food and Drug Administration ('FDA') in 1997.
The Company has ten products that have reached Phase II clinical trials or
are scheduled for Phase II or Phase III clinical trials in 1996. The Company has
completed or is currently conducting eleven clinical trials and has scheduled
additional clinical trials to commence in 1996. A pivotal Phase II clinical
efficacy trial has been completed with MorphiDex'tm' demonstrating statistically
significant superior pain relief over morphine.
The Company's products that have reached Phase II clinical trials or are
scheduled for Phase II or Phase III clinical trials consist of:
(i) four narcotic analgesic/NMDA antagonist combination products:
MorphiDex'tm', expected to be used primarily to treat cancer pain,
HydrocoDex SR'tm' and HydrocoDex Plus'tm', expected to be used
primarily to treat moderate to moderately severe post-operative,
musculoskeletal and trauma-related pain, and OxycoDex'tm', expected to
be used primarily to treat moderate to moderately severe
post-operative pain;
(ii) two over-the-counter ('OTC') analgesic/NMDA antagonist combination
products: a combination product of an NMDA antagonist with
acetaminophen, the largest selling OTC analgesic, and a combination
product of an NMDA antagonist with ibuprofen, the largest selling OTC
non-steroidal anti-inflammatory drug ('NSAID');
(iii) one injectable local anesthetic/NMDA combination product intended to
provide greater anesthetic effect with longer and more controlled
duration for use in dental procedures and in-patient and out-patient
surgeries;
(iv) one product that uses an NMDA antagonist intended as a treatment for
urge urinary incontinence, a condition which afflicts an estimated
five million people in the U.S.; and
(v) two products intended as treatments for opiate and cocaine addiction,
which the Company expects to develop in collaboration with the
National Institute on Drug Abuse ('NIDA'), National Institutes of
Health ('NIH').
In June 1996, the Company entered into a license agreement with McNeil
Consumer Products Company ('McNeil'), an affiliate of Johnson & Johnson,
pursuant to which the Company granted McNeil the exclusive right to develop
acetaminophen/NMDA antagonist combination products and certain NSAID/NMDA
antagonist combination products for the treatment of pain (the 'McNeil License
Agreement'). The McNeil License Agreement: (i) grants McNeil an exclusive
worldwide license to manufacture and market such products; (ii) provides for an
initial payment of $2.0 million to
3
<PAGE>
<PAGE>
the Company and subsequent payments of up to an additional $8.0 million upon the
achievement of certain milestones generally relating to product development and
patent issuances; and (iii) provides for the payment of royalties to the Company
on net sales of the licensed products. McNeil will bear all of the costs of
developing products it selects, except for approximately $500,000 to be borne by
the Company. McNeil will be required to pay minimum royalties, provided that
certain conditions have been met, even if McNeil has not commenced marketing of
an acetaminophen product or an NSAID product.
In June 1996, the Company entered into a letter of intent with NIDA, NIH,
pending formal approval of a cooperative research and development agreement (a
'CRADA'), to conduct joint research on a methadone/NMDA antagonist combination
drug as a potential treatment for opiate addiction.
The Company believes that the markets in which it intends to compete offer
attractive opportunities. Favorable factors in the target analgesic markets
include: high growth rates partially attributable to the rapidly growing
population segment aged 65 and older; increasing recognition of the therapeutic
benefits of effective pain treatment including reductions in healing and
recovery time; generally concentrated distribution channels that permit more
cost-effective selling and marketing; lack of recent product innovation which
has resulted in market segments comprised largely of older off-patent drugs;
higher profit margins from branded proprietary products; and the potential for
rapid acceptance of new pain management pharmaceuticals by members of the
medical profession. The market for local anesthetics also presents attractive
opportunities for the Company's controlled duration product because existing
local anesthetics have limited and less controllable duration which restricts
their use in surgery. The Company believes the markets for its products to treat
urge urinary incontinence and drug addiction present significant opportunities
because of the lack of satisfactory pharmaceutical treatments and the large
potential market sizes.
The Company's strategic goal is to establish a leading position in the pain
management pharmaceutical market. The Company intends to achieve this goal by:
(i) introducing superior proprietary products; (ii) minimizing development time,
cost and risk; (iii) leveraging its proprietary technology across multiple
product opportunities; (iv) outsourcing to efficiently deploy resources; and (v)
maximizing market penetration and margin potential through a combination of
Company direct sales and strategic alliances.
The Company seeks to protect its proprietary position by, among other
methods, filing United States and foreign patent applications with respect to
the development of its products. The Company has exclusive licenses for three
issued U.S. patents and six U.S. patent applications pending and holds one
additional U.S. patent application pending.
To date, the Company has generated no product revenues and has experienced
net losses in each year since its inception. At June 30, 1996, the Company had
an accumulated deficit of approximately $4.9 million.
The Company was incorporated in Delaware in 1992. Its executive offices are
located at Collingwood Plaza, 4900 Route 33, Neptune, New Jersey 07753, and its
telephone number is (908) 938-5959.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by
the Company................................... 3,500,000 shares
Common Stock to be outstanding after the
Offering...................................... 15,544,123 shares(1)
Use of Proceeds................................. To fund research and product development, the establishment of
a direct sales force, working capital and for other general
corporate purposes. See 'Use of Proceeds.'
Proposed Nasdaq National Market symbol.......... ALGO
</TABLE>
- ------------
(1) Excludes an aggregate of 1,085,665 shares of Common Stock reserved for
issuance upon the exercise of outstanding options and warrants, including
the conversion of the Company's Series B Convertible Preferred Stock, $.01
par value per share (the 'Series B Preferred Stock'). See 'Management and
Key Scientific Advisors -- Stock Option Plans' and 'Description of Capital
Stock.'
4
<PAGE>
<PAGE>
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------- ----------------------
1992 1993 1994 1995 1995 1996
----- ----- ------- ------- ------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................... $ 96(1) $ 215(1) $ -- $ -- $ -- $ 1,500
Operating expenses:
Research and development............... 125 40 654 1,615 801 1,004
General and administrative............. 369 436 623 760 396 1,628
----- ----- ------- ------- ------- -----------
Total operating expenses.......... 494 476 1,277 2,375 1,197 2,632
----- ----- ------- ------- ------- -----------
Interest income............................. 13 4 153 253 138 77
----- ----- ------- ------- ------- -----------
Net loss.................................... $(385) $(257) $(1,124) $(2,122) $(1,059) $(1,055)
----- ----- ------- ------- ------- -----------
----- ----- ------- ------- ------- -----------
Pro forma net loss per common share(2)...... $ (0.17) $ (0.09)
------- -----------
------- -----------
Pro forma weighted average common shares
outstanding(2)............................ 12,199 12,329
------- -----------
------- -----------
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------
AS
ACTUAL ADJUSTED(3)
------ -----------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents(4)............................................................... $2,505 $50,584
Working capital............................................................................ 3,268 51,590
Total assets............................................................................... 4,903 52,685
Deficit accumulated during the development stage........................................... (4,943) (4,943)
Total stockholders' equity................................................................. 3,649 51,674
</TABLE>
- ------------
(1) Represents revenues from consulting activities in which the Company has
ceased to engage.
(2) Adjusted to give effect to the automatic conversion of all outstanding
shares of Series A Preferred Stock (the 'Series A Preferred Stock') into
Common Stock upon consummation of the Offering. See Note 2 to the Financial
Statements.
(3) As adjusted to give effect to the Offering at an assumed initial public
offering price of $15.00 per share (after deducting the underwriting
discounts and commissions and estimated offering expenses) and the receipt
of the net proceeds therefrom. See 'Use of Proceeds' and 'Capitalization.'
(4) Does not include $2.0 million received from McNeil on July 5, 1996 pursuant
to the McNeil License Agreement of which $500,000 is committed to fund the
Company's portion of development costs under the McNeil License Agreement.
5
<PAGE>
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. The following factors, in addition to the other information in
this Prospectus, should be carefully considered in evaluating the Company and
its business before purchasing the shares of Common Stock offered hereby.
Early Stage of the Company; Continuing Losses; Uncertainty of Future
Profitability
Since its formation in January 1992, the Company has been engaged primarily
in organizational and start-up activities, conducting research and development
programs, recruiting officers and key scientists, and negotiating and
consummating technology licensing and research agreements. The Company has no
revenues from product sales and no history of manufacturing or marketing. To
date, substantially all of its funding has been provided by contributions of
capital made by its founders, through a private placement of 700,000 shares of
its Series A Preferred Stock and an initial payment from McNeil pursuant to the
McNeil License Agreement. There can be no assurance that the Company will have
any source of product revenue or that its operations will eventually generate
sufficient revenues to achieve profitability. The Company has experienced losses
since its inception. The Company had accumulated losses of approximately $4.9
million through June 30, 1996, and losses are continuing and are expected to
continue for the foreseeable future. Therefore, the Company has a limited
history upon which investors may base an evaluation of its likely performance.
The Company's prospects must be considered in light of the problems, expenses,
complications and delays frequently encountered in connection with the formation
of a new business, the development of new pharmaceutical products, including
obtaining the necessary regulatory approvals, the utilization of unproven
technology and the competitive environment in which the Company plans to
operate.
Uncertainty Associated with Pre-Clinical Studies and Clinical Trials
In order to receive regulatory approval to sell its products commercially,
the Company must demonstrate in pre-clinical studies and clinical trials that
its potential products are safe and effective in humans. To date, four clinical
trials have been completed on two of the Company's products. Although the
results of the Company's initial pre-clinical studies and clinical trials to
date have been encouraging, the results of initial pre-clinical studies and
clinical trials are not by themselves predictive of results that will be
obtained from subsequent or more extensive trials. Furthermore, there can be no
assurance that clinical trials of products under development will demonstrate
the safety and efficacy of such products to the extent necessary to obtain
regulatory approvals. Many pharmaceutical companies have suffered significant
setbacks in advanced clinical trials, even after promising results in earlier
trials. The failure to adequately demonstrate the safety and efficacy of a
product could delay or prevent regulatory approval of such product and could
have a material adverse effect on the Company.
The rate of completion of clinical trials is dependent upon, among other
factors, the enrollment of patients. Patient accrual is a function of many
factors, including the size of the patient population, the proximity of patients
to clinical sites, the eligibility criteria for the study and the existence of
competitive clinical trials. Delays in planned patient enrollment in the
Company's current trials or future clinical trials may result in increased
costs, program delays or both, which could have a material adverse effect on the
Company. There can be no assurance that if clinical trials are completed the
Company will be able to submit an NDA as scheduled or that any such application
will be reviewed and approved by the FDA in a timely manner, or at all. See
'Business -- Government Regulation.'
Uncertainty of Market Acceptance
Even if regulatory approvals are obtained, uncertainty exists as to whether
the Company's products will be accepted by the market. A number of factors may
limit the market acceptance of the Company's products, including the timing of
regulatory approvals and market entry relative to competitive products, the
availability of alternative products, the price of the Company's products
relative to alternative products, the availability of third-party reimbursement
and the extent of marketing efforts by third-party distributors or agents
retained by the Company. There can be no assurance of the Company's ability, or
the length of time required, to achieve market acceptance of the Company's
6
<PAGE>
<PAGE>
products. In addition, certain of the Company's products contain narcotic
ingredients that may require stringent record-keeping obligations, strict
storage requirements and other limitations on such products' availability that
may limit the commercial usage of such products. See 'Business -- Market
Overview' and ' -- Products.'
Certain Risks Associated With the McNeil License Agreement
The McNeil License Agreement extends until the later of the expiration of
the Company's patent rights or ten years from the date of execution, provided
that the McNeil License Agreement is terminable: (i) by either party in the
event of a breach by the other party upon 90 days notice or upon certain events
of bankruptcy; (ii) by McNeil, at any time after one year from the effective
date of the agreement; and (iii) by the Company upon certain other
circumstances. Under certain circumstances, the McNeil License Agreement could
terminate with respect to either acetaminophen or NSAID products without
terminating with respect to the other category. In the event of a termination by
McNeil, McNeil must pay all royalty payments and milestone payments due, if any,
through the date of termination and the technology licensed by McNeil reverts to
the Company. In such event, the Company retains the rights to the results of the
two clinical studies funded by the Company, and McNeil retains the rights to the
results of the clinical studies funded by McNeil during the term of the McNeil
License Agreement.
Competition and Technological Changes, Uncertainty and Obsolescence
The Company's success will depend, in part, upon its ability to
successfully achieve market share at the expense of existing and established
products in the Company's target markets. The Company's products will be
competing directly with the products of companies that are well-established and
which may have a significantly higher degree of brand and name recognition and
substantially more financial resources than those of the Company. The Company is
also in competition with other pharmaceutical companies, hospitals, research
organizations, individual scientists and non-profit organizations engaged in the
development of new pain management pharmaceuticals. Many of these companies and
entities have greater research and development capacities, experience,
recognition and marketing, financial and managerial resources than the Company
and represent significant competition for the Company. Also, the Company's
competitors may succeed in developing competing technologies and obtaining FDA
approval for products more rapidly than the Company. There can be no assurance
that developments by others will not render the Company's products or
technologies non-competitive or obsolete.
Government Regulation; No Assurance of United States or Foreign Regulatory
Approval
The FDA and comparable agencies in foreign countries impose substantial
requirements on the introduction of therapeutic pharmaceutical products through
lengthy and detailed laboratory and clinical testing and other costly and
time-consuming procedures. Satisfaction of these requirements typically takes a
number of years, varies substantially based upon the type, complexity and
novelty of the pharmaceutical products and is subject to uncertainty. Government
regulation also affects the manufacture and marketing of pharmaceutical
products. Regulatory approvals, if granted, may include significant limitations
on the indicated uses for which a product may be marketed. The FDA actively
enforces regulations prohibiting marketing of products for non-indicated use.
Failure to comply with applicable regulatory requirements can result in, among
other things, government imposed fines, suspensions of approvals, seizures or
recalls of products, operating restrictions and criminal prosecutions.
Furthermore, changes in existing regulations or adoption of new regulations
could prevent the Company from obtaining, or affect the timing of, future
regulatory approvals. The effect of government regulation may be to delay
marketing of the Company's new products for a considerable period of time, to
impose costly procedures upon the Company's activities and to furnish a
competitive advantage to larger companies that compete with the Company. There
can be no assurance that FDA or other regulatory approval for any products
developed by the Company will be granted on a timely basis, if at all. Any such
delay in obtaining, or failure to obtain, such approvals would adversely affect
the marketing of the Company's products and the ability to generate product
revenue. The Company is also subject to certain Drug Enforcement Agency ('DEA')
regulations, including restrictions on storage,
7
<PAGE>
<PAGE>
transportation and administration, for its narcotic products. Government
regulation may increase at any time, creating additional hurdles for the
Company. The extent of potentially adverse government regulation which might
arise from future legislation or administrative action cannot be predicted. See
'Business -- Government Regulation.'
Need for Additional Funds
The amount and timing of the Company's expenditures will depend on the
progress of its research and development, the cost and timing of regulatory
approvals, general market conditions, relationships with potential strategic
partners, changes in the focus and direction of the Company's research and
development programs, competitive and technological advances and other factors.
The Company's cash requirements may vary materially from those now planned and
no assurance can be given that development costs will not exceed the amounts
budgeted for such purposes. The Company may require additional funding for its
research and product development programs, operating expenses, regulatory
clearances and sales and marketing expenses. Adequate funds for these purposes,
whether obtained through financial markets or through collaborative or other
arrangements with partners or from other sources, may not be available when
needed or on terms acceptable to the Company. Insufficient funds may require the
Company to delay, scale back or eliminate certain of its research and
development programs or to make arrangements with third parties to commercialize
products or technologies that the Company would otherwise seek to develop
itself. As a result, the Company may not be able to independently develop any or
all of the products described in this Prospectus. To the extent the Company
raises additional capital by issuing securities, further dilution to investors
may result.
Limited Sales and Marketing Experience
The Company intends to market and sell certain of its products, if
successfully developed and approved, through a direct sales force in the United
States. The Company currently has no marketing and sales staff, and has yet to
establish any product distribution channels. In order to market its products
directly, the Company must develop a sales force with technical expertise. There
can be no assurance that the Company will be able to successfully establish a
direct sales organization or distribution channels. Failure to establish a sales
force capability in the U.S. may have a material adverse effect on the Company.
Dependence on Qualified Personnel
Because of the specialized scientific nature of the Company's business, the
Company is highly dependent upon its ability to attract and retain qualified
scientific and technical personnel. The loss of significant scientific and
technical personnel or the failure to recruit additional key scientific and
technical personnel could have a material adverse effect on the Company. While
the Company has consulting agreements with certain key individuals and
institutions and has employment agreements with its key executives, there can be
no assurance that the Company will be successful in retaining such personnel or
their services under existing agreements. See 'Management and Key Scientific
Advisors' and ' -- Executive Compensation and Employment Agreements.' The loss
of John Lyle, the Company's Chief Executive Officer, could have a material
adverse effect on the Company. The Company currently maintains a $6.0 million
life insurance policy on Mr. Lyle. There is intense competition for qualified
personnel in the areas of the Company's activities, and there can be no
assurance that the Company will be able to continue to attract and retain the
qualified personnel necessary for the development of its business.
Uncertain Ability to Protect Proprietary Technology
The Company's success, competitive position and amount of potential future
income will depend in part on its ability to obtain patent protection relating
to the technologies, processes and products it is developing and may develop in
the future. The Company's policy is to seek patent protection and enforce
intellectual property rights. With respect to its products, the Company holds
one U.S. patent application pending and has exclusive licenses for three issued
U.S. patents and six U.S. patent
8
<PAGE>
<PAGE>
applications pending. No assurance can be given that any patent issued or
licensed to the Company will provide protection against competitive products or
otherwise be commercially viable. In this regard, the patent position of
pharmaceutical compounds and compositions is particularly uncertain. Even issued
patents may later be modified or revoked by the United States Patent and
Trademark Office ('PTO') or in legal proceedings. Moreover, the Company believes
that obtaining foreign patents may be more difficult than obtaining domestic
patents because of differences in patent laws, and accordingly, its patent
position may be stronger in the U.S. than abroad. In addition, foreign patents
may be more difficult to protect and/or the remedies available may be less
extensive than in the U.S. Patent applications in the U.S. are maintained in
secrecy until patents issue and, since publication of discoveries in the
scientific or patent literature tends to lag behind actual discoveries, the
Company cannot be certain that it was the first creator of the inventions
covered by pending patent applications or the first to file patent applications
on such inventions. No assurance can be given that any of the Company's pending
patent applications will be allowed, or if allowed, whether the scope of the
claims allowed will be sufficient to protect the Company's products.
The Company also expects to rely upon trade secrets, know-how, continuing
technological innovations and licensing opportunities to develop and maintain
its competitive position. There can be no assurance that others will not
independently develop substantially equivalent proprietary information or be
issued patents that may prevent the sale of the Company's products or know-how
or require licensing and the payment of significant fees or royalties by the
Company in order to produce its products. Moreover, there can be no assurance
that the Company's technology does not infringe upon any valid claims of patents
owned by others. If the Company were found to be infringing on a patent held by
another, the Company might have to seek a license to use the patented
technology. There can be no assurance that, if required, the Company would be
able to obtain such a license on terms acceptable to the Company, if at all. If
a legal action were to be brought against the Company or its licensors, the
Company could incur substantial costs in defending itself, and there can be no
assurance that such an action would be resolved in the Company's favor. If such
a dispute were to be resolved against the Company, the Company could be subject
to significant damages and the testing, manufacture or sale of one or more of
the Company's technologies or proposed products, if developed, could be
enjoined.
No assurance can be given as to the degree of protection any patents will
afford, whether patents will be issued or whether the Company will be able to
avoid violating or infringing upon patents issued to others. Despite the use of
confidentiality agreements and non-compete agreements, which themselves may be
of limited effectiveness, it may be difficult for the Company to protect its
trade secrets. See 'Business -- Patents, Trade Secrets and Licenses' and 'Risk
Factors -- Dependence on Qualified Personnel.'
Uncertain Availability of Health Care Reimbursement
The Company's ability to commercialize its pain management products may
depend in part on the extent to which reimbursement for the costs of such
products will be available from government health administration authorities,
private health insurers and others. There can be no assurance that third-party
insurance coverage will be adequate for the Company to establish and maintain
price levels sufficient for realization of an appropriate return on its
investment. Government, private insurers and other third-party payers are
increasingly attempting to contain health care costs by limiting both coverage
and the level of reimbursement for new products approved for marketing by the
FDA and by refusing, in some cases, to provide any coverage for uses of approved
products for indications for which the FDA has not granted marketing approval.
If adequate coverage and reimbursement levels are not provided by government and
third-party payers for uses of the Company's products, the market acceptance of
these products could be adversely affected.
No Product Liability Insurance
The Company will be exposed to potential product liability risks, which are
inherent in the testing, manufacturing and marketing of human therapeutic
products. The Company is contractually obligated under certain of its license
agreements to indemnify the individuals and/or institutions from whom it has
9
<PAGE>
<PAGE>
licensed the technology against claims relating to the manufacture and sale of
the products to be sold by the Company. McNeil, however, has agreed to indemnify
the Company for third party claims or suits resulting from the manufacture, use
or sale of the products pursuant to the McNeil License Agreement. The Company's
indemnification liability, as well as direct liability to consumers for any
defects in the products sold, could expose the Company to substantial risk and
losses. Because the Company's products are still in their development stages,
the Company has not purchased any product liability insurance. The Company plans
to purchase such product liability insurance as it deems appropriate prior to
marketing its products. McNeil is required by the McNeil License Agreement to
maintain product liability insurance and may self-insure to cover its
indemnification obligations to the Company. However, there can be no assurance
that the Company will be able to obtain or maintain such insurance on acceptable
terms or that any insurance obtained will provide adequate coverage against
potential liabilities.
Concentration of Ownership
Upon completion of the Offering, the Company's directors and officers will
beneficially own approximately 23.9% of the Common Stock. In addition, upon
completion of the Offering, the Company's largest stockholder, Unifina AG, and
related investors will control approximately 11.0% of the Common Stock. As a
result, these stockholders, if they acted together, would have the ability to
influence significantly the election of the Company's directors as well as the
management and policies of the Company. This concentration of ownership may have
the effect of delaying or preventing a change of control of the Company. See
'Principal Stockholders.'
No Prior Trading Market; Possible Volatility of Stock Price
Prior to the Offering, there has been no public market for shares of the
Common Stock, and there can be no assurance that a regular trading market will
develop after the Offering. The initial public offering price for the Common
Stock will be determined by negotiations between the Company and the
Underwriters. See 'Underwriting.' The stock market has from time to time
experienced significant price and volume fluctuations that may be unrelated to
the operating performance of particular companies. In addition, the market price
of the Common Stock may prove to be highly volatile. Announcements of
technological innovations, regulatory matters or new commercial products by the
Company or its competitors, developments or disputes concerning patent or
proprietary rights, publicity regarding actual or potential clinical results
relating to products under development by the Company or its competitors,
regulatory developments in both the U.S. and foreign countries, public concern
as to the safety of pharmaceutical products, and economic and other external
factors, as well as period-to-period fluctuations in financial results, may have
a significant impact on the market price of the Common Stock.
Forward Looking Statements
This Prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, as amended (the 'Exchange Act') concerning the
Company's operations, economic performance and financial conditions, including,
in particular, the likelihood of the Company's success in developing and
bringing to market the products which it currently has under development. These
statements are based upon a number of assumptions and estimates which are
inherently subject to significant uncertainties and contingencies, many of which
are beyond the control of the Company and reflect future business decisions
which are subject to change. Some of these assumptions inevitably will not
materialize, and unanticipated events will occur which will affect the Company's
results. Consequently, actual results will vary from the statements contained
herein and such variance may be, and is likely to be, material. Prospective
investors should not place undue reliance on this information.
10
<PAGE>
<PAGE>
Shares Eligible for Future Sale
Of the 15,544,123 shares of Common Stock to be outstanding after the
Offering, no shares, other than the 3,500,000 shares of Common Stock sold in the
Offering, will be immediately eligible for resale in the public market without
restriction, after taking into consideration the effect of lock-up agreements
entered into by all officers, directors and all other existing stockholders of
the Company (the 'Lock-up Agreements'). Beginning 180 days after the date of
this Prospectus, after taking into consideration the effect of the Lock-up
Agreements, approximately 11,840,358 additional shares of Common Stock will
become eligible for resale in the public market, subject as to certain of such
shares to compliance with applicable provisions of Rules 144 and 701. See
'Shares Eligible for Future Sale.'
Certain stockholders of the Company who own shares of the Company's capital
stock prior to the Offering are entitled to certain registration rights with
respect to their shares, including a demand registration right which is
exercisable after 270 days from the date of this Prospectus and certain
'piggyback' registration rights which are exercisable in connection with
registrations of shares initiated by the Company. Such rights are not applicable
to the Offering. The Series B Preferred Stock is convertible into an aggregate
of 100,000 shares of Common Stock, subject to customary anti-dilution
adjustments, at any time after February 1, 1997. Holders of the Series B
Preferred Stock have the right to require the Company to register the resale of
the Common Stock that such holders receive upon conversion of the Series B
Preferred Stock into Common Stock. See 'Description of Capital Stock --
Registration Rights.'
If any such stockholders cause a large number of shares to be sold in the
public market, such sales may have an adverse effect on the market price of the
Common Stock and its ability to raise capital.
Dilution; Absence of Dividends
Purchasers of shares of Common Stock offered hereby will experience
immediate and substantial dilution of $11.68 in net tangible book value per
share, assuming an initial public offering price of $15.00 per share. See
'Dilution.' The Company has never declared or paid any cash dividends on its
capital stock. The Company currently intends to retain earnings, if any, to
support its growth strategy and does not anticipate paying cash dividends in the
foreseeable future. Payment of future dividends, if any, will be at the
discretion of the Company's Board of Directors after taking into account various
factors, including the Company's financial condition, operating results, current
and anticipated cash needs and plans for expansion. See 'Dividend Policy.'
Effect of Anti-Takeover Provisions
The Company's Amended and Restated Certificate of Incorporation provides
for a classified Board of Directors commencing with the 1996 annual meeting of
stockholders and that members of the Board of Directors may be removed only for
cause upon the affirmative vote of holders of at least a majority of the shares
of capital stock of the Company entitled to vote. The Company's Amended and
Restated Certificate of Incorporation requires that any action required or
permitted to be taken by stockholders of the Company must be effected at a duly
called annual or special meeting of stockholders and may not be effected by any
consent in writing, and will require reasonable advance notice by a stockholder
of a proposal or director nomination which such stockholder desires to present
at any annual or special meeting of stockholders. Special meetings of
stockholders may be called only by the Chief Executive Officer or, if none, the
President of the Company or by the Board of Directors. In addition, the Board of
Directors has the authority, without further action by the stockholders, to fix
the rights and preferences of, and issue shares of, Preferred Stock. The Company
is subject to the anti-takeover provisions of Section 203 of the Delaware
General Corporation Law, which prohibits the Company from engaging in a
'business combination' with an 'interested stockholder' for a period of three
years after the date of the transaction in which the person first becomes an
'interested stockholder,' unless the business combination is approved in a
prescribed manner. The application of these provisions could have the effect of
delaying or preventing a change of control of the Company. Certain other
provisions of the Company's Amended and Restated Certificate of Incorporation
could also have the effect of delaying or preventing changes of control or
management of the Company, which could adversely affect the market price of the
Common Stock. See 'Description of Capital Stock.'
11
<PAGE>
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,500,000 shares of
Common Stock offered hereby are estimated to be approximately $48.0 million
($55.3 million if the Underwriters' over-allotment option is exercised in full),
assuming an initial public offering price of $15.00 per share and after
deducting estimated underwriting discounts and commissions and offering expenses
payable by the Company.
The Company intends to use approximately $32.0 million of the net proceeds
of the Offering to fund anticipated research and product development activities
and the planned establishment of the Company's direct sales force. The remaining
$16.0 million will be used for working capital and for other general corporate
purposes including the expansion of ongoing and scheduled preclinical studies
and clinical trials or additional pre-clinical studies and clinical trials, if
necessary, and the development of product line extensions and the initiation of
development programs for the Company's next generation of pain management
products for which the Company has not allocated any specific amounts. The
Company believes it is prudent to raise the additional capital at this time
since product development costs are inherently uncertain and actual development
costs may exceed budgeted amounts. A portion of the net proceeds also may be
used to acquire technology, licenses, or companies that complement the business
of the Company, although currently there are no agreements or other arrangements
regarding any such acquisitions by the Company. The amount and timing of such
expenditures will depend on a number of factors, including progress of the
Company's research and development programs, the number and breadth of these
programs, the progress of the development and commercialization efforts of the
Company, the ability of the Company to establish and maintain strategic
alliances and licensing arrangements, competing technological and marketing
developments, the costs involved in preparing, filing, prosecuting, maintaining,
and enforcing patent claims and other proprietary rights, progress in the
regulatory process, and other factors. The Company believes that the net
proceeds from the Offering, together with interest thereon and the Company's
existing capital resources will be sufficient to fund its operations for the
research and development of the products currently in clinical trials and other
working capital requirements for approximately three years. Pending such uses,
the net proceeds will be invested in interest bearing or income producing
accounts.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain earnings, if any, to support its
growth strategy and does not anticipate paying cash dividends in the foreseeable
future. Payment of future dividends, if any, will be at the discretion of the
Company's Board of Directors after taking into account various factors,
including the Company's financial condition, operating results, current and
anticipated cash needs and plans for expansion.
12
<PAGE>
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at June
30, 1996, (i) on an actual basis and (ii) as adjusted to give effect to the
Offering and the automatic conversion of all outstanding shares of Series A
Preferred Stock of the Company into Common Stock upon the consummation of the
Offering. See 'Use of Proceeds.' The information presented below should be read
in conjunction with 'Management's Discussion and Analysis of Financial Condition
and Results of Operations' and the Company's historical financial statements and
the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
ACTUAL AS ADJUSTED(1)
------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Stockholders' equity(2):
Preferred Stock: 10,000,000 shares authorized;
Convertible Series A Preferred Stock, 872,500 shares authorized (actual); 0 shares
authorized (as adjusted); 707,500 shares issued and outstanding (actual); 0
shares issued and outstanding (as adjusted)...................................... $ 7 $ 0
Convertible Series B Preferred Stock, 100,000 shares authorized (actual and as
adjusted); 100,000 shares issued and outstanding (actual and as adjusted)........ 1 1
Common Stock: 50,000,000 shares authorized; 6,171,876 issued and outstanding
(actual); 15,544,123 issued and outstanding (as adjusted)......................... 62 155
Additional paid-in capital........................................................... 9,435 57,374
Unearned compensation expense........................................................ (913) (913)
Deficit accumulated during the development stage..................................... (4,943) (4,943)
------- --------------
Total stockholders' equity................................................... 3,649 51,674
------- --------------
Total capitalization......................................................... $ 3,649 $ 51,674
------- --------------
------- --------------
</TABLE>
- ------------
(1) As adjusted to reflect the Offering at an assumed initial public offering
price of $15.00 per share for the Common Stock, after deducting estimated
underwriting discounts and commissions and estimated offering expenses
payable by the Company and to give effect to the automatic conversion of all
outstanding shares of Series A Preferred Stock into Common Stock upon
consummation of the Offering.
(2) Gives effect to the Company's Amended and Restated Certificate of
Incorporation that became effective after June 30, 1996.
13
<PAGE>
<PAGE>
DILUTION
The net tangible book value per share of the Common Stock as of June 30,
1996 was $0.29 per share, after giving effect to the automatic conversion of all
outstanding Series A Preferred Stock into an aggregate of 5,872,247 shares of
Common Stock upon consummation of the Offering. 'Net tangible book value per
share' represents the total tangible assets less total liabilities and the
liquidation preference of the Series B Preferred Stock, divided by the number of
shares of Common Stock outstanding after giving effect to the automatic
conversion of Series A Preferred Stock into shares of Common Stock.
Dilution per share represents the excess of the amount per share paid by
purchasers of Common Stock in the Offering and the pro forma net tangible book
value per share assuming completion of the Offering as of June 30, 1996, at an
initial public offering price of $15.00 per share. After giving effect to the
sale of 3,500,000 shares and the receipt of net proceeds of $48,025,000, the pro
forma net tangible book value per share on June 30, 1996 would have been $3.32
per share, which represents an immediate increase in the net tangible book value
of $3.03 to existing stockholders and an immediate dilution of $11.68 in net
tangible book value per share to purchasers of shares of Common Stock offered
hereby, as illustrated by the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share....................................... $15.00
Net tangible book value per share at June 30, 1996.................................... $0.29
Increase per share attributable to new investors...................................... 3.03
-----
Pro forma net tangible book value per share after the Offering........................ 3.32
------
Dilution per share to new investors................................................... $11.68
------
------
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1996,
the difference between the number of shares of Common Stock purchased from the
Company, the total consideration paid to the Company and the average price per
share paid by existing holders of Common Stock and by new investors purchasing
shares of Common Stock in the Offering at an assumed initial public offering
price of $15.00 per share, before deducting underwriting discounts and
commissions and estimated offering expenses payable by the Company:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................. 12,044,123 77.5% $ 7,869,600 13.0% $ 0.65
New investors.......................... 3,500,000 22.5 52,500,000 87.0 15.00
---------- ------- ----------- -------
Total............................. 15,544,123 100.0% $60,369,600 100.0%
---------- ------- ----------- -------
---------- ------- ----------- -------
</TABLE>
The above calculations exclude 678,940 shares of Common Stock issuable upon
the exercise of outstanding options at a weighted average exercise price of
$0.13, 296,725 shares of Common Stock issuable upon the exercise of outstanding
warrants at an exercise price of $1.20 and 100,000 shares of Common Stock
issuable upon the conversion of the Series B Preferred Stock after February 1,
1997. The issuance of any such shares will result in further dilution to new
investors.
14
<PAGE>
<PAGE>
SELECTED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected financial information set forth below with respect to the
Company's statements of operations for each of the years ended December 31,
1993, 1994 and 1995 and the balance sheet data at each of December 31, 1994 and
1995 are derived from the financial statements of the Company audited by Coopers
& Lybrand L.L.P., independent accountants. The statements of operations data for
the year ended December 31, 1992 and the balance sheet data at each of December
31, 1992 and 1993 are derived from the Company's financial statements not
included herein. The selected financial information for the six months ended
June 30, 1995 and 1996 are derived from unaudited financial statements included
herein. The unaudited financial statements include all adjustments, consisting
only of normal recurring adjustments, which the Company considers necessary for
a fair presentation of the financial position and the results of operations for
these periods. Operating results for the six months ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the entire year
ending December 31, 1996 or for any future period. This data should be read in
conjunction with 'Management's Discussion and Analysis of Financial Condition
and Results of Operations' and with the Company's financial statements and
related notes contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------- ----------------------
1992 1993 1994 1995 1995 1996
----- ----- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................................... $ 96(1) $ 215(1) $ -- $ -- $ -- $ 1,500
Operating expenses:
Research and development................. 125 40 654 1,615 801 1,004
General and administrative............... 369 436 623 760 396 1,628
----- ----- ------- ------- ------- -----------
Total operating expenses............ 494 476 1,277 2,375 1,197 2,632
----- ----- ------- ------- ------- -----------
Interest income............................... 13 4 153 253 138 77
----- ----- ------- ------- ------- -----------
Net loss...................................... $(385) $(257) $(1,124) $(2,122) $(1,059) $(1,055)
----- ----- ------- ------- ------- -----------
----- ----- ------- ------- ------- -----------
Pro forma net loss per common share(2)........ $ (0.17) $ (0.09)
------- -----------
------- -----------
Pro forma weighted average common shares
outstanding(2).............................. 12,199 12,329
------- -----------
------- -----------
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
DECEMBER 31, ----------------------
---------------------------------------- AS
1992 1993 1994 1995 ACTUAL ADJUSTED(3)
----- ----- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents(4).................. $ 288 $ 124 $ 5,634 $ 3,707 $ 2,505 $50,584
Working capital............................... 180 81 5,503 3,419 3,268 51,590
Total assets.................................. 330 153 5,765 3,820 4,903 52,685
Deficit accumulated during the development
stage....................................... (385) (642) (1,766) (3,888) (4,943) (4,943)
Total stockholders' equity.................... 214 108 5,618 3,521 3,649 51,674
</TABLE>
- ------------
(1) Represents revenues from consulting activities in which the Company has
ceased to engage.
(2) Adjusted to give effect to the automatic conversion of all outstanding
shares of Series A Preferred Stock upon consummation of the Offering. See
Note 2 to the Financial Statements.
(3) As adjusted to give effect to the Offering at an assumed initial public
offering price of $15.00 per share (after deducting the underwriting
discounts and commissions and estimated offering expenses) and the receipt
of the net proceeds therefrom. See 'Use of Proceeds' and 'Capitalization.'
(4) Does not include $2.0 million received from McNeil on July 5, 1996 pursuant
to the McNeil License Agreement of which $500,000 is committed to fund the
Company's portion of development costs under the McNeil License Agreement.
15
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Certain information set forth herein contains forward-looking statements as
such term is defined in Section 27A of the Securities Act of 1933 and Section
21E of the Exchange Act. Certain factors discussed herein could cause actual
results to differ materially from those in the forward-looking statements. See
'Risk Factors -- Forward Looking Statements.'
OVERVIEW
Algos, a development stage company, is engaged primarily in the development
and commercialization of proprietary pharmaceutical products. Since its
formation in January 1992, the Company has devoted a substantial amount of its
efforts to licensing technology, recruiting key management and staff, developing
products, filing patents and other regulatory applications and raising capital.
To date, the Company has earned no revenue from its planned principal line of
business.
The Company has incurred losses since its inception and expects to incur
significant operating losses in the future. The Company expects that its product
development expenses will increase significantly during 1996 and in future years
as the drugs that the Company currently has under development move into advanced
clinical trials and as additional drugs are considered for development. In
addition, the Company expects that its personnel costs will increase
significantly in the future, primarily as a result of the planned development of
a direct sales force.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1995
Revenue
In the 1996 period, the Company recognized $1,500,000 of license revenue.
This amount represents the initial payment of $2,000,000 due under the McNeil
License Agreement and received in July 1996, less $500,000 which is currently
restricted for the funding of future development costs.
Research and Development
In the 1996 period, research and development expenses increased $202,801,
to $1,003,585 from $800,784 in 1995. The 1996 period included increased expenses
related to the Company's clinical trials, including fees to clinical
investigators which increased approximately $243,000. Increased compensation to
employees and consultants was offset by reduced spending on pre-clinical
studies.
General and Administrative Expenses
In the 1996 period, general and administrative expenses increased
$1,231,726 to $1,628,184 from $396,458 in 1995. The increase was due primarily
to a charge of $915,000 in the 1996 period relating to the issuance of Series B
Preferred Stock in connection with an amendment to the license agreement with
The Medical College of Virginia and amortization of unearned compensation
expense of approximately $189,000 in connection with the grant of stock options.
Higher professional fees and compensation expenses also contributed to the
increase.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE YEAR ENDED DECEMBER 31, 1994
Research and Development
In 1995, research and development expenses increased $961,229, to
$1,614,943 from $653,714 in 1994. This increase was primarily attributable to
the Company's pre-clinical studies in the field of NMDA antagonists. In 1995,
direct costs associated with pre-clinical studies and clinical trials were
approximately $542,000 and formulation development, drug supplies and related
analytical services totaled approximately $265,000. Compensation expense
increased as a result of the addition of employees and consultants. Spending on
other programs also contributed to the increase in 1995
16
<PAGE>
<PAGE>
expenditures. Expenses in 1994 consisted primarily of employee and consultant
compensation as the Company established its research management team and
initiated sponsored research programs at three universities.
General and Administrative Expenses
In 1995, general and administrative expenses increased $136,821, to
$760,040 from $623,219 in 1994. This increase was primarily attributable to
additional employee compensation and related taxes and benefits. In addition,
general office expenses such as rent, utilities, and supplies increased as a
result of increased business activities and employment.
Interest Income
In 1995, interest income increased $99,301, to $252,548 from $153,247 in
1994 as a result of the investment of proceeds from the Company's private
placement of Series A Preferred Stock, which was completed in August 1994.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO THE YEAR ENDED DECEMBER 31, 1993
Revenue
In 1993, the Company earned $214,584 for performing certain consulting
services unrelated to its planned principal operations. Effective January 1,
1994, the consulting contract was assigned to another corporation. The Company
will not earn any revenue or incur any expenses in the future in connection with
that consulting contract.
Research and Development
In 1994, research and development expenses increased $613,714, to $653,714
from $40,000 in 1993. This increase was principally attributable to the
Company's establishment of its research management team and initiation of
sponsored research programs at three universities.
General and Administrative Expenses
In 1994, general and administrative expenses increased $187,562, to
$623,219 from $435,657 in 1993. This increase was due principally to
professional fees related to patent investigations and applications, sponsored
research programs and other general corporate expenses.
Interest Income
Interest income of $153,247 in 1994 was derived primarily from the
investment of proceeds from the private placement of Series A Preferred Stock,
which was completed in August 1994. The Company earned interest income of $4,433
in 1993 from the investment of capital contributions by the Company's founders.
LIQUIDITY AND CAPITAL RESOURCES
General
In 1995, 1994, and 1993, spending for the Company's product development
efforts and related activities resulted in net cash outflows from operations of
$1,929,321, $991,928 and $289,277, respectively. Accumulated cash balances at
December 31, 1992, which resulted from the Company's initial capitalization
together with additional investments by the Company's founders, were sufficient
to provide operating funds into 1994. In 1994, in order to initiate its planned
product development programs, the Company sold 700,000 shares of Series A
Preferred Stock in a private placement, resulting in net proceeds of $6,609,015.
A portion of these funds were used to fund the Company's development efforts in
1995 and the first six months of 1996. At June 30, 1996, the Company had cash
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and cash equivalents of $2,504,603 and current liabilities of $1,254,174. In
addition, the Company received $2.0 million from McNeil on July 5, 1996 pursuant
to the McNeil License Agreement, of which $500,000 is committed to fund the
Company's portion of development costs under the McNeil License Agreement.
Without the proceeds of the Offering, the Company believes that current cash and
cash equivalents are sufficient to fund a reduced level of operations for at
least the next 12 months.
The Company expects to invest substantial funds in the development of its
products and to continue to generate significant losses for the foreseeable
future. Its funding requirements will depend on a number of factors, including
the results of the Company's development efforts, the timing and cost of
obtaining required regulatory approvals, the development of competing
technologies, the amount of resources required for the establishment of
marketing and distribution capabilities, the execution of licensing or other
collaborative research agreements on terms acceptable to the Company, and the
cost of prosecuting and defending patents. The Company currently expects that
the proceeds from the Offering will be sufficient to fund its operations for the
development of products currently in clinical trials, based upon the Company's
presently anticipated schedule of clinical trials, and other working capital
requirements for approximately three years. If, however, additional trials are
deemed to be necessary, the Company may require additional funds to complete
such trials. Accordingly, in the event that the proceeds of the Offering,
revenue and income from successful product introductions or other internally
generated funds are insufficient for such efforts, the Company will need to
raise additional funds by incurring debt, issuing additional equity or through
collaborative or license arrangements. See 'Risk Factors -- Need for Additional
Funds.'
Net Operating Loss Carryforwards
At December 31, 1995 and June 30, 1996, the Company had accumulated net
operating loss carryforwards of approximately $2,900,000 and $2,100,000,
respectively, which expire in 2009 and 2010 and are available to reduce future
taxable income recognized in the carryforward period, if any. Due to the
uncertainty of future taxable income, the Company has established a valuation
allowance for these carryforwards and has not recognized their potential benefit
on a current basis. The future utilization of these carryforwards may be limited
by Section 382 of the Internal Revenue Code related to changes in Company
ownership.
Other
Generally, the Company's results of operations are not significantly
affected by seasonal factors and the Company does not believe that inflation has
had or is likely to have a significant impact on its business.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ('SFAS') No. 123 -- 'Accounting for Stock
Based Compensation,' which generally requires disclosure of the impact on
earnings of stock based employee compensation arrangements. The Company plans to
adopt the disclosure requirements of SFAS No. 123 effective January 1, 1996.
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BUSINESS
COMPANY OVERVIEW
Algos is a leader in developing a new generation of proprietary pain
management products. The Company develops its proprietary pain management
products by combining existing analgesic or anesthetic drugs with NMDA
antagonist drugs that have been approved for human use in other applications.
Independent research and the Company's pre-clinical studies and clinical trials
conducted to date have shown that the Company's products may significantly
improve pain relief over currently available analgesics, including narcotic
drugs such as morphine, hydrocodone and oxycodone and non-narcotic analgesics
such as acetaminophen (e.g. Tylenol'r'), ibuprofen (e.g. Advil'r') and naproxen
(e.g. Aleve'r'). The Company is also developing a local anesthetic product that
has the potential to provide greater anesthetic effect with longer and more
controlled duration than existing products. The Company's analgesic and
anesthetic products will target markets with combined 1995 U.S. sales estimated
at $6.4 billion. In addition, the Company is using its NMDA antagonist
technology to develop products to treat urge urinary incontinence and opiate and
cocaine addiction.
The Company believes that its analgesic and anesthetic products have the
potential for more rapid market introduction than many other new drugs because
(i) the Company's products combine existing drugs whose separate safety profiles
are known and established and (ii) clinical trials for new analgesics and
anesthetics historically have achieved statistically significant results with
fewer patients than may be required for many other drugs. As a result, the
Company currently anticipates that it will file its first NDA with the FDA in
1997.
The Company has ten products that have reached Phase II clinical trials or
are scheduled for Phase II or Phase III clinical trials in 1996. The Company has
completed or is currently conducting eleven clinical trials and has scheduled
additional clinical trials to commence in 1996. A pivotal Phase II clinical
efficacy trial has been completed with MorphiDex'tm' demonstrating statistically
significant superior pain relief over morphine.
The Company's products that have reached Phase II clinical trials or are
scheduled for Phase II or Phase III clinical trials consist of:
(i) four narcotic analgesic/NMDA antagonist combination products:
MorphiDex'tm', expected to be used primarily to treat cancer pain,
HydrocoDex SR'tm' and HydrocoDex Plus'tm', expected to be used
primarily to treat moderate to moderately severe post-operative,
musculoskeletal and trauma-related pain, and OxycoDex'tm', expected to
be used primarily to treat moderate to moderately severe
post-operative pain;
(ii) two OTC analgesic/NMDA antagonist combination products: a combination
product of an NMDA antagonist with acetaminophen, the largest selling
OTC analgesic, and a combination product of an NMDA antagonist with
ibuprofen, the largest selling OTC NSAID;
(iii) one injectable local anesthetic/NMDA combination product intended to
provide greater anesthetic effect with longer and more controlled
duration for use in dental procedures and in-patient and out-patient
surgeries;
(iv) one product that uses an NMDA antagonist intended as a treatment for
urge urinary incontinence, a condition which afflicts an estimated
five million people in the U.S.; and
(v) two products intended as treatments for opiate and cocaine addiction,
which the Company expects to develop in collaboration with NIDA, NIH.
COMPANY STRATEGY
The Company's strategic goal is to establish a leading position in the pain
management pharmaceutical market. The Company intends to achieve this goal by
implementing the following strategy:
Introducing superior proprietary products. Based on the results of
independent research, pre-clinical studies and initial clinical trials, the
Company believes its products will provide superior efficacy over
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currently available narcotic, non-narcotic and anesthetic products. The Company
intends to build significant market share in both the OTC and prescription pain
management markets.
Minimizing development time, cost and risk. The Company attempts to reduce
drug development time and cost at each stage of the development process. The
Company believes that it will be able to develop its initial products faster
than other types of new drugs because all of the Company's initial products are
combinations of, or forms of, existing approved drugs. For its pre-clinical
studies, the Company is able to save time and expense by drawing upon the
experience of many highly regarded researchers in the pain management field
through its collaborations with established academic research institutions.
Similarly, for its clinical trials, the Company collaborates with researchers
who have the experience and the facilities to design timely and cost-effective
trials. In addition, the Company believes that new analgesic and anesthetic
products have the potential for more rapid market introduction than many other
types of drugs.
Leveraging its proprietary technology across multiple product
opportunities. Through extensive pre-clinical research, Algos has identified
multiple potential products using NMDA antagonist technology. As a result, Algos
has developed ten pharmaceutical products that have progressed to Phase II
clinical trials or are scheduled for Phase II or Phase III clinical trials in
1996.
Outsourcing to efficiently deploy resources. The Company intends to
continue to contract the resources of well-recognized commercial organizations
to perform pre-clinical studies, clinical trials and pharmaceutical development
on behalf of the Company. In addition, the Company intends to outsource its
manufacturing functions to third party suppliers.
Maximizing market penetration and margin potential through a combination of
Company direct sales and strategic alliances. In market segments with relatively
concentrated distribution channels, such as prescription analgesics that are
sold to individual hospitals, health maintenance organizations and
pharmaceutical buyer groups, the Company plans to maximize its margins by
marketing these products through a direct sales force. In market segments that
will require large or specialized sales capabilities, such as OTC analgesic
products and certain foreign countries, the Company will seek strategic
alliances with leading pharmaceutical companies. The Company believes such
alliances enhance its ability to identify new products as well as quickly
develop and commercialize such products.
MARKET OVERVIEW
The Company is developing products that will target the narcotic and
non-narcotic analgesic markets, the local anesthetic market, the urge urinary
incontinence market and the market for treatment of opiate and cocaine
addiction.
The Analgesic Market
The Company's analgesic products will target markets with combined 1995
U.S. sales estimated at $6.4 billion. The Company believes that the analgesic
market presents attractive opportunities based upon the following factors: high
growth rates partially attributable to the rapidly growing population segment
aged 65 and older; increasing recognition of the therapeutic benefits of
effective pain treatment including reductions in healing and recovery time;
generally concentrated distribution channels that permit more cost-effective
selling and marketing; lack of recent product innovation which has resulted in
market segments comprised largely of older off-patent drugs; higher profit
margins from branded proprietary products; and the potential for rapid
acceptance of new pain management pharmaceuticals by members of the medical
profession.
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The following table identifies the estimated size of the U.S. market
segments which the Company's analgesic products are expected to target.
<TABLE>
<CAPTION>
ESTIMATED
ANALGESIC MARKET SEGMENTS REPRESENTATIVE BRANDS 1995 U.S. SALES
- ------------------------- --------------------- ---------------
(IN MILLIONS)
<S> <C> <C>
Prescription Anti-Arthritics (NSAIDs) Lodine, Voltaren, Relafen $ 1,714
Prescription Anti-Migraine Imitrex 373
Prescription Narcotics:
Non-injectable Morphine MS Contin 247
Hydrocodone Based Products Vicodin 315
Oxycodone Based Products Percocet, Percodan 73
Codeine Based Products Tylenol with codeine 87
Synthetic Narcotics Darvon 237
-------
Prescription Narcotics Total 959
Synthetic Non-Narcotics Toradol, Ultram, Stadol NS 500
-------
Prescription Total 3,546
OTC Analgesics:
NSAIDs Advil, Motrin, Aleve, Orudis 853
Aspirin Bayer 617
Acetaminophen Tylenol 1,220
Topical Analgesics 213
-------
OTC Analgesics Total 2,903
-------
Total Analgesic Market $ 6,449
-------
-------
</TABLE>
- ------------
Source: IMS, Inc. and A.C. Nielsen.
The Anesthetic Market
In 1995, the injectable local anesthetic market in the U.S. was estimated
at $164 million. The market for local anesthetics is believed to present
attractive opportunities for a controlled duration product because existing
local anesthetics have limited and less controllable duration which restricts
their use in surgery. The Company believes that a controlled, extended duration
local anesthetic, if successfully developed, would have the potential to
significantly expand this market segment.
The Urge Urinary Incontinence Market
An estimated five million people in the U.S. suffer from urge urinary
incontinence. While sales of urge urinary incontinence drugs in the U.S. were
estimated at $84 million in 1995, U.S. sales of incontinence supplies (including
adult protective undergarments) were significantly higher at an estimated $1.1
billion in 1994. This was due, in part, to a lack of satisfactory pharmaceutical
treatments. The Company believes that if satisfactory drugs for treating urge
urinary incontinence were introduced, the market size for urge urinary
incontinence drugs could grow considerably.
The Drug Abuse Treatment Market
NIDA estimates that there are two million opiate addicts in the United
States and 1.5 to 2 million cocaine abusers. The Company believes that these
opiate addict and cocaine abuser populations represent a large potential market
for effective pharmaceutical treatment.
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PRODUCTS
The following table describes the ten products developed by Algos that have
reached Phase II clinical trials or are scheduled to reach Phase II or Phase III
clinical trials in 1996.
<TABLE>
<CAPTION>
ALGOS PRODUCTS IN DEVELOPMENT
PRODUCT INDICATION STAGE OF DEVELOPMENT
------- ---------- --------------------
<S> <C> <C>
NARCOTIC ANALGESICS
MorphiDex'tm' Moderate to severe pain Pivotal Phase II clinical trial completed.
(primarily cancer pain) Additional Phase II and III clinical trials in
progress or scheduled in 1996.
Two Phase I/II clinical trials completed.
HydrocoDex SR'tm' and Moderate to moderately severe Phase II clinical trial scheduled in 1996.
HydrocoDex Plus'tm' pain (primarily
post-operative,
musculoskeletal and
trauma-related pain)
OxycoDex'tm' Moderate to moderately severe Phase II clinical trial in progress.
pain (primarily Additional Phase II clinical trial
post-operative pain) scheduled in 1996.
NON-NARCOTIC ANALGESICS
Ibuprofen/NMDA Antagonist OTC analgesic Phase II clinical trial completed.
Combination Additional Phase II clinical trial scheduled in
1996.
Acetaminophen/NMDA OTC analgesic Phase II clinical trial in progress.
Antagonist Combination
ANESTHETICS
Lidocaine/NMDA Antagonist Extended duration anesthetic Phase I/II clinical trial scheduled in 1996.
Combination
OTHERS
Urge Urinary Incontinence Urge urinary incontinence Phase II clinical trial in progress.
Treatment
Opiate Addiction Treatment Opiate addiction Phase II clinical trial scheduled in 1996.
Cocaine Addiction Treatment Cocaine addiction Phase II clinical trial scheduled in 1996.
</TABLE>
NARCOTIC ANALGESICS
Narcotic analgesic drugs remain the most common and useful treatment for
moderate to severe pain in both acute and chronic conditions. These drugs
consist of naturally occurring opiates (e.g. morphine), opiate derivatives (e.g.
codeine, hydrocodone, oxycodone), and synthetic opiates (e.g. methadone). One of
the most significant drawbacks to these drugs is the development of rapid
tolerance and physical dependence. Tolerance refers to the condition under which
a drug dose that was initially effective in producing analgesia becomes less
effective with repeated administrations. Therefore, to alleviate the same level
of pain, the drug dose has to be increased over time. However, increasing the
drug dose may produce an increase in unwanted side effects such as mental
clouding, nausea and constipation and may also increase the potential for drug
dependence.
Pre-clinical studies of the Company's narcotic analgesic/NMDA antagonist
combination products indicated superior first-dose analgesic effects as compared
to equivalent dosage levels of the narcotic analgesic alone and greater efficacy
when administered over periods during which the narcotic analgesic
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administered alone became less effective. The Company believes that its new
products, if proven effective in humans in producing superior analgesic effects
and reducing tolerance and side effects, could replace a significant portion of
the narcotic analgesics currently in use for acute and chronic pain and could be
used in chronic pain cases where physicians have been reluctant to use
narcotics.
MorphiDex'tm'
MorphiDex'tm', the Company's most developmentally advanced product, is
designed to treat moderate to severe pain and will be used primarily for
treating cancer pain. MorphiDex'tm' is the trade name for the Company's patented
morphine and dextromethorphan combination product. The addition of an NMDA
antagonist to morphine is intended to increase analgesic effectiveness, reduce
the development of tolerance to morphine and reduce the development of
hyperalgesia in cases of chronic administration.
The Company expects to use MorphiDex'tm' to target the market for morphine
products. In 1995, U.S. sales of morphine products were approximately $247
million and non-U.S. sales were approximately $500 million. This market is
believed to be growing at an estimated rate of 18% per year, which is largely
attributable to the rapidly growing population segment aged 65 and older in the
United States, Europe and Japan.
The Company's research and development activities with respect to
MorphiDex'tm' include:
(i) pre-clinical pharmacology studies which indicate that morphine
tolerance may be significantly reduced by co-administration with an
NMDA antagonist;
(ii) pre-clinical toxicology and drug safety studies comparing the
combination of dextromethorphan and morphine to the individual drugs;
(iii) one completed, double blind Phase I/II clinical trial to assess
safety and abuse liability which indicates product safety and
possible lower abuse potential;
(iv) one completed, double blind Phase I/II clinical trial in chronic pain
patients which indicates that a combination of morphine or morphine
equivalents together with an NMDA antagonist is safe at projected
therapeutic dose levels and that such a combination may provide
superior pain relief over morphine; and
(v) one completed pivotal Phase II clinical efficacy trial in oral surgery
patients which indicates statistically significant superior pain
relief with MorphiDex'tm' over morphine alone.
In addition, four additional clinical trials are currently underway which
the Company expects will lead to an NDA filing in the second half of 1997.
HydrocoDex'tm' SR and HydrocoDex Plus'tm'
Hydrocodone is a narcotic primarily used to treat moderate to moderately
severe post-operative, musculoskeletal and trauma-related pain. The analgesic
products containing hydrocodone that are sold commercially in the U.S. are
combination products containing acetaminophen. In 1995, the market for such
products in the U.S. was approximately $315 million with an estimated growth
rate of 15% per year.
HydrocoDex SR'tm' is the trade name for the Company's sustained release
product that combines hydrocodone and dextromethorphan. Currently there are no
sustained release hydrocodone products on the market because the dosage size
required to achieve a sustained effect when combined with acetaminophen is too
large for practical application. The Company expects that, if approved and
successfully brought to market, HydrocoDex SR'tm' will provide physicians with
the ability to prescribe an effective sustained release hydrocodone analgesic
for the first time.
HydrocoDex Plus'tm' is the trade name for the Company's immediate release
product that combines hydrocodone, dextromethorphan and acetaminophen. The
Company believes that HydrocoDex Plus'tm' may broaden the current market for
hydrocodone/acetaminophen combination products because equal or greater
therapeutic effect may be achieved by administering lower doses of the
hydrocodone component of the product, thereby potentially creating a product
with a lower abuse potential.
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The Company is planning to begin a Phase II clinical trial in the second
half of 1996 intended to show that the addition of an NMDA antagonist increases
the efficacy of products containing hydrocodone. The results of pre-clinical
studies for these products have been favorable.
OxycoDex'tm'
Oxycodone is an opiate narcotic that, in combination with acetaminophen or
aspirin, forms the basis for a group of products which are broadly used for the
treatment of moderate to moderately severe post-operative and other types of
pain. In 1995, the U.S. market for such products was estimated at $73 million.
The Company is currently in the process of developing an immediate release
combination product consisting of oxycodone, acetaminophen and dextromethorphan.
Pre-clinical studies have indicated that an NMDA antagonist may increase the
efficacy of oxycodone. In April 1996, the National Institute of Dental Research
('NIDR') commenced a clinical trial comparing the efficacy of oxycodone alone
and in combination with an NMDA antagonist. Additional clinical trials are
scheduled to be conducted in 1996.
NON-NARCOTIC ANALGESICS
The Company has two non-narcotic analgesics in development: an
ibuprofen/NMDA antagonist combination product and an acetaminophen/NMDA
antagonist combination product. In 1995, the OTC NSAID market in the U.S. which
included ibuprofen totaled an estimated $853 million. The total U.S. OTC market
for acetaminophen was estimated at $1.2 billion. The Company has licensed
certain NSAID/NMDA antagonist products (including ibuprofen) and its
acetaminophen/NMDA antagonist products to McNeil. See ' -- Corporate and
Government Collaborations.'
Ibuprofen/NMDA Antagonist Combination
Pre-clinical studies have indicated that the analgesic efficacy of several
NSAIDs, such as ibuprofen and naproxen, may be increased when combined with an
NMDA antagonist. The Company believes that an OTC product based upon a
combination of existing dosage levels of an NSAID with an NMDA antagonist would
offer analgesic efficacy that is superior to existing OTC analgesics and could
have the potential to achieve rapid market acceptance. In addition, at dosage
levels where the NSAID indicated no analgesic effect by itself, a significant
analgesic effect was indicated by the addition of an NMDA antagonist. As a
result, an NSAID/NMDA antagonist combination product may also be formulated to
give an equivalent analgesic effect while lowering the NSAID dosage and thus
potentially reducing certain dosage related side effects of NSAIDs, such as
gastrointestinal bleeding and ulcers.
An initial Phase II clinical trial has indicated that an NSAID (ibuprofen)
in combination with an NMDA antagonist may have an increased analgesic effect
when compared to the NSAID alone in dental surgery patients who experienced
greater surgical trauma (i.e. patients who had surgery which lasted longer than
30 minutes). The study also indicated that for dental patients in certain lower
trauma categories (i.e. patients whose surgery lasted less than 30 minutes) both
ibuprofen alone and ibuprofen in combination with an NMDA antagonist had a
significantly better analgesic effect when compared to a placebo and that
ibuprofen alone and ibuprofen in combination with an NMDA antagonist were both
similarly effective in relieving the patient's pain. Although the Company
believes that these results are encouraging, additional clinical trials are
necessary in order to submit an NDA to the FDA.
Acetaminophen/NMDA Antagonist Combination
The Company has sponsored pre-clinical studies to evaluate acetaminophen in
combination with NMDA antagonists. The results indicate that combining an NMDA
antagonist with acetaminophen may increase the efficacy of acetaminophen. In a
placebo-controlled Phase II clinical trial conducted by NIDR, patients taking a
scheduled regimen of an NMDA antagonist (dextromethorphan) before and after oral
surgery required substantially less acetaminophen after the surgery to relieve
pain.
24
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ANESTHETICS (LIDOCAINE/NMDA ANTAGONIST COMBINATION)
Injectable Anesthetic
The injectable local anesthetic market was estimated at $164 million in the
U.S. in 1995. Sales consist primarily of older off-patent drugs. Although
research indicates that the administration of analgesics preceding surgery may
improve surgical outcomes, the limited duration of existing injectable
anesthetics limits their use in surgery.
The Company, in collaboration with Brigham and Women's Hospital, Harvard
Medical School, is conducting research into the potentiation of local
anesthetics by NMDA antagonists. Pre-clinical studies have indicated that the
NMDA antagonist, dextromethorphan, may increase the depth and duration of
anesthesia of lidocaine. With the current emphasis on preemptive analgesia, same
day surgery and shorter hospital stays, the Company believes that a longer
duration anesthetic may provide greater patient comfort when post surgical pain
is most severe. A Phase I/II clinical trial is planned for late 1996.
Anti-Migraine
Reported results of an independently conducted clinical trial indicate that
intra-nasal lidocaine provides rapid relief of migraine headache, but that
relapse is common. Since the NMDA antagonist dextromethorphan may enhance the
efficacy of lidocaine and is also effective in inhibiting neuropathic pain, an
intra-nasal lidocaine/dextromethorphan combination product may be a more
effective anti-migraine treatment. Pre-clinical studies are planned for late
1996.
OTHERS
Urge Urinary Incontinence Treatment
An estimated five million people in the U.S. suffer from urge urinary
incontinence. While sales of urge urinary incontinence drugs in the U.S. were
estimated at $84 million in 1995, U.S. sales of incontinence supplies (including
adult protective undergarments) were an estimated $1.1 billion in 1994. This was
due, in part, to a lack of satisfactory urge urinary incontinence drugs.
Existing urge urinary incontinence drugs generally have unpleasant side effects
and low levels of efficacy. The Company believes that if satisfactory drugs for
treating urge urinary incontinence are introduced, consumer demand for an urge
urinary incontinence drug could increase considerably.
Company-sponsored pre-clinical studies have indicated that NMDA antagonists
may block the bladder micturition reflex. A Phase II clinical trial is currently
being conducted at the Stanford University School of Medicine to evaluate an
NMDA antagonist in urge incontinent patients. If successful, these agents may
offer a novel, safe and effective treatment for urge urinary incontinence.
Opiate and Cocaine Addiction Treatment Drugs
NIDA estimates that there are two million opiate addicts in the United
States and 1.5 to 2 million cocaine abusers. These opiate addict and cocaine
abuser populations represent a large potential market for effective treatment
drugs. The Company is developing an NMDA antagonist-based product as an opiate
addiction treatment drug. NIDA is planning a Phase II clinical study in
collaboration with the Company to test this opiate addiction treatment drug. In
addition, the Company is developing a cocaine addiction treatment drug.
Pre-clinical studies have indicated that NMDA antagonists may have potential for
the treatment of dependence on opiate narcotics and cocaine abuse.
SCIENTIFIC OVERVIEW
A key element of the Company's technology is the use of NMDA antagonists,
which block the NMDA receptor. NMDA receptors are believed to be present in
nerve cells in the brain and spinal cord. There is increasing evidence that
there may also be peripheral NMDA receptors.
The important role of the NMDA receptor in pain response has become
recognized among scientists and clinicians. Research indicates that the NMDA
receptor plays a role in neuropathic pain,
25
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<PAGE>
development of tolerance to and dependence on narcotic analgesics, and
development of hyperalgesia due to chronic administration of opiate narcotics.
According to current scientific theory, activation of this receptor results in a
cascade of intracellular events beginning with the influx of extracellular
calcium. This influx of calcium results in activation of the enzyme protein
kinase C and its subsequent translocation from cytosol to the membrane. Through
protein phosphorylation, enduring changes then occur in the membrane
constituents including receptors. This cascade of events beginning with the
activation of the NMDA receptor has been implicated in numerous neuroplastic
phenomena such as post-tetanic potentiation resulting in sensitized and overly
active nerve cells and consequently may cause spontaneous pain and/or increased
sensitivity to pain.
It is believed that narcotic analgesics reduce pain by binding to opiate
receptors located on nerve cells in the brain and spinal cord. Although the
initial effect of this binding is to inhibit the nerve cell and thereby reduce
pain, opiate receptor activation is also believed to stimulate the NMDA receptor
leading to the cascade of events described in the previous paragraph. Many
researchers believe that increased NMDA receptor activation represents the
underlying cellular mechanism of opiate tolerance and dependence. Pre-clinical
studies indicate that by blocking the NMDA receptor, tolerance to and dependence
on opiates may be reduced and the development of hyperalgesia prevented. The
involvement of the NMDA receptor in dependence is also the basis for development
of NMDA antagonists to treat drug addiction.
CORPORATE AND GOVERNMENT COLLABORATIONS
In June 1996, the Company entered into the McNeil License Agreement with
McNeil, an affiliate of Johnson & Johnson, pursuant to which the Company granted
McNeil the exclusive right to develop acetaminophen/NMDA antagonist combination
products and certain NSAID/NMDA antagonist combination products (ibuprofen and
certain other NSAIDs approved for OTC use) for the treatment of pain. The McNeil
License Agreement provides for an initial payment of $2.0 million by McNeil
(funded on July 5, 1996) to the Company and additional payments of up to $8.0
million by McNeil upon the achievement of certain milestones generally relating
to product development and patent issuances. In addition, the Company will be
entitled to receive royalty payments from McNeil based upon net product sales.
McNeil will bear all the costs of developing products it selects, except for
approximately $500,000 to be borne by the Company. McNeil will be required to
pay minimum royalties commencing a certain time after execution of the
agreement, provided that certain conditions have been met, even if McNeil has
not commenced marketing of an acetaminophen product or an NSAID product. The
McNeil License Agreement extends until the later of the expiration of the
Company's patent rights or ten years, provided that the McNeil License Agreement
is terminable: (i) by either party in the event of a material breach by the
other party upon 90 days' notice or upon certain events of bankruptcy; (ii) by
McNeil, at any time after one year from the effective date of the agreement; and
(iii) by the Company under certain circumstances. Under certain circumstances,
the McNeil License Agreement could terminate with respect to either
acetaminophen or NSAID products without terminating with respect to the other
category. In the event of a termination by McNeil, McNeil must pay all royalty
payments and milestone payments due through the date of termination and the
technology licensed by McNeil reverts to the Company. In such event, the Company
retains the rights to the results of the two clinical studies funded by the
Company, and McNeil retains the rights to the results of the clinical studies
funded by McNeil during the term of the McNeil License Agreement. See
' -- Patents, Trade Secrets and Licenses -- Licenses.'
In June 1996, the Company entered into a letter of intent with NIDA, NIH,
pending formal approval of a CRADA to conduct joint research on a methadone/NMDA
antagonist combination drug as a potential treatment for opiate addition.
ACADEMIC AND RESEARCH COLLABORATIONS
Virginia Commonwealth University, The Medical College of Virginia
In 1994, the Company entered into a collaborative research agreement with
The Medical College of Virginia with the option for subsequent annual renewals.
Under the terms of this agreement, The
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Medical College of Virginia provides pre-clinical research exclusively to the
Company in the field of: (i) prevention of tolerance to and dependence on
opiates, opiate derivatives and opioids; (ii) treatment of chronic pain; and
(iii) treatment of neuropathic pain, under the direction of David J. Mayer, Ph.D
and Donald D. Price, Ph.D., Professors, Department of Anesthesiology, The
Medical College of Virginia.
Brigham and Women's Hospital
In 1995, the Company entered into a research agreement with Brigham and
Women's Hospital, Inc., a teaching affiliate of Harvard Medical School. Under
the terms of this agreement, Brigham and Women's Hospital performs pre-clinical
research exclusively for the Company in the field of long lasting anesthetics
under the direction of Gary R. Strichartz, Ph.D., Professor of Anesthesia
(Pharmacology). The research is designed to measure certain characteristics and
effects of various anesthetic/NMDA antagonist combinations covered by the
Company's existing or pending patents.
Stanford University
The Company has entered into a series of research agreements with Stanford
University. Under the direction of Christos E. Constantinou, Ph.D. of the
Stanford University School of Medicine, certain NMDA antagonists were tested in
pre-clinical studies to assess their potential for use in the treatment of urge
urinary incontinence. The studies were conducted with products that are the
subject of one of the Company's pending patent applications. In addition,
Christopher Payne, M.D. is currently conducting a clinical trial to further test
the potential of such NMDA antagonists for the treatment of urge urinary
incontinence.
CLINICAL TRIAL COLLABORATIONS
Clinical trials with several major research institutions and medical
centers have commenced, and several others are scheduled for commencement in the
near future. The institutions with which the Company collaborates include:
Johns Hopkins Bayview Medical Center, Baltimore, Maryland
Memorial Sloan-Kettering Cancer Center, New York City, New York
Emory University Hospital Medical Center, Atlanta, Georgia
Stanford University School of Medicine, Palo Alto, California
University of Pennsylvania, Philadelphia, Department of Veterans Affairs
Medical Center, Philadelphia, Pennsylvania
Royal North Shore Hospital, University of Sydney, Australia
National Institute of Dental Research, National Institutes of Health,
Bethesda, Maryland
Rivers Center Research Corporation, Columbia, Maryland
SCIREX Corporation, Austin, Texas
The Company generally conducts clinical studies directly with the principal
investigators and also by the use of Contract Research Organizations ('CROs')
that provide additional manpower as required to manage several study programs
simultaneously. The Company's management is experienced at selecting and
managing CROs for conducting clinical studies.
TECHNICAL DEVELOPMENT AND PRODUCTION
The Company generally seeks to contract third parties for formulation
development, manufacture of clinical trial materials and scale-up work. The
Company generally selects third party contractors that it believes have the
capability to commercially manufacture the products. The key advantage to this
approach is that the third party contractor which performed the developmental
work will have the equipment, operational parameters and validated testing
procedures already in place for the commercial manufacture of the Company's
products. The Algos management team is experienced in selecting and managing
activities at third party contract companies. By selecting qualified third party
contractors or
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by choosing development partners that provide full scale contract manufacturing
services, the Company believes it will be able to shorten development time and
scale-up to production.
MARKETING
Algos plans to market its products either directly or through co-marketing
or licensing agreements with pharmaceutical companies. The Company's marketing
strategy is to develop a direct sales force in the U.S. in market segments with
relatively concentrated distribution channels to target hospitals, health
maintenance organizations and pharmaceutical buyer groups. Algos does not expect
to establish a direct sales capability until such time as one or more of its
products in development receives marketing approval from the FDA. In market
segments that require large or specialized sales capabilities, such as OTC
analgesic products and certain foreign countries, the Company will seek
strategic alliances with leading pharmaceutical companies such as the McNeil
License Agreement. Implementation of this strategy will depend on the market
potential of the Company's products, its financial resources and timely
regulatory approvals.
COMPETITION
The Company's products under development are expected to address several
different markets. The Company's proposed products will be competing with
currently existing or future products of other companies. Competition among
these products will be based on, among other things, product efficacy, safety,
reliability, availability, price and patent position. Many of the Company's
existing or potential competitors have substantially greater financial,
technical and human resources than the Company, may be better equipped to
develop, manufacture and market products and have more extensive experience in
pre-clinical testing and human clinical trials. These companies may develop and
introduce products and processes competitive to those of the Company.
The Company competes with pharmaceutical companies that develop, produce
and market products in the United States, Europe and elsewhere. In addition,
academic institutions, government agencies and other public and private
organizations conducting research may seek patent protection, discover new drugs
or establish collaborative arrangements for drug research. The Company's
narcotic analgesic and anesthetic products, when developed and marketed, will
compete with products generally marketed by medium-sized pharmaceutical
companies. In other analgesic segments, such as antiarthritic and OTC analgesic
products, the Company's products, when developed and marketed, will compete with
products marketed by some of the largest pharmaceutical companies in the U.S. In
these segments, the Company may enter into license agreements with
pharmaceutical companies having greater resources than the Company.
PATENTS, TRADE SECRETS AND LICENSES
Patent Rights
The Company seeks to protect is proprietary position by, among other
methods, filing United States and foreign patent applications with respect to
the development of its products and their uses. The Company plans to prosecute
and defend its patent applications, issued patents and proprietary information.
The Company's ability to compete effectively will depend in part on its ability
to develop and maintain proprietary aspects of its planned products. The Company
has an exclusive license for three U.S. patents and six pending U.S. patent
applications under its agreement with The Medical College of Virginia, and
several corresponding pending foreign patent applications. The Company also owns
one pending U.S. patent application and plans to file additional patent
applications.
Reflecting the Company's major research and development direction, its
patent program is primarily focused on securing intellectual property rights to
technology for the following categories of its business: (i) the use of
pharmacologically acceptable NMDA antagonists for the management of acute,
chronic, pre-operative and post-operative pain states, (ii) the use of NMDA
antagonists for the potentiation of local anesthesia and (iii) the use of NMDA
antagonists for the treatment of other conditions such as urge urinary
incontinence. The Company is employing an aggressive dual-level
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strategy of claiming its drug discoveries mechanistically and in terms of
specific therapeutics. This strategy is intended to maximize the Company's
opportunities for obtaining the broadest possible patent protection and at the
same time, result in issued patents with complementary and mutually reinforcing
claims.
Of the patents issued to The Medical College of Virginia, U.S. Patent No.
5,321,012 entitled 'Inhibiting the Development of Tolerance to and/or Dependence
on a Narcotic Addictive Substance' (issued June 14, 1994) claims compositions
and methods for inhibiting the development of tolerance to and/or dependence on
a variety of narcotic analgesics including codeine, fentanyl, heroin,
hydrocodone, morphine and oxycodone employing any one of several specific
nontoxic NMDA antagonists including dextromethorphan and dextrorphan; U.S.
Patent No. 5,352,683 entitled 'Method for the Treatment of Chronic Pain' (issued
October 4, 1994) claims a method for treating chronic pain employing any one of
several specific nontoxic NMDA antagonists such as those previously mentioned
and, U.S. Patent No. 5,502,058 entitled 'Method for the Treatment of Pain'
(issued March 26, 1996) covers a method of alleviating preexisting or
prospectively occurring pain employing dextromethorphan or dextrorphan in
combination with lidocaine.
The Company has been notified that U.S. Patent No. 5,556,838 will be issued
on or about September 17, 1996. This patent claims a composition containing any
nontoxic NMDA antagonist, or any nontoxic substance that blocks a major
intracellular consequence of NMDA receptor activation, and any one of several
addictive substances, including morphine. A related patent application covers a
companion method for inhibiting the development of tolerance to and/or
dependence on such addictive substances. In addition, the Company has been
assigned a pending U.S. patent application covering the treatment of urinary
incontinence which has recently been examined. A corresponding regional
application designating numerous foreign jurisdictions has been filed.
The patent positions of pharmaceutical firms, including the Company, are
generally uncertain and involve complex legal and factual questions.
Consequently, even though the Company is currently prosecuting its patent
applications with the U.S. Patent and Trademark Office ('PTO') and certain
foreign patent authorities, the Company does not know whether any of its
applications will result in the issuance of any patents, or if any patents
issue, whether they will provide significant proprietary protection or will be
circumvented or invalidated. Since patent applications in the U.S. are
maintained in secrecy until patents issue, and since publication of discoveries
in the scientific or patent literature tend to lag behind actual discoveries by
several months, the Company cannot be certain that it was the first creator of
inventions claimed by pending patent applications or that the Company was the
first to file patent applications for such inventions. See 'Risk
Factors -- Uncertain Ability to Protect Proprietary Technology.'
The Company also relies upon trade secrets, know-how, continuing innovation
and licensing opportunities to develop and maintain its competitive position. It
is the Company's current practice to require its employees, consultants, members
of its Medical and Research Advisory Board, sponsored researchers and other
advisors to execute confidentiality agreements upon the commencement of
employment or consulting relationships with the Company. These agreements
provide that all confidential information developed or made known to the
individual during the course of the individual's relationship with the Company
is to be kept confidential and not disclosed to third parties, subject to
certain exceptions. In the case of employees, the agreements provide that all
inventions conceived by the individual shall be the exclusive property of the
Company. There can be no assurance, however, that these agreements will provide
meaningful protection for the Company's trade secrets or adequate remedies in
the event of unauthorized use or disclosure of such information.
The Company engages in collaborations and sponsored research agreements and
enters into pre-clinical and clinical testing agreements with academic and
research institutions and U.S. government agencies, such as NIH. Consistent with
pharmaceutical industry and academic standards, and the rules and regulations
under the Federal Technology Transfer Act of 1986, these agreements may provide
that developments and results will be freely published, that information or
materials supplied by the Company will not be treated as confidential and that
the Company may be required to negotiate a license to any such developments and
results in order to commercialize products incorporating them. There can be no
assurance that the Company will be able to successfully obtain any such license
at a
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reasonable cost or that such developments and results will not be made available
to competitors of the Company on an exclusive or a non-exclusive basis.
The Company's success depends in part on its ability to obtain patent
protection for its products and to preserve its trade secrets and operate
without infringing on the proprietary rights of third parties. No assurance can
be given that the Company's pending patent applications will be approved or that
any patents will provide competitive advantages for its products or will not be
successfully challenged or circumvented by its competitors. No assurance can be
given that patents do not exist or could not be filed which would have an
adverse effect on the Company's ability to market its products or maintain its
competitive position with respect to its products. The Company's patents may not
prevent others from developing competitive products using related technology.
Other entities may obtain patents which cover aspects of the Company's products
or processes which are necessary for or useful to the development, manufacture
or use of the Company's products. As a result, the Company may be required to
obtain licenses from others to develop, manufacture or market such products.
There can be no assurance that the Company will be able to obtain any such
licenses on commercially reasonable terms, if at all.
No assurance can be given that any patent issued to, or licensed by, the
Company will provide protection that has commercial significance. In this regard
the patent position of pharmaceutical compounds and compositions is particularly
uncertain. Even issued patents may be later modified or revoked by the PTO in
proceedings instituted by the Company or others. In addition, no assurance can
be given that the Company's patents will afford protection against competitors
with similar compounds or technologies, that others will not obtain patents
claiming aspects similar to those covered by the Company's patents or
applications, or that the patents of others will not have an adverse effect on
the ability of the Company to do business. The Company's patents may not prevent
others from developing competitive positions using related technology.
Licenses
The Company has entered into a license agreement, which was last amended in
June 1996 (the 'Amendment'), with The Medical College of Virginia for certain
patents or pending patent applications owned by The Medical College of Virginia
in the field of pain management in the country in which any such product or part
thereof is made, used, sold or manufactured. In consideration for the terms of
the Amendment, the Company issued 100,000 shares of Series B Preferred Stock to
The Medical College of Virginia. The Company pays no license signing fees or
milestone payments. Royalties for the life of the patent equal 4% of net sales.
If a product is combined with a drug or other substance for which the Company is
paying an additional royalty, the royalty rate paid to The Medical College of
Virginia is generally reduced by the amount of such additional royalty. If the
Company enters into sublicensing agreements for a covered product, the Company
will pay The Medical College of Virginia 50% of royalty payments received from
such sublicensees' net sales for each year until the payments total $500,000 for
such year, 33% until the payments total an additional $500,000 for such year and
25% thereafter. The McNeil License Agreement is a sublicense agreement of the
Company's license agreement with The Medical College of Virginia.
The Company has entered into a license agreement with MIT for an exclusive
worldwide license in connection with patent rights relating to a patent owned by
MIT. This patent covers a process for the ultrasound enhancement of transdermal
drug delivery.
GOVERNMENT REGULATION
In the U.S., pharmaceutical products intended for therapeutic or diagnostic
use in humans are subject to rigorous FDA regulation. The process of completing
clinical trials and obtaining FDA approvals for a new drug is likely to take a
number of years and require the expenditure of substantial resources. There can
be no assurance that any product will receive such approval on a timely basis,
if at all. See 'Risk Factors -- Government Regulation; No Assurance of United
States or Foreign Regulatory Approval.'
Applicable FDA regulations treat the Company's combination of
dextromethorphan with analgesics such as morphine, acetaminophen and ibuprofen
and local anesthetics such as lidocaine as
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new drugs and require the filing of an NDA and approval by the FDA. However,
since each of these drugs has been separately approved by the FDA, management
believes that the risks associated with the development of these new proprietary
drugs are less than the risks inherent in new molecular drug discovery.
The steps required before a new pharmaceutical product for use in humans
may be marketed in the U.S. include (i) pre-clinical studies, (ii) submission to
the FDA of an Investigational New Drug application ('IND'), which must become
effective before human clinical trials commence, (iii) adequate and
well-controlled human clinical trials to establish the safety and effectiveness
of the product, (iv) submission of an NDA to the FDA, and (v) FDA approval of
the NDA prior to any commercial sale or shipment of the product.
Pre-clinical studies include laboratory evaluation of product chemistry and
formulation, as well as animal studies, to assess the potential safety and
effectiveness of the product. The results of the pre-clinical studies are
submitted to the FDA as a part of an IND and are reviewed by the FDA prior to
the commencement of human clinical trials. Unless the FDA objects to, or
otherwise responds to, an IND, the IND will become effective 30 days following
its receipt by the FDA.
Clinical trials are typically conducted in three sequential phases,
although phases may overlap. In Phase I, the investigational new drug usually is
administered to healthy human subjects and is tested for safety (adverse
effects), dosage, tolerance, metabolism, distribution, excretion and
pharmacodynamics (clinical pharmacology). Phase II involves studies in a limited
patient population to (i) determine the effectiveness of the investigational new
drug for specific indications, (ii) determine dosage tolerance and optimal
dosage and (iii) identify possible adverse effects and safety risks. When an
investigational new drug is found to be effective and to have an acceptable
safety profile in Phase II evaluation, Phase III trials are undertaken to
further evaluate clinical effectiveness and to further test for safety within an
expanded patient population at geographically dispersed clinical study sites.
For analgesic drugs, Phase II analgesic efficacy studies have historically
served as the pivotal studies for an NDA. Phase III studies for these products
normally focus greater attention on safety in larger patient populations rather
than efficacy. There can be no assurance that Phase I, Phase II or Phase III
testing will be completed successfully within any specified time period, if at
all, with respect to any of the Company's products subject to such testing.
Furthermore, the FDA may suspend clinical trials at any time there is concern
that the participants are being exposed to an unacceptable health risk.
The results of pharmaceutical development, pre-clinical studies and
clinical trials are submitted to the FDA in the form of an NDA for approval of
the marketing and commercial shipment of the product. The FDA may require
additional testing or information before approving the NDA. The FDA may deny an
NDA approval if safety, efficacy or other regulatory requirements are not
satisfied. Moreover, if regulatory approval of the product is granted, such
approval may require post-marketing testing and surveillance to monitor the
safety of the product or may entail limitations on the indicated uses for which
the product may be marketed. Finally, product approval may be withdrawn if
compliance with regulatory standards is not maintained or if problems occur
following initial marketing.
At present, pharmaceutical products generally may not be exported from the
U.S. for other than research purposes until the FDA has approved the product for
marketing in the U.S. However, a company may apply to the FDA for permission to
export finished products or partially processed products to a limited number of
countries prior to obtaining FDA approval for marketing in the U.S.
The Company is also subject to regulation under federal and state laws,
including the Occupational Safety and Health Act, the Environmental Protection
Act, the Clean Air Act, national restrictions on technology transfer, and
import, export and customs regulations. In addition, all of the Company's
products that contain narcotics are subject to DEA regulations relating to
storage, distribution and physician prescribing procedures. There can be no
assurance that any portion of the regulatory framework under which the Company
currently operates will not change and that such change will not have a material
effect on the current and anticipated operations of the Company.
Whether or not FDA approval has been obtained, approval of a pharmaceutical
product by comparable governmental regulatory authorities in foreign countries
must be obtained prior to the commencement of clinical trials and subsequent
marketing of such product in such countries. The
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approval procedure varies from country to country, and the time required may be
longer or shorter than that required for FDA approval.
EMPLOYEES
At June 30, 1996, the Company had nine employees and two executive
consultants, including five Ph.Ds and/or MDs. In addition, the Company engages
consultants from time to time to perform services on a per diem or hourly basis.
FACILITIES
The Company's executive office, located at Collingwood Plaza, 4900 Route
33, Neptune, New Jersey 07753, is leased under a five-year agreement, which
expires in 1997. The lease is renewable for two consecutive five-year periods.
The leased property consists of approximately 2,000 square feet of office and
storage space. The Company is in the process of expanding its facilities to meet
anticipated future staffing.
LEGAL PROCEEDINGS
There are no legal proceedings pending against the Company.
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MANAGEMENT AND KEY SCIENTIFIC ADVISORS
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
Set forth below is information regarding directors and executive officers
of the Company as of August 15, 1996.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
John W. Lyle.............................. 52 President and Chief Executive Officer and Director
Frank S. Caruso, Ph.D. ................... 59 Executive Vice President for Research and Development
Gastone Bello, Ph.D. ..................... 65 Executive Vice President for Technology Transfer and
Manufacturing
*Donald G. Drapkin........................ 48 Director
Roger H. Kimmel........................... 49 Director
*James R. Ledley.......................... 49 Assistant Secretary and Director
Dieter A. Sulser.......................... 47 Director
KEY EMPLOYEES
Donald A. Johnson, Ph.D................... 41 Senior Vice President for Pharmaceutical Development
Gary R. Anthony........................... 35 Chief Financial Officer
</TABLE>
- ------------
* Members of Audit Committee.
MR. LYLE has served as President and Chief Executive Officer and a director
of the Company since its formation in January 1992. Mr. Lyle served as President
and Chief Executive Officer of OmniCorp Holdings, Inc. in 1991. Prior to
founding the Company, Mr. Lyle was one of the founders of Osteotech, Inc., an
orthopaedic pharmaceutical company formed in 1986. He served as Osteotech's
Chairman and Chief Executive Officer from 1989 to 1991 and as President from
1986 to 1989. From 1981 to 1986, Mr. Lyle served as the President of CIBA-GEIGY
Corporation's CIBA Self-Medication, Inc. From 1975 to 1981, Mr. Lyle held
various positions at Johnson & Johnson. Mr. Lyle holds a B.S. in Marketing
Management and a M.B.A. in General Management, both from the University of
Southern California.
DR. CARUSO joined Algos in 1994. From 1985 to 1993, Dr. Caruso served as
Vice President, Research & Development at Roberts Pharmaceutical Corporation
with responsibility for worldwide pre-clinical and clinical research and
development activities. From 1980 to 1985, Dr. Caruso served as Director,
Clinical Pharmacology, for Revlon Health Care. From 1963 to 1980, Dr. Caruso
served in various positions at Bristol-Myers Company, including Director,
Clinical Research-Analgesics and Central Nervous System. He holds a Ph.D. and a
M.S. in Pharmacology, both from the University of Rochester, School of Medicine
and Dentistry and a B.S. in Biology from Trinity College.
DR. BELLO joined Algos in 1994. During 1992 and 1993, Dr. Bello performed
consulting services for the Company. Also in 1992, he served on a task force
organized by the U.S. Department of State to assess the status of the
pharmaceutical industry in the former Soviet Union. From 1975 to 1991, Dr. Bello
served as CIBA-GEIGY Pharmaceutical Division Senior Vice President of Technical
Operations and was a member of the Management Committee where he was responsible
for chemical and pharmaceutical production, materials management, distribution,
engineering, safety and ecology. Dr. Bello served as President and a member of
the Board of Directors of CIBA-GEIGY Caribe, Caguas, Puerto Rico from 1990 to
1991. He served as a member of the Board of Directors of Geneva Pharmaceutical
from 1982 to 1991 and a member of the Board of Directors of Alza Corporation
from 1978 to 1982. Dr. Bello serves on the Board of Overseers, New Jersey
Institute of Technology. He received his Ph.D. in Chemistry from the University
of Trieste in Trieste, Italy.
MR. DRAPKIN has been a director of the Company since January 1994. Mr.
Drapkin has been Vice Chairman and Director of MacAndrews and Forbes Holdings,
Inc., Revlon Group Incorporated and Andrews Group Incorporated for more than
five years and is a director of Revlon, Inc., Marvel Entertainment Group, Inc.
and The Coleman Company.
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MR. KIMMEL has been a director of the Company since July 1996. Mr. Kimmel
has been a partner of the law firm of Latham & Watkins for more than five years.
Mr. Kimmel is also a director of TSR Paging, Inc.
MR. LEDLEY has been a director of the Company since January 1992. Since
1995, he has been a member of the law firm of Kleinberg, Kaplan, Wolff & Cohen,
P.C. From 1980 to 1995 he was a member of the law firm of Varet & Fink P.C.
(previously known as Milgrim Thomajan & Lee P.C.).
MR. SULSER has been a director of the Company since May 1995. Since 1991,
Mr. Sulser has served as Head of Investment Banking for the ERB Group of
Companies, based in Zurich, Switzerland. Mr. Sulser is also General Manager of
Unifina Holding AG, an affiliate of the ERB Group of Companies.
DR. JOHNSON joined Algos in 1994. Prior to joining Algos, Dr. Johnson
served as President of Pharmaceutical Development Laboratories, Inc., a contract
research laboratory. From 1991 to 1993, Dr. Johnson was Business Director of
Applied Analytical Industries, Inc. where he developed marketing strategies,
research plans and budgets for numerous new drug contract development projects.
From 1990 to 1991, he served as Manager of Drug Delivery Systems at Noven
Pharmaceuticals and was responsible for the research and development of
transdermal drug delivery systems. From 1986 to 1990, Dr. Johnson served as
Group Leader of Pharmaceutical Research at Schering-Plough Research. Dr. Johnson
holds a Ph.D. and a M.S. in Pharmaceutics and a B.S. in Pharmacy from the
University of Wisconsin-Madison.
MR. ANTHONY joined Algos in January 1996. Prior to joining Algos, Mr.
Anthony engaged in the private practice of accounting, providing services to
pharmaceutical companies. From 1987 to 1993, he served as Controller for Roberts
Pharmaceutical Corporation where his responsibilities included public company
financial reporting, the development and implementation of accounting practices
and internal control systems, income tax planning and compliance, cash
management and analysis of acquisitions. From 1983 to 1987 he served on the
audit staff of Coopers & Lybrand. Mr. Anthony holds a B.S. in Accounting from
Monmouth College.
EXECUTIVE CONSULTANTS
FREDRICK L. MINN, M.D., PH.D., MEDICAL DIRECTOR. Dr. Minn has served as
Medical Director since 1994 under the terms of an independent consulting
agreement with the Company. From 1989 to 1994, Dr. Minn served as Senior
Clinical Research Fellow at the Robert Wood Johnson Pharmaceutical Research
Institute ('PRI') and Clinical Research Fellow at McNeil Pharmaceutical from
1976 to 1988. From 1974 to 1980, Dr. Minn served as Consulting Insurance
Examiner for Insurance Company of North America and from 1974 to 1976 served as
Assistant Director of Clinical Pharmacology for Squibb Institute for Medical
Research.
RONALD L. BUCHANAN, PH.D., DIRECTOR OF LICENSING. Dr. Buchanan has served
as Director of Licensing since 1994 under the terms of an independent consulting
agreement with the Company. Prior to becoming Director of Licensing for the
Company, Dr. Buchanan served in various positions at Bristol-Myers Squibb,
including Senior Director of Licensing, from 1991 to 1993.
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MEDICAL AND RESEARCH ADVISORY BOARD
The Company's objective is to build a proprietary technology base for its
products and establish drug development programs as expeditiously and
efficiently as possible. To meet this objective, the Company has established
consulting relationships with many of the leading scientists and clinicians in
pain management. These scientific and medical advisors, at the request of the
Company, review the Company's individual research programs, advise on clinical
study design and provide direction on new product development. Scientific and
medical advisors are compensated on a retainer or per diem basis. The Company's
Medical and Research Advisory Board currently includes the following
individuals:
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<S> <C>
William T. Beaver, M.D.................... Professor of Pharmacology and Anesthesia, Department of Pharmacology,
Georgetown University School of Medicine.
Gary J. Bennett, Ph.D..................... Chief, Neuropathic Pain and Pain Measurement Section, Neurobiology
and Anesthesiology Branch, National Institute of Dental Research,
National Institutes of Health.
Michael J. Cousins, M.D................... Professor and Department Head, Department of Anesthesia and Pain
Management, University of Sydney, Royal North Shore Hospital,
Australia.
George E. Ehrlich, M.D.................... President, George E. Ehrlich Associates and Chairman, FDA Advisory
Committee on Rheumatology and Arthritis Drugs.
Howard L. Fields, M.D., Ph.D.............. Professor, Departments of Neurology and Physiology and Vice Chairman,
Department of Neurology, University of California, San Francisco.
Richard H. Gracely, Ph.D.................. Research Psychologist, Neuropathic Pain and Pain Measurement Section,
Neurobiology and Anesthesiology Branch, National Institute of
Dental Research, National Institutes of Health.
Raymond W. Houde, M.D..................... Senior Attending Physician Emeritus, Departments of Medicine and
Neurology, Memorial Sloan-Kettering Cancer Center.
Jerome H. Jaffe, M.D...................... Director, Office of Scientific Analysis and Evaluation and Associate
Director, Center for Substance Abuse Treatment, Substance Abuse and
Mental Health Services Administration.
Donald R. Jasinski, M.D................... Chief, Center for Chemical Dependence, Francis Scott Key Medical
Center, Professor, Departments of Medicine, Anesthesiology and
Critical Care Medicine, Johns Hopkins University School of
Medicine.
Robert Langer, Sc.D....................... Kenneth J. Germeshausen Professor of Chemical and Biomedical
Engineering, Massachusetts Institute of Technology and Research
Associate, Department of Surgery, Children's Hospital.
Louis Lasagna, M.D........................ Dean, Sackler School of Graduate Biomedical Sciences, Academic Dean
of the Medical School, Professor of Psychiatry (Clinical
Pharmacology), Professor of Pharmacology, Tufts University.
David J. Mayer, Ph.D...................... Professor, Department of Anesthesiology, The Medical College of
Virginia.
Donald D. Price, Ph.D..................... Professor, Department of Anesthesiology, Director of Research, The
Medical College of Virginia.
Gary R. Strichartz, Ph.D.................. Professor of Anesthesia (Pharmacology), Vice Chairman for Research,
Brigham and Women's Hospital, Harvard Medical School.
Vittorio Ventafridda, M.D., Ph.D.......... Liaison Officer, World Health Organization Cancer Unit, Scientific
Director, Fondazione Floriani, Milano, Italy; Consultant, Instituto
Europeo di Oncologia (I.E.O.), Milano, Italy.
</TABLE>
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COMPENSATION OF OUTSIDE DIRECTORS
Non-employee members of the Board of Directors will receive cash
compensation of $1,500 per meeting attended as consideration for their services
as directors of the Company and are reimbursed for reasonable travel expenses
incurred in connection with their attendance of such meetings. Non-employee
directors upon appointment or election to the Board of Directors will receive an
option grant under the Company's 1996 Non-Employee Director Stock Option Plan to
purchase 10,000 shares of Common Stock, at the fair market value on the date of
grant, vesting over a three-year period upon each anniversary of the date of
grant. In addition, on the date of each annual meeting of stockholders held
after the date of the Offering, each non-employee director who will continue to
serve as a director for the following year, and also has served as a director
for the last six months prior to the date of the annual meeting, shall receive
an option to purchase 5,000 shares of Common Stock, at the fair market value at
the date of grant, vesting over a one year period. See 'Stock Option Plans.'
EXECUTIVE COMPENSATION AND EMPLOYMENT AGREEMENTS
Executive Compensation
The following tables set forth the annual, long-term, and other
compensation of the Company's Chief Executive Officer and other most highly
compensated executives (collectively, the 'Named Officers') whose annual base
salaries equal or exceed $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------------
OTHER
ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
--------------------------- ---- -------- ------- ------------
<S> <C> <C> <C> <C>
John W. Lyle,
President and Chief
Executive Officer........... 1995 $235,000 $75,000 --
Frank S. Caruso,
Executive Vice President for
Research and Development.... 1995 165,000 25,000 --
<CAPTION>
LONG-TERM COMPENSATION
--------------------------------------------
AWARDS PAYOUTS
------------------- ----------------------
RESTRICTED OPTIONS
STOCK (# OF LTIP ALL OTHER
NAME AND PRINCIPAL POSITION AWARDS SHARES) PAYOUTS COMPENSATION
--------------------------- ---------- ------- ------- ------------
<S> <C> <C> <C> <C>
John W. Lyle,
President and Chief
Executive Officer........... -- -- -- --
Frank S. Caruso,
Executive Vice President for
Research and Development.... -- -- -- --
</TABLE>
The following table sets forth for each of the named executive officers the
value realized from stock options exercised during 1995 and the number and value
of exercisable and unexercisable stock options held at December 31, 1995:
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST YEAR AND YEAR END OPTION VALUES
NUMBER OF SHARES
OF UNDERLYING
SHARES UNEXERCISED OPTIONS
ACQUIRED ON VALUE ----------------------------
EXERCISE(1) REALIZED EXERCISABLE UNEXERCISABLE
----------- -------- ----------- -------------
<S> <C> <C> <C> <C>
John W. Lyle........ 74,700 -- 74,700 149,400
Frank S. Caruso..... 49,800 -- 49,800 99,600
<CAPTION>
VALUE OF UNEXERCISED
IN-THE-MONEY OPTIONS(2)
----------------------------
EXERCISABLE UNEXERCISABLE
------------ -------------
<S> <C> <C>
John W. Lyle........ -- --
Frank S. Caruso..... -- --
</TABLE>
- ------------
(1) All such options were exercised in January 1995. The Board of Directors
determined that the exercise price of the options did not exceed the fair market
value of the Common Stock at the time of exercise. Accordingly, there was no
value realized at the time of exercise.
(2) Based on the fair market value of the Common Stock as of December 31,
1995 ($0.12 per share) as determined by the Board of Directors, the Company
determined that there were no in-the-money options at December 31, 1995.
Employment Agreements
Each of Mr. Lyle and Drs. Caruso and Bello has an employment agreement with
the Company which expires December 31, 1997. Each employment agreement is
automatically renewable for
36
<PAGE>
<PAGE>
successive one-year terms unless terminated by either the employee or the
Company. Mr. Lyle's agreement provides that Mr. Lyle will be employed as the
President and Chief Executive Officer of the Company and that the Company will
use its best efforts to cause Mr. Lyle to be elected to the Board of Directors
for the term of the agreement. Dr. Caruso's agreement provides that he will be
employed as the Executive Vice President for Research and Development. Dr.
Bello's agreement provides that he will be employed as the Executive Vice
President for Technology Transfer and Manufacturing. Under the agreements, each
executive will be entitled to certain upward adjustments to the preceding year's
base salary. Drs. Caruso and Bello are entitled to receive continuing payments
amounting to twelve months and six months salary, respectively, in the event of
their termination by the Company without cause. Each executive may also receive
bonuses for individual accomplishment of key milestone events in such amounts
and on such terms as the Board of Directors may determine. Mr. Lyle's agreement
acknowledges that during the employment period he will also serve as Chief
Executive Officer of U.S. Medical Development, Inc. ('USMDI'), a Delaware
corporation incorporated on January 4, 1994 by the founders of the Company. The
agreements provide the executives with certain rights under the 1994 Stock
Option Plan. See 'Stock Option Plans.'
STOCK OPTION PLANS
1994 Stock Option Plan
Effective January 1994, the Company established the Algos Pharmaceutical
Corporation 1994 Stock Option Plan (the '1994 Option Plan') under which key
employees may be granted options to purchase shares of the Common Stock. The
1994 Option Plan is intended to assist the Company in attracting and retaining
employees of outstanding ability and to promote the identification of their
interests with those of the stockholders of the Company. The Company has
reserved a total of 830,000 shares of Common Stock for issuances under the plan.
Unless sooner terminated by the Board of Directors, the 1994 Option Plan
will expire ten years after its inception. The 1994 Option Plan is administered
by the Board of Directors, which has the authority to select eligible employees,
grant options under the plan and determine the terms, price, and form of payment
for each grant. Awards under the 1994 Option Plan will generally be granted at
an exercise price equal to the then fair market value per share of Common Stock.
Options granted under the 1994 Option Plan shall not be transferable and upon an
employee's death, all options that have been granted to such employee are
generally deemed to be exercisable.
1996 Stock Option Plan
In April 1996, the Company adopted the Algos Pharmaceutical Corporation
1996 Stock Option Plan (the '1996 Option Plan'). The 1996 Option Plan is
intended to assist the Company in attracting and retaining key employees and
independent consultants of outstanding ability and to promote the identification
of their interests with those of the stockholders of the Company. The 1996
Option Plan permits the grant of non-qualified stock options and incentive stock
options to purchase shares of Common Stock covering 415,000 authorized but
unissued or reacquired shares of Common Stock, subject to adjustment to reflect
events such as stock dividends, stock splits, recapitalizations, mergers or
reorganizations of or by the Company.
Unless sooner terminated by the Board of Directors, the 1996 Option Plan
will expire on January 31, 2006. Such termination will not affect the validity
of any option outstanding under the 1996 Option Plan on the date of termination.
Prior to the Offering, the Board of Directors will administer the 1996
Stock Option Plan. Following the closing of the Offering, the Compensation
Committee of the Board of Directors (the 'Committee') will administer the 1996
Stock Option Plan (which is intended to satisfy the requirements of Rule 16b-3
under the Exchange Act, and Section 162(m) of the Internal Revenue Code of 1986,
as amended (the 'Code')). Subject to the terms and conditions of the 1996 Option
Plan, the Committee has the authority to select the persons to whom grants are
to be made, to designate the number of shares of Common Stock to be covered by
such grants, to determine the exercise price of options, to establish the
period of exercisability of options, and to make all other determinations and to
take all other actions necessary or advisable for the administration of the 1996
Option Plan. The dates on which options first become exercisable and on which
they expire shall be set forth in individual option agreements setting
37
<PAGE>
<PAGE>
forth the specific terms of the options, subject to the requirements of the 1996
Stock Option Plan. Such agreements will generally provide that options expire
within one year following the termination of the optionee's status as an
employee or consultant of the Company (or a subsidiary) although the Committee
may provide that options continue to be exercisable following a termination
without 'Cause' (as defined in the 1996 Stock Option Plan) or otherwise. The
Committee also may, in its discretion, provide by the terms of an option that
such option will expire at specified times following, or become exercisable in
full upon, the occurrence of certain specified 'extraordinary corporate events'
including a merger, consolidation or dissolution of the Company, or a sale of
substantially all of the Company's assets, but in such event the Committee may
also give optionees the right to exercise their outstanding options in full
during some period prior to such event, even though the rights have not yet
otherwise become fully exercisable.
Incentive stock options ('Incentive Stock Options') granted under the 1996
Stock Option Plan will be designed to comply with the provisions of the Code and
will be subject to certain restrictions contained in the Code. Among such
restrictions, Incentive Stock Options must have an exercise price not less than
the fair market value of a share of Common Stock on the date of grant, may only
be granted to employees, must expire within a specified period of time following
the optionee's termination of employment, and must be exercised within the ten
years after the date of grant.
In the case of an incentive stock option granted to an individual who owns
(or is deemed to own) at least 10% of the total combined voting power of all
classes of stock of the Company, the exercise price must be at least 110% of the
fair market value of a share of Common Stock on the date of grant and must
expire five years after grant. Furthermore, the 1996 Option Plan provides that
the aggregate fair market value (determined at the time the option is granted)
of shares with respect to which incentive stock options may be exercisable for
the first time during any calendar year, may not exceed $100,000 per employee.
Options for shares, the fair market value of which exceeds the $100,000 per year
limit, are non-qualified stock options.
Options intended to satisfy the requirements for 'performance-based
compensation' under Section 162(m) of the Code must also have an exercise price
of not less than fair market value on the date granted and must comply with
other limitations and restrictions.
The 1996 Option Plan may be amended by the Committee, subject to
stockholder approval if such approval is then required by applicable law or in
order for the 1996 Option Plan and options granted thereunder to continue to
satisfy the requirements of Rule 16b-3 under the Exchange Act or Section 162(m)
of the Code.
The 1996 Option Plan permits the payment of the option exercise price to be
made in cash (which may include an assignment of the right to receive the cash
proceeds from the sale of Common Stock subject to the option pursuant to a
'cashless exercise' procedure) or by delivery of shares of Common Stock valued
at their fair market value on the date of exercise or delivery of other
property, or by a recourse promissory note payable to the Company, or by a
combination of the foregoing. As a condition of exercise, optionees must also
provide for the payment of withholding tax obligations of the Company in
connection with such exercise.
Options granted under the 1996 Option Plan shall not be transferable
otherwise than by will, by the laws of descent and distribution or pursuant to a
qualified domestic relations order (as defined in the Code), and may be
exercised during the optionee's lifetime only by the optionee or, in the event
of the optionee's legal disability, by the optionee's legal representative.
1996 Non-Employee Director Stock Option Plan
In April 1996, the Company also adopted the 1996 Non-Employee Director
Stock Option Plan (the 'Director Plan') covering 83,000 authorized but unissued
or reacquired shares of Common Stock, subject to adjustment to reflect events
such as stock dividends, stock splits, recapitalizations, mergers or
reorganizations of or by the Company. The Director Plan is intended to assist
the Company in attracting and retaining qualified non-employee directors
('Outside Directors').
Following the consummation of the Offering, the Director Plan will be
administered by the Board of Directors and options granted under the Director
Plan are intended to satisfy the requirements of Rule 16b-3 under the Exchange
Act. The Director Plan provides for automatic grants of non-qualified
38
<PAGE>
<PAGE>
stock options to purchase 10,000 shares of Common Stock to each Outside Director
at the time of appointment or election to the Board of Directors.
The exercise price of the options shall be the fair market value of a share
of Common Stock on the date of grant. Each option shall become exercisable in
cumulative annual installments of one-third on each of the first three annual
meetings of the Company's stockholders following the date of grant so long as
the Outside Director continues to serve as a director of the Company; provided,
however, to the extent permitted by Rule 16b-3, the Board of Directors may
accelerate the exercisability of options upon the occurrence of certain
specified extraordinary corporate transactions or events and provided further,
that in any event, upon the occurrence of a 'Change in Control' of the Company
(as defined in the Director Plan) all outstanding options shall become
immediately exercisable. No portion of an option shall be exercisable after the
tenth anniversary of the date of grant and no portion of an option shall be
exercisable following termination of the Outside Director's services as director
of the Company.
Unless sooner terminated by the Board of Directors, the Director Plan will
expire ten years after the date of its adoption. Such expiration will not affect
the validity of any option outstanding on the date of termination.
Each Outside Director serving as a director of the Company as of the close
of each subsequent annual stockholders' meeting at which directors are elected
shall be granted an option to purchase 5,000 shares of Common Stock.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES WITH RESPECT TO OPTIONS UNDER THE 1994
OPTION PLAN, 1996 OPTION PLAN AND THE DIRECTOR PLAN
An optionee generally will not recognize taxable income on the grant of a
non-qualified stock option under the 1994 Option Plan, 1996 Option Plan or the
Director Plan, but will recognize ordinary income on the exercise of such
option. The amount of income recognized on the exercise of an option generally
will be equal to the excess, if any, of the fair market value of the shares at
the time of exercise over the aggregate exercise price paid for the shares,
regardless of whether the exercise price is paid in cash or in shares or other
property. Where ordinary income is recognized by an optionee in connection with
the exercise of an option, the Company generally will be entitled to a deduction
equal to the amount of ordinary income so recognized.
An optionee generally will not recognize taxable income upon either the
grant or exercise of an incentive stock option granted under the 1996 Option
Plan. Generally, upon the sale or other taxable disposition of the shares of the
Common Stock acquired upon exercise of an incentive stock option, the optionee
will recognize long-term capital gain in an amount equal to the excess, if any,
of the amount realized in such disposition over the option exercise price,
provided that no disposition of the shares has taken place within either (a) one
year from the date of exercise or (b) two years from the date of grant of the
incentive stock option. If the shares of the Common Stock are sold or otherwise
disposed of before the end of the one-year and two-year periods specified above,
the difference between the incentive stock option exercise price and the fair
market value of the shares on the date of the incentive stock option's exercise
generally will be taxable as ordinary income; the balance of the amount realized
from such disposition, if any, will be taxed as capital gain. If the shares of
the Common Stock are disposed of before the expiration of the one-year and
two-year periods and the amount realized is less than the fair market value of
the shares at the date of exercise, the optionee's ordinary income generally is
limited to excess, if any, of the amount realized in such disposition over the
option exercise price paid. The Company (or other employer corporation)
generally will be entitled to a tax deduction with respect to an incentive stock
option only to the extent the optionee has ordinary income upon sale or other
disposition of the shares of the Common Stock.
The rules governing the tax treatment of options and an optionee's receipt
of shares in connection with such grants are quite technical, so that the above
description of tax consequences is necessarily general in nature and does not
purport to be complete. Moreover, statutory provisions are, of course, subject
to change, as are their interpretations, and their application may vary in
individual circumstances. Finally, the tax consequences under applicable state
law may not be the same as under the federal income tax laws.
39
<PAGE>
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of August 15, 1996 (after giving
effect to the automatic conversion of the Series A Preferred Stock into Common
Stock upon consummation of the Offering) by (i) each person who is known by the
Company to own beneficially more than 5% of the Common Stock, (ii) each
director, (iii) each executive officer and (iv) all directors and executive
officers of the Company as a group. Unless otherwise indicated, the address of
each beneficial owner is c/o the Company, Collingwood Plaza, 4900 Route 33,
Neptune, New Jersey 07753.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED
--------------------
NUMBER OF SHARES PRIOR TO AFTER
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED (A) OFFERING OFFERING
------------------------ ---------------------- -------- --------
<S> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
John W. Lyle(b).................................................. 1,517,516 12.5% 9.7%
Frank S. Caruso(c)............................................... 240,700 2.0 1.5
Gastone Bello.................................................... 116,200 * *
Donald G. Drapkin(d)............................................. 16,600 * *
Roger H. Kimmel(e)............................................... 1,592,526 13.2 10.2
James R. Ledley.................................................. 103,750 * *
Dieter A. Sulser(f).............................................. 153,550 1.3 *
Directors and Executive Officers as a group(g)........................ 3,740,842 30.8 23.9
OTHER PRINCIPAL STOCKHOLDERS
Unifina Holding AG and related investors(h)...................... 1,734,700 14.2 11.0
Karen Lyle(i).................................................... 1,517,516 12.5 9.7
Michael Hyatt(j)................................................. 1,193,561 9.9 7.7
Lawrence Canarelli(k)............................................ 871,500 7.2 5.6
Gilbert Goldstein(l)............................................. 850,750 7.1 5.5
Paul Shapiro(m).................................................. 809,250 6.7 5.2
Morris J. Kramer(n).............................................. 809,246 6.7 5.2
Inez Kimmel(o)................................................... 707,193 5.9 4.5
Gail Albert(p)................................................... 664,000 5.5 4.3
</TABLE>
- ------------
* represents less than 1.0%
(a) For purposes of this table, a person or group is deemed to have 'beneficial
ownership' of any shares which such person has the right to acquire within
60 days after the date of this Prospectus. For purposes of calculating the
percentage of outstanding shares held by each person named above, any
shares which such person has the right to acquire within 60 days after the
date of the Prospectus are deemed to be outstanding, but not for the
purpose of calculating the percentage ownership of any other person.
(b) Includes (i) 74,700 shares of Common Stock owned directly by Mr. Lyle, (ii)
1,363,966 shares of Common Stock and options to purchase 4,150 shares of
Common Stock owned by Karen Lyle, wife of Mr. Lyle, as to which Mr. Lyle
disclaims beneficial ownership, (iii) options to purchase 74,700 shares of
Common Stock, and excludes 664,000 shares of Common Stock held in a trust
for the benefit of the children of Mr. and Mrs. Lyle, as to which shares
Mr. Lyle has neither the power of disposition nor the power to vote.
(c) Excludes a total of 24,900 shares held in trust for the benefit of
the children of Dr. Caruso, as to which shares Dr. Caruso has neither
the power of disposition nor the power to vote.
(d) Excludes a total of 809,246 shares of Common Stock held in six trusts for
the benefit of the children of Mr. Drapkin, as to which shares Mr. Drapkin
has neither the power of disposition nor the power to vote.
(e) Includes (i) 707,193 shares of Common Stock owned directly by Inez Kimmel,
wife of Mr. Kimmel, as to which Mr. Kimmel disclaims beneficial ownership
and (ii) 885,333 shares held in two trusts for which Mr. Kimmel serves as
trustee and as to which shares Mr. Kimmel holds either the sole or the
shared power of disposition and power to vote, and excludes 343,060 shares
of Common Stock held in two trusts for the benefit of the children of Mr.
and Mrs. Kimmel, as to which shares Mr. Kimmel has neither the power of
disposition nor the power to vote.
(f) Includes 141,100 shares of Common Stock and 12,450 warrants to purchase
shares of Common Stock owned directly by Gaby Sulser, wife of Mr. Sulser,
as to which Mr. Sulser disclaims beneficial ownership and excludes
1,734,700 shares beneficially owned by Unifina Holding AG, as to which
shares Mr. Sulser disclaims beneficial ownership. Mr. Sulser is the General
Manager of Unifina Holding AG.
(g) Includes options and warrants to purchase 91,300 shares of Common Stock.
40
<PAGE>
<PAGE>
(footnotes continued from previous page)
(h) Consists of 1,577,000 shares of Common Stock and 157,700 warrants to
purchase shares of Common Stock held by EBC Zurich AG. The address of
Unifina Holding AG is Zurcherstrasse 62; CH 8406, Winterthur, Switzerland
and the address of EBC Zurich AG is Bellariastrasse 23; CH 8027, Zurich,
Switzerland. Excludes (i) 166,000 shares of Common Stock and warrants to
purchase 16,600 shares of Common Stock held by Mr. Rolf P. Erb, Chairman of
EBC Zurich AG and a member of the board of directors of Unifina Holding AG,
as to which shares each of Unifina Holding AG and EBC Zurich AG disclaim
beneficial ownership and (ii) 141,100 shares of Common Stock and warrants
to purchase 12,450 shares of Common Stock beneficially owned by Mr. Sulser,
General Manager of Unifina Holding AG, as to which shares Unifina Holding
AG disclaims beneficial ownership.
(i) Includes (i) 1,363,966 shares of Common Stock and options to purchase 4,150
shares of Common Stock, owned directly by Mrs. Lyle and (ii) 74,700 shares
of Common Stock and options to purchase 74,700 shares of Common Stock owned
by directly by John Lyle, husband of Mrs. Lyle, as to which Mrs. Lyle
disclaims beneficial ownership, and excludes 664,000 shares of Common Stock
held in a trust for the benefit of the children of Mr. and Mrs. Lyle, as to
which shares Mrs. Lyle has neither the power of disposition nor the power
to vote.
(j) Includes (i) 829,751 shares of Common Stock owned directly by Mr. Hyatt and
(ii) 363,810 shares held in three trusts for which Mr. Hyatt serves as
trustee and as to which shares Mr. Hyatt holds either the sole or the
shared power of disposition or the power to vote, and excludes 221,333
shares of Common Stock held in a trust for the benefit of the children of
Mr. Hyatt, as to which shares Mr. Hyatt has neither the power of
disposition nor the power to vote.
(k) Includes 664,000 shares of Common Stock deemed to be beneficially owned by
each of Mrs. Albert and Mr. Canarelli in their shared capacity as trustees
for a trust as to which shares each of Mrs. Albert and Mr. Canarelli share
the power of disposition and the power to vote.
(l) Includes 809,250 shares of Common Stock deemed to be beneficially owned by
Mr. Goldstein in his capacity as trustee for a trust as to which shares Mr.
Goldstein has the shared power of disposition and power to vote.
(m) Includes 809,250 shares of Common Stock deemed to be beneficially owned by
Mr. Shapiro in his capacity as trustee for a trust as to which shares Mr.
Shapiro has the shared power of disposition and power to vote.
(n) Includes 809,246 shares of Common Stock deemed to be beneficially owned by
Mr. Kramer in his capacity as trustee for a trust as to which shares Mr.
Kramer holds the power of disposition and the power to vote.
(o) Excludes (i) 885,333 shares of Common Stock beneficially owned by Roger
Kimmel, husband of Mrs. Kimmel, as trustee and as to which Mr. Kimmel holds
either the sole or shared power of disposition and power to vote and (ii)
343,060 shares of Common Stock held in two trusts for the benefit of the
children of Mr. and Mrs. Kimmel, as to which shares Mrs. Kimmel has neither
the power of disposition nor the power to vote.
(p) Includes 664,000 shares of Common Stock deemed to be beneficially owned by
each of Mrs. Albert and Mr. Canarelli in their shared capacity as trustees
for a trust as to which shares each of Mrs. Albert and Mr. Canarelli share
the power of disposition and the power to vote.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Roger H. Kimmel, a director of the Company, is a partner at Latham &
Watkins which performs legal services for the Company from time to time. See
'Legal Matters.'
Mr. James R. Ledley, a director of the Company, is a member of the law firm
of Kleinberg, Kaplan, Wolff & Cohen, P.C. which performs legal services for the
Company from time to time.
41
<PAGE>
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon consummation of the Offering, the authorized capital stock of the
Company will consist of 50,000,000 shares of Common Stock, $.01 par value per
share, and 10,000,000 shares of Preferred Stock, $.01 par value per share,
100,000 of which have been designated as Series B Preferred Stock.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Holders of Common
Stock are not entitled to cumulative voting rights. Holders of Common Stock are
entitled to receive ratably such dividends as may be declared by the Board of
Directors out of funds legally available therefor. The Company does not
anticipate any cash dividends on Common Stock will be paid in the foreseeable
future. See 'Dividend Policy.' In the event of a liquidation, dissolution or
winding up of the Company, holders of Common Stock are entitled to share ratably
in all assets remaining after payment of liabilities, and payments to holders of
Preferred Stock. The holders of Common Stock have no preemptive rights and no
right to convert their Common Stock into any other securities. There are no
redemption or sinking fund provisions applicable to the Common Stock. All the
outstanding shares of Common Stock are, and the shares of Common Stock into
which the Preferred Shares will be converted upon completion of the Offering
will be, validly issued, fully paid and non-assessable.
PREFERRED STOCK
Under its Amended and Restated Certificate of Incorporation, the Company
has authority to issue 10,000,000 shares of Preferred Stock, $.01 par value per
share. The Board of Directors has the authority, without approval of the
stockholders, to issue shares of Preferred Stock in one or more series and to
fix the number of shares and the rights, preferences, privileges,
qualifications, restrictions and limitations of each series. Following the
consummation of the Offering, 100,000 shares of Series B Preferred Stock will be
issued and outstanding. The Series B Preferred Stock is convertible, at the
option of the holder, into Common Stock at any time after February 1, 1997. The
holders of Series B Preferred Stock will receive one share of Common Stock for
each share of Series B Preferred Stock owned by such holder, subject to certain
anti-dilution provisions.
REGISTRATION RIGHTS
The holders of the Common Stock and Series A Preferred Stock prior to the
Offering (the 'Stockholders'), are parties to a stockholders' agreement (the
'Stockholders' Agreement') which provides such Stockholders with certain
registration rights. Under the Stockholders' Agreement, and upon the automatic
conversion of the Series A Preferred Stock to shares of Common Stock,
the Stockholders are entitled to certain registration rights with respect
to shares of Common Stock, including a demand registration right which is
exercisable on one occasion after 270 days from the date of this Prospectus and
certain 'piggyback' registration rights which are exercisable in connection with
registrations of shares initiated by the Company.
At any time after February 1, 1997, holders of the Series B Preferred Stock
have the right to require the Company to register the resale of the Common Stock
that such holders receive upon conversion of the Series B Preferred Stock.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
Upon the consummation of the Offering, the Company will be subject to the
provisions of Section 203 of the Delaware General Corporation Law, an
anti-takeover law. In general, Section 203 prohibits a publicly-held Delaware
corporation from engaging in a 'business combination' with an 'interested
stockholder' for a period of three years after the date of the transaction in
which the person became an interested stockholder unless such transaction was
approved in a prescribed manner or another prescribed exception applies. For
purposes of Section 203, a 'business combination' is defined broadly to include
a merger, asset sale or other transaction resulting in a financial benefit to
the interested stockholder, and subject to certain exceptions, an 'interested
stockholder' is a person who, together with affiliates and associates owns (or
within three years prior, did own) 15% or more of the corporation's voting
stock.
Upon consummation of the Offering, the Company's Amended and Restated
By-Laws provide for a Board of Directors classified into three classes, with the
Directors elected at the Company's 1996 annual meeting divided into three
classes and serving initial terms expiring at the 1997, 1998 and 1999
42
<PAGE>
<PAGE>
annual stockholders' meetings, respectively. Thereafter, Directors in each class
will be elected for three year terms. No determination has yet been made as to
the selection of any of the current directors for nomination for election in a
particular class. All directors elected to the Company's classified Board of
Directors will serve until the election and qualification of their successors or
their earlier resignation or removal. The Board of Directors is authorized to
create new directorships and to fill such positions so created and is permitted
to specify the class to which such new position is assigned, and the person
filling such position would serve for the term applicable to that class. The
Board of Directors (or its remaining members, even though less than a quorum) is
also empowered to fill vacancies on the Board of Directors occurring for any
reason for the remainder of the term of the class of Directors in which the
vacancy occurred. After classification of the Board of Directors, Directors may
only be removed for cause. These provisions are likely to increase the time
required for stockholders to change the composition of the Board of Directors.
The Company's Amended and Restated By-Laws also provide that, for
nomination to the Board of Directors or for other business to be properly
brought by a stockholder before a meeting of stockholders, the stockholder must
first have given timely notice thereof in writing to the Secretary of the
Company. To be timely, a stockholder's notice generally must be delivered not
less than sixty days nor more than ninety days prior to the annual meeting. If
the meeting is not an annual meeting, the notice must generally be delivered not
more than ninety days prior to the special meeting and not later than the later
of sixty days prior to the special meeting and ten days following the day on
which public announcement of the meeting is first made by the Company. Only such
business shall be conducted at a special meeting of stockholders as is brought
before the meeting pursuant to the Company's notice of meeting. The notice by a
stockholder must contain, among other things, certain information about the
stockholder delivering the notice and, as applicable, background information
about the nominee or a description of the proposed business to be brought before
the meeting.
The Company's Amended and Restated Certificate of Incorporation also
requires that any action required or permitted to be taken by stockholders of
the Company must be effected at a duly called annual or special meeting of
stockholders and may not be effected by a consent in writing. Special meetings
may be called only by the Chairman of the Board or the President of the Company
or by the majority of the whole Board of Directors.
The Delaware General Corporation Law provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or by-laws,
unless the corporation's certificate of incorporation or by-laws, as the case
may be, requires a greater percentage. The Company's Amended and Restated
Certificate of Incorporation requires the affirmative vote of the holders of at
least 66 2/3% of the outstanding voting stock of the Company to amend or repeal
any of the provisions discussed in this section entitled 'Delaware Law and
Certain Charter and By-Law Provisions' relating to the Amended and Restated
Certificate of Incorporation or to reduce the number of authorized shares of
Common Stock and Preferred Stock. Such 66 2/3% vote is also required for any
amendment to or repeal of the Company's Amended and Restated By-Laws by the
stockholders. The Amended and Restated By-Laws may also be amended or repealed
by a majority vote of the Board of Directors. Such 66 2/3% stockholder vote
would be in addition to any separate class vote that might in the future be
required pursuant to the terms of any Preferred Stock that might then be
outstanding.
The provisions of the Company's Amended and Restated Certificate of
Incorporation and Amended and Restated By-Laws discussed above could make more
difficult or discourage a proxy contest or other change in the management of the
Company or the acquisition or attempted acquisition of control by a holder of a
substantial block of the Company's stock. It is possible that such provisions
could make it more difficult to accomplish, or could deter, transactions which
stockholders may otherwise consider to be in their best interests.
As permitted by the Delaware General Corporation Law, the Company's Amended
and Restated Certificate of Incorporation provides that Directors of the Company
shall not be personally liable to the Company or its stockholders for monetary
damages for breach of their fiduciary duties as Directors, except for liability
(i) for any breach of their duty of loyalty to the Company and its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for unlawful payments of
dividends or unlawful stock repurchases or redemptions, as provided
43
<PAGE>
<PAGE>
in Section 174 of the Delaware General Corporation Law or (iv) for any
transaction from which the Director derives an improper personal benefit.
The Company's Amended and Restated Certificate of Incorporation and Amended
and Restated By-Laws provide that the Company shall indemnify its Directors and
officers to the fullest extent permitted by Delaware law and advance expenses to
such Directors and officers to defend any action for which rights of
indemnification are provided.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 15,544,123 shares
of Common Stock outstanding (assuming no exercise of any of the outstanding
options and warrants to purchase Common Stock outstanding as of June 30, 1996
and assuming the Underwriters' over-allotment option is not exercised), of which
12,044,123 are 'restricted' shares within the meaning of Rule 144 under the
Securities Act of 1933, as amended (the 'Securities Act'), and may not be resold
except pursuant to an effective registration statement under the Securities Act
or an applicable exemption from registration, including Rule 144 of the
Securities Act.
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are aggregated), including an 'affiliate', as defined in the
Securities Act, is entitled to sell in any three-month period a number of shares
beneficially owned for at least two years that does not exceed the greater of
(i) 1% of the then outstanding shares of Common Stock or (ii) the average weekly
trading volume in the Common Stock during the four calendar weeks preceding such
sale. Sales under Rule 144 are also subject to certain requirements as to the
manner of sale, notice and the availability of current public information about
the Company. A person who is not an affiliate and has beneficially held such
shares for at least three years is entitled to sell such shares under Rule
144(k) without regard to the volume, manner of sale, notice or public
information requirements. Subject to the agreement with the underwriters
described in the next paragraph, as of August 22, 1996, 11,640,743 of the
restricted shares became eligible for sale in the public market in reliance on
Rule 144, 3,912,054 of which may be sold without regard to volume limitations.
For a period of 180 days after the closing of the Offering, without the
written consent of Lehman Brothers Inc., the Company and all of its existing
stockholders have agreed not to offer, sell or contract to sell, grant any offer
to purchase or otherwise dispose of any shares of Common Stock other than
issuances pursuant to employee compensation plans, transfers among such
stockholders, pledges, in the case of death or permanent disability and certain
limited charitable donations.
An employee, officer or director of or consultant to the Company who
purchased or was awarded shares or options to purchase shares pursuant to a
written compensatory plan or contract is entitled to rely on the resale
provision of Rule 701 under the Securities Act, which permits Affiliates to sell
their Rule 701 shares without having to comply with Rule 144's holding period
restrictions, in each case commencing 90 days after the Effective Date and
permits non-affiliates to sell their Rule 701 shares without having to comply
with the holding period, public information, volume and notice provisions of
Rule 144.
Under the Stockholders' Agreement, holders of shares of Common Stock issued
prior to the Offering or issuable under certain options and warrants outstanding
prior to the Offering are entitled to certain registration rights with respect
to their shares, including a demand registration right which is exercisable on
one occasion after 270 days from the date of this Prospectus and certain
'piggyback' registration rights which are exercisable in connection with
registrations of shares initiated by the Company. The Series B Preferred Stock
is convertible into an aggregate of 100,000 shares of Common Stock, subject to
certain anti-dilution provisions, at any time after February 1, 1997. See
'Description of Capital Stock -- Registration Rights.'
Prior to the Offering, there has been no public market for securities of
the Company. No predictions can be made as to the effect, if any, that sales of
shares or the availability of shares for sale will have on the prevailing market
price of the Common Stock. In addition, the Company cannot predict the number of
shares that may be sold in the future pursuant to Rule 144 or the timing of such
sales. Sales of a substantial number of Restricted Shares could have a
significant adverse effect on the market price of the Common Stock.
44
<PAGE>
<PAGE>
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS FOR
NON-UNITED STATES HOLDERS
The following is a general discussion of certain United States federal
income and estate tax consequences of the ownership and disposition of Common
Stock by a holder who is not a United States person (a 'Non-U.S. Holder'). For
these purposes, the term 'United States person' is defined as any person who is
a citizen or resident of the United States, a corporation or a partnership or
other entity created or organized in the United States or under the laws of the
United States or of any State, or an estate or trust whose income is includible
in gross income for United States federal income tax purposes regardless of its
source. An individual may, subject to certain exceptions, be deemed to be a
resident alien (as opposed to a non-resident alien) for federal income tax
purposes in several circumstances, including by virtue of being present in the
United States on at least 31 days in the calendar year and for an aggregate of
at least 183 days during the three-year period ending in the current calendar
year (counting for such purposes all of the days present in the current year,
one-third of the days present in the immediately preceding year, and one-sixth
of the days present in the second preceding year). Resident aliens are subject
to United States federal tax as if they were United States citizens and
residents.
This discussion is based on provisions of the Internal Revenue Code of
1986, as amended (the 'Code'), existing and proposed regulations promulgated
thereunder and administrative and judicial interpretations thereof as of the
date hereof, all of which are subject to change. This discussion does not
address all aspects of United States federal income and estate taxes and does
not deal with non-United States and U.S. state and local consequences that may
be relevant to Non-U.S. Holders in light of their personal circumstances. Each
prospective purchaser of Common Stock is advised to consult a tax advisor with
respect to current and possible future tax consequences of acquiring, holding
and disposing of Common Stock.
DIVIDENDS
The Company does not currently intend to pay cash dividends on shares of
Common Stock. See 'Dividend Policy.' In the event that dividends are paid on
shares of Common Stock, except as described below, such dividends paid to a
Non-U.S. Holder of Common Stock generally will be subject to withholding of
United States federal income tax at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty, unless the dividends are
effectively connected with the conduct of a trade or business of the Non-U.S.
Holder within the United States (or attributable to a U.S. permanent
establishment of the Non-U.S. Holder, if an income tax treaty applies). Under
current United States Treasury regulations, dividends paid to an address outside
the United States, absent definite knowledge to the contrary, may be presumed to
be paid to a resident of such country for purposes of the withholding discussed
above, and, under the current interpretation of United States Treasury
regulations, for purposes of determining the applicability of a reduced rate of
withholding under a tax treaty. Thus, Non-U.S. Holders receiving dividends at
addresses outside the United States currently are not required to file forms
with the payor in order to obtain the benefit of an applicable treaty rate.
Under proposed United States Treasury regulations not currently in effect,
however, a Non-U.S. Holder of Common Stock who wishes to claim the benefit of an
applicable treaty rate would be required to satisfy applicable certification and
other requirements.
If the dividend is effectively connected with the conduct of a United
States trade or business of a Non-U.S. Holder who has properly filed a Form 4224
(or similar statement) with the withholding agent with respect to the taxable
year in which the dividend is paid, no withholding is required. Instead the
dividend (as adjusted by any applicable deductions) would be subject to regular
United States federal income tax. In addition, all or a portion of any such
effectively connected dividends received by a non-U.S. corporation may, under
certain circumstances, be subject to an additional 'branch profits tax' at a 30%
rate or such lower rate as may be specified by an applicable income tax treaty.
A Non-U.S. Holder of Common Stock eligible for a reduced rate of United
States withholding tax pursuant to a tax treaty may obtain a refund of any
excess amounts currently withheld by filing an appropriate claim for refund with
the Internal Revenue Service ('IRS').
45
<PAGE>
<PAGE>
GAIN ON DISPOSITION OF COMMON STOCK
A Non-U.S. Holder generally will not be subject to United States federal
income tax (and no tax generally will be withheld) with respect to gain
recognized on a sale or other disposition of Common Stock so long as (i) the
gain is not effectively connected with a trade or business of the Non-U.S.
Holder within the United States, (ii) in the case of a Non-U.S. Holder who is a
non-resident alien individual and holds the Common Stock as a capital asset,
such holder is not present in the United States for 183 or more days in the
taxable year of the sale or other disposition, and (iii) the Company is not and
has not been within the preceding five years a 'United States real property
holding corporation' for United States federal income tax purposes (assuming the
Common Stock is regularly traded on an established securities market). The
Company believes that it is not, has at no time been, and does not anticipate
becoming a 'United States real property holding corporation' for United States
federal income tax purposes. In addition, the Company believes that the Common
Stock will be treated as regularly traded on an established securities market.
If the capital gain is effectively connected with the conduct of a trade or
business of the Non-U.S. Holder within the United States, or if the Company is
or has been within the preceding five years a United States real property
holding corporation and the Non-U.S. Holder is more than a five percent
stockholder (applying certain attribution rules), the capital gain would be
subject to regular United States federal income tax. In addition, with respect
to corporate Non-U.S. Holders, the 'branch profits tax' described above may also
apply. An individual Non-U.S. Holder who is present in the United States for 183
days or more in the taxable year of sale or other disposition and holds the
Common Stock as a capital asset will generally be taxed at a rate of 30% on any
net capital gain recognized during any year on such stock if either (i) such
individual has a 'tax home' (as defined for United States federal income tax
purposes) in the United States or (ii) the gain is attributable to an office or
other fixed place of business maintained by such individual in the United States
and no treaty exemption applies.
UNITED STATES INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
The Company must report annually to the IRS and to each Non-U.S. Holder the
amount of dividends paid to, and the tax withheld with respect to, such holder.
These information reporting requirements apply regardless of whether withholding
was reduced or eliminated by an applicable tax treaty. Copies of these
information returns may also be made available under the provisions of a
specific treaty or agreement to the tax authority in the country in which the
Non-U.S. Holder resides. Under temporary United States Treasury regulations,
United States backup withholding tax (which generally is a withholding tax
imposed at the rate of 31% on certain payments to persons that fail to furnish
certain information under the United States information reporting requirements)
and information reporting with respect to such tax will generally not apply to
dividends paid on Common Stock to a Non-U.S. Holder at an address outside the
United States.
As a general matter, backup withholding and information reporting also will
not apply to a payment of the proceeds of a sale of Common Stock by or through a
foreign office of a foreign broker. Information reporting requirements (but not
backup withholding) will apply, however, to a payment of the proceeds of a sale
of Common Stock by a foreign office of a broker that is a United States person,
that derives 50% or more of its gross income for certain periods from the
conduct of a trade or business in the United States, or that is a 'controlled
foreign corporation' (generally, a foreign corporation controlled by United
States stockholders) with respect to the United States, unless the broker has
documentary evidence in its records that the holder is a Non-U.S. Holder and
certain other conditions are met, or the holder otherwise establishes an
exemption. Payment by a United States office of a broker of the proceeds of a
sale of Common Stock is subject to both backup withholding and information
reporting unless the holder certifies under penalties of perjury that it is a
Non-U.S. Holder, or otherwise establishes an exemption.
Backup withholding (at a flat 31% rate) is not an additional tax. Rather,
the tax liability of persons subject to backup withholding will be reduced by
the amount of tax withheld. If withholding results in an overpayment of taxes, a
Non-U.S. Holder may obtain a refund by filing the appropriate claim for refund
with the IRS.
46
<PAGE>
<PAGE>
These backup withholding and information reporting rules are under review
by the United States Treasury, and their application to the Common Stock could
be changed prospectively by future regulations. On April 15, 1996, the IRS
issued proposed Treasury Regulations concerning the withholding of tax and
reporting for certain amounts paid to non-resident individuals and foreign
corporations. The proposed regulations would, among other changes, eliminate the
presumption under current regulations with respect to dividends paid to
addresses outside the United States. See 'Dividends on Common Stock.' The
proposed Treasury Regulations, if adopted in their present form, would be
effective for payments made after December 31, 1997. Prospective purchasers of
Common Stock should consult their tax advisors concerning the potential adoption
of such Treasury Regulations and the potential effect on the Common Stock.
FEDERAL ESTATE TAXES
Common Stock held (or treated as owned) by an individual Non-U.S. Holder at
the time of death will be included in such holder's gross estate for United
States federal estate tax purposes and may be subject to United States federal
estate tax, unless an applicable estate tax treaty provides otherwise. Estates
of non-resident aliens are generally allowed a statutory credit which is the
equivalent of an exclusion of $60,000 of assets from U.S. estate tax. Tax
treaties may permit a larger credit.
47
<PAGE>
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in the Underwriting
Agreement, the form of which is filed as an exhibit to the Registration
Statement of which this Prospectus forms a part, the Underwriters named below,
for whom Lehman Brothers Inc. and Cowen & Company are acting as representatives
(the 'Representatives'), have severally agreed to purchase from the Company, and
the Company has agreed to sell to each Underwriter, the aggregate number of
shares of Common Stock set forth opposite the name of each such Underwriter
below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ -------
<S> <C>
Lehman Brothers Inc. ...................................................................
Cowen & Company.........................................................................
---------
Total.............................................................................. 3,500,000
---------
---------
</TABLE>
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public at the initial public
offering price set forth on the cover page hereof, and to certain dealers at
such initial public offering price less a selling concession not in excess of
$ per share. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per share to certain other Underwriters or to
certain other brokers or dealers. After the initial offering to the public, the
offering price and other selling terms may be changed by the Representatives.
The Underwriting Agreement provides that the obligations of the
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to approval of certain legal matters by counsel and
to certain other conditions, including the condition that no stop order
suspending the effectiveness of the Registration Statement is in effect and no
proceedings for such purpose are pending or threatened by the Securities and
Exchange Commission and that there has been no material adverse change or any
development involving a prospective material adverse change in the condition of
the Company from that set forth in the Registration Statement otherwise than as
set forth or contemplated in this Prospectus, and that certain certificates,
opinions and letters have been received from the Company and its counsel. The
Underwriters are obligated to take and pay for all of the above shares of Common
Stock if any such shares are taken.
The Company and the Underwriters have agreed in the Underwriting Agreement
to indemnify each other against certain liabilities, including liabilities under
the Securities Act.
The Company has granted to the Underwriters an option to purchase up to an
additional 525,000 shares of Common Stock, exercisable solely to cover
over-allotments, at the initial public offering price, less the underwriting
discounts and commissions shown on the cover page of this Prospectus. Such
option may be exercised at any time until 30 days after the date of the
Underwriting Agreement. To the extent that the option is exercised, each
Underwriter will be committed to purchase a number of the additional shares of
Common Stock proportionate to each Underwriter's initial commitment as indicated
in the preceding table.
The Representatives of the Underwriters have informed the Company that the
Underwriters do not intend to confirm sales to accounts over which they exercise
discretionary authority.
For a period of 180 days after the closing of the Offering, without the
written consent of Lehman Brothers Inc., the Company and all of its existing
stockholders have agreed not to offer, sell or contract to sell, grant any offer
to purchase or otherwise dispose of any shares of common stock other than
issuance pursuant to employee compensation plans, transfers among such
stockholders, pledges, in the case of death or permanent disability and certain
limited charitable donations.
At the request of the Company, the Underwriters have reserved up to 300,000
shares of Common Stock for sale at the initial public offering price to certain
of the Company's employees and certain
48
<PAGE>
<PAGE>
other persons. The number of shares of Common Stock available for sale to the
general public will be reduced to the extent these persons purchase such
reserved shares. If such reserved shares are not purchased by such employees and
other persons, they will be offered by the Underwriters to the public upon the
same terms and conditions set forth in this Prospectus. Johnson & Johnson
Development Corporation, an affiliate of Johnson & Johnson, has expressed an
interest in purchasing 10% of the Offering, up to $6.5 million worth of the
shares of Common Stock offered hereby, at the public offering price. See
'Business -- Corporate and Government Collaborations.'
Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price was negotiated between the Company and
the Representatives. Among the factors considered in determining the initial
public offering price of the Common Stock, in addition to the prevailing market
conditions, were the Company's historical performance, capital structure,
estimates of the business potential and earnings prospects of the Company, an
assessment of the Company's management and consideration of the above factors in
relation to market values of companies in related business and other factors
deemed relevant.
LEGAL MATTERS
Certain legal matters in connection with the Offering will be passed upon
for the Company by Latham & Watkins. Roger Kimmel, a director of the Company, is
a partner of Latham & Watkins and his spouse, Inez Kimmel, and two trusts that
have been established for the benefit of Mr. and Mrs. Kimmel's children, own
shares of the Common Stock. See 'Principal Stockholders.' In addition, certain
other partners of Latham & Watkins, in the aggregate, own less than 2.0% of the
Common Stock. Certain legal matters in connection with the Offering will be
passed upon for the Underwriters by Kramer, Levin, Naftalis & Frankel.
EXPERTS
The balance sheets of Algos Pharmaceutical Corporation (a development stage
enterprise) as of December 31, 1995 and 1994 and the statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1995, included in this Prospectus, have been included herein
in reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing.
The statements in this Prospectus set forth under the captions 'Risk
Factors -- Uncertain Ability to Protect Proprietary Technology' and
'Business -- Patents, Trade Secrets and Licenses' have been reviewed and
approved by Dilworth & Barrese, patent counsel to the Company, as experts on
such matters, and are included herein in reliance upon such review and approval.
Mr. Peter Dilworth, a partner of Dilworth & Barrese, owns less than 1.0% of the
Common Stock.
49
<PAGE>
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
'Commission'), Washington, D.C. 20549, a Registration Statement on Form S-1
under the Securities Act with respect to the shares of Common Stock offered
hereby. This Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and to the exhibits and
schedules filed therewith. Statements contained in this Prospectus as to the
contents of any contract or other document referred to are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. A copy of the
Registration Statement may be inspected without charge at the offices of the
Commission at 450 Fifth Street, N.W. Washington D.C. 20549, and copies of all or
any part of the Registration Statement may be obtained from the public Reference
Section of the Commission, Washington, D.C. 20549 upon the payment of the fees
prescribed by the Commission. The Commission also maintains a site on the World
Wide Web, the address of which is http://www.sec.gov, that contains reports,
proxy and information statements and other information regarding issuers, such
as the Company, that file reports electronically with the Commission.
50
<PAGE>
<PAGE>
ALGOS PHARMACEUTICAL CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996 (unaudited).............................. F-3
Statements of Operations for the years ended December 31, 1993, 1994 and 1995 and six months ended June 30,
1995 and 1996 (unaudited) and cumulative from inception to June 30, 1996 (unaudited)..................... F-4
Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995 and six months ended June 30,
1995 and 1996 (unaudited) and cumulative from inception to June 30, 1996 (unaudited)..................... F-5
Statements of Changes in Stockholders' Equity from date of inception (January 1, 1992) to December 31, 1995
and the six months ended June 30, 1996 (unaudited)....................................................... F-6
Notes to Financial Statements.............................................................................. F-7
</TABLE>
F-1
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
ALGOS PHARMACEUTICAL CORPORATION:
We have audited the accompanying balance sheets of Algos Pharmaceutical
Corporation (a development stage enterprise) as of December 31, 1995 and 1994,
and the related statements of operations, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Algos Pharmaceutical
Corporation as of December 31, 1995 and 1994 and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Princeton, New Jersey
February 7, 1996,
except as to the fourth
paragraph of
Note 9, for
which the date is
May 21, 1996
F-2
<PAGE>
<PAGE>
ALGOS PHARMACEUTICAL CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1994 1995 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Notes 2 and 3)....................... $ 5,633,971 $ 3,707,100 $ 2,504,603
Accounts receivable (Note 8).................................... -- -- 2,000,000
Prepaid expenses................................................ 16,533 11,057 17,629
----------- ----------- -----------
Total current assets....................................... 5,650,504 3,718,157 4,522,232
Property and equipment, net (Notes 2 and 4).......................... 113,986 100,704 82,506
Other assets......................................................... 916 1,591 298,531
----------- ----------- -----------
Total assets............................................... $ 5,765,406 $ 3,820,452 $ 4,903,269
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................ $ 55,926 $ 158,297 $ 550,326
Other current liabilities (Note 5).............................. 91,175 141,335 703,848
----------- ----------- -----------
Total current liabilities.................................. 147,101 299,632 1,254,174
----------- ----------- -----------
Commitments (Note 7) -- -- --
Stockholders' equity:
Preferred stock, $.01 par value: 10,000,000 shares authorized:
Convertible Series A; 872,000 shares authorized; 702,500,
702,500, and 707,500, respectively, issued and
outstanding; $10,537,500, $10,537,500, and $10,612,500,
respectively, aggregate liquidation preference........... 7,025 7,025 7,075
Convertible Series B; 100,000 shares authorized; 0, 0 and
100,000, respectively, issued and outstanding; $0, $0 and
$100,000, respectively, aggregate liquidation
preference............................................... -- -- 1,000
Common stock, $.01 par value; 50,000,000 shares authorized;
5,810,415, 6,010,030, and 6,171,876, respectively, issued and
outstanding................................................... 58,104 60,100 61,719
Additional paid-in-capital...................................... 7,318,936 7,341,890 9,434,961
Unearned compensation expense................................... -- -- (912,708)
Deficit accumulated during the development stage................ (1,765,760) (3,888,195) (4,942,952)
----------- ----------- -----------
Total stockholders' equity................................. 5,618,305 3,520,820 3,649,095
----------- ----------- -----------
Total liabilities and stockholders' equity................. $ 5,765,406 $ 3,820,452 $ 4,903,269
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
<PAGE>
ALGOS PHARMACEUTICAL CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE SIX MONTHS CUMULATIVE FROM
DECEMBER 31, ENDED JUNE 30, INCEPTION TO
------------------------------------- ------------------------- JUNE 30,
1993 1994 1995 1995 1996 1996
--------- ----------- ----------- ----------- ----------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues (Note 8).......... $ 214,584 $ -- $ -- $ -- $ 1,500,000 $ 1,811,000
--------- ----------- ----------- ----------- ----------- ---------------
Operating expenses:
Research and
development (Note
2).................. 40,000 653,714 1,614,943 800,784 1,003,585 3,437,242
General and
administrative
expenses............ 435,657 623,219 760,040 396,458 1,628,184 3,816,446
--------- ----------- ----------- ----------- ----------- ---------------
Total operating
expenses....... 475,657 1,276,933 2,374,983 1,197,242 2,631,769 7,253,688
--------- ----------- ----------- ----------- ----------- ---------------
Loss from operations....... (261,073) (1,276,933) (2,374,983) (1,197,242) (1,131,769) (5,442,688)
Interest income............ 4,433 153,247 252,548 138,673 77,012 499,736
--------- ----------- ----------- ----------- ----------- ---------------
Net loss................... $(256,640) $(1,123,686) $(2,122,435) $(1,058,569) $(1,054,757) $(4,942,952)
--------- ----------- ----------- ----------- ----------- ---------------
--------- ----------- ----------- ----------- ----------- ---------------
Pro forma (unaudited) (Note
2):
Net loss per common
share............... $(0.17) $(0.09)
----------- ----------
----------- ----------
Weighted average
number of common
shares
outstanding......... 12,199,217 12,328,907
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
<PAGE>
ALGOS PHARMACEUTICAL CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
1993 1994 1995
--------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................ $(256,640) $(1,123,686) $(2,122,435)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization...... 8,065 18,115 35,782
Amortization of unearned
compensation..................... -- -- --
Common stock issued for
technology....................... 25,000 -- --
Preferred stock issued for services
rendered......................... -- 25,000 --
Preferred stock issued under
license agreement................ -- -- --
Changes in assets and liabilities:
Accounts receivable........... -- -- --
Prepaid expenses.............. 3,737 (14,096) 5,476
Other assets.................. 1,237 600 (675)
Accounts payable.............. (7,038) 25,549 102,371
Other current liabilities..... (63,638) 76,590 50,160
--------- ----------- -----------
Net cash used in operating
activities.................. (289,277) (991,928) (1,929,321)
--------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment..... (425) (106,757) (22,500)
--------- ----------- -----------
Net cash used in investing activities... (425) (106,757) (22,500)
--------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of preferred
stock, net of offering costs.......... -- 6,609,015 --
Proceeds from issuance of common stock
and capital contributions............. 125,000 50 24,950
Deferred financing costs................ -- -- --
--------- ----------- -----------
Net cash provided by financing
activities............................ 125,000 6,609,065 24,950
--------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents................................ (164,702) 5,510,380 (1,926,871)
Cash and cash equivalents, beginning of
period..................................... 288,293 123,591 5,633,971
--------- ----------- -----------
Cash and cash equivalents, end of period..... $ 123,591 $ 5,633,971 $ 3,707,100
--------- ----------- -----------
--------- ----------- -----------
<CAPTION>
FOR THE SIX MONTHS ENDED CUMULATIVE
JUNE 30, INCEPTION
-------------------------- TO JUNE 30,
1995 1996 1996
---- ---- ----
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................$ (1,058,569) $(1,054,757) $(4,942,952)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization...... 17,383 22,253 89,512
Amortization of unearned
compensation..................... -- 198,432 198,432
Common stock issued for
technology....................... -- -- 125,000
Preferred stock issued for services
rendered......................... -- -- 25,000
Preferred stock issued under
license agreement................ -- 915,000 915,000
Changes in assets and liabilities:
Accounts receivable........... -- (2,000,000) (2,000,000)
Prepaid expenses.............. (458) (6,572) (17,629)
Other assets.................. (675) -- (1,591)
Accounts payable.............. 70,686 149,029 307,326
Other current liabilities..... (1,175) 562,513 703,848
------------ ----------- -----------
Net cash used in operating
activities.................. (972,808) (1,214,102) (4,598,054)
------------ ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment..... (8,772) (4,055) (172,018)
------------ ----------- -----------
Net cash used in investing activities... (8,772) (4,055) (172,018)
------------ ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of preferred
stock, net of offering costs.......... -- 50,000 6,659,015
Proceeds from issuance of common stock
and capital contributions............. 24,900 19,600 669,600
Deferred financing costs................ -- (53,940) (53,940)
------------ ----------- -----------
Net cash provided by financing
activities............................ 24,900 15,660 7,274,675
------------ ----------- -----------
Net increase (decrease) in cash and cash
equivalents................................ (956,680) (1,202,497) 2,504,603
Cash and cash equivalents, beginning of
period..................................... 5,633,971 3,707,100 --
------------ ----------- -----------
Cash and cash equivalents, end of period.....$ 4,677,291 $ 2,504,603 $ 2,504,603
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
<PAGE>
ALGOS PHARMACEUTICAL CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK
----------------- -------------------
SHARES AMOUNT SHARES AMOUNT
-------- ------ --------- -------
<S> <C> <C> <C> <C>
Balance, January 1, 1992 (Inception)
Issuance of common stock, January 1992, $.10 per
share........................................... -- $-- 4,841,664 $48,417
Issuance of common stock for technology, January
1992, $.10 per share............................ -- -- 968,336 9,683
Net loss.......................................... -- -- -- --
-------- ------ --------- -------
Balance, December 31, 1992........................ -- -- 5,810,000 58,100
Capital contributions, including $25,000 of
technology...................................... -- -- -- --
Net loss.......................................... -- -- -- --
-------- ------ --------- -------
Balance, December 31, 1993........................ -- -- 5,810,000 58,100
Issuance of preferred stock, May through August
1994, $10.00 per share, net of offering costs... 700,000 7,000 -- --
Issuance of preferred stock for services rendered,
May 1994, $10.00 per share...................... 2,500 25 -- --
Exercise of stock options......................... -- -- 415 4
Net loss.......................................... -- -- -- --
-------- ------ --------- -------
Balance, December 31, 1994........................ 702,500 7,025 5,810,415 58,104
Exercise of stock options......................... -- -- 199,615 1,996
Net loss.......................................... -- -- -- --
-------- ------ --------- -------
Balance, December 31, 1995........................ 702,500 7,025 6,010,030 60,100
Exercise of stock options (unaudited)............. -- -- 161,846 1,619
Exercise of preferred stock warrants
(unaudited)..................................... 5,000 50 -- --
Issuance of Series B preferred stock under license
agreement, June 1996, $9.15 per share
(unaudited)..................................... 100,000 1,000 -- --
Unearned compensation expense (unaudited)......... -- -- -- --
Amortization of unearned compensation expense
(unaudited)..................................... -- -- -- --
Net loss (unaudited).............................. -- -- -- --
-------- ------ --------- -------
Balance, June 30, 1996 (unaudited)................ 807,500 $8,075 6,171,876 $61,719
-------- ------ --------- -------
-------- ------ --------- -------
<CAPTION>
DEFICIT
ACCUMULATED
ADDITIONAL UNEARNED DURING THE TOTAL
PAID-IN COMPENSATION DEVELOPMENT STOCKHOLDERS'
CAPITAL EXPENSE STAGE EQUITY
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Balance, January 1, 1992 (Inception)
Issuance of common stock, January 1992, $.10 per
share...........................................$ 451,583 $ -- $ -- $ 500,000
Issuance of common stock for technology, January
1992, $.10 per share............................ 90,317 -- -- 100,000
Net loss.......................................... -- -- (385,434 ) (385,434)
------------ ------------ ------------ -------------
Balance, December 31, 1992........................ 541,900 -- (385,434 ) 214,566
Capital contributions, including $25,000 of
technology...................................... 150,000 -- -- 150,000
Net loss.......................................... -- -- (256,640 ) (256,640)
------------ ------------ ------------ -------------
Balance, December 31, 1993........................ 691,900 -- (642,074 ) 107,926
Issuance of preferred stock, May through August
1994, $10.00 per share, net of offering costs... 6,602,015 -- -- 6,609,015
Issuance of preferred stock for services rendered,
May 1994, $10.00 per share...................... 24,975 -- -- 25,000
Exercise of stock options......................... 46 -- -- 50
Net loss.......................................... -- -- (1,123,686 ) (1,123,686)
------------ ------------ ------------ -------------
Balance, December 31, 1994........................ 7,318,936 -- (1,765,760 ) 5,618,305
Exercise of stock options......................... 22,954 -- -- 24,950
Net loss.......................................... -- -- (2,122,435 ) (2,122,435)
------------ ------------ ------------ -------------
Balance, December 31, 1995........................ 7,341,890 -- (3,888,195 ) 3,520,820
Exercise of stock options (unaudited)............. 17,981 -- 19,600
Exercise of preferred stock warrants
(unaudited)..................................... 49,950 -- -- 50,000
Issuance of Series B preferred stock under license
agreement, June 1996, $9.15 per share
(unaudited)..................................... 914,000 -- -- 915,000
Unearned compensation expense (unaudited)......... 1,111,140 (1,111,140 ) -- --
Amortization of unearned compensation expense
(unaudited)..................................... -- 198,432 -- 198,432
Net loss (unaudited).............................. -- -- (1,054,757 ) (1,054,757)
------------ ------------ ------------ -------------
Balance, June 30, 1996 (unaudited)................$ 9,434,961 $ (912,708 ) $(4,942,952 ) $ 3,649,095
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
<PAGE>
ALGOS PHARMACEUTICAL CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
(INFORMATION RELATING TO THE SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 30, 1996
AND CUMULATIVE FROM THE DATE OF INCEPTION IS UNAUDITED)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Algos Pharmaceutical Corporation (the 'Company'), is engaged primarily in
the development of proprietary pain management pharmaceuticals.
Since its formation in January 1992, the Company has devoted a substantial
portion of its efforts to developing products, licensing technology, filing
regulatory applications and raising capital and has earned no significant
revenue from its planned principal operations.
The Company is subject to a number of risks common to companies in similar
stages of development including, but not limited to, the lack of assurance of
successful product development, the absence of manufacturing facilities, the
need to raise substantial additional funds and risk of technological
obsolescence.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
DEVELOPMENT STAGE ENTERPRISE
The accompanying statements have been prepared in accordance with the
provisions of Statement of Financial Accounting Standard (SFAS) No. 7,
'Accounting and Reporting by Development Stage Enterprises.'
CASH AND CASH EQUIVALENTS
The Company considers securities with maturities of three months or less,
when purchased, to be cash equivalents.
PROPERTY AND EQUIPMENT, NET
Property and equipment are recorded at cost less accumulated depreciation.
Depreciation is provided on the straight-line method over the estimated useful
lives of the assets which range from three to seven years. Gains and losses on
depreciable assets retired or sold are recognized in the statement of operations
in the year of disposal. Repairs and maintenance expenditures are expensed as
incurred.
REVENUE
License fees are recognized as revenue when earned in accordance with the
terms of the underlying agreements.
F-7
<PAGE>
<PAGE>
ALGOS PHARMACEUTICAL CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
(INFORMATION RELATING TO THE SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 30, 1996
AND CUMULATIVE FROM THE DATE OF INCEPTION IS UNAUDITED)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
RESEARCH AND DEVELOPMENT COSTS
Expenditures for research and development are expensed as incurred.
INCOME TAXES
The Company accounts for income taxes under the provisions of SFAS No. 109,
'Accounting for Income Taxes.' SFAS No. 109 requires recognition of deferred tax
assets and liabilities for the expected future tax consequences of temporary
differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the years in which the
differences are expected to reverse.
STOCK BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, 'Accounting for Stock Based Compensation.' Beginning in 1996, SFAS No. 123
requires expanded disclosures of stock-based compensation arrangements with
employees and encourages, but does not require, the recognition of employee
compensation expense related to stock compensation based on the fair value of
the equity instrument granted. Companies that do not adopt the fair value
recognition provisions of SFAS No. 123 and continue to follow the existing APB
Opinion 25 rules to recognize and measure compensation, will be required to
disclose the pro forma amounts of net income and earnings per share that would
have been reported had the company elected to follow the fair value recognition
of SFAS No. 123. The Company has elected to adopt the disclosure requirements of
this pronouncement.
EARNINGS PER SHARE
Pro forma net loss per common share is based on the net loss and the
weighted average number of common shares after giving effect to the conversion
of all preferred stock as of January 1, 1995. Pursuant to Securities and
Exchange Commission Staff Accounting Bulletin No. 83, all common shares and
stock options and warrants granted by the Company during the twelve months prior
to the filing date of the Registration Statement have been included in the
calculation of weighted average common shares and common share equivalents
outstanding as if they were outstanding for all periods presented. Outstanding
stock options and warrants granted prior to this twelve-month period have not
been included in the calculation of historical net loss per common share because
inclusion of such shares would be antidilutive.
Historical net loss per common share is as follows:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED
FOR THE YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------- ----------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net loss per common share........................ $(0.04) $(0.19) $(0.35) $(0.18) $(0.17)
Weighted average common shares and common share
equivalents outstanding........................ 5,810,000 5,810,050 6,002,635 5,982,922 6,144,700
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
Historical net loss per common share is based on the weighted average
number of common shares outstanding during the periods presented.
F-8
<PAGE>
<PAGE>
ALGOS PHARMACEUTICAL CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
(INFORMATION RELATING TO THE SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 30, 1996
AND CUMULATIVE FROM THE DATE OF INCEPTION IS UNAUDITED)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INTERIM FINANCIAL INFORMATION
The financial information presented as of June 30, 1996, and for the six
months ended June 30, 1995 and 1996 and the cumulative amounts from the date of
inception is unaudited but, in the opinion of management, reflects all
adjustments (which consist of normal accruals) necessary for a fair presentation
of such financial statements.
3. CONCENTRATION OF CREDIT RISK
Cash and cash equivalents consist primarily of shares of a money market
fund which invests primarily in securities of the United States government.
4. PROPERTY AND EQUIPMENT, NET
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Office furniture................................................... $ 58,354 $ 61,119 $ 61,119
Computer equipment................................................. 56,370 73,453 77,508
Office equipment................................................... 24,617 26,447 26,447
Leasehold improvements............................................. 6,121 6,944 6,944
-------- -------- --------
145,462 167,963 172,018
Less accumulated depreciation...................................... 31,476 67,259 89,512
-------- -------- --------
$113,986 $100,704 $ 82,506
-------- -------- --------
-------- -------- --------
</TABLE>
5. OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1994 1995 1996
------- -------- --------
<S> <C> <C> <C>
Deferred revenue..................................................... $ -- $ -- $500,000
Accrued compensation................................................. 79,000 118,100 68,100
Accrued research expenses............................................ -- 23,235 135,748
Advances payable..................................................... 12,175 -- --
------- -------- --------
$91,175 $141,335 $703,848
------- -------- --------
------- -------- --------
</TABLE>
6. INCOME TAXES
Prior to March 1, 1994, the Company had elected to be treated as an S
Corporation for federal income tax reporting purposes. Under this election, the
Company's stockholders were responsible for reporting the Company's federal
taxable loss on their personal tax returns. In connection with the issuance of
Series A Preferred Stock, the Company's S status terminated and the corporation
converted to C Corporation status. The C Corporation assumed the tax bases of
the assets and liabilities of the S Corporation as of the termination date.
Accordingly, the Company records deferred taxes for the effect of cumulative
temporary differences in accordance with the provisions of SFAS No. 109,
'Accounting for Income Taxes' for federal tax purposes as of the termination
date. For state tax purposes, the Company has been treated as a C Corporation
since inception.
F-9
<PAGE>
<PAGE>
ALGOS PHARMACEUTICAL CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
(INFORMATION RELATING TO THE SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 30, 1996
AND CUMULATIVE FROM THE DATE OF INCEPTION IS UNAUDITED)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1995, the Company had available net operating loss
carryforwards and research and development credits for federal income tax
purposes of approximately $2,997,000 and $70,000, respectively, which expire in
the years 2009 through 2010. At June 30, 1996, the Company had available net
operating loss carryforwards of approximately $2,100,000. Due to the uncertainty
of their realization, no income tax benefits have been recorded by the Company
for these net operating loss or credit carryforwards as valuation allowances
have been established for any such benefits. The use of these net operating loss
and credit carryforwards may be subject to limitations under section 382 of the
Internal Revenue Code pertaining to changes in stock ownership.
The increase in the valuation allowance amounted to $406,100 and $906,300
in 1994 and 1995, respectively.
Deferred tax assets and (liabilities) for federal and state income taxes
consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1995
--------- -----------
<S> <C> <C>
Net operating loss carryforwards............................................ $ 382,000 $ 1,236,800
Research and development tax credits........................................ 20,000 70,000
Depreciation and amortization............................................... 2,500 2,400
Accrued liabilities and other............................................... 1,600 3,200
--------- -----------
Total deferred tax assets.............................................. 406,100 1,312,400
Valuation allowance......................................................... (406,100) (1,312,400)
--------- -----------
Net deferred tax assets................................................ $ 0 $ 0
--------- -----------
--------- -----------
</TABLE>
7. COMMITMENTS AND CONTINGENT LIABILITIES
COLLABORATIVE RESEARCH AGREEMENTS
In 1994, the Company entered into collaborative research agreements with
three universities. Under the terms of the agreements, the universities agreed
to provide research exclusively to the Company in the field of pain management
in exchange for funding of the research by the Company. The Company was granted
rights to enter into exclusive, worldwide licenses to make, have made, use and
sell products under any patent application and patent rights resulting from the
research agreement and is required to pay royalties on sales of products
incorporating licensed technology.
The Company expensed $10,000, $182,000 and $118,000 in 1993, 1994 and 1995,
respectively, and $510,000 cumulatively from the date of inception, under these
agreements. Quarterly expenses are mutually agreed to by the Company and each
university.
In addition, the Company has entered into various research and consulting
agreements which are generally one year or less in duration.
LICENSING AGREEMENTS
The Company has a license agreement with a university for certain pain
management technology which requires the Company to pay royalties of 4% of sales
of licensed products and a share of royalties received from sublicensees. A
second license agreement requires annual maintenance fees of $10,000 in addition
to royalties based on sales.
F-10
<PAGE>
<PAGE>
ALGOS PHARMACEUTICAL CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
(INFORMATION RELATING TO THE SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 30, 1996
AND CUMULATIVE FROM THE DATE OF INCEPTION IS UNAUDITED)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
EMPLOYMENT AGREEMENTS
The Company has employment agreements with certain officers and employees
which provide them with continued compensation for periods of six months to two
years in the event of their termination, without cause, by the Company. As of
December 31, 1995, the aggregate amount of the Company's minimum obligation
under these agreements is $751,000.
LEASES
In April 1992, the Company entered into a five year lease agreement for its
office facilities with minimum lease payments of approximately $1,900 per month.
This lease may be canceled by the Company upon four and one-half months notice
and payment of not more than $3,500. The Company is responsible for all
operating expenses associated with the facility. Rent expense amounted to
$11,000, $12,608 and $21,841 for the years ended December 31, 1993, 1994, and
1995, respectively, $11,240 in the six months ended June 30, 1996, and $64,939
cumulatively from the date of inception.
8. REVENUES
In June 1996, the Company entered into a license agreement with McNeil
Consumer Products Company, an affiliate of Johnson & Johnson, which provides
McNeil with exclusive worldwide marketing rights to certain of the Company's
products under development. The Company received an initial payment of
$2,000,000 in July 1996 and may receive additional payments based on the
achievement of certain milestones. McNeil will be responsible for substantially
all of the remaining development costs in excess of $500,000. In addition, the
Company will receive royalties based on sales of licensed products, if any. The
agreement may be terminated by McNeil after one year. The Company recorded
accounts receivable of $2,000,000, revenue of $1,500,000, and deferred revenue
of $500,000 in connection with the transaction.
Prior to 1994 the Company had an agreement to provide consulting services.
Revenues recognized under this agreement amounted to $214,584 in the year ended
December 31, 1993 which represented all of the Company's revenues. The Company
expensed $104,000 in 1993 which was paid to an executive of the Company for
services provided relating to this agreement. Revenues and expenses recognized
under this agreement, since inception were $311,000 and $214,500, respectively.
This agreement was not related to pain management technology and was assigned to
a new corporation in January 1994. The Company will not receive any additional
revenue related to this contract.
9. STOCKHOLDERS' EQUITY
The Company is authorized to issue shares of preferred stock with rights,
preferences and limitations determined by the Board of Directors of the Company,
872,500 of which have been designated Series A and 100,000 of which have been
designated Series B.
Shares of Series A Preferred Stock have preference to Common Stock in
liquidation and are convertible into shares of Common Stock and will
automatically convert upon the consummation of an initial public offering. The
Series A Preferred stockholders are entitled to receive dividends payable on
Common Stock based upon the number of shares of Common Stock into which a share
of Series A Preferred Stock is then convertible. In addition, the Series A
Preferred stockholders are entitled to vote as a class to elect one member of
the Board of Directors of the Company.
In June 1996, the Company issued 100,000 shares of convertible Series B
Preferred Stock in connection with an amendment to a license agreement with a
university and recorded an administrative
F-11
<PAGE>
<PAGE>
ALGOS PHARMACEUTICAL CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
(INFORMATION RELATING TO THE SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 30, 1996
AND CUMULATIVE FROM THE DATE OF INCEPTION IS UNAUDITED)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
expense of $915,000. Shares of Series B Preferred Stock carry dividend rights
equal to shares of Series A Preferred Stock and are convertible into an equal
number of shares of Common Stock at any time on or after February 1, 1997.
On May 21, 1996, the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission for the sale
of Common Stock. If the offering pursuant to the registration statement is
consummated under the terms presently anticipated, all shares of the Series A
Preferred Stock will convert to Common Stock and the Preferred Stock warrants
will convert to Common Stock warrants. The Series A Preferred Stock and
Preferred Stock warrants will convert at a rate of 8.30 common shares for each
preferred share or underlying warrant. In addition, the Board of Directors
authorized a 8.30-for-1 split of all outstanding shares of Common Stock and
authorized an increase in the authorized number of common shares to 50,000,000.
Such split and increase in the authorized number of common shares shall be
consummated upon the effective date of the registration statement. In addition,
upon the closing of the initial public offering, the total number of shares of
preferred stock authorized will be 10,000,000 par value $.01. All references to
common stock, options and per share data have been restated to give effect to
this split.
The Company maintains stock options plans under which options to purchase
shares of common stock have been granted to directors and employees which vest
over periods of up to four years.
Information with respect to options under the plans is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------
AVAILABLE PRICE
FOR GRANT SHARES PER SHARE
--------- -------- ------------
<S> <C> <C> <C>
Balance, December 31, 1993..................................... -- -- $ --
Authorized..................................................... 834,150 -- --
Granted........................................................ (772,730 ) 772,730 .12 - .13
Exercised...................................................... -- (415) .12
--------- --------
Balance, December 31, 1994..................................... 61,420 772,315 .12 - .13
Authorized..................................................... 41,500 -- --
Granted........................................................ (24,900 ) 24,900 .12
Exercised...................................................... -- (199,615) .12 - .13
--------- --------
Balance, December 31, 1995..................................... 78,020 597,600 .12 - .13
Authorized..................................................... 498,000 -- --
Granted........................................................ (243,190 ) 243,190 .12 - .13
Exercised...................................................... -- (161,850) .12
--------- --------
Balance, June 30, 1996......................................... 332,830 678,940 .12 - .13
--------- --------
--------- --------
</TABLE>
As of December 31, 1995, 217,460 options were exercisable at prices ranging
from $0.12 to $0.13 per share. In connection with certain option grants made in
March and April 1996, the Company has recorded unearned compensation expense
amounting to $1,111,140, which will be amortized over the vesting period.
Options to purchase 24,900 shares are exercisable immediately, the remainder
vest over a four year period.
In connection with the sale of Series A Preferred Stock, certain selling
agents received warrants to purchase an aggregate of 40,750 shares of Series A
Preferred Stock at an exercise price of $10.00 per share which expire on the
earlier of 2004 or five years after an initial public offering of stock by the
Company. Warrants to purchase 5,000 shares were exercised in May 1996.
F-12
<PAGE>
<PAGE>
ALGOS PHARMACEUTICAL CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
(INFORMATION RELATING TO THE SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 30, 1996
AND CUMULATIVE FROM THE DATE OF INCEPTION IS UNAUDITED)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. RELATED PARTY TRANSACTION
A director of the Company has been associated with law firms that rendered
various legal services to the Company. The Company paid approximately $3,000,
$95,000 and $16,000 in 1993, 1994 and 1995, respectively, and $22,000 for the
six months ended June 30, 1996, and $165,000 cumulatively from the date of
inception, for these services.
A second director of the Company, appointed in July 1996, is associated
with a law firm which performs legal services for the Company from time to time.
The Company paid approximately $0, $68,000 and $0 in 1993, 1994 and 1995,
respectively, and $68,000 cumulatively from the date of inception for these
services and has accrued approximately $217,000 for services rendered in the six
months ended June 30, 1996, primarily related to the initial public offering.
11. SUBSEQUENT EVENT (UNAUDITED) -- TRANSFER OF INTANGIBLE ASSETS
In August 1996, the Company contributed certain intangible assets having no
book value to PharmaDyn, Inc. ('PharmaDyn'), a newly formed company, and
received preferred stock with an aggregate par value and liquidation preference
of $2,800,000 and all of PharmaDyn's common stock. The common stock was
subsequently distributed to the Company's stockholders, warrant holders and
certain of its employees. The preferred stock provides for an annual cumulative
dividend of 30% which may be paid in the form of cash or PharmaDyn common stock
and a share of other earnings. The preferred stock may be redeemed at any time
for par plus accrued dividends at PharmaDyn's option and at the Company's option
at the end of two years. The Company recorded no gain in connection with the
transactions as management believes that at the present time realization of the
redemption value is not assured.
F-13
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____________________________________ ___________________________________
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING,
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE SHARES OF COMMON STOCK TO WHICH IT RELATES OR AN OFFER TO, OR A
SOLICITATION OF, ANY PERSON IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................................................................................................... 3
Risk Factors........................................................................................................... 6
Use of Proceeds........................................................................................................ 12
Dividend Policy........................................................................................................ 12
Capitalization......................................................................................................... 13
Dilution............................................................................................................... 14
Selected Financial Information......................................................................................... 15
Management's Discussion and Analysis of Financial Condition and Results of Operations.................................. 16
Business............................................................................................................... 19
Management and Key Scientific Advisors................................................................................. 33
Principal Stockholders................................................................................................. 40
Certain Relationships and Related Transactions......................................................................... 41
Description of Capital Stock........................................................................................... 42
Shares Eligible for Future Sale........................................................................................ 44
Certain United States Federal Tax Considerations for Non-United States Holders......................................... 45
Underwriting........................................................................................................... 48
Legal Matters.......................................................................................................... 49
Experts................................................................................................................ 49
Additional Information................................................................................................. 50
Index to Financial Statements.......................................................................................... F-1
</TABLE>
------------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER
OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
3,500,000 SHARES
[LOGO]
ALGOS
PHARMACEUTICAL
CORPORATION
COMMON STOCK
--------------------------
PROSPECTUS
, 1996
--------------------------
LEHMAN BROTHERS
COWEN & COMPANY
____________________________________ ___________________________________
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of the Common Stock being registered. All amounts are estimates
except the registration and filing fees:
<TABLE>
<CAPTION>
DESCRIPTION AMOUNT
----------- ------
<S> <C>
Securities and Exchange Commission registration fee...................................... $ 22,207.05
NASD filing fee.......................................................................... 6,940.00
Printing and engraving expenses.......................................................... *
Legal fees and expenses.................................................................. *
Accounting fees and expenses............................................................. *
Blue Sky fees and expenses............................................................... *
Transfer Agent & Registrar fees.......................................................... *
Nasdaq listing fees...................................................................... 50,000.00
Miscellaneous expenses................................................................... *
-----------
Total............................................................................... $800,000.00
-----------
-----------
</TABLE>
- ------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the 'DGCL') and
Article SEVENTH of the Amended and Restated Certificate of Incorporation provide
for indemnification of the Company's directors and officers in a variety of
circumstances, which may include liabilities under the Securities Act of 1933,
as amended (the 'Securities Act'). Article SEVENTH provides that unless
otherwise determined by the Board of Directors, the Company shall indemnify, to
the full extent permitted by the laws of Delaware as from time to time in
effect, the persons described in Section 145 of DGCL.
The general effect of the provisions in the Amended and Restated
Certificate of Incorporation and the DGCL is to provide that the company shall
indemnify its directors and officers against all liabilities and expenses
actually and reasonably incurred in connection with the defense or settlement of
any judicial or administrative proceedings in which they have become involved by
reason of their status as corporate directors or officers, if they acted in good
faith and in the reasonable belief that their conduct was neither unlawful (in
the case of criminal proceedings) nor inconsistent with the best interests of
the Company. With respect to legal proceedings by or in the right of the Company
in which a director or officer is adjudged liable for improper performance of
his duty to the Company or another enterprise for which such person served in a
similar capacity at the request of the Company, indemnification is limited by
such provisions to that amount which is permitted by the court.
Reference is made to the proposed form of Underwriting Agreement filed as
Exhibit 1.1 which provides for indemnification of the directors and officers of
the Company signing the Registration Statement and certain controlling persons
of the Company against certain liabilities, including certain liabilities under
the Securities Act, by the Underwriters.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the following securities were sold by the
Company without registration under the Securities Act:
Pursuant to Subscription and Stock Purchase Agreements, dated May 9,
June 30, July 15, August 12 and August 22, 1994, the Company issued 70
Units, each Unit consisting of 10,000 shares of Series A Preferred Stock,
$.01 par value, of the Company to management, certain existing stockholders
and a limited number of other investors for an aggregate purchase price of
$7,000,000 in a transaction that was exempt from registration under the
Securities Act pursuant to Regulation D under the Securities Act.
II-1
<PAGE>
<PAGE>
On June 27, 1996, the Company issued 100,000 shares of its Series B
Preferred Stock to The Medical College of Virginia in consideration of
certain amendments to its license agreement in a transaction that was
exempt from registration under the Securities Act pursuant to Section 4(2)
thereof.
On July 18, 1994, November 10, 1995, March 22, 1996, April 1, 1996,
and July 2, 1996 the Company issued options to purchase 772,730 shares,
24,900 shares, 52,290 shares, 190,900 shares and 10,000 shares,
respectively, to its employees and directors pursuant to its 1994 Stock
Option Plan, 1994 Directors Stock Option Plan, 1995 Directors Stock Option
Plan, 1996 Stock Option Plan and 1996 Non-Employee Director Stock Option
Plan in transactions that were exempt from registration under the
Securities Act pursuant to Section 4(2) thereof.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO. TITLE
-- -----
<S> <C>
*1.1 Form of Underwriting Agreement.
***3.1 Form of Amended and Restated Certificate of Incorporation of Algos Pharmaceutical Corporation.
***3.2 Form of Amended and Restated By-laws of Algos Pharmaceutical Corporation.
*4.1 Form of Stock Certificate of Common Stock.
***5.1 Opinion of Latham & Watkins as to the validity of the Common Stock.
**10.1.1 Employment Agreement with respect to John W. Lyle.
**10.1.2 Employment Agreement with respect to Gastone Bello.
**10.1.3 Employment Agreement with respect to Frank S. Caruso.
***10.2.1 1994 Stock Option Plan.
***10.2.2 Form of 1996 Stock Option Plan.
***10.2.3 Form of 1996 Non-Employee Director Stock Option Plan.
**10.3.1 Algos Pharmaceutical Corporation Stockholders' Agreement.
***10.4.1 License Agreement with The Medical College of Virginia.'DD'
***10.4.2 License Agreement with McNeil.'DD'
***10.4.3 Registration Rights Agreement with The Medical College of Virginia.
*10.5.1 Lease Agreement between Collingwood Plaza Associates and U.S. Medical Technologies, Inc., predecessor
to the Company.
**11 Statement regarding computation of per share earnings.
**21 Subsidiaries of the Registrant.
***23.1 Consent of Coopers & Lybrand L.L.P.
***23.2 Consent of Dilworth & Barrese.
***23.3 Consent of Latham & Watkins (included in Exhibit 5.1).
**24 Powers of Attorney.
`D'27 Financial Data Schedule.
</TABLE>
- ------------
* To be filed by amendment.
** Previously filed.
*** Filed herewith.
`D' Included in EDGAR filing only.
'DD' Portions of this Exhibit have received confidential treatment pursuant
to Rule 406(b) under the Securities Act.
(b) Financial Statement Schedules:
None.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or
II-2
<PAGE>
<PAGE>
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of Prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be a part of this
Registration Statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of Prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed by the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of Prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
Prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York, on September 5, 1996.
ALGOS PHARMACEUTICAL CORPORATION
By: /s/ John W. Lyle
...................................
JOHN W. LYLE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/S/ JOHN W. LYLE* President, Chief Executive Officer and September 5, 1996
......................................... Director
(JOHN W. LYLE)
DONALD G. DRAPKIN* Director September 5, 1996
.........................................
(DONALD G. DRAPKIN)
JAMES R. LEDLEY* Assistant Secretary and Director September 5, 1996
.........................................
(JAMES R. LEDLEY)
DIETER A. SULSER* Director September 5, 1996
.........................................
(DIETER A. SULSER)
/S/ ROGER H. KIMMEL Director September 5, 1996
.........................................
(ROGER H. KIMMEL)
/S/ GARY ANTHONY Chief Financial Officer September 5, 1996
.........................................
(GARY ANTHONY)
*By: /s/ John W. Lyle
.........................................
JOHN W. LYLE
(ATTORNEY-IN-FACT)
</TABLE>
II-4
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. TITLE PAGE
-- ----- -----
<S> <C> <C>
*1.1 Form of Underwriting Agreement................................................................
***3.1 Form of Amended and Restated Certificate of Incorporation of Algos Pharmaceutical Corporation.
***3.2 Form of Amended and Restated By-laws of Algos Pharmaceutical Corporation......................
*4.1 Form of Stock Certificate of Common Stock.....................................................
***5.1 Opinion of Latham & Watkins as to the validity of the Common Stock............................
**10.1.1 Employment Agreement with respect to John W. Lyle.............................................
**10.1.2 Employment Agreement with respect to Gastone Bello............................................
**10.1.3 Employment Agreement with respect to Frank S. Caruso..........................................
***10.2.1 1994 Stock Option Plan........................................................................
***10.2.2 Form of 1996 Stock Option Plan................................................................
***10.2.3 Form of 1996 Non-Employee Director Stock Option Plan..........................................
**10.3.1 Algos Pharmaceutical Corporation Stockholders' Agreement......................................
***10.4.1 License Agreement with The Medical College of Virginia'DD'..................................
***10.4.2 License Agreement with McNeil'DD'...........................................................
***10.4.3 Registration Rights Agreement with The Medical College of Virginia............................
*10.5.1 Lease Agreement between Collingwood Plaza Associates and U.S. Medical Technologies, Inc.,
predecessor to the Company .................................................................
**11 Statement regarding computation of per share earnings.........................................
**21 Subsidiaries of the Registrant................................................................
***23.1 Consent of Coopers & Lybrand L.L.P. ..........................................................
***23.2 Consent of Dilworth & Barrese.................................................................
***23.3 Consent of Latham & Watkins (included in Exhibit 5.1).........................................
**24 Powers of Attorney............................................................................
`D'27 Financial Data Schedule.
</TABLE>
- ------------
* To be filed by amendment.
** Previously filed.
*** Filed herewith.
'D' Included in EDGAR filing only.
'DD' Portions of this Exhibit have received confidential treatment pursuant
to Rule 406(b) under the Securities Act.
STATEMENT OF DIFFERENCES
------------------------
The trademark symbol shall be expressed as 'tm'
The registered trademark symbol shall be expressed as 'r'
The dagger symbol shall be expressed as 'D'
The double dagger symbol shall be expressed as 'DD'
<PAGE>
<PAGE>
FORM OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ALGOS PHARMACEUTICAL CORPORATION
(originally incorporated December 20, 1991
as U.S. Medical Technologies, Inc.)
--------------------------------------------
Adopted in accordance with the provisions of Section 242 and
Section 245 of the General Corporation Law of the State of Delaware (the
"GCL")
--------------------------------------------
I, the President and Chief Executive Officer of Algos Pharmaceutical
Corporation (the "Corporation"), a corporation existing under the laws of the
State of Delaware, do hereby certify as follows:
FIRST: That the Corporation was incorporated December 20, 1991.
SECOND: That the Certificate of Incorporation of the Corporation has
been amended and restated in its entirety as follows:
ARTICLE I
NAME
The name of the Corporation is Algos Pharmaceutical Corporation.
ARTICLE II
REGISTERED OFFICE
The address of the Corporation's registered office is 1013 Centre Road,
in the City of Wilmington, County of New Castle, Delaware 19805. The name of its
registered agent at such address is The Prentice-Hall Corporation System, Inc.
2
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<PAGE>
ARTICLE III
PURPOSES
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the GCL.
ARTICLE IV
CAPITAL STRUCTURE
The total number of shares of stock which the Corporation shall have
authority to issue is sixty million (60,000,000) divided into fifty million
(50,000,000) shares of common stock, of the par value of $0.01 per share (the
"Common Stock"), and ten million (10,000,000) shares of preferred stock, of the
par value of $0.01 per share (the "Preferred Stock").
The Board of Directors of the Corporation is authorized, subject to
limitations prescribed by law and the provisions of this Article IV, to provide
for the issuance of the shares of Preferred Stock in series, and by filing a
certificate pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each such
series, and to fix the designation, powers, privileges, preferences and rights
of the shares of each such series and the qualifications, limitations or
restrictions thereof.
The authority of the Board of Directors of the Corporation with respect
to each series shall include, but not be limited to, determination of the
following:
(a) The number of shares constituting that series and the
distinctive designation of that series;
(b) The dividend rate on the shares of that series, whether
dividends shall be cumulative, and, if so, from which date or dates, and the
relative rights of priority, if any, of payment of dividends on shares of that
series;
(c) Whether that series shall have voting rights, in addition to
the voting rights provided by law, and, if so, the terms of such voting rights,
[provided that no series of Preferred Stock shall have a class vote unless the
same has been approved in writing by the holders of at least a majority of the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors];
(d) Whether that series shall have conversion privileges, and, if
so, the terms and conditions of such conversion, including provision for
adjustment of the conversion rate in such events as the Board of Directors shall
determine;
(e) Whether or not the shares of that series shall be redeemable,
and, if so, the terms and conditions of such redemption, including the date or
dates upon or after which they shall be redeemable, and the amount per share
payable in case of redemption, which amount may vary under different conditions
and at different redemption dates;
3
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<PAGE>
(f) Whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so, the terms and
amount of such sinking fund;
(g) The rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, and the relative rights of priority, if any, of payment of shares
of that series; and
(h) Any other relative rights, preferences and limitations of
that series.
Dividends on outstanding shares of Preferred Stock shall be paid or
declared and set apart for payment before any dividends shall be paid or
declared and set apart for payment on the Common Stock with respect to the same
dividend period.
If upon any voluntary or involuntary liquidation, dissolution or winding
up of the Corporation, the assets available for distribution to holders of
shares of Preferred Stock of all series shall be insufficient to pay such
holders the full preferential amount to which they are entitled, then such
assets shall be distributed ratably among the shares of all series of Preferred
Stock in accordance with the respective preferential amounts (including unpaid
cumulative dividends, if any) payable with respect thereto.
ARTICLE V
VOTING RIGHTS
Subject to the voting rights provided by law or granted to any series of
Preferred Stock, all rights to vote and all voting power shall be exclusively
vested in the Common Stock.
ARTICLE VI
STOCKHOLDER ACTION AND THE BOARD OF DIRECTORS
Any action required or permitted to be taken by stockholders of the
Corporation must be effected at a duly called annual or special meeting of
stockholders and may not be effected by a consent in writing. Special meetings
may be called only by the Chairman of the Board or the President of the
Corporation or by the majority of the whole Board of Directors.
The number of directors constituting the entire Board of Directors of
the Corporation shall be fixed by, or in the manner provided in, the
Corporation's By-Laws from time to time.
ARTICLE VII
BYLAWS
In furtherance and not in limitation of the powers conferred by the laws
of the State of Delaware, a majority of the entire Board of Directors of the
Corporation is expressly authorized to make, alter and repeal from time to time
the By-Laws of the Corporation, subject to the power of the
4
<PAGE>
<PAGE>
stockholders of the Corporation to alter or repeal any by-law made by the Board
of Directors of the Corporation.
ARTICLE VIII
BUSINESS COMBINATIONS
In addition to any affirmative vote required by law, and except as
otherwise expressly provided in section (b) of this Article, any business
combination (as hereinafter defined) shall require the affirmative vote of the
holders of at least 66 2/3% of the outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors, considered
for the purpose of this Article as one class ("Voting Shares"). Such affirmative
vote shall be required (unless subsection (b)(A) or (b)(B) of this Article
applies) notwithstanding the fact that no vote may be required, or that some
lesser percentage may be specified, by law or in any agreement with any national
securities exchange or otherwise.
(a) 1. The term "business combination" as used in this Article
shall mean any transaction which is referred to in any one or more of the
following clauses (A) through (E):
(A) any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with or into (i) any Interested Stockholder
(as hereinafter defined) or (ii) any other corporation (whether or not itself an
Interested Stockholder) which, after such merger or consolidation, would be an
Affiliate (as hereinafter defined) of an Interested Stockholder, or
(B) any sale, lease, exchange, mortgage, pledge, transfer
or other disposition (in one transaction or a series of related transactions) to
or with any Interested Stockholder or any Affiliate of any Interested
Stockholder of any assets of the Corporation or any Subsidiary having an
aggregate fair market value of more than twenty five percent (25%) of the Fair
Value (as hereinafter defined) of the shares of Common Stock of the Corporation
outstanding immediately prior to such transaction, or
(C) the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of related transactions) of any
securities of the Corporation or any Subsidiary to any Interested Stockholder or
any Affiliate of any Interested Stockholder in exchange for cash, securities or
other property (or a combination thereof) having an aggregate fair market value
of more than twenty-five (25%) of the Fair Value of the shares of Common Stock
of the Corporation outstanding immediately prior to such transaction, or
(D) the adoption of any plan or proposal for the
liquidation or dissolution of the Corporation proposed by or on behalf of an
Interested Stockholder or any Affiliate of an Interested Stockholder, except
that this provision shall not limit the right of stockholders to elect
voluntarily to wind up or dissolve the Corporation, or
(E) any reclassification of securities (including any
reverse stock split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any similar
transaction (whether or not with or into or otherwise involving an Interested
Stockholder) which has the effect, directly or indirectly, of increasing the
proportionate
5
<PAGE>
<PAGE>
share of the outstanding shares of any class of equity securities of the
Corporation or any Subsidiary or any class of securities exchangeable for or
convertible into any such class of equity securities of the Corporation or any
Subsidiary which is directly or indirectly owned by any Interested Stockholder
or any Affiliate of any Interested Stockholder.
(b) A business combination shall not be subject to the provisions
of section (a) of this Article, and shall require only such affirmative vote as
is required by law, if either:
(A) the business combination has been approved by a
majority of the whole Board of Directors of the Corporation; or
(B) the aggregate amount of the cash and fair market
value of consideration other than cash to be received per share by holders of
Common Stock in such business combination shall be at least equal to the highest
of the following:
(i) the highest per share price (including brokerage
commissions, transfer taxes and soliciting dealers' fees) paid by such
Interested Stockholder for any shares of Common Stock acquired by it within the
two-year period prior to the business combination;
(ii) the Fair Value per share of Common Stock on the
Determination Date for such business combination; and
(iii) the Fair Value per share of Common Stock on the
Announcement Date of such business combination.
(c) For the purposes of this Article:
1. A "person" shall mean any individual, firm,
corporation or other entity.
2. "Interested Stockholder" shall mean, in respect of any
business combination, any person (other than the Corporation or any Subsidiary)
who or which, as of the record date for the determination of stockholders
entitled to notice of and to vote on such business combination, or immediately
prior to the consummation of any such transaction:
(A) is the beneficial owner, directly or indirectly,
of more than 10% of the Voting Shares, or
(B) is an Affiliate of the Corporation and at any
time within two years prior thereto was the beneficial owner, directly or
indirectly, of not less than 10% of the then outstanding Voting Shares, or
(C) is an assignee of or has otherwise succeeded to
any shares of capital stock of the Corporation which were at any time within two
years prior thereto beneficially owned by any Interested Stockholder, unless
such assignment or succession shall have occurred in a transaction that is a
public offering within the meaning of the Securities Act of 1933, as amended.
6
<PAGE>
<PAGE>
3. A "person" shall be the "beneficial owner" of any
Voting Shares:
(A) which such person or any of its Affiliates and
Associates (as hereinafter defined) beneficially own, directly or indirectly, or
(B) which such person or any of its Affiliates or
Associates has (i) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to any agreement,
arrangement or understanding or upon the exercise of conversion rights, exchange
rights, warrants or options, or otherwise, or (ii) the right to vote pursuant to
any agreement, arrangement or understanding, or
(C) which are beneficially owned, directly or
indirectly, by any other person with which such first mentioned person or any of
its Affiliates or Associates has any agreement, arrangement or understanding for
the purposes of acquiring, holding, voting or disposing of any shares of capital
stock of the Corporation.
4. The outstanding Voting Shares shall include shares
deemed owned through application of paragraph 3 above but shall not include any
other Voting Shares which may be issuable pursuant to any agreement, or upon
exercise of conversion rights, warrants or options, or otherwise.
5. "Affiliate" and "Associate" shall have the respective
meanings given those terms in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934 as in effect on the date of adoption
of this Article.
6. "Subsidiary" shall mean any corporation of which a
majority of any class of equity security as defined in Rule 3a11-1 of the
General Rules and Regulations under the Securities Exchange Act of 1934 as in
effect on the date of the adoption of this Article) is owned, directly or
indirectly, by the Corporation; provided, however, that for the purposes of the
definition of Interested Stockholder set forth in paragraph 2 of this section
(c) the term "Subsidiary" shall mean only a corporation of which a majority of
each class of equity security is owned, directly or indirectly, by the
Corporation.
7. "Fair Value" of a share of capital stock of the
Corporation on a given date shall mean (i) the highest reported closing sale
price during the 30-day period immediately preceding such date of a share of
such capital stock on the principal securities exchange on which shares of such
capital stock are listed, (ii) if shares of such capital stock are not listed on
any national securities exchange, the highest reported closing sale price or, if
there is no closing sale price, closing bid quotation for a share of such
capital stock during the 30-day period immediately preceding such date on the
National Association of Securities Dealers, Inc.'s Automated Quotations System
or any similar system then in use or, (iii) if no such prices or quotations are
available, the fair market value on such date of a share of such capital stock
as determined by the Board in the manner described in paragraph (d).
8. "Determination Date" shall mean the date on which an
Interested Stockholder became an Interested Stockholder.
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9. "Announcement Date" shall mean the date of the first
public announcement of any proposed business combination.
10. In the event of a business combination in which the
Corporation survives, the phrase "consideration other than cash to be received"
as used in clause (B) of section (b) of this Article shall include any Voting
Shares retained by the holders thereof.
(d) A majority of the directors shall have the power and duty to
determine for the purposes of this Article on the basis of information known to
them, (1) the number of Voting Shares beneficially owned by any person, (2)
whether a person is an Affiliate or Associate of another, (3) whether a person
has an agreement, arrangement or understanding with another as to the matters
referred to in paragraph 3 of section (c), or (4) whether the assets subject to
any business combination have, or the consideration received for the issuance or
transfer of securities by the Corporation or any Subsidiary in a proposed
business combination has, an aggregate fair market value of more than 25% of the
Fair Value of the shares of capital stock of the Corporation outstanding
immediately prior to such transaction. The determination of a majority of the
whole Board of Directors shall be final, conclusive and binding on all persons
for all purposes.
(e) Nothing contained in this Article shall be construed to
relieve any Interested Stockholder from any fiduciary obligation imposed by law.
(f) Notwithstanding any other provision contained in this
Certificate of Incorporation or the Corporation's By-Laws, this Article VIII
shall not be amended or repealed, and no provision inconsistent therewith shall
be adopted, unless such adoption, amendment or repeal is approved by the
affirmative vote of the holders of at least 66 2/3% of the voting power of all
shares of capital stock of the Corporation then outstanding entitled to vote
generally for the election of directors.
ARTICLE IX
INDEMNIFICATION AND EXCULPATION OF DIRECTOR LIABILITY
Each person who was or is made a party or is threatened to be made a
party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer of the Corporation or is or was
serving at the request of the Corporation as a director or officer of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis of
such proceeding is alleged action in an official capacity as a director or
officer or in any other capacity while serving as a director or officer, shall
be indemnified and held harmless by the Corporation to the fullest extent
permitted by Delaware law as the same exists or may hereafter be amended (but,
in the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment), against all
expense, liability and loss (including attorneys fees, judgments, fines, excise
taxes or penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director or
officer and shall inure to the benefit of his or her
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heirs, executors and administrators; provided, however, that except as provided
below, the Corporation shall indemnify any such person seeking indemnification
in connection with a proceeding (or part thereof) initiated by such person only
if such proceeding (or part thereof) was authorized by the Board. The right to
indemnification conferred in this paragraph shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that, if the GCL requires the payment of such expenses incurred by a
director or officer in his or her capacity as a director or officer (and not in
any other capacity in which service was or is rendered by such person while a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of a proceeding, such payment
shall be made only upon delivery to the Corporation of an undertaking, by or on
behalf of such director or officer, to repay all amounts so advanced if it shall
ultimately be determined that such director or officer is not entitled to be
indemnified under this paragraph or otherwise.
If a claim under the preceding paragraph of this Article is not paid in
full by the Corporation within 90 days after a written claim has been received
by the Corporation, the claimant may at any time thereafter bring suit against
the Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the Corporation) that the claimant has
not met the standards of conduct which make it permissible under the GCL for the
Corporation to indemnify the claimant for the amount claimed. Neither the
failure of the Corporation (including any required action by directors,
independent legal counsel, or stockholders) to have made a determination prior
to the commencement of such action that indemnification of the claimant is
proper in the circumstances because he or she has met the applicable standard of
conduct set forth in the GCL, nor an actual determination by the Corporation
(including any required action by directors, independent legal counsel, or
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
Article shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaw, agreement, vote of stockholders or disinterested directors
or otherwise.
The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expense, liability or
loss under the GCL.
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation and its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) for unlawful payments of dividends or unlawful stock
repurchases or redemptions, as provided in Section 174 of the GCL, or (iv) for
any transaction from which the director derived any improper
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personal benefit. If the GCL is amended to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the GCL, as so amended. Any repeal or modification of this
paragraph by the stockholders of the Corporation shall not adversely affect any
right or protection of a director of the Corporation existing at the time of
such repeal or modification.
ARTICLE X
AMENDMENTS
The Corporation reserves the right at any time, and from time to time,
to amend, alter, change or repeal any provision contained in this Amended and
Restated Certificate of Incorporation, and other provisions authorized by the
laws of the State of Delaware at the time in force may be added or inserted, in
the manner now or hereafter prescribed by law; and all rights, preferences and
privileges of whatsoever nature conferred upon stockholders, directors or any
other persons whomsoever by and pursuant to this Amended and Restated
Certificate of Incorporation in its present form or as hereafter amended are
granted subject to the rights reserved in this article provided, however, that
amendment or repeal of Articles VI, IX and this Article X, and any reduction of
the number of authorized shares of Common Stock and Preferred Stock requires the
affirmative vote of the holders of at least 662/3% of the outstanding voting
stock of the Corporation.
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IN WITNESS WHEREOF, the undersigned has executed this Amended and
Restated Certificate of Incorporation as of _____________, 1996.
ALGOS PHARMACEUTICAL CORPORATION
By:_____________________________________
John W. Lyle
President and Chief Executive Officer
ATTEST:
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FORM OF
AMENDED AND RESTATED
BY-LAWS OF
ALGOS PHARMACEUTICAL CORPORATION
<PAGE>
<PAGE>
FORM OF AMENDED AND RESTATED
BY-LAWS OF
ALGOS PHARMACEUTICAL CORPORATION
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I OFFICES........................................................ 1
SECTION 1.1. REGISTERED OFFICE........................................... 1
SECTION 1.2. OTHER OFFICES............................................... 1
ARTICLE II STOCKHOLDERS................................................... 1
SECTION 2.1. ANNUAL MEETINGS......................................... 1
SECTION 2.2. DEFERRED MEETING FOR ELECTION OF
DIRECTORS, ETC .................................. 1
SECTION 2.3. OTHER SPECIAL MEETINGS.................................. 1
SECTION 2.4. FIXING RECORD DATE...................................... 2
SECTION 2.5. NOTICE OF MEETINGS OF STOCKHOLDERS...................... 2
SECTION 2.6. WAIVERS OF NOTICE....................................... 4
SECTION 2.7. LIST OF STOCKHOLDERS.................................... 4
SECTION 2.8. QUORUM OF STOCKHOLDERS; ADJOURNMENT...................... 5
SECTION 2.9. VOTING; PROXIES......................................... 5
SECTION 2.10. SELECTION AND DUTIES OF INSPECTORS AT
MEETING OF STOCKHOLDERS................................. 5
SECTION 2.11. ORGANIZATION............................................ 6
SECTION 2.12. ORDER OF BUSINESS....................................... 6
ARTICLE III DIRECTORS...................................................... 7
SECTION 3.1. NUMBER AND TERM......................................... 7
SECTION 3.2. RESIGNATIONS............................................ 7
SECTION 3.3. VACANCIES............................................... 7
SECTION 3.4. REMOVAL................................................. 7
SECTION 3.5. INCREASE OR DECREASE OF NUMBER.......................... 7
SECTION 3.6. POWERS.................................................. 7
SECTION 3.7. COMMITTEES.............................................. 7
SECTION 3.8. MEETINGS................................................ 9
SECTION 3.9. TELEPHONE MEETING....................................... 9
SECTION 3.10. QUORUM.................................................. 9
SECTION 3.11. COMPENSATION........................................... 10
SECTION 3.12. ACTION WITHOUT MEETING................................. 10
SECTION 3.13. ANNUAL REPORT.......................................... 10
ARTICLE IV OFFICERS...................................................... 10
SECTION 4.1. OFFICERS............................................... 10
SECTION 4.2. REMOVAL OF OFFICERS..................................... 10
SECTION 4.3. RESIGNATIONS............................................ 10
SECTION 4.4. VACANCIES............................................... 11
SECTION 4.5. COMPENSATION............................................ 11
SECTION 4.6. PRESIDENT............................................... 11
</TABLE>
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<TABLE>
<S> <C> <C>
SECTION 4.7. VICE PRESIDENTS......................................... 11
SECTION 4.8. SECRETARY ......................................... 12
SECTION 4.9. TREASURER ......................................... 12
SECTION 4.10. ASSISTANT SECRETARIES AND ASSISTANT
TREASURERS.............................................. 13
ARTICLE V CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS,
ETC............................................................ 13
SECTION 5.1. EXECUTION OF CONTRACTS.................................. 13
SECTION 5.2. LOANS................................................... 13
SECTION 5.3. CHECKS, DRAFTS, ETC..................................... 13
SECTION 5.4. DEPOSITS................................................ 13
ARTICLE VI STOCKS AND DIVIDENDS........................................... 14
SECTION 6.1. CERTIFICATES REPRESENTING SHARES........................ 14
SECTION 6.2. TRANSFER OF SHARES...................................... 14
SECTION 6.3. TRANSFER AND REGISTRY AGENTS............................ 14
SECTION 6.4. LOST, DESTROYED, STOLEN AND MUTILATED
CERTIFICATES............................................ 14
SECTION 6.5. REGULATIONS............................................. 15
SECTION 6.6. RESTRICTION ON TRANSFER OF STOCK........................ 15
SECTION 6.7. DIVIDENDS, SURPLUS, ETC................................. 16
ARTICLE VII MISCELLANEOUS.................................................. 16
SECTION 7.1. SEAL.................................................... 16
SECTION 7.2. FISCAL YEAR............................................. 16
ARTICLE VIII INDEMNIFICATION AND INSURANCE.................................. 16
SECTION 8.1. INDEMNIFICATION................................................ 16
SECTION 8.2. INSURANCE...................................................... 17
SECTION 8.3. INDEMNIFICATION AGREEMENTS..................................... 17
ARTICLE IX AMENDMENTS..................................................... 17
</TABLE>
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ARTICLE I
OFFICES
SECTION 1.1. REGISTERED OFFICE. The registered office of Algos
Pharmaceutical Corporation (the "Corporation") shall be located at 1013 Centre
Road, City of Wilmington, County of New Castle, State of Delaware 19805. The
Prentice-Hall Corporation System, Inc. shall be the registered agent of the
Corporation.
SECTION 1.2. OTHER OFFICES. The Corporation may have other
offices either within or without the State of Delaware at such place or places
as the Board of Directors may from time to time appoint or the business of the
Corporation may require.
ARTICLE II
STOCKHOLDERS
SECTION 2.1. ANNUAL MEETINGS. Annual meetings of stockholders for
the election of directors and for such other business as may be stated in the
notice of the meeting, shall be held at such place, either within or without the
State of Delaware, and at such time and date as the Board of Directors, by
resolution, shall determine and as set forth in the notice of the meeting. In
the event the Board of Directors fails to so determine the time, date and place
of meeting, the annual meeting of stockholders shall be held at the registered
office of the Corporation in Delaware within three months of the end of the
fiscal year.
If the date of the annual meeting shall fall upon a legal
holiday, the meeting shall be held on the next succeeding business day. At each
annual meeting, the stockholders entitled to vote shall elect the appropriate
class or classes of the Board of Directors and may transact such other corporate
business as shall be stated in the notice of the meeting.
SECTION 2.2. DEFERRED MEETING FOR ELECTION OF DIRECTORS, ETC. If
the annual meeting of stockholders for the election of the appropriate class or
classes of the directors and the transaction of other business is not held
within the time specified in Section 2.1, the Board of Directors shall call a
meeting of stockholders for the election of the appropriate directors and the
transaction of other business as soon thereafter as convenient.
SECTION 2.3. OTHER SPECIAL MEETINGS. A special meeting of
stockholders, unless otherwise prescribed by statute, may be called at any time
but only by the Chairman of the Board or by the President of the Corporation or
by the majority of the whole Board of Directors, to be held on the date, at the
time and place within or without the State of Delaware as the Chairman of the
Board of Directors or the President or the Board of Directors, whichever has
called the meeting, shall direct. At any special meeting of stockholders only
such business shall be
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conducted as is brought before such meeting pursuant to the notice thereof given
pursuant to Section 2.5 of the Amended and Restated By-laws (the "By-laws") or
in any waiver of notice thereof given pursuant to Section 2.6 of the By-laws.
SECTION 2.4. FIXING RECORD DATE. For the purpose of determining
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or for the purpose of determining stockholders entitled to
receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion
or exchange of stock, of for the purpose of any other lawful action, the Board
of Directors may fix, in advance, a date as of the record date for any such
determination of stockholders. Such date shall not be more than sixty nor less
than ten days before the date of such meeting, nor more than sixty days prior to
any other action. If no such record date is fixed:
2.4.1 The record date for the determination of
stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding
the day on which notice is given, or, if no notice is given, or, if
notice is waived, at the close of business on the day next preceding the
day on which the meeting is held;
2.4.2 The record date for determining stockholders
entitled to express consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is necessary,
shall be the day on which the first written consent is expressed; and
2.4.3 The record date for determining stockholders for any
purpose other than those specified in Sections 2.4.1 and 2.4.2 shall be
at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto.
When a determination of stockholders entitled to notice of or to vote at any
meeting of stockholders has been made as provided in this Section 2.4, such
determination shall apply to any adjournment thereof, unless the Board of
Directors fixes a new record date for the adjourned meeting.
SECTION 2.5. NOTICE OF MEETINGS OF STOCKHOLDERS.
At any meeting of the stockholders, only such business
(including the nomination of persons for election as directors as described
below) shall be conducted as shall have been properly brought before the
meeting. To be properly brought before a meeting, business must be (a) specified
in the notice of meeting (or any supplement thereto) given by or at the
direction of the Board of Directors, (b) otherwise properly brought before the
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meeting by or at the direction of the Board of Directors, or (c) otherwise
properly brought before the meeting by a stockholder. For business to be
properly brought before a meeting by a stockholder, the stockholder must have
given timely notice thereof in writing to the Secretary of the Corporation. In
the case of an annual meeting, to be timely, a stockholder's notice shall be
delivered to and received by the Secretary of the Corporation at the principal
executive offices of the Corporation not less than 60 days nor more than 90 days
prior to the meeting; provided, however, that in the event that less than 70
days' notice or prior public disclosure of the date of the meeting is given or
made to stockholders, notice by the stockholder to be timely must be so received
no later than the close of business on the tenth day following the day on which
such notice of the date of the meeting was mailed or such public disclosure was
made. In the case of a special meeting, to be timely, a stockholder's notice
must be delivered not more than ninety days prior to the special meeting and not
later than the later of sixty days prior to the special meeting and ten days
following the day on which public announcement of the meeting is first made by
the Corporation.
A stockholder's notice to the Secretary shall set forth as to
each matter the stockholder proposes to bring before the annual meeting (a) a
brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (b)
the name and address, as they appear on the Corporation's books, of the
stockholder proposing such business, (c) the class and number of shares of the
Corporation which are beneficially owned by the stockholder and (d) any material
interest of the stockholder in such business. Notwithstanding anything in the
By-Laws to the contrary, no business shall be conducted at an annual meeting
except in accordance with the procedures set forth in this Section 2.5.
In the case of nominations of persons for election as directors,
only persons who are nominated in accordance with the following procedures shall
be eligible for election as directors. Nominations of persons for election to
the Board of Directors of the Corporation may be made at a meeting of
stockholders (i) by or at the direction of the Board of Directors, (ii) by any
nominating committee or person appointed to make such nominations by the Board
of Directors, or (iii) by any stockholder of the Corporation entitled to vote
for the election of directors at the meeting who complies with the notice
procedures set forth in this Section 2.5. Such nominations, if made by a
stockholder of the Corporation as such, shall be made pursuant to timely notice
(as described in the first paragraph of this Section 2.5) in writing addressed
to the Secretary of the Corporation. Such stockholder's notice shall set forth:
(a) as to each person whom the stockholder proposes to nominate for election or
re-election as a director (i) the name, age, business address and residence
address of the person, (ii) the principal occupation or
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employment of the person, (iii) the class and number of shares of stock of the
Corporation which are beneficially owned by the person and (iv) any other
information relating to the person that would be required to be disclosed in
solicitations for proxies for the election of directors pursuant to Regulation
14A under the Securities Exchange Act of 1934, as amended, or any successor
thereto, and (b) as to the stockholder giving the notice (i) the name and record
address of the stockholder and (ii) the class and number of shares of the
Corporation which are beneficially owned by the stockholder. The Corporation may
require any proposed nominee to furnish such other information as may reasonably
be required by the Corporation to determine the eligibility of such proposed
nominee to serve as a director of the Corporation. No person shall be eligible
for election as a director of the Corporation unless nominated in accordance
with the procedures set forth herein.
The presiding officer of an annual meeting shall, if the facts
warrant, determine and declare to the meeting that business or a nomination of a
director was not properly brought before the meeting in accordance with this
Section 2.5, and if the presiding officer should so determine, the presiding
officer shall so declare to the meeting and say such business not properly
brought before the meeting shall not be transacted or that the defective
nomination shall be disregarded.
SECTION 2.6. WAIVERS OF NOTICE. Whenever notice is required to be
given to the stockholders under any provision of the General Corporation Law of
the State of Delaware (the "GCL") or the Amended and Restated Certificate of
Incorporation (the "Certificate of Incorporation") or the By-laws, a written
waiver thereof, signed by a stockholder entitled to notice, whether before or
after the time stated therein, shall be deemed equivalent to notice. Attendance
of a stockholder at a meeting shall constitute a waiver of notice of such
meeting, except when the stockholder attends a meeting for the express purpose
of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice.
[SECTION 2.7.] LIST OF STOCKHOLDERS. The Secretary shall prepare
and make, or cause to be prepared and made, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified, or at the place where the
meeting is to be held. The list shall also be
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produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
SECTION 2.8. QUORUM OF STOCKHOLDERS; ADJOURNMENT. The holders of
a majority of the shares of stock entitled to vote at any meeting of
stockholders, present in person or represented by proxy, shall be necessary and
sufficient to constitute a quorum for the transaction of any business at such
meeting, except where otherwise provided by the GCL. When a quorum is once
present to organize a meeting of stockholders, it is not broken by the
subsequent withdrawal of any stockholder. The holders of a majority of the
shares of stock present in person or represented by proxy at any meeting of
stockholders, including an adjournment meeting, whether or not a quorum is
present, may adjourn such meeting to another time and place.
SECTION 2.9. VOTING; PROXIES. Unless otherwise provided in the
Certificate of Incorporation, every stockholder of record shall be entitled at
every meeting of stockholders to one vote for each share of capital stock
standing in his name on the record of stockholders determined in accordance with
Section 2.4 of the By-laws. If the Certificate of Incorporation provides for
more or less than one vote for any share on any matter, every reference in the
By-laws or the GCL to a majority or other proportion of stock shall refer to
such majority to other proportion of the votes of such stock. The provisions of
Sections 212 and 217 of the GCL shall apply in determining whether any shares of
capital stock may be voted and the persons, if any, entitled to vote such
shares; but the Corporation shall be protected in treating the persons in whose
names shares of capital stock stand on the record of stockholders as owners
thereof for all purposes. Directors shall be chosen by a plurality of the votes
cast at the election and each other matter, except as otherwise provided by law
or by the Certificate of Incorporation or by the By-laws, shall be decided by a
majority of the votes cast on such matter. All elections of directors shall be
by written ballot unless otherwise provided in the Certificate of Incorporation.
In voting on any other question on which a vote by ballot is required by law or
is demanded by any stockholder entitled to vote, the voting shall be by ballot.
Each ballot shall be signed by the stockholder voting or by his proxy, and shall
state the number of shares voted. On all other questions, the voting may be by
voice vote. Every stockholder entitled to vote at a meeting of stockholders or
to express consent or dissent to corporate action in writing without a meeting,
may authorize another person or persons to act for him by proxy. The validity
and enforceability of any proxy shall be determined in accordance with Section
212 of the GCL.
SECTION 2.10. SELECTION AND DUTIES OF INSPECTORS AT MEETING OF
STOCKHOLDERS. The Board of Directors, in advance of any meeting of stockholders,
may appoint one or more inspectors to act at the meeting or any adjournment
thereof. If inspectors
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are not so appointed, the person presiding at such meeting may, and on the
request of any stockholder entitled to vote thereat shall, appoint one or more
inspectors. In case any person appointed fails to appear or act, the vacancy may
be filled by appointment made by the Board of Directors in advance of the
meeting or at the meeting by the person presiding thereat. Each inspector,
before entering upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of inspector at such meeting with strict
impartiality and according to the best of his ability. The inspector or
inspectors shall determine the number of shares outstanding and the voting power
of each, the shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots or consents,
count and tabulate all votes, ballots or consents, hear and determine all
challenges and questions arising in connection with the right to vote, determine
the result, and shall do such acts as are proper to conduct the election or vote
with fairness to all stockholders. On request of the person presiding at the
meeting or any stockholder entitled to vote thereat, the inspector or inspectors
shall make a report in writing of any challenge, question or matter determined
by him or them and execute a certificate of any fact found by him or them. Any
report or certificate made by the inspector or inspectors shall be prima facie
evidence of the facts stated and of the vote as certified by him or them.
SECTION 2.11. ORGANIZATION. At every meeting of stockholders, the
President, or in the absence of the President, a Vice President, and in case
more than one Vice President shall be present, that a Vice President designated
by the Board of Directors (or in the absence of any such designation, the most
senior Vice President, based on age, present), shall act as chairman of the
meeting. At every meeting of stockholders, the Secretary, or in the absence of
the Secretary, an Assistant Secretary, shall act as secretary of the meeting. In
case none of the officers above designated to act as chairman or secretary of
the meeting, respectively, shall be present, a chairman or a secretary of the
meeting, as the case may be, may be chosen by a majority of the votes case at
such meeting by the holders of shares present in person or represented by proxy
and entitled to vote at the meeting.
SECTION 2.12. ORDER OF BUSINESS. The order of business at all
meetings of stockholders shall be as determined by the chairman of the meeting,
but,the order of business to be followed at any meeting at which a quorum is
present may be changed by a majority of the votes cast at such meeting by the
holders of shares of capital stock present in person or represented by proxy and
entitled to vote at the meeting.
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ARTICLE III
DIRECTORS
SECTION 3.1. NUMBER AND TERM. The number of directors which shall
constitute the whole Board of Directors shall be at least three (3) but not more
than nine (9). The directors need not be stockholders. At the Corporation's 1996
annual stockholders' meeting, the Board of Directors shall be divided into three
classes, with one class having an initial term of one year, one class having an
initial term of two years and one class having a term of three years. At each
annual meeting of stockholders, directors will be elected to succeed those
directors whose terms have expired, and each newly elected director will serve
for a three-year term. All directors elected to the Company's classified Board
of Directors will serve until the election and qualification of their successors
or their earlier resignation or removal.
SECTION 3.2. RESIGNATIONS. Any director, member of a committee or
other officer may resign at any time. Such resignation shall be made in writing,
and shall take effect at the time specified therein, and if no time be
specified, at the time of its receipt by the President or Secretary. The
acceptance of a resignation shall not be necessary to make it effective.
SECTION 3.3. VACANCIES. If the office of any director, member of
a committee or other officer becomes vacant for any reason (whether resulting
from an increase in the number of directors, resignation, removal or otherwise),
the remaining directors in office, though less than a quorum, by a majority
vote, may appoint any qualified person to fill such vacancy, who shall hold
office for the remainder of the term of the directorship in which the vacancy
occurred.
SECTION 3.4. REMOVAL. Upon classification of the Board of
Directors at the Corporation's 1996 annual meeting, a director or directors may
be removed only for cause, in any event, by the affirmative vote of the holders
of a majority of all the shares of stock outstanding and entitled to vote, at a
special meeting of the stockholders called for that purpose.
SECTION 3.5. INCREASE OR DECREASE OF NUMBER. By the affirmative
vote of a majority of the directors, though less than a quorum, the Board of
Directors is authorized to create new directorships and to fill such positions
so created and is permitted to specify the class to which such new position is
assigned, and the person filing such position shall serve for the term
applicable to that class. Any newly created directorship may be filled in the
same manner as a vacancy.
SECTION 3.6. POWERS. The Board of Directors shall exercise all of
the powers of the Corporation except such as are
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by law, or by the Certificate of Incorporation or by these Bylaws, conferred
upon or reserved to the stockholders.
SECTION 3.7. COMMITTEES. The Board of Directors may, by
resolution or resolutions passed by a majority of the Board of Directors,
designate one or more committees, each committee to consist of two or more of
the directors of the Corporation. The Board of Directors may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of any member of such committee or committees, the member or
members thereof present at any such meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member.
Any such committee, to the extent provided in the resolution of
the Board of Directors, or in these By-laws, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the Corporation, and may authorize the seal of the Corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to amending the Certificate of
Incorporation, adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, or amending the
By-laws of the Corporation; and, unless the resolution, these By-laws, or the
Certificate of Incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock.
Regular meetings of any such committee shall be held at such times at
the Corporation's principal office or such places as the committee shall from
time to time determine. Special meetings of such committee may be called at any
time by the President or a majority of the members of the committee, to convene
at such time and place as may be appointed.
A majority of the members of a committee shall constitute a quorum. If a
quorum is not present at any meeting, the members present may adjourn the
meeting until a later date or hour; or the members present, whether constituting
a quorum or not, at his or their option, shall have the power to appoint a
substitute or substitutes from the members of the Board of Directors to act
during the temporary absence of any member or members of the committee.
The members of a committee shall appoint one of their members to act as
secretary and keep the minutes thereof. A copy of the minutes for each committee
meeting held subsequent to the
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last regular meeting of the Board of Directors shall be submitted to the Board
of Directors at its next regular meeting and filed in the Corporation's minute
book.
SECTION 3.8. MEETINGS. Meetings of the Board of Directors,
regular or special, may be held at any place within or without the State of
Delaware.
On the day when and at the place where the annual meeting of
stockholders for the election of directors is held, and as soon as practicable
thereafter, the Board of Directors may hold its annual meeting, without notice
of such meeting, for the purposes of organization, the election of officers and
the transaction of other business. The annual meeting of the Board of Directors
may be held at any other time and place specified in a notice given as provided
in this section for special meetings of the Board of Directors or in a waiver of
notice thereof.
Regular meetings of the directors may be held without notice at
such place and times as shall be determined from time to time by resolution of
the directors.
Special meetings of the Board may be called by the President or
by the Secretary on the written request of any two or more directors on at least
two days' notice to each director and shall be held at such place or places as
may be determined by the directors, or as shall be stated in the notice of the
meeting.
Anything in the By-laws or in any resolution adopted by the Board
of Directors to the contrary notwithstanding, notice of any meeting of the Board
of Directors need not be given to any director who submits a signed waiver of
such notice, whether before or after such meeting, or who attends such meeting
without protesting, prior thereto or at its commencement, the lack of notice to
him.
SECTION 3.9. TELEPHONE MEETING. Members of the Board of Directors
or any committee designated by such Board of Directors may participate in a
meeting of the Board of Directors or such committee by means of telephone
conference or similar communication equipment by means of which all persons
participating in the meeting can hear each other, and participation pursuant to
this section shall constitute presence at such meeting.
SECTION 3.10. QUORUM. A majority of the directors in office from
time to time shall constitute a quorum for the transaction of business. If at
any meeting of the Board of Directors there shall be less than a quorum present,
a majority of those present may adjourn the meeting from time to time until a
quorum is obtained, and no further notice thereof need be given other than by
announcement at the meeting which shall be so adjourned.
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SECTION 3.11. COMPENSATION. Directors shall not receive any
stated salary for their services as directors or as members of committees, but
by resolution of the Board of Directors a fixed fee and expenses of attendance
may be allowed for attendance at each meeting. Nothing herein contained shall be
construed to preclude any director from serving the Corporation or its
subsidiaries in any other capacity as an officer, agent or otherwise, and
receiving compensation therefor.
SECTION 3.12. ACTION WITHOUT MEETING. Any action required or
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting, if a written consent thereto
is signed by all members of the Board of Directors, or of such committee as the
case may be, and such written consent is filed with the minutes of proceedings
of the Board of Directors or committee.
SECTION 3.13. ANNUAL REPORT. As soon as practicable after the
close of each fiscal year, a report of the business and affairs of the
Corporation to the shareholders shall be made under the direction of the Board
of Directors.
ARTICLE IV
OFFICERS
SECTION 4.1. OFFICERS. The Board of Directors may elect or
appoint a President, a Secretary, and a Treasurer, and may elect or appoint one
or more Vice Presidents and such other officers, as it may determine. The Board
of Directors may designate one or more Vice Presidents as Executive Vice
Presidents, and may use descriptive words or phrases to designate the standing,
seniority or area of special competence of the Vice Presidents elected or
appointed by it. Each officer shall hold his office until his successor is
elected and qualified or until his earlier death, resignation or removal in the
manner provided in section 4.2 of the By-laws. Any two or more offices may be
held by the same person. The Board of Directors may require any officer to give
a bond or other security for the faithful performance of his duties, in such
amount and with such sureties as the Board of Directors may determine. All
officers as between themselves and the Corporation shall have such authority and
perform such duties in the management of the Corporation as may be provided in
the By-laws or as the Board of Directors may from time to time determine.
SECTION 4.2. REMOVAL OF OFFICERS. Any officer elected or
appointed by the Board of Directors may be removed by the Board of Directors
with or without cause. The removal of an officer without cause shall be without
prejudice to his contract rights, if any. The election or appointment of an
officer shall not of itself create contract rights.
SECTION 4.3. RESIGNATIONS. Any officer may resign at
any time by notifying the Board of Directors or the President in
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writing. Such resignation shall take effect at the date of receipt of such
notice or at such later time as is therein specified, and, unless otherwise
specified, the acceptance of such resignation shall not be necessary to make it
effective. The resignation of an officer shall be without prejudice to the
contract rights of the Corporation, if any.
SECTION 4.4. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled for
the unexpired portion of the term in the manner prescribed in the By-laws for
the regular election or appointment to such office.
SECTION 4.5. COMPENSATION. Salaries or other compensation of the
officers may be fixed from time to time by the Board of Directors. No officer
shall be prevented from receiving a salary or other compensation by reason of
the fact that he is also a director.
SECTION 4.6. PRESIDENT. The President shall be the chief
executive officer of the Corporation and shall have general supervision over the
business of the Corporation, subject, however, to the control of the Board of
Directors and of any duly authorized committee. The President shall, if present
preside at all meetings of the stockholders and at all meetings of the Board of
Directors. He may, with the Secretary or the Treasurer or an Assistant Secretary
or an Assistant Treasurer, sign certificates for shares of the Corporation. He
may sign and execute, in the name of the Corporation, deeds, mortgages, bonds,
contracts and other instruments, except in cases where the signing and execution
thereof shall be expressly delegated by the Board of Directors or by the By-laws
to some other officer or agent of the Corporation, or shall be required by law
otherwise to be signed or executed; and, in general, he shall perform all duties
incident to the office of President and such other duties as from time to time
may be assigned to him by the Board of Directors.
SECTION 4.7. VICE PRESIDENTS. At the request of the President, or
in his absence, at the request of the Board of Directors, the Vice Presidents
shall (in such order as may be designated by the Board of Directors or, in the
absence of any such designation, in order of seniority based on age) perform all
of the duties of the President and in so acting shall have all the powers of and
be subject to all the restrictions upon the President. Any Vice President may
also, with the Secretary or the Treasurer or an Assistant Secretary or an
Assistant Treasurer, sign certificates for shares of the Corporation; may sign
and execute in the name of the Corporation, deeds, mortgages, bonds, contracts
or other instruments authorized by the Board of Directors, except in cases where
the signing and execution thereof shall be expressly delegated by the Board of
Directors or by the By-laws to some other officer or agent of the Corporation,
or shall be required by law otherwise to be signed or executed; and shall
perform such other duties as from time to
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time may be assigned to him by the Board of Directors or by the President.
SECTION 4.8. SECRETARY. The Secretary, if present, shall act as
Secretary of all meetings of the stockholders and of the Board of Directors, and
shall keep the minutes thereof in the proper book or books to be provided for
that purpose; he shall see that all notices required to be given by the
Corporation are duly given and served; he may, with the President or a Vice
President, sign certificates for shares of the Corporation; he shall be
custodian of the seal of the Corporation and may seal with the seal of the
Corporation or a facsimile thereof, all certificates for shares of capital stock
of the Corporation and all documents the execution of which on behalf of the
Corporation under its corporate seal is authorized in accordance with the
provisions of the By-laws; he shall have charge of the stock ledger and also of
the other books, records and papers of the Corporation relating to its
organization and management as a Corporation, and shall see that the reports,
statements and other documents required by law are properly kept and filed; and
shall, in general, perform all duties incident to the office of Secretary and
such other duties as from time to time may be assigned to him by the Board of
Directors or by the President, including the power to sign with the President or
a Vice President, certificates for shares of the capital stock of the
Corporation.
SECTION 4.9. TREASURER. The Treasurer shall have charge and
custody of, and be responsible for, all funds, securities and notes of the
Corporation; receive and give receipts for moneys due and payable to the
Corporation from any source whatsoever; deposit all such moneys in the name of
the Corporation in such banks, trust companies or other depositories as shall be
selected in accordance with these By-laws; against proper vouchers, cause such
funds to be disbursed by checks or drafts on the authorized depositories of the
Corporation signed in such manner as shall be determined in accordance with any
provisions of the By-laws, and be responsible for the accuracy of the amounts of
all moneys so disbursed; regularly enter or cause to be entered in books to be
kept by him or under his direction full and adequate account of all moneys
received or paid by him for the account of the Corporation; have the right to
require, from time to time, reports or statements giving such information as he
may desire with respect to any and all financial transactions of the Corporation
from the officers or agents transacting the same; render to the Board of
Directors, whenever the Board of Directors shall require him so to do, an
account of the financial condition of the Corporation and of all his
transactions as Treasurer; exhibit at all reasonable times his books of account
and other records to any of the directors upon application at the office of the
Corporation where such books and records are kept; and in general, perform all
duties incident to the office of Treasurer and such other duties as from time to
time may be assigned to him by the Board of Directors, including
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the power to sign with the President or a Vice President, certificates for
shares of the capital stock of the Corporation.
SECTION 4.10. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS.
Assistant Secretaries and Assistant Treasurers shall perform such duties as
shall be assigned to them by the Secretary or by the Treasurer, respectively, or
by the Board of Directors or by the President. Assistant Secretaries and
Assistant Treasurers may, with the President or a Vice President, sign
certificates for shares of the Corporation.
ARTICLE V
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
SECTION 5.1. EXECUTION OF CONTRACTS. The Board of Directors may
authorize any officer, employee or agent, in the name and on behalf of the
Corporation, to enter into any contract or execute and satisfy any instrument,
and any such authority may be general or confined to specific instances, or
otherwise limited.
SECTION 5.2. LOANS. The President or any other officer, employee
or agent authorized by the By-laws or by the Board of Directors may effect loans
and advances at any time for the Corporation from any bank, trust company or
other institutions or from any firm, corporation or individual, and for such
loans and advances may make, execute and deliver promissory notes, bonds or
other certificates or evidences of indebtedness of the Corporation, and, when
authorized by the Board of Directors so to do, may pledge and hypothecate or
transfer any securities or the property of the Corporation as security for any
such loans or advances. Such authority conferred by the Board of Directors may
be general or confined to specific instances or otherwise limited.
SECTION 5.3. CHECKS, DRAFTS, ETC. All checks, drafts and other
orders for the payment of money out of the funds of the Corporation and all
notes or other evidences of indebtedness of the Corporation shall be signed on
behalf of the Corporation in such manner as shall from time to time be
determined by resolution of the Board of Directors.
SECTION 5.4. DEPOSITS. The funds of the Corporation not otherwise
employed shall be deposited from time to time to the order of the Corporation in
such banks, trust companies, brokerage firms or other depositories as the Board
of Directors may select or as may be selected by an officer, employee or agent
of the Corporation to whom such power may from time to time be delegated by the
Board of Directors.
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ARTICLE VI
STOCKS AND DIVIDENDS
SECTION 6.1. CERTIFICATES REPRESENTING SHARES. The shares of the
Corporation shall be represented by certificates in such form (consistent with
the provisions of Section 158 of the GCL) as shall be approved by the Board of
Directors. Such certificates shall be signed by the Chairman of the Board of
Directors or the President or a Vice President and by the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer, and may be
sealed with the seal of the Corporation or a facsimile thereof. The signatures
of the officers upon a certificate may be facsimiles, if the certificate is
countersigned by a transfer agent or registered by a registrar other than the
Corporation itself or its employee. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon any
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, such certificate may, unless otherwise
ordered by the Board of Directors, be issued by the Corporation with the same
effect as if such person were such officer, transfer agent or registrar at the
date of issue.
SECTION 6.2. TRANSFER OF SHARES. Transfers of shares of capital
stock of the Corporation shall be made only on the books of the Corporation by
the holder thereof or by his duly authorized attorney appointed by a power of
attorney duly executed and filed with the Secretary or a transfer agent of the
Corporation, and on surrender of the certificate or certificates representing
such shares of capital stock properly endorsed for transfer and upon payment of
all necessary transfer taxes. Every certificate exchanged, returned or
surrendered to the Corporation shall be marked "Cancelled" with the date of
cancellation, by the Secretary or an Assistant Secretary or the transfer agent
of the Corporation. A person in whose name shares of capital stock shall stand
on the books of the Corporation shall be deemed the owner thereof to receive
dividends, to vote as such owner and for all other purposes as respects the
Corporation, its stockholders and creditors for any purpose, except to render
the transferee liable for the debts of the Corporation to the extent provided by
law, until such transfer shall have been entered on the books of the Corporation
by an entry showing from and to whom transferred.
SECTION 6.3. TRANSFER AND REGISTRY AGENTS. The Corporation may
from time to time maintain one or more transfer offices or agents and registry
offices or agents at such place or places as may be determined from time to time
by the Board of Directors.
SECTION 6.4. LOST, DESTROYED, STOLEN AND MUTILATED CERTIFICATES.
The holder of any shares shall immediately notify the Corporation of any loss,
destruction, theft or mutilation of the certificate representing such shares,
and the Corporation may
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issue a new certificate to replace the certificate alleged to have been lost,
destroyed, stolen or mutilated. The Board of Directors may, in its discretion,
as a condition to the issue of any such new certificate, require the owner of
the lost, destroyed, stolen or mutilated certificate, or his legal
representatives, to make proof satisfactory to the Board of Directors of such
loss, destruction, theft or mutilation and to advertise such fact in such manner
as the Board of Directors may require, and to give the Corporation and its
transfer agents and registrars, or such of them as the Board of Directors may
require, a bond in such form, in such sums and with such surety or sureties as
the Board of Directors may direct, to indemnify the Corporation and its transfer
agents and registrars against any claim that may be made against any of them on
account of the continued existence of any such certificate so alleged to have
been lost, destroyed, stolen or mutilated and against any expense in connection
with such claim.
SECTION 6.5. REGULATIONS. The Board of Directors may make rules
and regulations as it may deem expedient, not inconsistent with the By-laws or
with the Certificate of Incorporation, concerning the issue, transfer and
registration of certificates representing shares of its capital stock.
SECTION 6.6. RESTRICTION ON TRANSFER OF STOCK. A written
restriction on the transfer or registration of transfer of capital stock of the
Corporation, if permitted by Section 202 of the GCL and noted conspicuously on
the certificate representing such capital stock, may be enforced against the
holder of the restricted capital stock of any successor or transferee of the
holding including an executor, administrator, trustee, guardian or other
fiduciary entrusted with like responsibility for the person or estate of the
holder. Unless noted conspicuously on the certificate representing such capital
stock, a restriction even though permitted by Section 202 of the GCL, shall be
ineffective except against a person with actual knowledge of the restriction. A
restriction on the transfer or registration of transfer of capital stock of the
Corporation may be imposed either by the Certificate of Incorporation or by an
agreement among any number of stockholders or among such stockholders and the
Corporation. No restriction so imposed shall be binding with respect to capital
stock issued prior to the adoption of the restriction unless the holders of such
capital stock are parties to an agreement or voted in favor of the restriction.
In connection with any offer by the Corporation of any company securities to a
non-United States person, the Corporation shall not, and shall instruct its
transfer agent not to effect any transfer of those shares in the United States
or to or for the account or benefit of a United States person unless the
purchaser delivers to the corporation an opinion of counsel satisfactory to the
Corporation that such transfer is permitted under the United States Securities
Act of 1933.
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SECTION 6.7 DIVIDENDS, SURPLUS, ETC. Subject to the provisions of
the Certificate of Incorporation and of law, the Board of Directors:
6.7.1 may declare and pay dividends or make other
distributions on the outstanding shares of capital stock in such amounts
and at such time or times as, in its discretion, the conditions of the
affairs of the Corporation shall render advisable;
6.7.2 may use and apply, in its discretion, any of the
surplus of the Corporation in purchasing or acquiring any shares of
capital stock of the Corporation, or purchase warrants therefor, in
accordance with law, or any of its bonds, debentures, notes, scrip or
other securities or evidences or indebtedness;
6.7.3 may set aside from time to time out of such surplus
or net profits such sum or sums as, in its discretion, it may think
proper, as a reserve fund to meet contingencies, or for equalizing
dividends or for the purpose of maintaining or increasing the property
or business of the Corporation, or for any other purpose it may think
conducive to the best interests of the Corporation.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1 SEAL. The corporate seal of the Corporation shall
bear the name of the Corporation and the words "Dela- ware 1992.11 The
Corporation may also have such other seals as the Board of Directors shall deem
appropriate, including "OFFICIAL CORPORATE SEAL." A corporate seal may be used
by causing it or a facsimile thereof to be impressed or affixed or reproduced.
SECTION 7.2 FISCAL YEAR. The fiscal year of the Corporation shall
be determined, and may be changed, by resolution of the Board of Directors.
ARTICLE VIII
INDEMNIFICATION AND INSURANCE
SECTION 8.1 INDEMNIFICATION. The Corporation shall, to the
fullest extent permitted by Delaware law, as the same may be amended and
supplemented, indemnify any and all persons to whom it shall have power to
indemnify under said section from and against any and all of the expenses,
liabilities or other matters referred to in or covered by said section, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any By-law, agreement,
vote of stockholders or disinterested directors or otherwise, both as to an
action in his official capacity and to action in another capacity while holding
such office, and shall continue as to a person who has ceased to be a director,
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officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person. The right to indemnification
conferred in this paragraph shall be a contract right and shall include the
right to be paid by the Corporation the expenses incurred in defending any such
proceeding in advance of its final disposition; provided, however, that, if the
GCL requires the payment of such expenses incurred by a director or officer in
his or her capacity as a director or officer (and not in any other capacity in
which service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding, such payment shall be made only upon
delivery to the Corporation of an undertaking, by or on behalf of such director
or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this paragraph or otherwise.
SECTION 8.2 INSURANCE. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer or employee
of the Corporation, or is or was serving at the request of the Corporation as a
director, officer or employee of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Article VIII or of the GCL.
SECTION 8.3 INDEMNIFICATION AGREEMENTS. Without limiting the
generality of the foregoing and subject to the provisions of the Certificate of
Incorporation, the Corporation shall have the express authority to enter into
such agreements as the Board of Directors deems appropriate for the
indemnification of present or future directors and officers of the Corporation
in connection with their service to or status with the Corporation or any other
corporation, entity or enterprise with whom such person is serving at the
express written request of the Corporation.
ARTICLE IX
AMENDMENTS
The By-laws may be altered or repealed and By-laws may be made at
any annual meeting of the stockholders or at any special meeting thereof, if
notice of the proposed alteration or repeal of By-law or By-laws to be made be
contained in the notice of such special meeting, by the affirmative vote of
66 2/3% of the stock issued and outstanding and entitled to vote thereat, or by
the affirmative vote of a majority of the Board of Directors at any regular
meeting of the Board of Directors, or at any special meeting of the Board of
Directors, if notice of the proposed alteration or repeal, or By-law or By-laws
to be made, be contained in the notice of such special meeting.
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DRAFT -- SUBJECT TO REVISION
EXHIBIT 5 OPINION
[L&W ISSUING OFFICE LETTERHEAD]
September __, 1996
Algos Pharmaceutical Corporation
Collingwood Plaza
4900 Route 33
Neptune, New Jersey 07753-6804
Re: Registration Statement No. 333-04313; 4,025,000 shares of
Common Stock, par value $.01 per share.
Ladies and Gentlemen:
In connection with the registration of 4,025,000 shares of common
stock of the Company, par value $.01 per share (the "Shares"), under the
Securities Act of 1933, as amended (the "Act"), by Algos Pharmaceutical
Corporation, a Delaware corporation (the "Company"), on Form S- 1 filed with the
Securities and Exchange Commission (the "Commission") on May 22, 1996 (File No.
333-04313), as amended by Amendment No. 1 filed with the Commission on August
30, 1996 (collectively, the "Registration Statement"), you have requested our
opinion with respect to the matters set forth below.
In our capacity as your counsel in connection with such
registration, we are familiar with the proceedings taken and proposed to be
taken by the Company in connection with the authorization, issuance and sale of
the Shares, and for the purposes of this opinion, have assumed such
proceedings will be timely completed in the manner presently proposed. In
addition, we have made such legal and factual examinations and inquiries,
including an examination of originals or copies certified or otherwise
identified to our satisfaction of such documents, corporate records and
instruments, as we have deemed necessary or appropriate for purposes of this
opinion.
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Algos Pharmaceutical Corporation
September __, 1996
Page 2
In our examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, and
the conformity to authentic original documents of all documents submitted to us
as copies.
We are opining herein as to the effect on the subject transaction
only of the internal laws of the State of New York and the General Corporation
Law of the State of Delaware, and we express no opinion with respect to the
applicability thereto, or the effect thereon, of the laws of any other
jurisdiction or, in the case of Delaware, any other laws, or as to any matters
of municipal law or the laws of any other local agencies within the state.
Subject to the foregoing, it is our opinion that the Shares have
been duly authorized, and, upon issuance, delivery and payment therefor in the
manner contemplated by the Registration Statement, will be validly issued, fully
paid and nonassessable.
We consent to your filing this opinion as an exhibit to the
Registration Statement and to the reference to our firm contained under the
heading "Legal Matters".
Very truly yours,
<PAGE>
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ALGOS PHARMACEUTICAL CORPORATION
1994 STOCK OPTION PLAN
1. PURPOSES
The purposes of this Algos Pharmaceutical Corporation 1994 Stock Option
Plan (the "Plan") are to enable Algos Pharmaceutical Corporation (formerly known
as U.S. Medical Technologies, Inc.) (the "Company") to attract, retain and
motivate the best qualified executives and to create a long-term mutuality of
interest between the key employees and shareholders of the Company by granting
them options to purchase the Company's stock.
2. DEFINITIONS
Unless the context requires otherwise, the following words as used in
the Plan shall have the meanings ascribed to each below, it being understood
that masculine, feminine and neuter pronouns are used interchangeably, and that
each comprehends the others.
(a) "Board" shall mean the Board of Directors of the
Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "Common Stock" shall mean the common stock of the Company, $0.01 par
value, any common stock into which such common stock may be changed and any
common stock resulting from any reclassification of such common stock.
(d) "Fair Market Value" shall mean the value of a share of Common Stock
on a particular date, determined as follows:
(i) If the Common Stock is publicly traded on such date, (a) the
weighted average (on that date) of the high and low prices of the Common
Stock on the principal national securities exchange on which the Common
Stock is traded, if the Common Stock is then traded on a national
securities exchange; or (b) the last reported sale price (on that date)
of the Common Stock on the NASDAQ National Market List, if the Common
Stock is not then traded on a national securities exchange; or (c) the
closing bid price (or average of bid prices) last quoted (on that date)
by an established quotation service for over-the-counter securities, if
the Common Stock is not reported on the NASDAQ National Market List.
(ii) If the Common Stock is not publicly traded on such date, the
fair market value of the Common Stock as determined by the Board after
taking into consideration all factors which it deems appropriate,
including,
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without limitation, recent sale and offer prices of the Common Stock in
private transactions negotiated at arm's length.
(e) "Option" shall mean the right to purchase one Share at a prescribed
purchase price on the terms specified in the Plan.
(f) "Participant" shall mean a key employee of the Company (who may be,
but need not be, an officer and/or director) who has been selected from time to
time by the Board to be granted Options under the Plan.
(g) "Share" shall mean a share of Common Stock.
3. EFFECTIVE DATE
The effective date of the Plan shall be January 26, 1994, the date of
adoption by the Board, subject to approval of the holders of the majority of
outstanding shares entitled to vote within twelve (12) months after January 26,
1994, and subject to the completion of the initial closing of the private
offering of Series A Preferred Stock approved by the Board on January 26, 1994.
4. ADMINISTRATION
(a) The Plan shall be administered by the Board. The Board shall have
full authority to interpret the Plan and all Options granted thereunder; to
establish, amend and rescind rules for carrying out the Plan; to administer the
Plan; to select employees to participate in the Plan; to grant Options under the
Plan; to determine the terms, exercise price and form of exercise payment for
each Option granted under the Plan; to determine whether each Option granted
under the Plan shall be intended to qualify as an "incentive stock option" under
Section 422 of the Code; and to make all other determinations and to take all
such steps in connection with the Plan and the Options as the Board, in its
discretion, deems necessary or desirable. The Board shall not be bound to any
standards of uniformity or similarity of action, interpretation or conduct in
the discharge of its duties hereunder, regardless of the apparent similarity of
the matters coming before it. Its determination shall be binding on all parties.
(b) The Board may designate the Secretary of the Company, other
employees of the Company or competent professional advisors to assist the Board
in the administration of the Plan, and may grant authority to such persons to
execute agreements or other documents on behalf of the Board. The Board may
employ such legal counsel, consultants and agents as it may deem desirable for
the administration of the Plan, and may rely upon any opinion received from any
such counsel or consultant and any computation received from any such consultant
or agent. Expenses incurred by
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the Board in the engagement of such counsel, consultant or agent
shall be paid by the Company.
(c) No member or former member of the Board shall be liable for any
action or determination made in good faith with respect to the Plan or any
Option granted under it. To the maximum extent permitted by applicable law, each
member or former member of the Board shall be indemnified and held harmless by
the Company against any cost or expense (including counsel fees) or liability
(including any sum paid in settlement of a claim with the approval of the
Company) arising out of any act or omission to act in connection with the Plan
unless arising out of such member's or former members' own fraud or bad faith.
Such indemnification shall be in addition to any rights or indemnification the
members or former members may have as directors under applicable law or under
the certificate of incorporation or by-laws of the Company.
5. SHARES; ADJUSTMENT UPON CERTAIN EVENTS
(a) Shares to be issued under the Plan shall be made available, at the
discretion of the Board, either from authorized but unissued Shares or from
issued Shares reacquired by the Company.
(b) Except as provided in this Section 5, the aggregate number of Shares
that may be issued under the Plan shall not exceed one hundred thousand
(100,000) Shares, such number determined after giving effect to the stock split
approved by the Board on January 26, 1994. If Options are for any reason
cancelled, or expire or terminate unexercised, the Shares covered by such
Options shall be again be available for the grant of Options, subject to the
limit provided by the preceding sentence.
(c) No fractional Shares will be issued or transferred in the exercise
of any Option. In lieu thereof, the Company shall pay a cash adjustment equal to
the same fraction of the Fair Market Value of one Share on the date of exercise.
(d) The existence of the Plan and the Options granted hereunder shall
not affect in any way the right or power of the Board or the stockholders of the
Company to make or authorize any adjustment, recapitalization, reorganization or
other change in the Company's capital structure or its business, any merger or
consolidation of the Company, any issue of bonds, debentures, preferred or prior
preference stocks ahead of or affecting Common Stock, the dissolution or
liquidation of the Company or any sale or transfer of all or part of its assets
or business, or any other corporate act or proceeding, in which case the
provisions of this Section 5 shall govern outstanding Options.
(e) The Shares with respect to which Options may be granted are Shares
of Common Stock as presently constituted, but, if and whenever, prior to the
expiration of an Option theretofore
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granted, the Company shall effect a subdivision, recapitalization or
consolidation of Shares or the payment of a stock dividend on Shares without
receipt of consideration, the purchase price per Share and the number and class
of Shares and/or other securities with respect to which such Option thereafter
may be exercised, and the total number and class of Shares and/or other
securities that may be issued under this Plan, shall be proportionately
adjusted.
(f) If the Company merges or consolidates with one or more corporations,
then from and after the effective date of such merger or consolidation, upon
exercise of an Option theretofore granted, the Participant shall be entitled to
purchase under such Option, in lieu of the number of Shares as to which such
Option shall then be exercisable but on the same terms and conditions of
exercise set forth in such Option, the number and class of Shares and/or other
securities or property (including cash) to which the Participant would have been
entitled pursuant to the terms of the agreement of merger or consolidation if,
immediately prior to such merger or consolidation, the Participant had been the
holder of record of the total number of Shares receivable upon exercise of such
Option (whether or not then exercisable) had such merger or consolidation not
occurred.
(g) If, as a result of any adjustment made pursuant to the preceding
paragraphs of this Section 5, any Participant shall become entitled upon
exercise of an Option to receive any securities other than Common Stock, then
the number and class of securities so receivable thereafter shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Common Stock set forth in this
Section 5.
(h) Except as hereinbefore expressly provided, the issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, for cash, property, labor or services, upon direct sale,
upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or other securities, and in any case whether or not for
fair value, shall not affect, and no adjustment by reason thereof shall be made
with respect to, the number and class of Shares and/or other securities or
property subject to Options theretofore granted or the purchase price per Share.
(i) Notwithstanding any provision of this Section 5 to the contrary, if
authorized but previously unissued Shares are issued under the Plan, such Shares
shall not be issued for a consideration less than their par value.
6. AWARDS AND TERMS OF OPTIONS
(a) Grant. The Board may grant Options to key employees,
including Options intended to be "incentive stock options" within
the meaning of section 422 of the Code. Options shall be
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evidenced by Option agreements in such forms not inconsistent with the Plan as
the Board shall approve from time to time, which agreements shall contain in
substance the following terms and conditions:
(i) Exercise Price. The purchase price per Share deliverable upon
the exercise of an Option shall be determined by the Board, but not less
than one hundred percent (100%) of the Fair Market Value of a Share at
the time of the grant of the Option, or the par value of a Share,
whichever is the greater.
(ii) Number of Shares. The Option agreement shall specify the
number of Options granted to the Participant, as determined by the Board
in its sole discretion. If some of the Options held by a Participant are
exercised, any unexercised Options held by him shall remain outstanding
and shall be or become exercisable according to their respective terms.
(iii) Period of Exercisability. The Board shall, in its sole
discretion, prescribe periods of exercisability and additional
requirements or conditions with respect to the exercise of Options in
the Option agreement and may provide, either at the time of grant or
thereafter, for the acceleration of an Option; provided, however, that
no Option shall be exercisable after the expiration of ten (10) years
from the date of grant. Except as hereinafter provided, Options granted
to any Participant may be exercised only during the continuance of that
Participant's employment by the Company.
(iv) Procedure for Exercise. A Participant electing to exercise
one or more Options shall give written notice to the Board of such
election and of the number of Options he has elected to exercise. Shares
purchased pursuant to the exercise of Options shall be paid for in cash
at the time of exercise unless the Board, in its sole discretion, shall
permit payment in whole or in part through the delivery of other Shares
owned by the Participant, by reduction in the number of shares issuable
upon such exercise, or on such other terms and conditions as may be
acceptable to the Board and in accordance with Delaware law. Upon
receipt of payment, the Company shall deliver to the Participant as soon
as practicable a certificate or certificates for the Shares then
purchased.
(b) Expiration and Cancellation. If not previously exercised, each
Option shall expire no later than the tenth (10th) anniversary of the date of
the grant thereof or, except as otherwise provided by Section 7 of the Plan, the
earlier termination of the Participant's employment by Company.
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7. EFFECT OF TERMINATION OF EMPLOYMENT
(a) By Reason of Participant's Death. If the Participant dies while an
employee of the Company, all outstanding Options that are exercisable as of the
date of death shall, unless otherwise specified in his Option agreement, remain
exercisable by the Participant's estate or by the person given authority to
exercise such Options by his will or by operation of law for a period of one (1)
year from the date of the Participant's death; provided, however, that (i) no
Options that were not exercisable on the date of the Participant's death shall
thereafter become exercisable, and (ii) no Option may be exercised more than ten
(10) years from the date of grant.
(b) By Reason of the Participant's Disability. If a Participant's
employment with the Company terminates due to disability (within the meaning of
Section 22(e)(3) of the Code), all outstanding Options that are exercisable as
of the effective date of such termination of employment shall, unless otherwise
specified in his Option agreement, remain exercisable for a period of one (1)
year from the date of termination of the Participant's employment; provided,
however, that (i) no Options that were not exercisable on the effective date of
the Participant's termination of employment shall thereafter become exercisable,
and (ii) no Option may be exercised more than ten (10) years after the date of
the grant.
(c) By Reason of Other Separation from Service. If a Participant's
service is terminated for cause (as hereinafter defined) or is terminated by the
Participant in violation of an agreement between the Participant and the
Company, or if it is discovered after his separation from service that he had
engaged in conduct that would have justified termination of his employment for
cause, all unexercised and outstanding Options held by the Participant shall,
unless otherwise specified in his Option agreement, immediately be cancelled.
Unless otherwise defined in his Option agreement, termination shall be deemed to
be for "cause" if the Participant shall have (i) taken willful or negligent
action which materially harms, or can reasonably be expected to harm, the
Company, (ii) committed fraud, misappropriation, embezzlement, or criminal
misconduct that would constitute a felony or any other act or conduct, whether
criminal or noncriminal, and regardless of whether committed in the course of
the Company's business, which adversely affects the reputation of the Company or
otherwise brings disrepute on the Company or its affiliates, or (iii) committed
a breach of, or default under, any provision, term or covenant of any agreement
between the Participant and the Company. Upon any termination of employment not
governed by the preceding portion of this Section 7(c) or by Sections 7(a) or
7(b) hereof, all outstanding Options that are exercisable as of the effective
date of such termination of employment shall, unless otherwise specified in the
Option agreement, remain exercisable for a period of three (3) months after such
termination; provided, however, that (i) no Options
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that were not exercisable on the effective date of the Participant's termination
of employment shall thereafter become exercisable and (ii) no Option may be
exercised more than ten (10) years after the date of the grant.
(d) Employment by Affiliate. For purposes of the Plan, employment by the
Company shall be considered to include employment by a parent corporation or
subsidiary corporation of the Company as such terms are defined in Sections
424(e) and (f), respectively, of the Code.
8. NONTRANSFERABILITY OF OPTIONS
No Option shall be transferable by the Participant otherwise than by
will or under applicable laws of descent and distribution. In addition, no
Option shall be assigned, negotiated, pledged, hypothecated in any way (whether
by operation of law or otherwise), and no Option shall be subject to execution,
attachment or similar process. Upon any attempt to transfer, assign, negotiate,
pledge or hypothecate any Option contrary to the provisions hereof, or in the
event of any levy upon any Option by reason of any attachment or similar
process, such Option shall immediately become null and void.
9. RIGHTS AS A STOCKHOLDER
A Participant (or a permitted transferee of an Option) shall have no
rights as a stockholder with respect to any shares covered by his Option until
he shall have become the holder of record of such Share(s), and no adjustments
shall be made for dividends in cash or other property or distributions or other
rights in respect to any such Shares, except as otherwise specifically provided
for in this Plan.
10. DETERMINATION
Each determination, interpretation or other action made or taken
pursuant to the provisions of this Plan by the Board shall be final and binding
for all purposes and upon all persons, including, without limitation, the
Company, the directors, officers and other employees of the Company, the
Participants and their respective heirs, executors, administrators, personal
representatives and other successors in interest.
11. TERMINATION, AMENDMENT AND MODIFICATION
(a) The Plan shall terminate at the close of business on January 25,
2004, unless sooner terminated as hereinafter provided, and no Option shall be
granted under the Plan thereafter. At any time prior to that date, the Board may
terminate the Plan or suspend the Plan in whole or in part or amend the Plan
(including, without limitation, amendments deemed necessary or desirable in the
sole discretion of the Board in order that the Options shall conform to any
change in the law or
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regulations applicable thereto or in order to qualify the Plan for favorable
treatment under foreign tax laws). Notwithstanding the foregoing, however, no
such action may, without the approval of the stockholders of the Company,
increase the total number of Shares which may be acquired upon exercise of
Options granted under the Plan; reduce the minimum exercise price at which any
Option may be exercised below the greater of one hundred percent (100%) of the
Fair Market Value of one Share on the date of grant or the par value of one
Share; or change the class of employees eligible to be Participants.
(b) Nothing contained in this Section 11 shall be deemed to prevent the
Board from authorizing amendments of outstanding Options; including, without
limitation, the reduction of the exercise price specified therein (or the
granting or issuance of new Options at a lower exercise price upon cancellation
of outstanding Options), so long as all Options outstanding at any one time
shall not call for issuance of more Shares than the remaining number provided
for under the Plan and so long as the provisions of any amended Options would
have been permissible under the Plan if such Option had been originally granted
or issued as of the date of such amendment with such amended terms.
Notwithstanding anything to the contrary contained in this Section 11, no
termination, amendment or modification of the Plan may, without the consent of
the Participant or the transferee of his Option, alter or impair the rights and
obligations arising under any then outstanding Option.
12. NON-EXCLUSIVITY
Neither the adoption of the Plan by the Board nor the submission of the
Plan to the stockholders of the Company for approval shall be construed as
creating any limitations on the power of the Board to adopt such other incentive
arrangements as it may deem desirable, including, without limitation, the
granting or issuance of stock options, Shares and/or other incentives otherwise
than under the Plan, and such arrangements may be either generally applicable or
limited in application.
13. USE OF PROCEEDS
The proceeds of the sale of Shares subject to Options under the Plan are
to be added to the general funds of the Company and used for its general
corporate purposes as the Board shall determine.
14. GENERAL PROVISIONS
(a) The Plan shall not impose any obligations on the Company to continue
the employment of any Participant, nor shall it impose any obligation on the
part of any Participant to remain in the employ of the Company.
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(b) If the Board determines that the law so requires, the holder of an
Option granted hereunder shall, upon any exercise or conversion thereof, execute
and deliver to the Company a written statement, in form satisfactory to the
Company, representing and warranting that he is purchasing or accepting the
Shares then acquired for his own account and not with a view to the resale or
distribution thereof, that any subsequent offer for sale or sale of any such
Shares shall be made either pursuant to (i) a Registration Statement on an
appropriate form under the Securities Act of 1933, as amended, which
Registration Statement shall have become effective and shall be current with
respect to the Shares being offered and sold, or (ii) a specific exemption from
the registration requirements of said Act, and that in claiming such exemption
the holder will, prior to any offer for sale or sale of such Shares, obtain a
favorable written opinion from counsel approved by the Company as to the
availability of such exemption.
(c) Nothing contained in the Plan and no action taken pursuant to the
Plan (including without limitation the grant of any Option thereunder) shall
create or be construed to create a trust of any kind, or a fiduciary
relationship, between the Company and any Participant or the executor,
administrator or other personal representative, or designated beneficiary of
such Participant, or any other persons. Any reserves that may be established by
the Company in connection with the Plan shall continue to be part of the general
funds of the Company, and no individual or entity other than the Company shall
have any interest in such funds until paid to a Participant. If and to the
extent that any Participant or his executor, administrator or other personal
representative, as the case may be, acquires a right to receive any payment form
the Company pursuant to the Plan, such right shall be no greater than the right
of an unsecured general creditor of the Company.
15. ISSUANCE OF STOCK CERTIFICATES, LEGENDS AND PAYMENT OF
EXPENSES
(a) Upon any exercise of an Option and payment of the exercise price as
provided in such Option, a certificate or certificates for the Shares as to
which such Option has been exercised shall be issued by the Company in the name
of the person or persons exercising such Option and shall be delivered to or
upon the order of such person or persons.
(b) Certificates for Shares issued upon exercise of an Option shall bear
such legend or legends as the Board, in its discretion, determines to be
necessary or appropriate to prevent a violation of, or to perfect an exemption
from, the registration requirements of the Securities Act of 1933, as amended,
or to implement the provisions of any agreements between the Company and the
Participant with respect to such Shares.
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(c) The Company shall pay all issue or transfer taxes with respect to
the issuance or transfer of Shares, as well as all fees and expenses necessarily
incurred by the Company in connection with such issuance or transfer and with
the administration of the Plan.
16. LISTING OF SHARES AND RELATED MATTERS
If at any time the Board shall determine in its discretion that the
listing, registration or qualification of the Shares covered by the Plan upon
any national securities exchange or under any state or federal law, or the
consent or approval of any governmental regulatory body, is necessary or
desirable as a condition of, or in connection with, the award or sale of Shares
under the Plan, no Shares will be delivered unless and until such listing,
registration, qualification, consent or approval shall have been effected or
obtained, or otherwise provided for, free of any conditions not acceptable to
the Board.
17. WITHHOLDING TAXES
The Company shall have the right to deduct withholding taxes from any
payments made pursuant to the Plan, or to make such other provisions as it deems
necessary or appropriate to satisfy its obligations to withhold federal, state
or local income or other taxes incurred by reason of the exercise of Options or
the issuance of Shares or payments under the Plan, including requiring a
Participant exercising an Option granted hereunder to reimburse the Company for
any taxes required to be withheld or otherwise deducted and paid by the Company
in respect of the Option exercise or the issuance of Shares pursuant thereto. In
lieu thereof, the Company shall have the right to withhold the amount of such
taxes from any other sums due or to become due from the Company to the
Participant upon such terms and conditions as the Board may prescribe.
18. NOTICES
Each Participant shall be responsible for furnishing the Board with the
current and proper address for the mailing to him of notices and the delivery to
him of agreements, Shares and payments. Any notices required or permitted to be
given shall be deemed given if directed to the person to whom addressed at such
address and mailed by regular United States mail, first-class and prepaid. If
any item mailed to such address is returned as undeliverable to the addressee,
mailing will be suspended until the Participant furnishes the proper address.
19. SEVERABILITY OF PROVISIONS
If any provisions of the Plan shall be held invalid or unenforceable,
such invalidity or unenforceability shall not affect any other provisions of the
Plan, and the Plan shall be
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construed and enforced as if such provisions had not been
included.
20. PAYMENT TO MINORS, ETC.
Any benefit payable to or for the benefit of a minor, an incompetent
person or other person incapable of receipting therefor shall be deemed paid
when paid to such person's guardian or to the party providing or reasonably
appearing to provide for the care of such person, and such payment shall fully
discharge the Board, the Company and their employees, agents and representatives
with respect thereto.
21. HEADINGS AND CAPTIONS
The headings and captions herein are provided for reference and
convenience only. They shall not be considered part of the Plan and shall not be
employed in the construction of the Plan.
22. CONTROLLING LAW
The Plan shall be construed and enforced according to the laws of the
State of New York.
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THE ALGOS PHARMACEUTICAL CORPORATION
1996 STOCK OPTION PLAN
Algos Pharmaceutical Corporation, a Delaware corporation, has
adopted The Algos Pharmaceutical Corporation 1996 Stock Option Plan (the
"Plan"), effective April 1, 1996, for the benefit of its eligible employees and
consultants.
The purposes of this Plan are as follows:
(1) To provide an additional incentive for key Employees and
consultants to further the growth, development and financial success of the
Company by personally benefiting through the ownership of options with respect
to Company stock which recognize such growth, development and financial success.
(2) To enable the Company to obtain and retain the services of
key Employees and consultants considered essential to the long range success of
the Company by offering them an opportunity to own options with respect to
Company stock which will reflect the growth, development and financial success
of the Company.
ARTICLE I
DEFINITIONS
1.1 General. Wherever the following terms are used in this Plan
they shall have the meaning specified below, unless the context clearly
indicates otherwise.
1.2 Award Limit. "Award Limit" shall mean ___________________
shares of ----------- Common Stock.
1.3 Board. "Board" shall mean the Board of Directors of the
Company.
1.4 Cause. "Cause," with respect to an Optionee, shall mean, the
Optionee's (a) willful or negligent action which materially harms, or can
reasonably be expected to harm, the Company, (b) fraud, misappropriation,
embezzlement, criminal misconduct that would constitute a felony, or any act or
conduct, whether criminal or not and regardless of whether committed in the
course of performing services for the Company or not, that adversely affects the
reputation of the Company or otherwise brings disrepute on the Company or its
affiliates or (c) breach or default under any provision, term or covenant of any
agreement between the Optionee and the Company.
1.5 Code. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
1.6 Committee. "Committee" shall mean the Compensation Committee
of the Board, or another committee, or a subcommittee of the Board, appointed as
provided in Section 6.1.
1.7 Common Stock. "Common Stock" shall mean the common stock of
the Company, par value $0.01 per share.
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1.8 Company. "Company" shall mean Algos Pharmaceutical
Corporation, a Delaware corporation. In addition, "Company" shall mean any
corporation assuming, or issuing a new incentive stock option in substitution
for, an Incentive Stock Option in a transaction to which Section 424(a) of the
Code applies.
1.9 Corporate Transaction. "Corporate Transaction" shall mean any
of the following stockholder-approved transactions to which the Company is a
party:
(a) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of
which is to change the state in which the Company is incorporated, form
a holding company or effect a similar reorganization as to form
whereupon this Plan and all Options are assumed by the successor entity;
(b) the sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Company, in complete liquidation
or dissolution of the Company in a transaction not covered by the
exceptions to clause (a), above; or
(c) any reverse merger in which the Company is the surviving
entity but in which securities possessing more than fifty percent (50%)
of the total combined voting power of the Company's outstanding
securities are transferred to a person or persons different from those
who held such securities immediately prior to such merger.
1.10 Director. "Director" shall mean a member of the Board.
1.11 Employee. "Employee" shall mean any officer or other
employee (as defined in accordance with Section 3401(c) of the Code) of the
Company, or of any corporation which is a Subsidiary.
1.12 Exchange Act. "Exchange Act" shall mean the Securities
Exchange Act of 1934, ------------ as amended.
1.13 Fair Market Value. "Fair Market Value" of a share of Common
Stock as of a given date shall be (a) the average on that date of the high and
low prices of a share of Common Stock on the principal national securities
exchange on which shares of Common Stock are then trading, or, if shares were
not traded on such date, then on the next preceding date on which a trade
occurred, or (b) if Common Stock is not traded on a national securities exchange
but is quoted on NASDAQ or a successor quotation system, the last reported sale
price on such date as reported by NASDAQ or such successor quotation system; or
(c) if Common Stock is not traded on a national securities exchange and is not
reported on NASDAQ or a successor quotation system, the closing bid price (or
average of bid prices) last quoted on such date by an established quotation
service for over-the-counter securities; or (d) if Common Stock is not traded on
a national securities exchange, is not reported on NASDAQ or a successor
quotation system and is not otherwise publicly traded on such date, the fair
market value of a share of Common Stock as established by the Committee acting
in good faith and taking into consideration all factors which it deems
appropriate, including, without limitation, recent sale offer prices for the
Common Stock in private arm's-length transactions.
1.14 Incentive Stock Option. "Incentive Stock Option" shall mean
an option which conforms to the applicable provisions of Section 422 of the Code
and which is designated as an Incentive Stock Option by the Committee.
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1.15 Independent Director. "Independent Director" shall mean a
member of the Board who is not an Employee of the Company.
1.16 Non-Qualified Stock Option. "Non-Qualified Stock Option"
shall mean an Option which is not designated as an Incentive Stock Option by the
Committee.
1.17 Option. "Option" shall mean a stock option granted under
Article III of this Plan. An Option granted under this Plan shall, as determined
by the Committee, be either a Non-Qualified Stock Option or an Incentive Stock
Option.
1.18 Option Agreement. "Option Agreement" shall mean an agreement
between the Company and an Optionee that sets forth the terms, conditions and
limitations applicable to an Option.
1.19 Optionee. "Optionee" shall mean an Employee or a consultant
granted an Option under this Plan.
1.20 Plan. "Plan" shall mean this Algos Pharmaceutical
Corporation 1996 Stock ---- Option Plan.
1.21 QDRO. "QDRO" shall mean a qualified domestic relations order
as defined by the Code or Title I of the Employee Retirement Income Security Act
of 1974, as amended, or the rules thereunder.
1.22 Rule 16b-3. "Rule 16b-3" shall mean that certain Rule 16b-3
under the Exchange Act, as such Rule may be amended from time to time.
1.23 Securities Act. "Securities Act" shall mean the Securities
Act of 1933, as amended.
1.24 Subsidiary. "Subsidiary" shall mean any corporation in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain then owns
stock possessing 50 percent or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
1.25 Termination of Consultancy. "Termination of Consultancy"
shall mean the time when the engagement of an Optionee as a consultant to the
Company or a Subsidiary is terminated for any reason, with or without Cause,
including, but not by way of limitation, by resignation, discharge, death or
retirement; but excluding a termination where there is a simultaneous
commencement of employment with the Company or any Subsidiary. The Committee, in
its discretion, shall determine the effect of all matters and questions relating
to Termination of Consultancy, including, but not by way of limitation, the
question of whether a Termination of Consultancy resulted from a discharge for
Cause, and all questions of whether a particular leave of absence constitutes a
Termination of Consultancy. Notwithstanding any other provision of this Plan,
the Company and any Subsidiary has an absolute and unrestricted right to
terminate a consultant's service at any time for any reason whatsoever, with or
without Cause, except to the extent expressly provided otherwise in writing.
1.26 Termination of Employment. "Termination of Employment" shall
mean the time when the employee-employer relationship between an Optionee and
the Company or any Subsidiary is terminated for any reason, with or without
Cause, including, but not by way of limitation, a termination
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by resignation, discharge, death, disability or retirement; but excluding (a) a
termination where there is a simultaneous reemployment or continuing employment
of an Optionee by the Company or any Subsidiary, (b) at the discretion of the
Committee, a termination which results in a temporary severance of the
employee-employer relationship, and (c) at the discretion of the Committee, a
termination which is followed by the simultaneous establishment of a consulting
relationship by the Company or a Subsidiary with the former Employee. The
Committee, in its discretion, shall determine the effect of all matters and
questions relating to Termination of Employment, including, but not by way of
limitation, the question of whether a Termination of Employment resulted from a
discharge for Cause, and all questions of whether a particular leave of absence
constitutes a Termination of Employment; provided, however, that, with respect
to Incentive Stock Options, a leave of absence, change in status from an
employee to an independent contractor or other change in the employee-employer
relationship shall constitute a Termination of Employment if, and to the extent
that, such leave of absence, change in status or other change interrupts
employment for the purposes of Section 422(a)(2) of the Code and the then
applicable regulations and revenue rulings under said Section. Notwithstanding
any other provision of this Plan, the Company and any Subsidiary has an absolute
and unrestricted right to terminate an Employee's employment at any time for any
reason whatsoever, with or without Cause, except to the extent expressly
provided otherwise in writing.
ARTICLE II
SHARES SUBJECT TO PLAN
2.1 Shares Subject to Plan.
(a) The shares of stock subject to Options shall be Common Stock.
The aggregate number of such shares which may be issued upon exercise of such
Options under the Plan shall not exceed fifty thousand (50,000). The shares of
Common Stock issuable upon exercise of such options may be either previously
authorized but unissued shares or treasury shares.
(b) The maximum number of shares which may be subject to Options
granted under the Plan to any individual in any calendar year shall not exceed
the Award Limit. To the extent required by Section 162(m) of the Code, shares
subject to Options which are cancelled continue to be counted against the Award
Limit and if, after grant of an Option, the price of shares subject to such
Option is reduced, the transaction is treated as a cancellation of the Option
and a grant of a new Option and both the Option deemed to be cancelled and the
Option deemed to be granted are counted against the Award Limit.
2.2 Add-back of Options. If any Option under this Plan expires or
is cancelled without having been fully exercised, or is exercised in whole or in
part for cash as permitted by this Plan, the number of shares subject to such
Option but as to which such Option was not exercised prior to its expiration,
cancellation or exercise may again be optioned hereunder, subject to the
limitations of Section 2.1. Furthermore, any shares subject to Options which are
adjusted pursuant to Section 7.3 and become exercisable with respect to shares
of stock of another corporation shall be considered cancelled and may again be
optioned hereunder, subject to the limitations of Section 2.1. Shares of Common
Stock which are delivered by the Optionee or withheld by the Company upon the
exercise of any Option under this Plan, in payment of the exercise price thereof
or withholding taxes thereon, may again be optioned hereunder, subject to the
limitations of Section 2.1. Notwithstanding the provisions of this Section 2.2,
no shares of Common Stock may again be optioned if such action would cause an
Incentive Stock Option to fail to qualify as an incentive stock option under
Section 422 of the Code.
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ARTICLE III
GRANTING OF OPTIONS
3.1 Eligibility. Any Employee or consultant selected by the
Committee pursuant to Section 3.3(a)(i) shall be eligible to be granted an
Option.
3.2 Qualification of Incentive Stock Options. No Incentive Stock
Option shall be granted unless such Option, when granted, qualifies as an
"incentive stock option" under Section 422 of the Code. No Incentive Stock
Option shall be granted to any person who is not an Employee.
3.3 Granting of Options
(a) The Committee shall from time to time, in its discretion, and
subject to applicable limitations of this Plan:
(i) Determine which Employees are key Employees and
select from among the key Employees and consultants (including Employees
and consultants who have previously received Options under this Plan)
such of them as in its opinion should be granted Options;
(ii) Subject to the Award Limit, determine the number of
shares to be subject to such Options granted to the selected key
Employees or consultants;
(iii) Determine whether such Options are to be Incentive
Stock Options or Non-Qualified Stock Options and whether such Options
are to qualify as performance-based compensation as described in Section
162(m)(4)(C) of the Code; and
(iv) Determine the terms and conditions of such Options,
consistent with this Plan; provided, however, that the terms and
conditions of Options intended to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code shall
include, but not be limited to, such terms and conditions as may be
necessary to meet the applicable provisions of Section 162(m) of the
Code.
(b) Upon the selection of a key Employee or consultant to be
granted an Option, the Committee shall instruct the Secretary of the Company to
issue the Option and may impose such conditions on the grant of the Option as it
deems appropriate. Without limiting the generality of the preceding sentence,
the Committee may, in its discretion and on such terms as it deems appropriate,
require as a condition on the grant of an Option to an Employee or consultant
that the Employee or consultant surrender for cancellation some or all of the
unexercised options which have been previously granted to him or her under this
Plan or otherwise. An Option, the grant of which is conditioned upon such
surrender, may have an option price lower (or higher) than the exercise price of
such surrendered option may cover the same (or a lesser or greater) number of
shares as such surrendered Option may contain such other terms as the Committee
deems appropriate, and shall be exercisable in accordance with its terms,
without regard to the number of shares, price, exercise period or any other term
or condition of such surrendered option.
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(c) Any Incentive Stock Option granted under this Plan may be
modified by the Committee to disqualify such option from treatment as an
"incentive stock option" under Section 422 of the Code.
ARTICLE IV
TERMS OF OPTIONS
4.1 Option Agreement. Each Option shall be evidenced by a written
Option Agreement, which shall be executed by the Optionee and an authorized
officer of the Company and which shall contain such terms and conditions as the
Committee shall determine, consistent with this Plan. Option Agreements
evidencing Options intended to qualify as performance-based compensation as
described in Section 162(m)(4)(C) of the Code shall contain such terms and
conditions as may be necessary to meet the applicable provisions of Section
162(m) of the Code. Option Agreements evidencing Incentive Stock Options shall
contain such terms and conditions as may be necessary to meet the applicable
provisions of Section 422 of the Code.
4.2 Exercise Price. The price per share of the shares subject to
each Option shall be set by the Committee and specified in the Option Agreement;
provided, however, that such price shall be no less than the par value of a
share of Common Stock, unless otherwise permitted by applicable state law, and
(a) in the case of Incentive Stock Options and Options intended to qualify as
performance-based compensation as described in Section 162(m)(4)(C) of the Code,
such price shall not be less than 100% of the Fair Market Value of a share of
Common Stock on the date the Option is granted and (b) in the case of Incentive
Stock Options granted to an individual then owning (within the meaning of
Section 424(d) of the Code) more than 10% of the total combined voting power of
all classes of stock of the Company or any Subsidiary or parent corporation
thereof (within the meaning of Section 422 of the Code) such price shall not be
less than 110% of the Fair Market Value of a share of Common Stock on the date
the Option is granted.
4.3 Option Term. The term of an Option shall be set by the
Committee in its discretion; provided, however, that, in the case of Incentive
Stock Options, the term shall not be more than ten (10) years from the date the
Incentive Stock Option is granted, or five (5) years from such date if the
Incentive Stock Option is granted to an individual then owning (within the
meaning of Section 424(d) of the Code) more than 10% of the total combined
voting power of all classes of stock of the Company or any Subsidiary or parent
corporation thereof (within the meaning of Section 422 of the Code). Except as
limited by requirements of Section 422 of the Code and regulations and rulings
thereunder applicable to Incentive Stock Options, the Committee may extend the
term of any outstanding Option in connection with any Termination of Employment
or Termination of Consultancy of the Optionee, or amend any other term or
condition of such Option relating to such a termination.
4.4 Option Vesting
(a) The period during which the right to exercise an Option in
whole or in part vests in the Optionee shall be set by the Committee and the
Committee may determine that an Option may not be exercised in whole or in part
for a specified period after it is granted. At any time after grant of an
Option, the Committee may, in its sole discretion and subject to whatever terms
and conditions it selects, accelerate the period during which an Option vests.
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(b) No portion of an Option which is unexercisable at the
Optionee's Termination of Employment or Termination of Consultancy shall
thereafter become exercisable, except as may be otherwise provided by the
Committee either in the Option Agreement or by action of the Committee following
the grant of the Option.
(c) To the extent that the aggregate Fair Market Value of stock
with respect to which "incentive stock options" (within the meaning of Section
422 of the Code, but without regard to Section 422(d) of the Code) are
exercisable for the first time by an Optionee during any calendar year (under
the Plan and all other incentive stock option plans of the Company and any
Subsidiary) exceeds $100,000, such Options shall be treated as Non-Qualified
Options to the extent required by Section 422 of the Code. The rule set forth in
the preceding sentence shall be applied by taking Options into account in the
order in which they were granted. For purposes of this Section 4.4(c), the Fair
Market Value of stock shall be determined as of the time the Option with respect
to such stock is granted.
4.5 Consideration. In consideration of the granting of an Option,
the Optionee shall agree, in the written Option Agreement, to render faithful
and efficient services to the Company or a Subsidiary, with such duties and
responsibilities as the Company or Subsidiary shall from time to time prescribe.
Nothing in the Plan or any Option Agreement shall confer upon any Optionee any
right to continue in the employ of, or as a consultant for, the Company or any
Subsidiary or shall interfere with or restrict in any way the rights of the
Company and any Subsidiary, which are hereby expressly reserved, to discharge
any Optionee at any time for any reason whatsoever, with or without Cause.
ARTICLE V
EXERCISE OF OPTIONS
5.1 Partial Exercise. An exercisable Option may be exercised in
whole or in part. However, an Option shall not be exercisable with respect to
fractional shares and the Committee may require that, by the terms of the Option
Agreement, a partial exercise be with respect to a minimum number of shares.
5.2 Manner of Exercise. All or a portion of an exercisable Option
shall be deemed exercised upon delivery of all of the following to the Secretary
of the Company or his or her office:
(a) A written notice complying with the applicable rules
established by the Committee stating that the Option, or a portion thereof, is
exercised. The notice shall be signed by the Optionee or other person then
entitled to exercise the Option or such portion;
(b) Such representations and documents as the Committee, in its
discretion, deems necessary or advisable to effect compliance with all
applicable provisions of the Securities Act, as amended, and any other federal
or state securities laws or regulations. The Committee may, in its discretion,
also take whatever additional actions it deems appropriate to effect such
compliance including, without limitation, placing legends on share certificates
and issuing stop-transfer notices to agents and registrars;
(c) In the event that the Option shall be exercised pursuant to
Section 7.1 by any person or persons other than the Optionee, appropriate proof
of the right of such person or persons to exercise the Option; and
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(d) Full cash payment to the Secretary of the Company for the
shares with respect to which the Option, or portion thereof, is exercised.
However, the Committee may, in its discretion (i) allow a delay in payment up to
thirty (30) days from the date the Option, or portion thereof, is exercised;
(ii) allow payment, in whole or in part, through the delivery of shares of
Common Stock owned by the Optionee, duly endorsed for transfer to the Company
with a Fair Market Value on the date of delivery equal to the aggregate exercise
price of the Option or exercised portion thereof; (iii) allow payment, in whole
or in part, through the surrender of shares of Common Stock then issuable upon
exercise of the Option having a Fair Market Value on the date of Option exercise
equal to the aggregate exercise price of the Option or exercised portion
thereof; (iv) allow payment, in whole or in part, through the delivery of
property of any kind which constitutes good and valuable consideration; (v)
allow payment, in whole or in part, through the delivery of a full recourse
promissory note bearing interest (at no less than such rate as shall then
preclude the imputation of interest under the Code) and payable upon such terms
as may be prescribed by the Committee or (vi) allow payment, in whole or in
part, through the delivery of a notice that the Optionee has placed a market
sell order with a broker with respect to shares of Common Stock then issuable
upon exercise of the Option, and that the broker has been directed to pay a
sufficient portion of the net proceeds of the sale to the Company in
satisfaction of the Option exercise price; or (vii) allow payment through any
combination of the consideration provided in the foregoing subparagraphs (ii),
(iii), (iv), (v) and (vi). In the case of a promissory note, the Committee may
also prescribe the form of such note and the security to be given for such note.
The Option may not be exercised, however, by delivery of a promissory note or by
a loan from the Company when or where such loan or other extension of credit is
prohibited by law.
5.3 Conditions to Issuance of Stock Certificates. The Company
shall not be required to issue or deliver any certificate or certificates for
shares of stock purchased upon the exercise of any Option or portion thereof
prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock
exchanges on which such class of stock is then listed;
(b) The completion of any registration or other qualification of
such shares under any state or federal law, or under the rulings or regulations
of the Securities and Exchange Commission or any other governmental regulatory
body which the Committee shall, in its discretion, deem necessary or advisable;
(c) The obtaining of any approval or other clearance from any
state or federal governmental agency which the Committee shall, in its
discretion, determine to be necessary or advisable;
(d) The lapse of such reasonable period of time following the
exercise of the Option as the Committee may establish from time to time for
reasons of administrative convenience; and
(e) The receipt by the Company of full payment for such shares,
including payment of any applicable withholding tax.
5.4 Rights as Stockholders. The holders of Options shall not be,
nor have any of the rights or privileges of, stockholders of the Company in
respect of any shares purchasable upon the exercise of any part of an Option
unless and until certificates representing such shares have been issued by the
Company to such holders.
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5.5 Ownership and Transfer Restrictions. The Committee, in its
discretion, may impose such restrictions on the ownership and transferability of
the shares purchasable upon the exercise of an Option as it deems appropriate.
Any such restriction shall be set forth in the respective Option Agreement or
other agreement between the Company and the holders of such shares and may be
referred to on the certificates evidencing such shares. The Committee may
require the Employee to give the Company prompt notice of any disposition of
shares of Common Stock acquired by exercise of an Incentive Stock Option within
(a) two years from the date of granting such Option to such Employee or (b) one
year after the transfer of such shares to such Employee. The Committee may
direct that the certificates evidencing shares acquired by exercise of an Option
refer to such requirement.
ARTICLE VI
ADMINISTRATION
6.1 Compensation Committee. Prior to the closing of the Company's
initial public offering of Common Stock (the "Offering"), the Compensation
Committee shall consist of the entire Board. Following the closing of the
Offering, the Compensation Committee (or another committee or a subcommittee of
the Board assuming the functions of the Committee under this Plan) shall consist
solely of two or more Independent Directors appointed by and holding office at
the pleasure of the Board, each of whom is (i) a "non-employee director" (as
defined by Rule 16b-3), (ii) to the extent required by the applicable provisions
of Rule 16b-3, a "disinterested person" as defined by Rule 16b-3 and (iii) an
"outside director" for purposes of Section 162(m) of the Code. Appointment of
Committee members shall be effective upon acceptance of appointment. Committee
members may resign at any time by delivering written notice to the Board.
Vacancies in the Committee may be filled by the Board.
6.2 Duties and Powers of Committee. It shall be the duty of the
Committee to conduct the general administration of this Plan in accordance with
its provisions. The Committee shall have the power to interpret this Plan and
the agreements pursuant to which Options are granted, and to adopt such rules
for the administration, interpretation, and application of this Plan as are
consistent therewith and to interpret, amend or revoke any such rules. Any such
grant under this Plan need not be the same with respect to each Optionee. Any
such interpretations and rules with respect to Incentive Stock Options shall be
consistent with the provisions of Section 422 of the Code. In its discretion,
the Board may at any time and from time to time exercise any and all rights and
duties of the Committee under this Plan except with respect to matters which
under Rule 16b-3 or Section 162(m) of the Code, or any regulations or rules
issued thereunder, are required to be determined in the sole discretion of the
Committee.
6.3 Majority Rule; Unanimous Written Consent. The Committee shall
act by a majority of its members in attendance at a meeting at which a quorum is
present or by a memorandum or other written instrument signed by all members of
the Committee.
6.4 Compensation; Professional Assistance; Good Faith Actions.
Members of the Committee shall receive such compensation for their services as
members as may be determined by the Board. All expenses and liabilities which
members of the Committee incur in connection with the administration of this
Plan shall be borne by the Company. The Committee may, with the approval of the
Board, employ attorneys, consultants, accountants, appraisers, brokers, or other
persons. The Committee, the Company and the Company's officers and Directors
shall be entitled to rely upon the advice, opinions or valuations of any such
persons. All actions taken and all interpretations and determi-
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nations made by the Committee or the Board in good faith shall be final and
binding upon all Optionees, the Company and all other interested persons. No
members of the Committee or Board shall be personally liable for any action,
determination or interpretation made in good faith with respect to this Plan or
the Options and all members of the Committee and the Board shall be fully
protected by the Company in respect of any such action, determination or
interpretation.
ARTICLE VII
MISCELLANEOUS PROVISIONS
7.1 Not Transferable. Options under this Plan may not be sold,
pledged, assigned, or transferred in any manner other than by will or the laws
of descent and distribution or pursuant to a QDRO, unless and until such Options
have been exercised, or the shares underlying such Options have been issued, and
all restrictions applicable to such shares have lapsed. No Option or interest or
right therein shall be liable for the debts, contracts or engagements of the
Optionee or his or her successors in interest or shall be subject to disposition
by transfer, alienation, anticipation, pledge, encumbrance, assignment or any
other means whether such disposition be voluntary or involuntary or by operation
of law by judgment, levy, attachment, garnishment or any other legal or
equitable proceedings (including bankruptcy), and any attempted disposition
thereof shall be null and void and of no effect, except to the extent that such
disposition is permitted by the preceding sentence.
During the lifetime of the Optionee only he or she may exercise
an Option (or any portion thereof) granted to him or her under the Plan, unless
it has been disposed of pursuant to a QDRO. After the death of the Optionee, any
exercisable portion of an Option may, prior to the time when such portion
becomes unexercisable under the Plan or the applicable Option Agreement, be
exercised by his or her personal representative or by any person empowered to do
so under the deceased Optionee's will or under the then applicable laws of
descent and distribution.
7.2 Amendment, Suspension or Termination of this Plan. Except as
otherwise provided in this Section 7.2, this Plan may be wholly or partially
amended or otherwise modified, suspended or terminated at any time or from time
to time by the Board or the Committee. However, without approval of the
Company's stockholders given within twelve months before or after the action by
the Board or the Committee, no action of the Board or the Committee may, except
as provided in Section 7.3, increase the limits imposed in Section 2.1 on the
maximum number of shares which may be issued under this Plan or modify the Award
Limit, and no action of the Committee or the Board may be taken that would
otherwise require stockholder approval as a matter of applicable law, regulation
or rule. No amendment, suspension or termination of this Plan shall, without the
consent of the holder of Options, alter or impair any rights or obligations
under any Options theretofore granted, unless the applicable Option Agreement
itself otherwise expressly so provides. No Options may be granted during any
period of suspension or after termination of this Plan, and in no event may any
Incentive Stock Option be granted under this Plan after the first to occur of
the following events:
(a) The expiration of ten years from the date the Plan is adopted
by the Board; or
(b) The expiration of ten years from the date the Plan is
approved by the Company's stockholders under Section 7.4.
7.3 Changes in Common Stock or Assets of the Company, Acquisition
or Liquidation of the Company and Other Corporate Events.
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(a) Subject to Section 7.3(d), in the event that the Committee
determines that any dividend or other distribution (whether in the form of cash,
Common Stock, other securities, or other property), recapitalization,
reclassification, stock split, reverse stock split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase, liquidation,
dissolution, or sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Company, (including, but not limited to a
Corporate Transaction), or exchange of Common Stock or other securities of the
Company, issuance of warrants or other rights to purchase Common Stock or other
securities of the Company, or other similar corporate transaction or event, in
the Committee's sole discretion, affects the Common Stock such that an
adjustment is determined by the Committee to be appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Plan or with respect to an Option, then the Committee
shall, in such manner as it may deem equitable, adjust any or all of
(i) the number and kind of shares of Common Stock (or other
securities or property) with respect to which Options may be granted
under the Plan (including, but not limited to, adjustments of the
limitations in Section 2.1 on the maximum number and kind of shares
which may be issued and adjustments of the Award Limit),
(ii) the number and kind of shares of Common Stock (or other
securities or property) subject to outstanding Options, and
(iii) the exercise price with respect to any Option.
(b) Subject to Section 7.3(d), in the event of any Corporate
Transaction or other transaction or event described in Section 7.3(a) or any
unusual or nonrecurring transactions or events affecting the Company, any
affiliate of the Company, or the financial statements of the Company or any
affiliate, or of changes in applicable laws, regulations, or accounting
principles, the Committee, in its discretion, is hereby authorized to take any
one or more of the following actions whenever the Committee determines that such
action is appropriate in order to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under the Plan or
with respect to any Option under this Plan, to facilitate such transactions or
events or to give effect to such changes in laws, regulations or principles:
(i) In its sole discretion, and on such terms and
conditions as it deems appropriate, the Committee may provide, either by
the terms of the Option Agreement or by action taken prior to the
occurrence of such transaction or event and either automatically or upon
the Optionee's request, for either the purchase of any such Option for
an amount of cash equal to the amount that could have been attained upon
the exercise of such Option or realization of the Optionee's rights had
such Option been currently exercisable or the replacement of such Option
with other rights or property selected by the Committee in its sole
discretion;
(ii) In its sole discretion, the Committee may provide,
either by the terms of the applicable Option Agreement or by action
taken prior to the occurrence of such transaction or event that it
cannot be exercised after such event;
(iii) Subject to subsection (e), in its sole discretion,
and on such terms and conditions as it deems appropriate, the Committee
may provide, either by the terms of such Option or by action taken prior
to the occurrence of such transaction or event, that for a specified
period of time prior to such transaction or event, such Option shall be
exercisable as to all shares
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covered thereby, notwithstanding anything to the contrary in (A) Section
4.4 or (B) the provisions of the applicable Option Agreement;
(iv) In its sole discretion, and on such terms and
conditions as it deems appropriate, the Committee may provide, either by
the terms of such Option or by action taken prior to the occurrence of
such transaction or event, that upon such event, such option, be assumed
by the successor or survivor corporation, or a parent or subsidiary
thereof, or shall be substituted for by similar options covering the
stock of the successor or survivor corporation, or a parent or
subsidiary thereof, with appropriate adjustments as to the number and
kind of shares and prices; and
(v) In its sole discretion, and on such terms and
conditions as it deems appropriate, the Committee may make adjustments
in the number and type of shares of Common Stock (or other securities or
property) subject to outstanding Options and/or in the terms and
conditions of (including the exercise price), and the criteria included
in, outstanding Options and Options which may be granted in the future.
(c) Subject to Sections 7.3(d) and 7.8, the Committee may, in its
discretion, include such further provisions and limitations in any Option
Agreement as it may deem equitable and in the best interests of the Company.
(d) With respect to Incentive Stock Options and Options intended
to qualify as performance-based compensation under Section 162(m), no adjustment
or action described in this Section 7.3 or in any other provision of the Plan
shall be authorized to the extent that such adjustment or action would cause the
Plan to violate Section 422(b)(1) of the Code or would cause such Option to fail
to so qualify under Section 162(m), as the case may be, or any successor
provisions thereto. Furthermore, no such adjustment or action shall be
authorized to the extent such adjustment or action would result in short-swing
profits liability under Section 16 of the Exchange Act or violate the exemptive
conditions of Rule 16b-3 unless the Committee determines that the Option is not
to comply with such exemptive conditions. The number of shares of Common Stock
subject to any Option shall always be rounded to the next whole number.
7.4 Approval of Plan by Stockholders. This Plan will be submitted
for the approval of the Company's stockholders within twelve months after the
date of the Board's initial adoption of this Plan. Options may be granted prior
to such stockholder approval, provided that such Options shall not be
exercisable prior to the time when this Plan is approved by the stockholders,
and provided further that if such approval has not been obtained at the end of
said twelve-month period, all Options previously granted under this Plan shall
thereupon be cancelled and become null and void.
7.5 Tax Withholding. The Company shall be entitled to require
payment in cash or deduction from other compensation payable to each Optionee of
any sums required by federal, state or local tax law to be withheld with respect
to the issuance, vesting or exercise of any Option. The Committee may in its
discretion and in satisfaction of the foregoing requirement allow such Optionee
to elect to have the Company withhold shares of Common Stock otherwise issuable
under such Option (or allow the return of shares of Common Stock) having a Fair
Market Value equal to the sums required to be withheld.
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7.6 Loans. The Committee may, in its discretion, extend one or
more loans to key Employees [and consultants] in connection with the exercise or
receipt of an Option granted under this Plan. The terms and conditions of any
such loan shall be set by the Committee.
7.7 Forfeiture Provisions. Pursuant to its general authority to
determine the terms and conditions applicable to Options under the Plan, the
Committee shall have the right (to the extent consistent with the applicable
exemptive conditions of Rule 16b-3) to provide, in the terms of Options granted
under the Plan, or to require the recipient to agree by separate written
instrument, that (a) any proceeds, gains or other economic benefit actually or
constructively received by the recipient upon any receipt or exercise of the
Option or upon the receipt or resale of any Common Stock underlying such Option,
must be paid to the Company, and (b) the Option shall terminate and any
unexercised portion of such Option (whether or not vested) shall be forfeited,
if (i) the Optionee incurs a Termination of Employment or Termination of
Consultancy, as applicable, prior to a specified date, or within a specified
time period following exercise of the Option, or (b) the Optionee at any time,
or during a specified time period, engages in any activity in competition with
the Company, or which is inimical, contrary or harmful to the interests of the
Company, as further defined by the Committee.
7.8 Limitations Applicable to Section 16 Persons and
Performance-Based Compensation. Notwithstanding any other provision of this
Plan, the Plan and any Option granted to any individual who is then subject to
Section 16 of the Exchange Act shall be subject to any additional limitations
set forth in any applicable exemptive rule under Section 16 of the Exchange Act
(including any amendment to Rule 16b-3 of the Exchange Act) that are
requirements for the application of such exemptive rule. To the extent permitted
by applicable law, the Plan and Options granted hereunder shall be deemed
amended to the extent necessary to conform to such applicable exemptive rule.
Furthermore, notwithstanding any other provision of this Plan, any Option
intended to qualify as performance-based compensation as described in Section
162(m)(4)(C) of the Code shall be subject to any additional limitations set
forth in Section 162(m) of the Code (including any amendment to Section 162(m)
of the Code) or any regulations or rulings issued thereunder that are
requirements for qualification as performance-based compensation as described in
Section 162(m)(4)(C) of the Code, and this Plan shall be deemed amended to the
extent necessary to conform to such requirements.
7.9 Effect of Plan Upon Options and Compensation Plans. The
adoption of this Plan shall not affect any other compensation or incentive plans
in effect for the Company or any Subsidiary. Nothing in this Plan shall be
construed to limit the right of the Company (a) to establish any other forms of
incentives or compensation for Employees, Directors or consultants of the
Company or any Subsidiary or (b) to grant or assume options or other rights
otherwise than under this Plan in connection with any proper corporate purpose
including but not by way of limitation, the grant or assumption of options in
connection with the acquisition by purchase, lease, merger, consolidation or
otherwise, of the business, stock or assets of any corporation, partnership,
firm or association.
7.10 Compliance with Laws. This Plan, the granting and vesting of
Options under this Plan and the issuance and delivery of shares of Common Stock
under Options granted hereunder are subject to compliance with all applicable
federal and state laws, rules and regulations (including but not limited to
state and federal securities law and federal margin requirements) and to such
approvals by any listing, regulatory or governmental authority as may, in the
opinion of counsel for the Company, be necessary or advisable in connection
therewith. Any securities delivered under this Plan shall be subject to such
restrictions, and the person acquiring such securities shall, if requested by
the Company, provide such assurances and representations to the Company as the
Company may deem necessary or desirable to assure compliance with all applicable
legal requirements. To the extent permitted by applicable law,
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the Plan and the Options granted hereunder shall be deemed amended to the extent
necessary to conform to such laws, rules and regulations.
7.11 Titles. Titles are provided herein for convenience only and
are not to serve as a basis for interpretation or construction of this Plan.
7.12 Governing Law. This Plan and any agreements hereunder shall
be administered, interpreted and enforced under the internal laws of the state
of New York without regard to conflicts of laws thereof.
* * *
I hereby certify that the foregoing Plan was duly adopted by the
Board of Directors of Algos Pharmaceutical Corporation on April 1, 1996.
Executed on this ____ day of _______________, 199___.
---------------------------
Secretary
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THE ALGOS PHARMACEUTICAL CORPORATION
1996 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
Algos Pharmaceutical Corporation, a Delaware corporation, has
adopted the Algos Pharmaceutical Corporation 1996 Non-Employee Director Stock
Option Plan (the "Plan"), effective ___________ ___, 1996, for the benefit of
its eligible non-employee directors.
The purposes of this Plan are as follows:
(1) To provide an additional incentive for non-employee directors
to further the growth, development and financial success of the Company by
personally benefiting through the ownership of options with respect to Company
stock which recognize such growth, development and financial success.
(2) To enable the Company to obtain and retain the services of
non-employee directors considered essential to the long range success of the
Company by offering them an opportunity to own options with respect to stock in
the Company which will reflect the growth, development and financial success of
the Company.
ARTICLE I
DEFINITIONS
1.1 General. Wherever the following terms are used in this Plan
they shall have the meaning specified below, unless the context clearly
indicates otherwise.
1.2 Board. "Board" shall mean the Board of Directors of the
Company.
1.3 Code. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
1.4 Common Stock. "Common Stock" shall mean the common stock of
the Company, par value $0.01 per share.
1.5 Company. "Company" shall mean Algos Pharmaceutical
Corporation, Delaware corporation.
1.6 Corporate Transaction. "Corporate Transaction" shall mean any
of the following stockholder-approved transactions to which the Company is a
party:
(a) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of which
is to change the state in which the Company is incorporated, form a
holding company or effect a similar reorganization as to form whereupon
this Plan and all Options are assumed by the successor entity;
(b) the sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Company, in complete liquidation
or dissolution of the Company in a transaction not covered by the
exceptions to clause (a), above; or
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(c) any reverse merger in which the Company is the surviving
entity but in which securities possessing more than fifty percent (50%)
of the total combined voting power of the Company's outstanding
securities are transferred to a person or persons different from those
who held such securities immediately prior to such merger.
1.7 Director. "Director" shall mean a member of the Board.
1.8 Employee. "Employee" shall mean any officer or other employee
(as defined in accordance with Section 3401(c) of the Code) of the Company or of
any corporation which is a Subsidiary.
1.9 Exchange Act. "Exchange Act" shall mean the Securities
Exchange Act of 1934, ------------ as amended.
1.10 Fair Market Value. "Fair Market Value" of a share of Common
Stock as of a given date shall be (a) the average on that date of the high and
low prices of a share of Common Stock on the principal national securities
exchange on which shares of Common Stock are then trading, or, if shares were
not traded on such date, then on the next preceding date on which a trade
occurred, or (b) if Common Stock is not traded on a national securities exchange
but is quoted on NASDAQ or a successor quotation system, the last reported sale
price on such date as reported by NASDAQ or such successor quotation system; or
(c) if Common Stock is not traded on a national securities exchange and is not
reported on NASDAQ or a successor quotation system, the closing bid price (or
average of bid prices) last quoted on such date by an established quotation
service for over-the-counter securities; or (d) if Common Stock is not traded on
a national securities exchange, is not reported on NASDAQ or a successor
quotation system and is not otherwise publicly traded on such date, the fair
market value of a share of Common Stock as established by the Board acting in
good faith and taking into consideration all factors which it deems appropriate,
including, without limitation, recent sale offer prices for the Common Stock in
private arm's-length transactions.
1.11 Independent Director. "Independent Director" shall mean a
member of the Board who is not an Employee of the Company.
1.12 Option. "Option" shall mean a stock option granted under
Article III of this Plan, which is not intended to qualify as an "incentive
stock option" under Section 422 of the Code.
1.13 Option Agreement. "Option Agreement" shall mean an agreement
between the Company and an Optionee that sets forth the terms, conditions and
limitations applicable to an Option.
1.14 Optionee. "Optionee" shall mean an Independent Director
granted an Option under this Plan.
1.15 Plan. "Plan" shall mean this Algos Pharmaceutical
Corporation 1996 Non- Employee Director Stock Option Plan.
1.16 QDRO. "QDRO" shall mean a qualified domestic relations order
as defined by the Code or Title I of the Employee Retirement Income Security Act
of 1974, as amended, or the rules thereunder.
1.17 Rule 16b-3. "Rule 16b-3" shall mean that certain Rule 16b-3
under the Exchange Act, as such Rule may be amended from time to time.
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1.18 Securities Act. "Securities Act" shall mean the Securities
Act of 1933, as amended.
1.19 Subsidiary. "Subsidiary" shall mean any corporation in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain then owns
stock possessing 50 percent or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
1.20 Termination of Directorship. "Termination of Directorship"
shall mean the time when an Optionee ceases to be a Director for any reason,
including, but not by way of limitation, a termination by resignation, failure
to be elected, removal or death. The Board, in its sole discretion, shall
determine the effect of all matters and questions relating to Termination of
Directorship.
ARTICLE II
SHARES SUBJECT TO PLAN
2.1 Shares Subject to Plan. The shares of stock subject to
Options shall be Common Stock. The aggregate number of such shares which may be
issued upon exercise of such Options under the Plan shall not exceed 10,000
thousand (10,000). The shares of Common Stock issuable upon exercise of such
options may be either previously authorized but unissued shares or treasury
shares.
2.2 Add-back of Options. If any Option under this Plan expires or
is cancelled without having been fully exercised, or is exercised in whole or in
part for cash as permitted by this Plan, the number of shares subject to such
Option but as to which such Option was not exercised prior to its expiration,
cancellation or exercise may again be optioned hereunder, subject to the
limitations of Section 2.1. Furthermore, any shares subject to Options which are
adjusted pursuant to Section 7.3 and become exercisable with respect to shares
of stock of another corporation shall be considered cancelled and may again be
optioned hereunder, subject to the limitations of Section 2.1. Shares of Common
Stock which are delivered by the Optionee or withheld by the Company upon the
exercise of any Option under this Plan, in payment of the exercise price thereof
or withholding taxes thereon, may again be optioned hereunder, subject to the
limitations of Section 2.1.
ARTICLE III
GRANTING OF OPTIONS
3.1 Eligibility. Each Independent Director of the Company shall
be eligible to be granted Options at the times and in the manner set forth in
Section 3.2.
3.2 Granting of Options
(a) During the term of the Plan, each person who is initially
elected or appointed to the Board, and who is an Independent Director at the
time of such initial election or appointment automatically shall be granted an
Option to purchase one hundred twenty (120) shares of Common Stock (subject to
adjustment as provided in Section 7.3) on the date of such initial election or
appointment. Members of the Board who are employees of the Company who
subsequently incur a Termination of Employment and remain on the Board will not
receive an initial Option grant pursuant to this subsection (a), but to the
extent that they are otherwise eligible, will receive, after such Termination of
Employment, Options as described in subsection (b) below.
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(b) During the term of the Plan, each Independent Director
automatically shall be granted an Option to purchase sixty (60) shares of Common
Stock (subject to adjustment as provided in Section 7.3) on the date of each
annual meeting of stockholders at which Directors are elected and at the close
of which the Independent Director is then serving as a Director, provided that
the Independent Director has served as a Director during the entire six month
period preceding the date of such annual meeting.
(c) All the foregoing Option grants authorized by this Section
3.2 are subject to stockholder approval of the Plan.
ARTICLE IV
TERMS OF OPTIONS
4.1 Option Agreement. Each Option shall be evidenced by a written
Option Agreement, which shall be executed by the Optionee and an authorized
officer of the Company and which shall contain such terms and conditions as the
Board shall determine, consistent with this Plan.
4.2 Exercise Price. The price per share of the shares subject to
each Option shall be 100% of the Fair Market Value of a share of Common Stock on
the date the Option is granted.
4.3 Option Term. The term of an Option shall be ten (10) years
from the date the Option is granted, except as provided in Section 7.3(b).
4.4 Option Vesting
(a) Options granted pursuant to Section 3.2(a) shall become
exercisable in cumulative annual installments of one-third each on each of the
first, second and third annual meetings of stockholders of the Company at which
Directors are elected following the date of grant, without variation or
acceleration hereunder except as provided in Section 7.3(b).
(b) Options granted pursuant to Section 3.2(b) shall become
exercisable in full on the date of the first annual meeting of stockholders of
the Company at which Directors are elected following the date of grant, without
variation or acceleration hereunder except as provided in Section 7.3(b).
(c) No portion of an Option which is unexercisable at Termination
of Directorship shall thereafter become exercisable.
4.5 Consideration. In consideration of the granting of an Option,
the Optionee shall agree, in the written Option Agreement, to render faithful
and efficient services as Director of the Company. Nothing in this Plan or in
any Option Agreement shall confer upon any Optionee any right to continue as a
Director of the Company, or shall interfere with or restrict in any way the
rights of the Company and any Subsidiary, which are hereby expressly reserved,
to discharge any Optionee at any time for any reason whatsoever, with or without
good cause.
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ARTICLE V
EXERCISE OF OPTIONS
5.1 Partial Exercise. An exercisable Option may be exercised in
whole or in part. However, an Option shall not be exercisable with respect to
fractional shares and the Board may require that, by the terms of the Option
Agreement, a partial exercise be with respect to a minimum number of shares.
5.2 Manner of Exercise. All or a portion of an exercisable Option
shall be deemed exercised upon delivery of all of the following to the Secretary
of the Company or his or her office:
(a) A written notice complying with the applicable rules
established by the Board stating that the Option, or a portion thereof, is
exercised. The notice shall be signed by the Optionee or other person then
entitled to exercise the Option or such portion;
(b) Such representations and documents as the Board, in its sole
discretion, deems necessary or advisable to effect compliance with all
applicable provisions of the Securities Act, as amended, and any other federal
or state securities laws or regulations. The Board may, in its sole discretion,
also take whatever additional actions it deems appropriate to effect such
compliance including, without limitation, placing legends on share certificates
and issuing stop-transfer notices to agents and registrars;
(c) In the event that the Option shall be exercised pursuant to
Section 7.1 by any person or persons other than the Optionee, appropriate proof
of the right of such person or persons to exercise the Option; and
(d) Full cash payment to the Secretary of the Company for the
shares with respect to which the Option, or portion thereof, is exercised.
However, the Board, may in its sole discretion (i) allow a delay in payment up
to thirty (30) days from the date the Option, or portion thereof, is exercised;
(ii) allow payment, in whole or in part, through the delivery of shares of
Common Stock owned by the Optionee, duly endorsed for transfer to the Company
with a Fair Market Value on the date of delivery equal to the aggregate exercise
price of the Option or exercised portion thereof; (iii) allow payment, in whole
or in part, through the surrender of shares of Common Stock then issuable upon
exercise of the Option having a Fair Market Value on the date of Option exercise
equal to the aggregate exercise price of the Option or exercised portion
thereof; (iv) allow payment, in whole or in part, through the delivery of
property of any kind which constitutes good and valuable consideration; (v)
allow payment, in whole or in part, through the delivery of a full recourse
promissory note bearing interest (at no less than such rate as shall then
preclude the imputation of interest under the Code) and payable upon such terms
as may be prescribed by the Board or (vi) allow payment, in whole or in part,
through the delivery of a notice that the Optionee has placed a market sell
order with a broker with respect to shares of Common Stock then issuable upon
exercise of the Option, and that the broker has been directed to pay a
sufficient portion of the net proceeds of the sale to the Company in
satisfaction of the Option exercise price; or (vii) allow payment through any
combination of the consideration provided in the foregoing subparagraphs (ii),
(iii), (iv), (v) and (vi). In the case of a promissory note, the Board may also
prescribe the form of such note and the security to be given for such note. The
Option may not be exercised, however, by delivery of a promissory note or by a
loan from the Company when or where such loan or other extension of credit is
prohibited by law.
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5.3 Conditions to Issuance of Stock Certificates. The Company
shall not be required to issue or deliver any certificate or certificates for
shares of stock purchased upon the exercise of any Option or portion thereof
prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock
exchanges on which such class of stock is then listed;
(b) The completion of any registration or other qualification of
such shares under any state or federal law, or under the rulings or regulations
of the Securities and Exchange Commission or any other governmental regulatory
body which the Board shall, in its sole discretion, deem necessary or advisable;
(c) The obtaining of any approval or other clearance from any
state or federal governmental agency which the Board shall, in its sole
discretion, determine to be necessary or advisable;
(d) The lapse of such reasonable period of time following the
exercise of the Option as the Board may establish from time to time for reasons
of administrative convenience; and
(e) The receipt by the Company of full payment for such shares,
including payment of any applicable withholding tax.
5.4 Rights as Stockholders. The holders of Options shall not be,
nor have any of the rights or privileges of, stockholders of the Company in
respect of any shares purchasable upon the exercise of any part of an Option
unless and until certificates representing such shares have been issued by the
Company to such holders.
5.5 Ownership and Transfer Restrictions. The Board, in its sole
discretion, may impose such restrictions on the ownership and transferability of
the shares purchasable upon the exercise of an Option as it deems appropriate.
Any such restriction shall be set forth in the respective Option Agreement or
other agreement between the Company and the holders of such shares and may be
referred to on the certificates evidencing such shares.
5.6 Limitations on Exercise of Options. No Option may be
exercised to any extent by anyone after the first to occur of the following
events:
(a) The expiration of twelve (12) months from the date of the
Optionee's death;
(b) the expiration of twelve (12) months from the date of the
Optionee's Termination of Directorship by reason of his permanent and total
disability (within the meaning of Section 22(e)(3) of the Code);
(c) the expiration of seven (7) days from the date of the
Optionee's Termination of Directorship by reason of removal for cause (as
determined by the Board in its sole discretion);
(d) the expiration of thirty (30) days from the date of the
Optionee's Termination of Directorship for any reason other than such Optionee's
death, removal for cause or his permanent and total disability, unless the
Optionee dies within said three-month period; or
(e) The expiration of ten years from the date the Option was
granted.
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ARTICLE VI
ADMINISTRATION
6.1 Duties and Powers of Board. It shall be the duty of the Board
to conduct the general administration of this Plan in accordance with its
provisions. The Board shall have the power to interpret this Plan and the
agreements pursuant to which Options are granted, and to adopt such rules for
the administration, interpretation, and application of this Plan as are
consistent therewith and to interpret, amend or revoke any such rules.
6.2 Majority Rule; Unanimous Written Consent. The Board shall act
by a majority of its members in attendance at a meeting at which a quorum is
present or by a memorandum or other written instrument signed by all members of
the Board.
6.3 Professional Assistance; Good Faith Actions. All expenses and
liabilities which members of the Board incur in connection with the
administration of this Plan shall be borne by the Company. The Board may employ
attorneys, consultants, accountants, appraisers, brokers, or other persons. The
Company and the Company's officers and Directors shall be entitled to rely upon
the advice, opinions or valuations of any such persons. All actions taken and
all interpretations and determinations made by the Board in good faith shall be
final and binding upon all Optionees, the Company and all other interested
persons. No members of the Board shall be personally liable for any action,
determination or interpretation made in good faith with respect to this Plan or
the Options and all members of the Board shall be fully protected by the Company
in respect of any such action, determination or interpretation.
ARTICLE VII
MISCELLANEOUS PROVISIONS
7.1 Not Transferable. Options under this Plan may not be sold,
pledged, assigned, or transferred in any manner other than by will or the laws
of descent and distribution or pursuant to a QDRO, unless and until such Options
have been exercised, or the shares underlying such Options have been issued, and
all restrictions applicable to such shares have lapsed. No Option or interest
therein shall be liable for the debts, contracts or engagements of the Optionee
or his or her successors in interest or shall be subject to disposition by
transfer, alienation, anticipation, pledge, encumbrance, assignment or any other
means whether such disposition be voluntary or involuntary or by operation of
law by judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof shall
be null and void and of no effect, except to the extent that such disposition is
permitted by the preceding sentence.
During the lifetime of the Optionee only he or she may exercise
an Option (or any portion thereof) granted to him or her under the Plan, unless
it has been disposed of pursuant to a QDRO. After the death of the Optionee, any
exercisable portion of an Option may, prior to the time when such portion
becomes unexercisable under the Plan or the applicable Option Agreement or other
agreement, be exercised by his or her personal representative or by any person
empowered to do so under the deceased Optionee's will or under the then
applicable laws of descent and distribution.
7.2 Amendment, Suspension or Termination of this Plan. Except as
otherwise provided in this Section 7.2, this Plan may be wholly or partially
amended or otherwise modified, suspended or terminated at any time or from time
to time by the Board. However, without approval of
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the Company's stockholders given within twelve months before or after the action
by the Board, no action of the Board may, except as provided in Section 7.3,
increase the limits imposed in Section 2.1 on the maximum number of shares which
may be issued under this Plan, and no action of the Board may be taken that
would otherwise require stockholder approval as a matter of applicable law,
regulation or rule. No amendment, suspension or termination of this Plan shall,
without the consent of the holder of Options alter or impair any rights or
obligations under any Options theretofore granted, unless the Option Agreement
itself otherwise expressly so provides. No Options may be granted during any
period of suspension or after termination of this Plan.
7.3 Changes in Common Stock or Assets of the Company, Acquisition
or Liquidation of the Company and Other Corporate Events.
(a) Subject to Section 7.3(d), in the event that the Board
determines that any dividend or other distribution (whether in the form of cash,
Common Stock, other securities, or other property), recapitalization,
reclassification, stock split, reverse stock split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase, liquidation,
dissolution, or sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Company, or exchange of Common Stock or
other securities of the Company, issuance of warrants or other rights to
purchase Common Stock or other securities of the Company, or other similar
corporate transaction or event, in the Board's sole discretion, affects the
Common Stock such that an adjustment is determined by the Board to be
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan or with respect
to an Option, then the Board shall, in such manner as it may deem equitable,
adjust any or all of
(i) the number and kind of shares of Common Stock (or other
securities or property) with respect to which Options may be granted
under the Plan (including, but not limited to, adjustments of the
limitations in Section 2.1 on the maximum number and kind of shares),
(ii) the number and kind of shares of Common Stock (or other
securities or property) subject to outstanding Options, and
(iii) the exercise price with respect to any Option.
(b) Subject to Sections 7.3(b)(vi) and 7.3(d), in the event of
any Corporate Transaction or other transaction or event described in Section
7.3(a) or any unusual or nonrecurring transactions or events affecting the
Company, any affiliate of the Company, or the financial statements of the
Company or any affiliate, or of changes in applicable laws, regulations, or
accounting principles, the Board in its sole discretion is hereby authorized to
take any one or more of the following actions whenever the Board determines that
such action is appropriate in order to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under the Plan or
with respect to any Option under this Plan, to facilitate such transactions or
events or to give effect to such changes in laws, regulations or principles:
(i) In its sole discretion, and on such terms and conditions
as it deems appropriate, the Board may provide, either by the terms of
the Option Agreement or by action taken prior to the occurrence of such
transaction or event and either automatically or upon the Optionee's
request, for either the purchase of any such Option for an amount of
cash equal to the amount that could have been attained upon the exercise
of such Option or realization of the Optionee's rights had such Option
been currently exercisable or the replacement of such Option with other
rights or property selected by the Board;
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(ii) In its sole discretion, the Board may provide, either
by the terms of the Option Agreement or by action taken prior to the
occurrence of such transaction or event that it cannot be exercised
after such event;
(iii) Subject to subsection (d), in its sole discretion, and
on such terms and conditions as it deems appropriate, the Board may
provide, either by the terms of such Option or by action taken prior to
the occurrence of such transaction or event, that for a specified period
of time prior to such transaction or event, such Option shall be
exercisable as to all shares covered thereby, notwithstanding anything
to the contrary in (A) Section 4.4 or (B) the provisions of the
applicable Option Agreement;
(iv) In its sole discretion, and on such terms and
conditions as it deems appropriate, the Board may provide, either by the
terms of such Option or by action taken prior to the occurrence of such
transaction or event, that upon such event, such option be assumed by
the successor or survivor corporation, or a parent or subsidiary
thereof, or shall be substituted for by similar options covering the
stock of the successor or survivor corporation, or a parent or
subsidiary thereof, with appropriate adjustments as to the number and
kind of shares and prices; and
(v) In its sole discretion, and on such terms and conditions
as it deems appropriate, the Board may make adjustments in the number
and type of shares of Common Stock (or other securities or property)
subject to outstanding Options and/or in the terms and conditions of
(including the exercise price), and the criteria included in,
outstanding Options and Options which may be granted in the future.
(vi) None of the foregoing discretionary terms of this
Section 7.3(b) shall be permitted to the extent that such discretion
would be inconsistent with the applicable exemptive conditions of Rule
16b-3. In the event of Corporate Transaction, to the extent that the
Board does not have the ability under Rule 16b-3 to take or to refrain
from taking the discretionary actions set forth in Section 7.3(b)(iii)
above, each Option shall be exercisable as to all shares covered thereby
during the five days immediately preceding the consummation of such
Corporate Transaction and subject to such consummation, notwithstanding
anything to the contrary in Section 4.4 or the vesting schedule of such
Options. In the event of a Corporate Transaction, to the extent that the
Board does not have the ability under Rule 16b-3 to take or to refrain
from taking the discretionary actions set forth in Section 7.3(b)(ii)
above, no Option may be exercised following such Corporate Transaction
unless such Option is, in connection with such Corporate Transaction,
either assumed by the successor or survivor corporation (or parent or
subsidiary thereof) or replaced with a comparable right with respect to
shares of the capital stock of the successor or survivor corporation (or
parent or subsidiary thereof).
(c) Subject to Section 7.3(d) and 7.8, the Board may, in its sole
discretion, include such further provisions and limitations in any Option
Agreement as it may deem equitable and in the best interests of the Company.
(d) No adjustment or action described in this Section 7.3 or in
any other provision of the Plan shall be authorized to the extent that such
adjustment or action would result in short-swing profits liability under Section
16 of the Exchange Act or violate the exemptive conditions of Rule 16b-3 unless
the Board determines that the Option is not to comply with such exemptive
conditions. The number of shares of Common Stock subject to any Option shall
always be rounded to the next whole number.
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7.4 Approval of Plan by Stockholders. This Plan will be submitted
for the approval of the Company's stockholders within twelve months after the
date of the Board's initial adoption of this Plan. Options may be granted prior
to such stockholder approval, provided that such Options shall not be
exercisable prior to the time when this Plan is approved by the stockholders,
and provided further that if such approval has not been obtained at the end of
said twelve-month period, all Options previously granted under this Plan shall
thereupon be cancelled and become null and void.
7.5 Tax Withholding. The Company shall be entitled to require
payment in cash or deduction from other compensation payable to each Optionee of
any sums required by federal, state or local tax law to be withheld with respect
to the issuance or exercise of any Option. The Board may in its sole discretion
allow such Optionee to elect to have the Company withhold shares of Common Stock
otherwise issuable under such Option (or allow the return of shares of Common
Stock) having a Fair Market Value equal to the sums required to be withheld.
7.6 Loans. The Board may, in its sole discretion, extend one or
more loans to Independent Directors in connection with the exercise of an Option
granted under this Plan. The terms and conditions of any such loan shall be set
by the Board.
7.7 Forfeiture Provisions. Pursuant to its general authority to
determine the terms and conditions applicable to Options under the Plan
consistent with the provisions of the Plan, the Board shall have the right (to
the extent consistent with the applicable exemptive conditions of Rule 16b-3) to
provide, in the terms of Options granted under the Plan, or to require the
recipient to agree by separate written instrument, that (a) any proceeds, gains
or other economic benefit actually or constructively received by the recipient
upon any receipt or exercise of the Option or upon the receipt or resale of any
Common Stock underlying such Option must be paid to the Company, and (b) the
Option shall terminate and any unexercised portion of such Option shall be
forfeited, if (i) the Optionee incurs a Termination of Directorship prior to a
specified date, or within a specified time period following receipt or exercise
of the Option, or (ii) the Optionee at any time, or during a specified time
period, engages in any activity in competition with the Company, or which is
inimical, contrary or harmful to the interests of the Company, as further
defined by the Board.
7.8 Limitations Applicable to Section 16 Persons. Notwithstanding
any other provision of this Plan, this Plan and any Option granted to any
individual who is then subject to Section 16 of the Exchange Act shall be
subject to any additional limitations set forth in any applicable exemptive rule
under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of
the Exchange Act) that are requirements for the application of such exemptive
rule. To the extent permitted by applicable law, the Plan and Options granted
hereunder shall be deemed amended to the extent necessary to conform to such
applicable exemptive rule.
7.9 Effect of Plan Upon Options and Compensation Plans. The
adoption of this Plan shall not affect any other compensation or incentive plans
in effect for the Company or any Subsidiary. Nothing in this Plan shall be
construed to limit the right of the Company (a) to establish any other forms of
incentives or compensation for Employees, Directors or consultants of the
Company or any Subsidiary or (b) to grant or assume options or other rights
otherwise than under this Plan in connection with any proper corporate purpose
including but not by way of limitation, the grant or assumption of options in
connection with the acquisition by purchase, lease, merger, consolidation or
otherwise, of the business, stock or assets of any corporation, partnership,
firm or association.
7.10 Compliance with Laws. This Plan, the granting and vesting of
Options under this Plan and the issuance and delivery of shares of Common Stock
under Options granted hereunder are
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subject to compliance with all applicable federal and state laws, rules and
regulations (including but not limited to state and federal securities law and
federal margin requirements) and to such approvals by any listing, regulatory or
governmental authority as may, in the opinion of counsel for the Company, be
necessary or advisable in connection therewith. Any securities delivered under
this Plan shall be subject to such restrictions, and the person acquiring such
securities shall, if requested by the Company, provide such assurances and
representations to the Company as the Company may deem necessary or desirable to
assure compliance with all applicable legal requirements. To the extent
permitted by applicable law, the Plan and the Options granted hereunder shall be
deemed amended to the extent necessary to conform to such laws, rules and
regulations.
7.11 Titles. Titles are provided herein for convenience only and
are not to serve as a basis for interpretation or construction of this Plan.
7.12 Governing Law. This Plan and any agreements hereunder shall
be administered, interpreted and enforced under the internal laws of the state
of New York without regard to conflicts of laws thereof.
* * *
I hereby certify that the foregoing Plan was duly adopted by the
Board of Directors of Algos Pharmaceutical Corporation on __________________
1996.
Executed on this ____ day of _______________, 199___.
-----------------------------------
Secretary
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REDACTED PORTIONS OF THIS EXHIBIT ARE MARKED BY AN *** AND HAVE
RECEIVED CONFIDENTIAL TREATMENT PURSUANT TO RULE 406(b) UNDER
THE SECURITIES ACT.
LICENSE AGREEMENT
This Agreement is made and entered into this 16th day of August, 1993,
(the "Effective Date") by and between VIRGINIA COMMONWEALTH UNIVERSITY, Box 568,
MCV Station, Richmond, Virginia 23298-0568 ("University") and U.S. MEDICAL
TECHNOLOGIES, INC., Collingwood Plaza, 4900 Route 33, Wall Township, New Jersey
07753 (hereinafter referred to as "Licensee").
WITNESSETH
WHEREAS, University is the owner of certain Patent Rights (as later
defined herein) and has the right to grant licenses under said Patent Rights,
[subject only to a royalty-free, nonexclusive license heretofore granted to the
United States Government;]
WHEREAS, University desires to have the Patent Rights developed and
commercialized to benefit the public and is willing to grant a license
thereunder;
WHEREAS, Licensee has represented to University, to induce University to
enter into this agreement, that Licensee shall commit itself to a thorough,
vigorous and diligent program of exploiting the Patent Rights so that public
utilization shall result therefrom; and
WHEREAS, Licensee desires to obtain a license under the Patent Rights
upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto agree as follows:
1 - DEFINITIONS
For the purposes of this Agreement, the following words and phrases
shall have the following meanings:
1.1 "Licensee" shall include a related company of U.S. Medical
Technologies, Inc., the voting stock of which is directly or indirectly at least
fifty percent (50%) owned or controlled by U.S. Medical Technologies, Inc., an
organization which directly or indirectly controls more than fifty percent (50%)
of the voting stock of U.S. Medical Technologies, Inc., and an organization,
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the majority ownership of which is directly or indirectly common to the
ownership of U.S. Medical Technologies, Inc.
1.2 "Patent Rights" shall mean all of the following University
intellectual property:
(a) the United States and foreign patents and/or patent
applications listed in Appendix A;
(b) United States and foreign patents issued from the
applications listed in Appendix A and from divisionals and
continuations of these applications;
(c) claims of U.S. and foreign continuation-in-part
applications, and of the resulting patents, which are
directed to subject matter specifically described in the
U.S. and foreign applications listed in Appendix A;
(d) claims of all foreign patent applications, and of the
resulting patents, which are directed to subject matter
specifically described in the United States patents and/or
patent applications described in (a), (b) or (c) above;
and
(e) any reissues of United States patents described in (a),
(b) or (c) above.
1.3 A "Licensed Product" shall mean any product or part thereof which:
(a) is covered in whole or in part by an issued, unexpired
claim or a pending claim contained in the Patent Rights in
the country in which any such product or part thereof is
made, used or sold; or
(b) is manufactured by using a process or is employed to
practice a process which is covered in whole or in part by
an issued, unexpired claim or a pending claim contained in
the Patent Rights in the country in which any Licensed
Process is used or in which such product or part thereof
is used or sold.
1.4 A "Licensed Process" shall mean any process which is covered in
whole or in part by an issued, unexpired claim or a pending claim contained in
the Patent Rights.
1.5 "Net Sales" shall mean Licensee's (and its sublicensees') billings
for Licensed Products and Licensed Processes produced hereunder less the sum of
the following:
(a) discounts allowed in amounts customary in the trade;
(b) sales, tariff duties and/or use taxes directly imposed and
with reference to particular sales;
(c) outbound transportation prepaid or allowed; and
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(d) amounts allowed or credited on returns.
No deductions shall be made for commissions paid to individuals whether
they be with independent sales agencies or regularly employed by Licensee and on
its payroll, or for cost of collections. Licensed Products shall be considered
"sold" when billed out or invoiced.
1.6. "Territory" shall mean worldwide.
1.7 "Field of Use" shall mean pain management.
2 - GRANT
2.1 University hereby grants to Licensee the right and license in the
Territory for the Field of Use to practice under the Patent Rights and, to the
extent not prohibited by other patents, to make, have made, use, lease, sell and
import Licensed Products and to practice the Licensed Processes, until the end
of the term for which the Patent Rights are granted unless this Agreement shall
be sooner terminated according to the terms hereof.
2.2 In order to establish a period of exclusivity for Licensee,
University hereby agrees that it shall not grant any other license to make, have
made, use, lease and sell Licensed Products or to utilize Licensed Processes in
the Territory for the Field of Use during the term of this Agreement.
2.3 University reserves the right to practice under the Patent Rights
for its own noncommercial educational or research purposes.
2.4 Licensee shall have the right to enter into sublicensing agreements
for the rights, privileges and licenses granted hereunder. Upon any termination
of this Agreement, sublicensees, rights shall also terminate, subject to Section
12.6 hereof.
2.5 Licensee agrees that any sublicense granted by it shall provide that
the obligations to University of Sections 2, 5, 7, 8, 10, 11 and 13 of this
Agreement shall be binding upon the sublicensee as if it were a party to this
Agreement. Licensee further agrees to attach copies of these Sections to
sublicense agreements.
2.6 Licensee agrees to forward to University a copy of any and all
sublicense agreements promptly upon execution by the parties.
3 - DUE DILIGENCE
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3.1 Licensee shall use its best efforts to bring one or more Licensed
Products or Licensed Processes to market through a thorough, vigorous and
diligent program for exploitation of the Patent Rights and to continue active,
diligent marketing efforts for one or more Licensed Products or Licensed
Processes throughout the life of this Agreement. In particular, Licensee shall
diligently pursue product development, FDA regulatory approval, market
introduction of the product after FDA approval and continued sales support. The
ongoing Research Agreement between the parties shall be deemed sufficient
evidence of diligence in product development. Thereafter, or if no Research
Agreement between University and Licensee is in effect, evidence of an ongoing
development project leading to market introduction will be deemed sufficient
evidence of diligence.
3.2 Licensee shall make a first commercial sale of a Licensed Product
within 12 months of receiving FDA approval and shall continuously thereafter
offer Licensed Products for sale.
3.3 Licensee's failure to perform in accordance with Sections 3.1 and
3.2 above shall be grounds for University to terminate this Agreement pursuant
to Section 13.3 hereof.
4 - ROYALTIES
4.1 For the rights, privileges and license granted hereunder, Licensee
shall pay royalties to University in the manner hereinafter provided during the
term of this Agreement:
(a) Royalties in an amount equal to *** of net sales for
Licensed Products for which University provides more than
65 percent (65%) of product development costs, as defined
in Section 10 of the Research Agreement of January 2, 1993
as amended or in any subsequent Research Agreement.
(b) Royalties in an amount equal to *** of net sales for
Licensed Products for which University provides less than
sixty-five percent (65%) but more than thirty-five percent
(35%) of product development costs, as defined in Section
10 of the Research Agreement of January 2, 1993 as amended
or in any subsequent Research Agreement.
(c) Royalties in an amount equal to *** of net sales for
Licensed Products for which University provides less than
thirty-five percent (35%) of product development costs, as
defined in section 10 of the Research Agreement of January
2, 1993 as amended or in any subsequent Research
Agreement.
(d) Royalties in an amount equal to *** of net sales for
Licensed Products if no Research Agreement between
University and Licensee is then in effect.
(e) If the Licensed Product is combined with a drug or other
substance and/or any device for which Licensee is paying
an additional royalty, the royalty
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rates set forth in subsections (a), (b), (c), (d) and (e)
shall be reduced by the percentage rate Licensee is paying
as additional royalty, provided that in no event shall
University receive less than 50 percent (50%) of the
royalty rates set forth in subsections (a), (b), (c), (d)
and (e).
4.2 All payments due hereunder shall be paid in full, without deduction
of taxes or other fees which may be imposed by any government and which shall be
paid by Licensee.
4.3 No multiple royalties shall be payable because any Licensed Product,
its manufacture, use, lease or sale are or shall be covered by more than one
Patent Rights patent application or Patent Rights patent licensed under this
Agreement.
4.4 Royalty payments shall be paid in United States dollars in Richmond,
Virginia, or at such other place as University may reasonably designate
consistent with the laws and regulations controlling in any foreign country. If
any currency conversion shall be required in connection with the payment of
royalties hereunder, such conversion shall be made by using the exchange rate
prevailing at the Chase Manhattan Bank (N.A.) on the last business day of the
calendar quarterly reporting period to which such royalty payments relate.
5 - REPORTS AND RECORDS
5.1 Licensee shall keep full, true and accurate books of account
containing all particulars that may be necessary for the purpose of showing the
amounts payable to University hereunder. Said books of account shall be kept at
Licensee's principal place of business or the principal place of business of the
appropriate division of Licensee to which this Agreement relates. Said books and
the supporting data shall be open at all reasonable times for five (5) years
following the end of the calendar year to which they pertain, to the inspection
of University or its agents for the purpose of verifying Licensee's royalty
statement or compliance in other respects with this Agreement. Should such
inspection lead to the discovery of a greater than ten percent (10%) discrepancy
in reporting to University's detriment, Licensee agrees to pay the full cost of
such inspection.
5.2 After the first commercial sale of a Licensed Product or Licensed
Process, Licensee, within sixty (60) days after March 31, June 30, September 30
and December 31, of each year, shall deliver to University true and accurate
reports, giving such particulars of the business conducted by Licensee and its
sublicensees during the preceding three-month period under this Agreement as
shall be pertinent to a royalty accounting hereunder. These shall include at
least the following:
(a) number of Licensed Products manufactured and sold by
Licensee and all sublicensees;
(b) total billings for Licensed Products sold by Licensee and
all sublicensees;
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(c) accounting for all Licensed Processes used or sold by
Licensee and all sublicensees;
(d) deductions applicable as provided in Section 1.5;
(e) total royalties due; and
(f) names and addresses of all sublicensees of Licensee.
5.3 With each such report submitted, Licensee shall pay to University
the royalties due and payable under this Agreement. If no royalties shall be
due, Licensee shall so report.
5.4 On or before the ninetieth (90th) day following the close of
Licensee's fiscal year, Licensee shall provide University with Licensee's
certified financial statements for the preceding fiscal year including, at a
minimum, a Balance Sheet and an Operating Statement.
5.5 The royalty payments set forth in this Agreement and amounts due
under Section 6 shall, if overdue, bear interest until payment at a per annum
rate one percent (1%) above the prime rate in effect at the Chase Manhattan Bank
(N.A.) on the due date. The payment of such interest shall not foreclose
University from exercising any other rights it may have as a consequence of the
lateness of any payment.
6 - PATENT PROSECUTION
6.1 Licensee, at its own expense and utilizing patent counsel of its
choice, mutually agreeable to University, shall have the sole right and
responsibility for the filing, prosecution, and maintenance of any patent
applications and patents contained in the Patent Rights. University and counsel
of its choice, agreeable to Licensee, shall have the right of prior review and
approval of all documents to be filed with the United States Patent and
Trademark Office or any foreign patent office or patent agent. Licensee,
therefore, shall provide draft copies of any such document to University within
a reasonable time (not fewer than ten (10) business days) before the anticipated
filing date. Licensee, or its patent counsel, shall provide University with
copies of all correspondence and documents filed with, or received from, the
United States Patent and Trademark Office or any foreign patent office or patent
agent. In addition, Licensee agrees that any and all official or "ribbon" copies
of issued patents SHALL be forwarded to, and retained BY, University.
6.2 University shall have the right, but not an obligation to file,
prosecute or maintain any United States or foreign patent application or patent
contained in the Patent Rights if Licensee elects not to file, prosecute or
maintain such patent applications or patents. Licensee shall promptly notify
University in writing of its decision not to file, prosecute or maintain such
patent applications or patents.
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6.3 Licensee shall be responsible for all future expenses related to the
filing, prosecution, and maintenance of patent applications and patents directly
related to the Patent Rights.
7 - INFRINGEMENT AND OTHER ACTIONS
7.1 Licensee and University shall promptly provide written notice, to
the other party, of any alleged infringement by a third party of the Patent
Rights and provide such other party with any available evidence of such
infringement.
7.2 During the term of this Agreement, Licensee shall have the right,
but not the obligation, to prosecute and/or defend, at its own expense and
utilizing counsel of its choice, any infringement of, and/or challenge to, the
Patent Rights. In furtherance of such right, University hereby agrees that
Licensee may join University as a party in any such suit, without expense to
University. **** Licensee shall indemnify University against any order for costs
that may be made against University in any such suit.
7.3 In the event that Licensee shall undertake the enforcement and/or
defense of the Patent Rights by litigation, Licensee may withhold up to *** of
the payments otherwise thereafter due University under Section 4 hereunder and
apply the same toward reimbursement of Licensee's expenses, including reasonable
attorneys, fees, in connection therewith. Any recovery of damages by Licensee
for each such suit shall be applied first in satisfaction of any unreimbursed
expenses and legal fees of Licensee relating to such suit, and next toward
reimbursement of University for any payments under Section 4 past due or
withheld and applied pursuant to this Section 7.
7.4 If Licensee elects not to defend any action referred to in Section
7.2, above, it shall so notify University in writing immediately. Prior to
providing such notification to University, Licensee shall take any action
necessary to ensure that rights of the University under any such action are not
prejudiced, including but not limited to filing a responsive pleading or
obtaining an extension of time to do so. University may elect, but shall not be
obligated, to defend any action referred to in Section 7.2, above, at its own
expense using counsel of its choice and University may join Licensee as a party
in such suit at no expense to Licensee. University may keep any recovery or
damages which may be derived from its defense.
7.5 If within six (6) months after receiving notice of any alleged
infringement, Licensee shall have been unsuccessful in persuading the alleged
infringer to desist, or shall not have brought and shall not be diligently
prosecuting an infringement action, or if Licensee shall notify University, at
any time prior thereto, of its intention not to bring suit against the alleged
infringer, then, and in those events only, University shall have the right, but
not the obligation, to prosecute, at its own expense and utilizing counsel of
its choice, any action for infringement of the Patent Rights, and University
may, for such purposes, join the Licensee as a party plaintiff. The total cost
of any such infringement action commenced solely by University shall be borne by
University and University shall keep any recovery or damages for past
infringement derived therefrom.
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7.6 In the event that a declaratory judgment action alleging invalidity
or infringement of any of the Patent Rights shall be brought against Licensee,
University, at its option, shall have the right, within thirty (30) days after
commencement of such action, to intervene and take over the sole defense of the
action at its own expense.
7.7 In any suit to enforce and/or defend the Patent Rights pursuant to
this License Agreement, the party not in control of such suit shall, at the
request and expense of the controlling party, cooperate in all respects and, to
the extent possible, have its employees testify when requested and make
available relevant records, papers, information, samples, specimens, and the
like.
8 - PRODUCT LIABILITY
8.1 University, by this License Agreement, makes no representation as to
the patentability and/or breadth of the inventions contained in the Patent
Rights. University, by this License Agreement makes no representation as to
patents now held or which will be held by others in the field of the Licensed
Products for a particular purpose except as set forth in Section 14.5 of this
Agreement.
8.2 Each party shall notify the other of any claim, lawsuit or other
proceeding related to the Licensed Products. Subject to the following sentence,
Licensee agrees that it will defend, indemnify and hold harmless University and
its Affiliates and its faculty members, researchers, employees, offices,
trustees and agents and each of them (the "Indemnified Parties"), from and
against any and all claims, causes of action, lawsuits or other proceedings
filed or otherwise instituted against the Indemnified Parties related directly
or indirectly to or arising out of the design, manufacture, sale, or use of the
Licensed Products or Licensed Processes by Licensee or its Affiliates even
though such claims, causes of action, lawsuits, other proceedings and the costs
(including attorney's fees) related thereto result in whole or in part from any
act or failure to act, other than willful misconduct or gross negligence, of any
of the Indemnified Parties. University agrees to be responsible, where found
liable an to t e extent covered by insurance or specified by statute, whichever
is lower, for the payment of any or all claims for loss, personal injury, death,
property damage or otherwise arising out of any act or omission of its employees
or agents, except to the extent caused by the direct fault or gross negligence
of Licensee, its agents, employees or sublicensees. The Commonwealth, its
agencies, institutions, and employees are covered by a self insured plan based
on a comprehensive general liability manuscript form as authorized by the Code
of Virginia, 2.1-526.8.
8.3 Not later than thirty (30) days before the time when Licensee, any
Subsidiary, or any Licensee sublicensee shall make, use, or sell any Licensed
Products or any products furnished to Licensee by VCU at any time (before, on,
or after the date hereof) in connection herewith or in connection with the
Research Agreement, and at all times thereafter until the expiration of all
applicable statutes of limitation pertaining to any such manufacture,
marketing, possession, use, sale or other disposition of any Licensed
Products or the aforesaid products furnished by VCU
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(whether same occurs or exists during or after the existence of the License or
during or after the License Period), Licensee will at Licensee's expense, obtain
and maintain in full force and effect, comprehensive general liability
insurance, including product liability insurance, protecting VCU against
all claims, suits, obligations, liabilities, and damage, based upon or
arising out of actual or alleged bodily injury, personal injury, death, or any
other damage to or loss of persons or property, caused by any such manufacture,
marketing, possession, use, sale, or other disposition. Such insurance policy or
policies shall be issued by companies rated by A.M. Best as A VIII or better (or
other companies acceptable to VCU), shall name VCU as an additional named
insured, shall have limits and deductibles consistent with standard industry
practice and prudent business judgment, shall be non-cancelable except upon
thirty (30) days' prior written notice to VCU, and shall provide that as to any
loss covered thereby and also by any policies obtained by VCU itself, Licensee's
policies shall provide primary coverage for VCU and VCU policies shall be
considered excess coverage for VCU.
8.4 Except as otherwise expressly set forth in this Agreement,
University makes no representations and extends no warranties of any kind,
either express or implied, including but not limited to warranties of
merchantability or fitness for a particular purpose.
9 - NON-USE OF NAMES
Licensee shall not use the names or trademarks of the University, nor
any adaptation thereof, nor the names of any of their employees, in any
advertising, promotional or sales literature without prior written consent
obtained from University, or said employee, in each case, except that Licensee
may state that it is licensed by University under one or more of the patents
and/or applications comprising the Patent Rights.
10 - ASSIGNMENT
This Agreement may be assigned by Licensee to a pain management company
organized under the auspices of Licensee. No other or subsequent assignment
shall be made without the prior written permission of University, which
permission shall not be unreasonably withheld.
11 - TERMINATION
11.1 If Licensee shall cease to carry on its business with respect to
the rights granted in this Agreement, this Agreement shall terminate upon notice
by University.
11.2 Should Licensee fail to make any payment whatsoever due and payable
to University hereunder, University shall have the right to terminate this
Agreement effective on sixty (60) days, notice, unless Licensee shall make all
such payments to University within said sixty (60) day period. Upon the
expiration of the sixty (60) day period, if Licensee shall not have
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made all such payments to University, the rights, privileges and license granted
hereunder shall automatically terminate.
11.3 Upon any material breach or default of this Agreement by Licensee
(including, but not limited to, breach or default under Section 3-3), other than
those occurrences set out in Sections 11.1 and 11.2 hereinabove, which shall
always take precedence in that order over any material breach or default
referred to in this Section 11.3, University shall have the right to terminate
this Agreement and the rights, privileges and license granted hereunder
effective on ninety (90) days' notice to Licensee. Such termination shall become
automatically effective unless Licensee shall have cured any such material
breach or default prior to the expiration of the ninety (90) day period.
11.4 Licensee shall have the right to terminate this Agreement at any
time on ninety (90) days' notice to University, and upon payment of all amounts
due University through the effective date of the termination.
11.5 Upon termination of this Agreement for any reason, nothing herein
shall be construed to release either party from any obligation that matured
prior to the effective date of such termination; and Sections 1, 8, 9, 10, 11.5,
11.6, and 13 shall survive any such termination. Licensee and any sublicensee
thereof may, however, after the effective date of such termination, sell all
Licensed Products, and complete Licensed Products in the process of manufacture
at the time of such termination and sell the same, provided that Licensee shall
make the payments to University as required by Section 4 of this Agreement and
shall submit the reports required by Section 5 hereof.
11.6 Upon termination of this Agreement for any reason, any sublicensee
not then in default shall have the right to seek a license from University.
University agrees to attempt to negotiate such licenses in good faith under
reasonable terms and conditions.
12 - PAYMENTS, NOTICES AND OTHER COMMUNICATIONS
Any payment, notice or other communication pursuant to this Agreement
shall be sufficiently made or given on the date of mailing if sent to such party
by certified first class mail, postage prepaid, addressed to it at its address
below or as it shall designate by written notice given to the other party:
In the case of University:
Director, Technology Transfer
Virginia Commonwealth University
Box 568
MCV Station
Richmond, Virginia 23298-0568
In the case of Licensee:
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President
U.S. Medical Technologies, Inc.
Collingwood Plaza
4900 Route 33
Wall Township, New Jersey 07753
13 - MISCELLANEOUS PROVISIONS
13.1 This Agreement shall be construed, governed, interpreted and
applied in accordance with the laws of the Commonwealth of Virginia, except that
questions affecting the construction and effect of any patent shall be
determined by the law of the country in which the patent was granted.
13.2 The parties hereto acknowledge that this Agreement sets forth the
entire Agreement and understanding of the parties hereto as to the subject
matter hereof, and shall not be subject to any change or modification except by
the execution of a written instrument subscribed to by the parties hereto.
13.3 The provisions of this Agreement are severable, and in the event
that any provisions of this Agreement shall be determined to be invalid or
unenforceable under any controlling body of the law, such invalidity or
unenforceability shall not in any way affect the validity or enforceability of
the remaining provisions hereof.
13.4 Licensee agrees to mark the Licensed Products sold in the United
States with all applicable United States patent numbers. All Licensed Products
shipped or sold in other countries shall be marked in such a manner as to
conform with the patent laws and practice of the country of manufacture or sale.
13.5 University represents and warrants that as of the date hereof, (a)
University has full power and authority to enter into this License Agreement and
to perform all of its obligations hereunder or contemplated hereby, (b) this
License Agreement has been duly authorized, executed and delivered by University
and is a valid and binding agreement of University, enforceable in accordance
with its terms, (c) University has all right, title and interest in and to the
Specified Technologies, subject to any required royalty-free non-exclusive
government license pursuant to NIH funding, and upon the License thereof to
Licensee pursuant hereto, Licensee shall acquire an exclusive worldwide license
thereto free and clear of all liens, charges, encumbrances or other restrictions
or limitations of any kind whatsoever to University's knowledge, (d) to
University's knowledge, there are no licenses, options, restrictions, liens,
rights of others, disputes, royalty obligations, or proceedings relating to,
affecting, or limiting its rights with respect to, or which invalidate any part
or all of the Patent Rights or any prior act that would invalidate patent
property relating to the Patent Rights, and (e) University does not now have any
financial interest in any product,method, technology or process that directly
competes, with one or more of the Licensed Products or Licensed Processes.
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13.6 Licensee represents that, as of the date hereof, (a) it is a
corporation duly organized and existing under the laws of the State of Delaware;
(b) it has full corporate authority to enter into and perform the obligations
and duties of this License Agreement; and (c) when fully executed and delivered,
this License Agreement shall be a valid and binding obligation of Licensee.
13.7 The failure of either party to assert a right hereunder or to
insist upon compliance with any term or condition of this Agreement shall not
constitute a waiver of that right or excuse a similar subsequent failure to
perform any such term or condition by the other party.
IN WITNESS WHEREOF, the parties have duly executed this Agreement the
day and year set forth below.
VIRGINIA COMMONWEALTH UNIVERSITY U.S. MEDICAL TECHNOLOGIES, INC.
By /s/ Robert M. Garrison By /s/ John W. Lyle
Director,
Title Technology Transfer Title President
Date 8/13/93 Date 8/16/93
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APPENDIX A
UNITED STATES PATENT RIGHTS
**************Appendix Intentionally Omitted************
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MODIFICATION NO. 1
TO THE LICENSE AGREEMENT BETWEEN VIRGINIA COMMONWEALTH
UNIVERSITY AND ALGOS PHARMACEUTICAL CORPORATION
DATED AUGUST 16, 1993
NOW, THEREFORE, the parties hereto agree to the following modifications to the
above LICENSE AGREEMENT.
PREAMBLE
In the first paragraph, fourth line delete "U.S. Medical Technologies, Inc." and
replace with "Algos Pharmaceutical Corporation" thereto.
ARTICLE 1 - DEFINITIONS
In Section 1.1, in the second, fourth, sixth and eighth lines, delete "U.S.
Medical Technologies, Inc." and replace with "Algos Pharmaceutical Corporation"
thereto.
ARTICLE 12 - PAYMENTS, NOTICES AND OTHER COMMUNICATIONS
In the third paragraph ("In the case of Licenses:"), second line, delete "U.S.
Medical Technologies, Inc." and replace with "Algos Pharmaceutical Corporation"
thereto.
All other terms and conditions of the agreement shall remain the same.
VIRGINIA COMMONWEALTH SPONSOR
UNIVERSITY
By:----------------------------- By:-----------------------------
Hereto duly authorized Hereto duly authorized
Title: Director, Technology Transfer Title:-----------------------------
Date:----------------------------- Date:------------------------------
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MODIFICATION NO. 2
TO THE LICENSE AGREEMENT BETWEEN VIRGINIA COMMONWEALTH
UNIVERSITY AND ALGOS PHARMACEUTICAL CORPORATION
DATED AUGUST 16, 1998
NOW, THEREFORE, the parties hereto agree to the following modification to the
above LICENSE AGREEMENT:
ARTICLE 4 - ROYALTIES
Add a section 4.1(f) as follows:
If Licensee enters into sublicensing agreements, Licensee shall pay
University **** of all royalties received from such sublicensee,
including advances on royalties, provided that prior to the distribution
of royalties Licensee shall deduct all reasonable costs directly
attributable to the negotiation, administration or enforcement of the
sublicensee. The term royalties does not include payments for
achievement of milestones, if such achievement -- e.g., the completion
of clinical trials -- has imposed additional costs on Licensee not
directly related to sales of the Licensed Products, or payments by
sublicensees for purchase of an equity interest in Licensee.
All other terms and conditions of the agreement shall remain the same.
VIRGINIA COMMONWEALTH SPONSOR
UNIVERSITY
By: _____________________________ By: ____________________________
Hereto Duly Authorized Hereto Duly Authorized
Title ___________________________ Title ___________________________
Date ____________________________ Date ____________________________
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MODIFICATION NO. 3
TO THE LICENSE AGREEMENT BETWEEN VIRGINIA COMMONWEALTH
UNIVERSITY AND ALGOS PHARMACEUTICAL CORPORATION
DATED AUGUST 16, 1993
Now, Therefore, the parties hereto agree to the following modifications to the
above LICENSE AGREEMENT, effective as of the date this modification is executed
on behalf of both parties:
WHEREAS CLAUSES
Delete the bracketed language in the first Whereas clause beginning with the
words "subject only to ..."
ARTICLE 1 - DEFINITIONS
Add the following to the end of Section 1.2(a): ", and all divisionals,
continuations and continuations-in-part derived from such patent applications;"
Add the following after the word "continuations" in Section 1.2(b); "and
continuations-in-part"
Delete Section 1.2(c).
Change Section 1.2(d) to Section 1.2(c).
Delete Section 1.2(e) and add a new Section 1.2(d) as follows:
(d) any reissues, re-examinations and/or extensions of patents described in (a),
(b) or (c) above.
Amend the first clause of Section 1.5 to delete the phrase "Licensee's (and its
sublicensees')" in the first and second lines.
ARTICLE 2 - GRANT
In Section 2.4 change the reference in the last sentence from "Section 12.6" to
"Section 11.6" and add the following sentence after the first sentence of the
section. "Upon request by Licensee, University shall provide any potential
sublicensee with an estoppel certificate substantially as set forth in Appendix
C."
Replace Section 2.5 with the following:
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2.5 Licensee agrees that any sublicenses granted by it shall be
consistent with the terms of this Agreement. Notwithstanding the grant of any
sublicense, Licensee shall remain solely liable to University for the
performance of all obligations to University set forth in this Agreement,
including payment and reporting provisions applicable to royalties received from
sublicensees.
ARTICLE 3 - DUE DILIGENCE
Add the following sentence at the end of Section 3.2:
If a first commercial sale is not consummated within such time period,
Licensee may in the alternative pay minimum royalties to University at
the rate of **** per year, prorated over the period between such 12
month anniversary and the date of first commercial sale.
In Section 3.3, change the cross reference from "Section 13.3" to "Section
11.3."
ARTICLE 4 - ROYALTIES
Amend the heading of Article 4 to read "ROYALTIES AND EQUITY PARTICIPATION."
Amend section 4.1 to read as follows, in its entirety:
(a) For the rights, privileges and license granted hereunder,
Licensee shall pay royalties to University in an amount equal to ****
Licensee's Net Sales for Licensed Products.
(b) If Licensee enters into sublicensing agreements, Licensee
shall pay University a percentage of all royalties received from such
sublicensees as set forth below, including advances on royalties,
provided that prior to the distribution of royalties Licensee shall
deduct all reasonable out-of-pocket costs directly attributable to the
negotiation, administration or enforcement of the sublicenses. The term
royalties does not include license fees, payments for achievement of
milestones, payments by sublicensees for purchase of an equity interest
in Licensee or other payments not based upon sales of Licensed Products.
The percentage of royalties received from sublicensees in any calendar
year to be paid to University is as follows: **** of royalties (but not
less than **** of the sublicensees' Net Sales) until University has
received **** of additional royalties (but not less than **** of the
sublicensees' Net Sales) until University has received a total of ****
of all additional royalties (but not less than **** of the sublicensees'
Net Sales).
Add a new Section 4.5 as follows:
University shall be entitled to equity participation in Licensee as set
forth in Appendix B.
ARTICLE 5 - REPORTS AND RECORDS
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Amend the third sentence of Section 5.1 to read: "Said books and the supporting
data shall be open at all reasonable times for three (3) years following the end
of the calendar year ..."
ARTICLE 7 - INFRINGEMENT AND OTHER ACTIONS
Replace Section 7.6 with the following:
In the event that a declaratory judgment action alleging invalidity of
any of the Patent Rights shall be brought against Licensee, Licensee (or
a sublicensee), shall have the right to assume the sole defense of the
action at its own expense, provided that at the time the action is
brought a Licensed Product covered by such Patent Rights is in clinical
development or being commercialized by Licensee or its sublicensee. In
such event, University shall have the right to approve Licensee's (or
its sublicensee's) choice of counsel, which approval shall not be
unreasonably withheld or delayed. If Licensee (or its sublicensee)
elects not to assume such defense, or if no such product is in clinical
development or being commercialized, University at its option shall have
the right, within thirty (30) days after commencement of such action, to
intervene and assume the sole defense of the action at its own expense.
If University does not elect to assume such sole defense, it shall
notify Licensee, which may then assume such defense if it did not
previously have the right to do so (e.g., because no such product is in
clinical development).
Add the following at the end of Section 7.7: "All rights of Licensee under this
Article 7 may be granted to sublicensees, and to such extent University agrees
to perform its obligations hereunder for the benefit of sublicensees as if they
were Licensee.
ARTICLE 8 - PRODUCT LIABILITY
In Section 8.1, change the cross reference from "Section 14.5" to "Section
13.5."
ARTICLE 10 - ASSIGNMENT
Add the following to the end of the first sentence of Section 10: "or to any
successor by merger or acquisition of all or substantially all of Licensee's
business unit to which this Agreement relates."
ARTICLE 11 - TERMINATION
Amend Section 11.6 to read in its entirety:
Upon termination of this Agreement for any reason, any sublicensee not
then in default of the sublicense shall have the right to obtain a
direct license from University under the same terms and conditions
contained in the sublicense agreement; provided that (a) such
sublicensee's prior satisfaction of any obligation under the sublicense
agreement shall be deemed a satisfaction of the same obligation under
the direct license; (b) such a license will contain a commercially
reasonable obligation to diligently develop and market Licensed
Products; provided, however, that any such obligation shall be fulfilled
if the
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licensee (the former sublicensee) agrees to pay minimum royalties of at
least **** per year for the 10 years commencing one year after the first
Licensed Product receives regulatory approval so long as there is a
valid, issued U.S. patent within the Patent Rights; and (c) such a
license shall include the terms of Article 8 of this Agreement.
Add a new Section 11.7 to read:
11.7 This Agreement shall commence on august 16, 1993 and expire
on the date the last patent application within the Patent Rights expire
or is invalidated, or is abandoned or disclaimed (which period shall be
the "term" of this Agreement).
ARTICLE 13 - MISCELLANEOUS PROVISIONS
At the beginning of Section 13.5, after the phrase "as of the date hereof," add
the phrase "and the date of execution of Modification No. 3 of this Agreement."
In Section 13.5(c), replace the phrase "Specified Technologies" with the phrase
"Patent Rights." In the same section, replace the phrase "subject to any
required royalty-free non-exclusive government license pursuant to NIH funding"
with the phrase "subject to any government rights arising out of general funding
provided to University (excluding funding provided under a `funding agreement',
as defined in 35 U.S.C. 201(b), applicable to the work conducted under the
Research Agreement between University and Licensee dated January 2, 1993 or the
one dated December 15, 1993 (the `Research Agreements'))."
At the end of Section 13.5, add the following:
, (f) neither the University nor any of its researchers, faculty or
students have any rights or interest in any know-how, technology,
information or patent rights which may be necessary for the practice of
the license granted in this Agreement, (g) no federal government
"funding agreement," as defined in 35 U.S.C. 201(b), is or was
applicable to the work conducted under the Research Agreements and (h)
all patent rights arising out of the Research Agreements are licensed to
Licensee pursuant to this Agreement. University agrees that it will not
assert against Licensee or any sublicensee any claim based upon rights
to unpatented know-how or information pertaining to the subject matter
of the Patent Rights.
Add a new Section 13.8 to read:
13.8 Each party agrees that it shall not disclose to any third
party (other than an agent, a sublicensee or potential sublicensee) any
patent, royalty or other commercial information provided by the other
party pursuant to this Agreement (including any information contained in
sublicense agreements), except with the prior written consent of the
disclosing party. Each party agrees not to use any such information
except for the purpose of performing under this Agreement.
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APPENDIX A
Appendix A shall be replaced with the amended and restated Appendix A
attached to this Modification No. 3.
All other terms and conditions of the Agreement shall remain the same.
VIRGINIA COMMONWEALTH ALGOS PHARMACEUTICAL
UNIVERSITY CORPORATION
By:------------------- By:-------------------
Hereto Duly Authorized Hereto Duly Authorized
Title:---------------- Title:----------------
Date: ---------------- Date:-----------------
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RESTATED APPENDIX A
*********** APPENDIX A INTENTIONALLY OMITTED ***********
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PENDING FOREIGN APPLICATIONS
***** REMAINING PAGE INTENTIONALLY OMITTED *****
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APPENDIX B
TERM SHEET FOR PRIVATE PLACEMENT
OF CONVERTIBLE PREFERRED STOCK
OF ALGOS PHARMACEUTICAL CORPORATION
Issuer Algos Pharmaceutical Corporation, (the
"Company").
Securities Covered 100,000 shares of Series B Convertible
Preferred Stock, $.01 par value (the
"Preferred Stock"), of the Company.
Conversion Rights ****
Liquidation Preference ****
Dividend Rights ****
Registration Rights ****
Lock-up Agreement In the event that the Company conducts a
public offering of its common stock, the
holders of the Preferred Stock will
agree to enter into a customary
"lock-up" agreement.
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APPENDIX C
ESTOPPEL CERTIFICATE
Virginia Commonwealth University ("VCU") expressly warrants and represents that
the License Agreement between VCU and Algos Pharmaceutical Corporation, dated
August 16, 1993, as amended, is in full force and effect and that Algos is not
in breach of the license nor has VCU issued any notice of termination to Algos
under the License Agreement.
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LICENSE AGREEMENT
BETWEEN
ALGOS PHARMACEUTICAL CORPORATION
AND
MCNEIL CONSUMER PRODUCTS COMPANY
REDACTED PORTIONS OF THIS EXHIBIT ARE MARKED BY AN ***
AND HAVE RECEIVED CONFIDENTIAL TREATMENT PURSUANT TO
RULE 406(b) UNDER THE SECURITIES ACT.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE 1 DEFINITIONS................................................................. 1
ARTICLE 2 GRANT OF RIGHTS............................................................. 6
ARTICLE 3 MILESTONE PAYMENTS AND EQUITY INVESTMENT.................................... 7
ARTICLE 4 ROYALTIES................................................................... 9
ARTICLE 5 RESEARCH AND DEVELOPMENT.................................................... 14
ARTICLE 6 CONFIDENTIALITY AND PUBLICITY............................................... 17
ARTICLE 7 PATENT PROSECUTION AND MAINTENANCE.......................................... 19
ARTICLE 8 COMPETING PRODUCTS AND INFRINGEMENT......................................... 22
ARTICLE 9 WARRANTIES, REPRESENTATIONS AND ACKNOWLEDGMENTS............................. 24
ARTICLE 10 TERM AND TERMINATION........................................................ 26
ARTICLE 11 INDEMNIFICATION............................................................. 27
ARTICLE 12 VCU LICENSE................................................................. 28
ARTICLE 13 MISCELLANEOUS............................................................... 29
</TABLE>
SCHEDULE A ALGOS PATENT RIGHTS
SCHEDULE B MCNEIL DENTAL PAIN STUDY FOR LICENSED PRODUCT COMPRISING
ACETAMINOPHEN
SCHEDULE C ALGOS DENTAL PAIN STUDY FOR LICENSED PRODUCT COMPRISING
ACETAMINOPHEN
SCHEDULE D MILESTONE PATENT CLAIMS
SCHEDULE E CONFIDENTIALITY AGREEMENT EFFECTIVE JULY 5, 1995
SCHEDULE F DEVELOPMENT PLANS
SCHEDULE G JOHNSON & JOHNSON UNIVERSAL CALENDAR EXAMPLE
SCHEDULE H VCU LICENSE AGREEMENT
SCHEDULE I J.A.M.S./ENDISPUTE RULES
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LICENSE AGREEMENT
THIS AGREEMENT is by and between ALGOS PHARMACEUTICAL CORPORATION,
having an address at Collingwood Plaza, 4900 Route 33, Neptune, New Jersey
07753-6804 (hereinafter referred to as "ALGOS") and MCNEIL CONSUMER PRODUCTS
COMPANY, a division of McNeil-PPC, Inc., having an address at 7050 Camp Hill
Road, Fort Washington, Pennsylvania 19034 (hereinafter referred to as "McNEIL").
WITNESSETH
WHEREAS, Virginia Commonwealth University ("VCU") is the owner of
certain patents and patent applications relating to use of NMDA Antagonists (as
hereinafter defined) for the treatment of pain;
WHEREAS, ALGOS collaborated with VCU in the development of the
technology claimed in such patents and patent applications and has exclusively
licensed from VCU such patent and patents applications under the VCU License (as
hereinafter defined);
WHEREAS, ALGOS has also developed proprietary know-how relating to the
use of NMDA Antagonists for the treatment of pain; and
WHEREAS, McNEIL wishes to acquire an exclusive license from ALGOS under
such patents, patent applications and know-how, and ALGOS is willing to grant
such license to McNEIL under the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the above premises and covenants
contained herein, the parties agree as follows:
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ARTICLE 1
DEFINITIONS
As used in this Agreement, the following terms, when used with initial
capital letters, shall have the following meanings, singular shall include the
plural and vice-versa:
1.1. ACETAMINOPHEN shall mean acetaminophen, and pharmaceutically
acceptable salts of acetaminophen, alone or in combination with any other
ingredient or ingredients other than an anesthetic or another analgesic, with
the sole exceptions of NSAIDs. If McNEIL is in active human clinical development
with a Licensed Product containing acetaminophen, or a pharmaceutically
acceptable salt thereof, in combination with another ingredient not then
approved for use as an analgesic or anesthetic by FDA in the U.S., Japan, the
United Kingdom, Germany, France, Sweden, Italy or the Netherlands, then McNEIL's
rights under this Agreement to pursue such Licensed Product shall continue even
if such ingredient is later approved for such use by FDA in one of the above
countries. For purposes of this Agreement, any Licensed Product containing
acetaminophen, or a pharmaceutically acceptable salt thereof, in combination
with one or more NSAIDs shall be deemed to be a Licensed Product comprising
Acetaminophen and not a Licensed Product comprising NSAID.
1.2. ACETAMINOPHEN MILESTONE PATENT shall mean the first patent to issue
in the U.S. included in ALGOS Patent Rights containing Valid Claim(s) that would
be infringed by all embodiments within the scope of milestone claim A set forth
in Schedule D.
1.3. AFFILIATE shall mean any entity that directly or indirectly
controls, is controlled by or is under common control with a party to this
Agreement, and for such purpose "control" shall mean the possession, direct or
indirect, of the power to direct or cause the direction of the management or the
policies of the entity, whether through the ownership of voting securities, by
contract or otherwise.
1.4. ALGOS KNOW-HOW shall mean all information, trade secrets, data,
inventions and know-how in the Field which is owned or controlled by or licensed
(with a right of sublicense) to ALGOS at any time, prior to or during the term
of this Agreement, including, without limitation, inventions described in patent
applications, processes, techniques, methods, reports, protocols, improvements,
products, apparatuses and other materials and compositions which are reasonably
related to the Field including any information in the Field.
1.5. ALGOS PATENT RIGHTS shall mean (a) all the patents and patent
applications in the Field which are owned or controlled by or licensed (with a
right of
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sublicense) to ALGOS, prior to or during the term of this Agreement (a listing
of those presently known is identified in Schedule A, which is attached hereto
and made a part of this Agreement and which shall promptly be updated by ALGOS),
any foreign counterparts thereof, as well as all continuations,
continuations-in-part, divisions and renewals thereof, all patents which may be
granted thereon, and all reissues, re-examinations, extensions, patents of
additions and patents of importation thereof.
1.6. ALGOS RIGHTS shall mean the ALGOS Patent Rights and the ALGOS
KNOW-HOW.
1.7. EFFECTIVE DATE of this Agreement shall mean ______________, 1996.
1.8. FDA shall mean the United States Food and Drug Administration and
successor bodies or corresponding foreign administrative bodies.
1.9. FIELD shall mean the methods and/or compositions for the making,
using and selling of NMDA Antagonist in combination with Acetaminophen or NSAID
* * * for the treatment of pain. "Field" may be narrowed pursuant to Sections
5.1, 5.3 or 5.4.
1.10. FIRST COMMERCIAL SALE shall mean the first sale by McNEIL, its
Affiliates or sublicensees of a Licensed Product to an independent third party
in the Territory.
1.11. FISCAL QUARTER shall mean each of the periods of time between
January and March; April and June; July and September; and October and December;
as determined by employing the Johnson & Johnson Universal Calendar system, as
exemplified by Schedule G attached hereto.
1.12. FISCAL YEAR shall mean the period of time commencing on the Monday
following the Sunday closest to the end of the calendar month of December and
terminating on the Sunday closest to the end of the immediately succeeding
December in accordance with the Johnson & Johnson fiscal year used in its
regular course of business.
1.13. LICENSED PRODUCT shall mean any product in the Field which employs
ALGOS KNOW-HOW or which would infringe a Valid Claim of ALGOS Patent Rights but
for the licenses granted herein. The parties agree that all products developed
or marketed by McNEIL during the term of this Agreement which comprise one or
more NMDA Antagonists in combination with Acetaminophen or an NSAID and include
claims for or are marketed for the analgesia enhancing effect of NMDA
Antagonists fall within ALGOS KNOW-HOW.
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1.14. NDA shall mean a New Drug Application or any other application or
procedure required to seek approval from the FDA to allow McNEIL or its
Affiliates or sublicensees to sell Licensed Product in the United States or
other countries.
1.15. NET SALES shall mean the total revenue received by McNEIL, its
Affiliates or sublicensees from the sale of Licensed Product to independent
third parties less the following amounts: * * * * * * * * * * * * * * * * * * *
* * * * * * * * * * * * * * *
In the event the sale described above is of Licensed Product in a form
other than the final dosage form appropriate for human consumption or use, then
the parties shall mutually determine in good faith an adjustment to the royalty
provisions contained in this Agreement designed to approximate the aggregate
royalty payment that would have been due to ALGOS had such sale been of Licensed
Product in final dosage form. Such adjustment will not provide for royalties
greater than that otherwise due hereunder on the same volume of active
ingredient in final dosage form as sold in the market of final destination.
In the event that Licensed Product is sold in the form of a package or
kit containing one or more products other than Licensed Product (a "Packaged
Product"), Net Sales for such Packaged Product will be calculated by multiplying
actual Net Sales of such Packaged Product by the fraction A/(A+B) where A is the
invoice price of the Licensed Product if sold separately by McNEIL, its
Affiliates or sublicensees and B is the total invoice price of the one or more
other products in the Packaged Product, if sold separately by McNEIL, its
Affiliates or sublicensees, in each case on a country-by-country basis. If
Licensed Product is provided in a Packaged Product as a sample (i.e., six (6)
dosage units or less) then such shall not be considered a sale of Licensed
Product.
If, on a country-by-country basis, the one or more other products in the
Packaged Product are not sold separately in said country by McNEIL or its
Affiliates or sublicensees, Net Sales for such Packaged Product shall be
calculated by multiplying actual Net Sales of such Packaged Product by the
fraction A/C where A is the invoice price of the Licensed Product if sold
separately by McNEIL, its Affiliates or sublicensees, and C is the invoice price
of the Packaged Product, if sold separately by McNEIL, its Affiliates or
sublicensees.
If, on a country-by-country basis, the Licensed Product is not sold
separately in said country by McNEIL, its Affiliates, or its sublicensees, Net
Sales for such Packaged Product shall be calculated as provided immediately
above except that A shall be the fair market value of the Licensed Product and C
shall be the fair market value of the Packaged Product. If the parties cannot
agree on such fair market values within forty-five (45) days of a request by
either party that such values be determined, then such
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question shall be resolved by an independent industry expert as provided in
Section 13.1.
1.16. NMDA ANTAGONIST shall mean an antagonist for the
N-methyl-D-aspartate receptor,* * * * * * * * * * * * * * * * * * * * * * * * *
* * * * * * * * * * * * * * *
1.17. NSAID shall mean any of ibuprofen * * * and mixtures, isomers or
pharmaceutically acceptable salts thereof, alone or in combination with any
other ingredient or ingredients other than an anesthetic or any other analgesic.
If McNEIL is in active human clinical development with a Licensed Product
containing ibuprofen * * * or a mixture, isomer or pharmaceutically acceptable
salt thereof, in combination with another ingredient not then approved for use
as an analgesic or anesthetic by FDA in the U.S., Japan, the United Kingdom,
Germany, France, Sweden, Italy or the Netherlands, then McNEIL's rights under
this Agreement to pursue such Licensed Product shall continue even if such
ingredient is later approved for such use by FDA in one of the above countries.
1.18. NSAID MILESTONE PATENT shall mean the first patent to issue in the
U.S. included in ALGOS Patent Rights containing Valid Claim(s) that would be
infringed by all embodiments within the scope of milestone claim B set forth in
Schedule D.
1.19. PATENTED PRODUCT shall mean any product in the Field wherein its
making, using or selling by McNEIL, its Affiliates or sublicensees would
infringe a Valid Claim of ALGOS Patent Rights but for the licenses granted
herein.
1.20. PHASE III CLINICAL TRIAL(S) shall mean that portion of a clinical
development program which provides for trials of a product on sufficient numbers
of patients to establish the safety and efficacy of a product for the desired
claims and indications. The trials may involve several hundred to several
thousand patients enrolled at several sites and may include both controlled and
uncontrolled studies.
1.21. REGULATORY MARKETING EXCLUSIVITY shall mean the initial exclusive
rights for McNEIL to market a particular Licensed Product in a country or
jurisdiction within the Territory, as provided by regulatory action or
protection by the FDA, where such exclusivity derives from the combination of
Acetaminophen or an NSAID with an analgesia enhancing amount of an NMDA
Antagonist. The parties agree that in the United States such exclusive rights
shall mean the first time period provided by any grant of Hatch-Waxman
exclusivity.
1.22. TERRITORY shall mean the world.
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1.23. U.S. shall mean the United States of America (including Puerto
Rico) and its territories and possessions.
1.24. VALID CLAIM shall mean a claim in any unexpired, issued patent
within the ALGOS Patent Rights which has not been held invalid or unenforceable
by a non- appealed or unappealable decision by a court or other appropriate body
of competent jurisdiction, and which is not admitted to be invalid through
disclaimer or dedication to the public.
1.25. VCU LICENSE shall mean the License Agreement of August 16, 1993
relating to the management of pain between ALGOS and VCU, as amended and
attached hereto as Schedule H.
1.26. VCU PATENT RIGHTS shall mean the patents and patent applications
licensed to ALGOS under the VCU License and included in the ALGOS Rights.
ARTICLE 2
GRANT OF RIGHTS
2.1. Subject to Section 2.2, ALGOS hereby grants to McNEIL and its
Affiliates an exclusive license under ALGOS Rights to make, have made, use, sell
and have sold products in the Field in the Territory. McNEIL may grant
sublicenses without restriction to non-Affiliates which McNEIL or its Affiliates
routinely use as distributors in foreign countries and to international
pharmaceutical companies having a well established over the counter analgesic
pharmaceutical franchise. Neither McNEIL, its Affiliate nor any sublicensee may
grant a sublicense to any other third party except with the prior written
consent of ALGOS, which consent shall not be unreasonably withheld or delayed.
McNEIL shall require all sublicensees to make payments to ALGOS on the same
terms applicable to McNEIL under Articles 3 and 4 of this Agreement.
2.2.
2.2.1. McNEIL acknowledges that VCU has retained the right under
Section 2.1 of the VCU License to practice the "Patent Rights" (as defined in
the VCU License Agreement) for its own noncommercial educational or research
purposes.
2.2.2. McNEIL acknowledges that all products of ALGOS or its
licensees outside the Field are excluded from McNEIL's license hereunder and
reserved to ALGOS. McNEIL covenants that it will not practice the ALGOS Rights
in any manner except to make, have made, use, sell and have sold products in the
Field in the Territory.
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2.2.3. McNEIL, its Affiliates and sublicensees shall mark all
Licensed Products shipped or sold in accordance with applicable U.S. and foreign
patent marking laws of the country of manufacture or sale and commercial customs
of the country in question.
2.2.4. ALGOS covenants that during the term of this Agreement it
and its Affiliates will not, and it and its Affiliates will not license any
third party to, sell a product comprising all of (a) an NMDA Antagonist, (b)
acetaminophen or a pharmaceutically acceptable salt thereof, and/or ibuprofen *
* * or a mixture, isomer or pharmaceutically acceptable salt thereof, and (c)
less than a recognized effective dose of an anesthetic or another analgesic.
ALGOS' and its Affiliates' compliance with this covenant shall be determined
only at the time of first commercial sale of ALGOS', its Affiliates' or its
licensees' products; there will be no breach of this covenant if subsequently
FDA approves an ingredient for analgesic or anesthetic use or if the dose of
ingredient used in the Licensed Product is subsequently determined to be less
than a recognized effective dose. This covenant shall expire as to products
comprising acetaminophen or pharmaceutically acceptable salts thereof, or
products comprising ibuprofen * * * or a mixture, isomer or pharmaceutically
acceptable salt thereof, upon any expiration or termination of McNEIL's
exclusive license to sell Licensed Products comprising Acetaminophen or NSAID,
respectively.
2.2.5. ALGOS shall notify McNEIL if at any time ALGOS or any of
its Affiliates decide to either license or conduct a clinical trial for a
product comprising (a) an NMDA Antagonist, (b) acetaminophen or a
pharmaceutically acceptable salt thereof and (c) aspirin. McNEIL shall have the
first right to negotiate with ALGOS or its Affiliates for rights to such product
for a period of sixty (60) days from the date of ALGOS' notice. If the parties
do not reach an agreement, ALGOS or its Affiliate may pursue such product or
license it to any third party. If ALGOS or its Affiliates propose to license
such product to a third party on terms less favorable to ALGOS or its Affiliates
than those last offered by McNEIL, ALGOS or its Affiliates shall offer such
terms to McNEIL and McNEIL shall have thirty (30) days to accept such terms.
2.3. ALGOS hereby further agrees, at the written request of McNEIL, to
grant direct licenses containing the same terms, conditions and provisions as
this Agreement, except for the payments set forth in Section 3.1, to any
Affiliate under the ALGOS Rights. Any such licensed Affiliate shall thereafter
report Net Sales and make running royalty payments directly to ALGOS; provided,
however, any such running royalty payments made directly to ALGOS by such
Affiliate shall be treated as a royalty payment made by McNEIL for purposes of
calculating the minimum royalty due hereunder to ALGOS under Sections 4.5 and
4.6. Additionally, ALGOS agrees that it will accept performance hereunder of any
of McNEIL's obligations from any Affiliate or sublicensee of McNEIL, provided
that McNEIL shall guaranty the performance of any such obligations.
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2.4. McNEIL shall provide ALGOS with a copy of any sublicense agreement
promptly upon execution thereof. ALGOS shall forward another copy to VCU under
confidentiality restrictions at least substantially equivalent to the
obligations of Article 6.
ARTICLE 3
MILESTONE PAYMENTS AND EQUITY INVESTMENT
3.1. McNEIL shall make lump sum payments in U.S. Dollars to ALGOS as
follows:
3.1.1. by ten (10) days after the full execution of this
Agreement, an initial one-time milestone payment of Two Million Dollars
($2,000,000), which amount is intended to partially defray ALGOS' costs incurred
prior to the Effective Date in the development of the ALGOS Rights and the
conduct of clinical trials, including most recently a Phase II
dextromethorphan/ibuprofen trial.
3.1.2. by sixty (60) days after * * * * * * * * * * * * * * * *
3.1.3. by sixty (60) days * * * * * * * * * * * * * * * * * * *
3.1.4. by sixty (60) days after * * * * * * * * * * * * * * * *
3.1.5. by sixty (60) days after * * * * * * * * * * * * * * * *
3.1.6. by sixty (60) days following * * * * * * * * * * * * * *
3.1.7. by sixty (60) days following * * * * * * * * * * * * * *
3.1.8. by sixty (60) days following * * * * * * * * * * * * * *
3.1.9. by sixty (60) days following * * * * * * * * * * * * * *
For the avoidance of any doubt, it is explicitly agreed that only a
single payment shall be made under each of Sections 3.1.1 through 3.1.9 and that
any subsequent * * * * shall not incur any further milestone payments. Further,
any * * * * shall not incur any milestone payments set forth above. The total of
payments due under this Section 3.1 shall in no event exceed * * * If one or
more milestone payments are made
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with respect to a given Licensed Product comprising Acetaminophen or a given
Licensed Product comprising a NSAID, such milestone payments need not be made
again if a subsequent Licensed Product of either such type achieves such
milestone, but any unpaid milestone amount shall be paid if a subsequent
Licensed Product of either such type achieves the milestone.
3.2. ALGOS shall arrange for its underwriters to offer McNEIL or its
designated Affiliate the opportunity to purchase in ALGOS' initial underwritten
public offering (IPO) of Common Stock pursuant to an effective registration
statement under the Securities Act of 1933, as amended, on the same terms as
others purchasing in such IPO, a number of shares of the Common Stock of ALGOS
equal to ten percent (10%) of the number of original issue shares sold in the
IPO (including any over-allotments exercised by ALGOS' underwriters), up to a
maximum investment of $6.5 million. McNEIL hereby confirms its intention to
purchase such securities in ALGOS' IPO, provided the effective date of such IPO
takes place within two (2) years of the Effective Date. However, McNEIL shall be
under no obligation to purchase any or all of such securities.
Notwithstanding anything in this Agreement to the contrary, in the event
McNEIL fails to purchase, or make a bona fide offer to purchase, such securities
(provided the IPO takes place within such two (2) year period), ALGOS shall have
the right for a period of 90 days from the effective date of its offering to
terminate this Agreement by giving McNEIL 10 days written notice. In the event
ALGOS exercises its termination option purchase to this Section 3.2, it shall
retain the initial payments hereunder.
3.3. If McNEIL or its designated Affiliate purchases all or any portion
of the securities described in Section 3.2 above, it agrees that neither it nor
its affiliates, as defined in Rule 12b-2 of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), will, directly or indirectly, unless
specifically permitted to do so in writing in advance by ALGOS, sell, transfer
or otherwise convey, or agree to sell, transfer or otherwise convey to any
non-Affiliate, any interest in all or any portion of such securities during the
two year period following the effective date of the IPO without informing, and
offering to discuss with, the management of ALGOS regarding such action at least
seven (7) days prior to taking such action.
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ARTICLE 4
ROYALTIES
4.1. Commencing in the Fiscal Year in which the First Commercial Sale of
Patented Product takes place, McNEIL shall pay to ALGOS a running royalty based
on aggregate Net Sales of Patented Products in the Territory as follows: * * * *
* * * * *
4.2. Commencing in the Fiscal Year in which the First Commercial Sale of
Licensed Product which is not a Patented Product takes place, McNEIL shall pay
to ALGOS a running royalty of * * * of Net Sales of Licensed Product which is
not a Patented Product sold in a country of the Territory during any time period
of Regulatory Market Exclusivity for such Licensed Product in such country.
4.3. No running royalties due under this Article shall be payable on
sales transactions as between McNEIL and any Affiliate or sublicensee, the final
vendee sale to an independent third party alone being used for the purposes of
determining the running royalty payments due hereunder. Only one running royalty
payment shall be payable on the sale of each Licensed Product and such running
royalty will be provided in accordance with either Section 4.1 or 4.2 hereof but
not both, with the higher of such royalties to apply in the event both tests are
somehow satisfied.
4.4. Net Sales of Licensed Product in any country where such Licensed
Product is not a Patented Product and where no period of Regulatory Marketing
Exclusivity for such Licensed Product is in effect shall incur no running
royalties.
4.5. Minimum royalties shall be due and payable by McNEIL for Patented
Products comprising Acetaminophen in accordance with the following schedule:
Fiscal Year Minimum Royalty
- ----------- ---------------
* * * * * * * * * *Chart Intentionally Omitted* * * * * * * * * *
For purposes of this Section 4.5, "Fiscal Year 1" shall commence on the
first day of the first full Fiscal Year after the U.S. FDA first approves an NDA
for a Patented Product in the U.S. comprising Acetaminophen; or, if the first
Licensed Product comprising Acetaminophen for which an NDA has been approved is
not a Patented Product in the U.S. at the time of such FDA approval, the first
day of the first full Fiscal Year after such approved product becomes a Patented
Product in the U.S. by reason of patent issuance. Notwithstanding the foregoing,
minimum royalties shall commence on the first day of the Fiscal Year commencing
approximately * * * except as otherwise provided in the following paragraph,
provided that (i) if McNeil has not
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submitted an NDA for Licensed Product comprising Acetaminophen to the U.S. FDA,
a Valid Claim exists in the U.S. claiming a method or composition comprising
acetaminophen and an analgesia enhancing amount of dextromethorphan for the
treatment of acute pain, or (ii) if McNEIL has submitted such an NDA, but such
NDA has not been approved by the U.S. FDA, the Licensed Product comprising
Acetaminophen for which McNEIL is seeking approval under such NDA would be a
Patented Product in the U.S., if approved on such date. If minimum royalties do
not commence as of * * * because the Licensed Product described under (ii) above
would not be a Patented Product in the U.S. if approved on such date, but later
a Valid Claim issues which would make such Licensed Product a Patented Product
in the U.S. if it were approved, then minimum royalties shall commence on the
first day of the first full Fiscal Year after the date of issuance of such Valid
Claim. In all cases, minimum royalties shall be due and payable for * * * except
that they shall expire early if, and as of the date, the last Valid Claim
defining such Patented Product in the U.S. ceases to be a Valid Claim, or as of
the date the Licensed Product under (ii) above for which approval is sought
would no longer be a Patented Product in the U.S., if approved. In such event,
minimum royalties shall be pro-rated for the portion of the Fiscal Year in which
such Valid Claim existed or the Licensed Product under (ii) above for which
approval is sought would have been a Patented Product in the U.S., if approved.
If an NDA in the U.S. for a Patented Product in the U.S. comprising
Acetaminophen has not been approved by the first day of the Fiscal Year
commencing approximately * * * then McNEIL may seek a delay in the commencement
of minimum royalties as provided in Section 4.7 if McNEIL demonstrates that it
has designed and executed clinical trials, compiled data, prepared regulatory
filings and pursued such filings with FDA in a manner consistent with its normal
business practices when seeking prompt approval for NDA products. If McNEIL
fails to demonstrate such performance, it will be liable for such minimum
royalties but will not otherwise be in breach of this Agreement by reason of
such failure. After an NDA has been approved in the U.S. for a Patented Product
in the U.S. comprising Acetaminophen, minimum royalties shall commence as
provided in the previous paragraph without regard to any delay previously
experienced.
If more than one Patented Products comprising Acetaminophen are pursued,
minimum royalties shall apply to the class of all such products. If U.S. FDA
approval for all previously approved Patented Products in the U.S. comprising
Acetaminophen is suspended or revoked for reasons beyond the reasonable control
of McNEIL, the minimum royalties hereunder shall be suspended for a like period.
4.6. Minimum royalties shall be due and payable by McNEIL for Patented
Products comprising an NSAID in accordance with the following schedule:
Fiscal Year Minimum Royalty
- ---------- ---------------
* * * * * * * * * *Chart Intentionally Omitted* * * * * * * * * *
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For purposes of this Section 4.6, "Fiscal Year 1" shall commence on the
first day of the first full Fiscal Year after the U.S. FDA first approves an NDA
for a Patented Product in the U.S. comprising NSAID; or, if the first Licensed
Product comprising NSAID for which an NDA has been approved is not a Patented
Product in the U.S. at the time of such FDA approval, the first day of the first
full Fiscal Year after such approved product becomes a Patented Product in the
U.S. by reason of patent issuance. Notwithstanding the foregoing, minimum
royalties shall commence on the first day of the Fiscal Year commencing
approximately * * * except as otherwise provided in the following paragraph,
provided that (i) if McNeil has not submitted an NDA for Licensed Product
comprising NSAID to the U.S. FDA, a Valid Claim exists in the U.S. claiming a
method or composition comprising an NSAID and an analgesia enhancing amount of
dextromethorphan for the treatment of acute pain, or (ii) if McNEIL has
submitted such an NDA, but such NDA has not been approved by the U.S. FDA, the
Licensed Product comprising NSAID for which McNEIL is seeking approval under
such NDA would be a Patented Product in the U.S., if approved on such date. If
minimum royalties do not commence as of * * * because the Licensed Product
described under (ii) above would not be a Patented Product in the U.S. if
approved on such date, but later a Valid Claim issues which would make such
Licensed Product a Patented Product in the U.S. if it were approved, then
minimum royalties shall commence on the first day of the first full Fiscal Year
after the date of issuance of such Valid Claim. In all cases, minimum royalties
shall be due and payable for * * * except that they shall expire early if, and
as of the date, the last Valid Claim defining such Patented Product in the U.S.
ceases to be a Valid Claim, or as of the date the Licensed Product under (ii)
above for which approval is sought would no longer be a Patented Product in the
U.S., if approved. In such event, minimum royalties shall be pro-rated for the
portion of the Fiscal Year in which such Valid Claim existed or the Licensed
Product under (ii) above for which approval is sought would have been a Patented
Product in the U.S., if approved.
If an NDA in the U.S. for a Patented Product in the U.S. comprising an
NSAID has not been approved by the first day of the Fiscal Year commencing
approximately * * * then McNEIL may seek a delay in the commencement of minimum
royalties as provided in Section 4.7 if McNEIL demonstrates that it has designed
and executed clinical trials, compiled data, prepared regulatory filings and
pursued such filings with FDA in a manner consistent with its normal business
practices when seeking prompt approval for NDA products. If McNEIL fails to
demonstrate such performance, it will be liable for such minimum royalties but
will not otherwise be in breach of this Agreement by reason of such failure.
After an NDA has been approved in the U.S. for a Patented Product in the U.S.
comprising NSAID, minimum royalties shall commence as provided in the previous
paragraph without regard to any delay previously experienced.
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If more than one Patented Products comprising NSAID are pursued, minimum
royalties shall apply to the class of all such products. If U.S. FDA approval
for all previously approved Patented Products in the U.S. comprising NSAID is
suspended or revoked for reasons beyond the reasonable control of McNEIL, the
minimum royalties hereunder shall be suspended for a like period.
4.7. McNEIL shall promptly notify ALGOS if at any time it believes that
there has been a substantial delay for reasons beyond its control
notwithstanding its application of efforts as described in Sections 4.5, 4.6,
5.3 or 5.4, providing a detailed written explanation of the events,
circumstances and duration of such delay and its program for seeking to avoid
further delay. The parties shall seek to agree on whether McNEIL has in fact
exercised such efforts and, if so, how long any affected deadline and/or payment
requirement hereunder should be extended by reason of such delay. If the parties
are unable to agree, the matter may be referred to an industry expert as
provided in Section 13.1 at the request of either party.
4.8. All running royalties shall be calculated and payable on a Fiscal
Quarter basis and running royalties shall be paid within forty-five (45) days
following the end of such Fiscal Quarter. Each such payment shall be accompanied
by a written report indicating the volume of Licensed Products sold in each
country, total revenue received and the amount of Net Sales during such Fiscal
Quarter and a calculation of the royalties due. In the event that the running
royalties, as calculated in accordance with Sections 4.1 and 4.2, for Patented
Products comprising Acetaminophen, or those comprising NSAIDs, as the case may
be, for a Fiscal Year in which a minimum royalty applies to such class of
Patented Products, are less than the applicable minimum royalty for such
Patented Products in such Fiscal Year, McNEIL in order to maintain its exclusive
license under this Agreement shall pay to ALGOS, together with its payment of
running royalties in accordance with Sections 4.1 and 4.2 for the reporting
period ending with the close of the Fiscal Year, the shortfall between the
minimum royalty and the running royalty. Such shortfall paid to ALGOS shall be
creditable against any future running royalties, but not future minimum
royalties, otherwise due on Patented Products comprising Acetaminophen, or those
comprising NSAIDs, as the case may be, in the next subsequent Fiscal Year in
which running royalties shall be payable.
4.9. ALGOS shall have the right, at its own expense, for the period
during which a running royalty is due to ALGOS and for three (3) full calendar
years thereafter, to have an independent certified public accountant, to whom
McNEIL has no reasonable objection, examine the relevant books and records of
account of McNEIL during reasonable business hours and no more than once during
each Fiscal Year, to determine whether appropriate payment has been made by
McNEIL hereunder. The accountant shall disclose to ALGOS only information
relating to the accuracy of the royalty report and the royalty payments made
according to this Agreement. The information received by the accountant shall be
held confidential except for information
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necessary for disclosure to ALGOS to establish the accuracy of the royalty
reports. If such inspection reveals a deficiency of greater than ten percent
(10%) in amounts due in any Fiscal Year, McNEIL shall pay the full costs of such
inspection. VCU shall have the same rights as ALGOS under this Section 4.9.
4.10. The remittance of royalties payable on sales outside the U.S. will
be payable to ALGOS in U.S. Dollars according to the official rate of exchange
of the currency of the country from which the royalties are payable as quoted by
The Wall Street Journal, New York edition, for the last day of the Fiscal
Quarter for which the royalty payment is made. If the transfer or the conversion
into U.S. Dollars in any such instance is not lawful or possible, the payment of
such part of the royalties as is necessary shall be made by the deposit thereof,
in whatever currency is allowable and acceptable by ALGOS, to the credit and
account of ALGOS or its nominees in any commercial bank or trust company of its
choice located in that country. Prompt notice of this deposit shall be given by
McNEIL to ALGOS.
4.11. Any tax required to be withheld on royalties payable to ALGOS
under the laws of any foreign country shall be promptly paid by McNEIL for and
on behalf of ALGOS to the appropriate governmental authority and McNEIL shall
furnish ALGOS with proof of payment of such tax together with official or other
appropriate evidence issued by the appropriate governmental authority sufficient
to enable ALGOS to support a claim for income tax credit in respect of any sum
so withheld.
4.12. Notwithstanding any provision of this Article 4 to the contrary,
no running royalty or minimum royalty shall be due for any Licensed Product
whose approved and marketed indications are limited to the treatment of cold,
influenza, cough and/or dysmenorrhea, and/or pain associated with any of the
foregoing or mouth pain.
ARTICLE 5
RESEARCH AND DEVELOPMENT
5.1. McNEIL has or shall initiate within sixty (60) days after the
Effective Date of this Agreement and shall complete by * * * the dental pain
study for Licensed Product comprising Acetaminophen in accordance with the
protocol attached as Schedule B hereof. ALGOS shall within ten (10) days after
the Effective Date of this Agreement deposit into an escrow account for the
benefit of McNEIL a sum equal to the amount set forth in the budget for the
dental pain study attached as Schedule B or Five Hundred Thousand Dollars
($500,000), whichever is less. The escrow agent shall be a U.S. bank or trust
company selected by ALGOS, and interest earned in escrow will be for the account
of ALGOS. The escrowed sum shall be paid to McNEIL or its designee within ten
(10) days after McNEIL's presentation to ALGOS of invoices,
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receipts or other documentation evidencing out-of-pocket costs incurred in
accordance with the study set forth in Schedule B. If McNEIL fails to initiate
and complete the study as set forth above, and subject to Section 5.7, the
remaining escrow funds shall be returned to ALGOS and the parties agree that
ALGOS' sole remedy shall be the right to terminate the license under this
Agreement for products in the Field comprising Acetaminophen under Section 10.2.
5.2. ALGOS shall use diligent efforts to initiate within sixty (60) days
following issuance of the final report for McNEIL's dental pain study on
Licensed Product comprising Acetaminophen described in Section 5.1, and complete
* * * following such issuance, an additional dental pain study for Licensed
Product comprising Acetaminophen in accordance with the protocol synopsis
attached as Schedule C hereto. ALGOS shall be responsible for all costs
associated with this study and shall promptly provide McNEIL with a copy of the
final report for such study, provided, however, that McNEIL shall supply drug
for use in the study at no cost to ALGOS. If ALGOS fails to initiate and
complete the study as set forth above, and subject to Section 5.7, the parties
agree McNEIL's sole remedy shall be the right to credit the sum of * * * against
any future milestone payments due under Section 3.1.
5.3. McNEIL shall initiate work on the development plan in accordance
with the attached Schedule F for Licensed Product comprising Acetaminophen
("APAP Plan") and shall have completed Phase A and initiated required studies
under Phase B of the APAP Plan on or before (a) * * * or (b) * * * upon payment
to ALGOS of the onetime sum of * * * or (c) * * * upon timely payment. to ALGOS
of the sum paid under (b) above and an additional onetime payment of * * *
within thirty (30) days after * * * The payments made under (b) and (c) above to
extend the date for completing the Phase A and initiating required studies under
Phase B shall be at McNEIL's option. If McNEIL has not completed Phase A and
initiated required studies under Phase B of the APAP Plan under (a), (b) or (c)
above, the parties agree that ALGOS' sole remedy shall be the right to terminate
the license under this Agreement for products in the Field comprising
Acetaminophen under Section 10.2. If any substantial delay occurs in the
completion of Phase A and/or initiation of required studies under Phase B of the
APAP Plan for reasons beyond McNEIL's control notwithstanding the fact that
McNEIL has designed and executed such study in a manner consistent with its
normal business practices when seeking prompt approval for NDA products, then
McNEIL may seek to extend such deadlines by demonstrating such diligence in
accordance with Section 4.7.
5.4. McNEIL shall initiate work on the development plan in accordance
with the attached Schedule F for Licensed Product comprising a first NSAID
("NSAID Plan") and shall have completed Phase A and initiated required studies
under Phase B of the NSAID Plan on or before (a) * * * or (b) * * * upon payment
to ALGOS of the onetime sum of * * * or (c) * * * upon timely payment to ALGOS
of the sum paid
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under (b) above and an additional onetime payment of * * * The payments made
under (b) and (c) above to extend the date for completing the Phase A and
initiating required studies under Phase B shall be at McNEIL's option. If McNEIL
has not completed Phase A and initiated required studies under Phase B of the
NSAID Plan under (a), (b) or (c) above, the parties agree that ALGOS' sole
remedy shall be the right to terminate the license under this Agreement for
products in the Field comprising NSAID under Section 10.2. If any substantial,
unexpected delay occurs in the completion of Phase A and/or initiation of
required studies under Phase B of the NSAID Plan for reasons beyond McNEIL's
control notwithstanding the fact that McNEIL has designed and executed such
study in a manner consistent with its normal business practices when seeking
prompt approval for NDA products, then McNEIL may seek to extend such deadlines
by demonstrating such diligence in accordance with Section 4.7.
5.5. Under Phase C of each of the development plans in accordance with
Schedule F, McNEIL in consultation with ALGOS shall develop a plan and protocol
for conducting a first Phase III Clinical Trial in the Field for each of
Licensed Product comprising Acetaminophen and Licensed Product comprising a
first NSAID. For the purposes of this Agreement the dental pain studies set
forth in Phase A of the development plan of Schedule F for Licensed Product
comprising Acetaminophen or a first NSAID shall not be considered a first Phase
III Clinical Trial for the purposes of this Agreement. ALGOS and McNEIL agree
that these first Phase III Clinical Trial activities shall be primarily paid for
by McNEIL and implemented primarily by McNEIL or as otherwise agreed to by ALGOS
and McNEIL and that any activities of ALGOS in this regard be controlled by
McNEIL.
5.6. If McNEIL and ALGOS have not for any reason agreed to a plan for
carrying out the above described clinical work as contemplated in Section 5.5
above by * * * then McNEIL may unilaterally proceed with such trials and ALGOS
shall reasonably cooperate to the extent required by McNEIL.
5.7. Should McNEIL or ALGOS fail to perform in accordance with Sections
5.1 or 5.2 above, the obligor shall provide the obligee with a written
justification for such failure. The obligee will consider such justification,
and will consider suggestions by the obligor party to modify the milestones and
target dates specified in Sections 5.1 or 5.2., In the event that ALGOS and
McNEIL fail to reach agreement on new milestones and target dates, ALGOS and
McNEIL will submit to an independent industry expert new milestones and target
dates according to the rules and procedures of Section 13.1. Should the obligor
fail to meet the new milestones and target dates within the time frame as
amended by the parties or established by arbitration, the obligee may then
exercise the right specified in Sections 5.1 or 5.2.
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5.8. McNEIL and ALGOS each represent and warrant that the activities it
performs under this Article 5 will be conducted in compliance with all
applicable federal, state and local laws, regulations and guidelines in effect.
5.9. Promptly after the Effective Date of this Agreement, ALGOS agrees
to disclose to McNEIL all of the ALGOS KNOW-HOW reasonably needed by McNEIL to
practice the rights and licenses granted hereunder and ALGOS shall provide
McNEIL with any material samples or written copies of ALGOS KNOW-HOW that it
reasonably requests. ALGOS agrees to provide McNEIL with access to its relevant
employees and consultants during the term of this Agreement in order to
facilitate the transfer of ALGOS KNOW-HOW to McNEIL. ALGOS further agrees to
continually disclose to McNEIL any and all newly developed or newly acquired
ALGOS KNOW-HOW.
5.10.
5.10.1. Any intellectual property rights, including without
limitation, patents, patent applications, inventions, and know-how (hereinafter
referred to as "Intellectual Property") owned or controlled by either party
prior to the parties entering into the Confidentiality Agreement of July 5,
1995, as amended, and set forth in Schedule E, shall remain the property of such
party, subject only to the rights and licenses granted herein.
5.10.2. All Intellectual Property in the Field conceived or first
reduced to practice during the term of the Confidentiality Agreement set forth
in Schedule E or during the term of this Agreement and one (1) year thereafter
solely by personnel employed by or on behalf of one party shall be owned by such
party. Such Intellectual Property conceived or first reduced to practice jointly
by personnel employed by or on behalf of both McNEIL and ALGOS shall be owned by
McNEIL, subject to a nonexclusive, worldwide, fully-paid license to ALGOS, with
the right to grant sublicenses, for use outside the Field during the term of
this Agreement. Conception and reduction to practice shall be determined under
U.S. patent laws. Upon McNEIL's request and at McNEIL's expense, ALGOS agrees
that it and its personnel will execute, acknowledge, and deliver to McNEIL all
documents, including applications for patents, as may be necessary to enable
McNEIL to publish or protect by patent or otherwise all jointly invented
Intellectual Property in any all countries and to vest title in McNEIL, or its
nominees, their successors or assigns, and shall render all assistance as McNEIL
may require in any Patent Office proceeding or litigation involving such
Intellectual Property.
5.10.3. Any NDA or other regulatory registration application or
permit in the Field resulting from the work hereunder shall be owned by McNEIL.
Further, McNEIL shall be the sole communicator with FDA for NDA and for all
other regulatory issues concerning Licensed Product.
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5.10.4. The rights and obligations of Sections 5.10.1, 5.10.2,
5.10.3 and 5.10.4 shall survive termination of this Agreement.
5.11. ALGOS shall provide, at its own expense, expert support,
consulting services and other information and assistance to McNEIL in the
preparation and filing of the first NDA in the U.S. for a Licensed Product
comprising Acetaminophen and the first NDA in the U.S. for a Licensed Product
comprising NSAID. ALGOS shall also provide, at its own expense, expert
assistance in correspondence with FDA aimed at achieving approval of such NDAs,
including but not limited to providing testimony and making its personnel
available for meetings with FDA.
ARTICLE 6
CONFIDENTIALITY AND PUBLICITY
6.1. All information disclosed by one party to the other or developed by
the parties pursuant to the terms of this Agreement shall be maintained
confidential and used only for the purposes of this Agreement in accordance with
this Article 6. Each party may also disclose the other's information to an
Affiliate, agent, consultant, attorney or financial advisor who is under an
obligation of confidentiality and non-use at least substantially equivalent to
the obligations of this Article 6. McNEIL shall also be free to disclose the
existence of this Agreement and the nature of the licenses granted hereunder to
its Affiliates and prospective sublicensees, subject to an obligation of
confidentiality and non-use. The term of maintaining confidentiality of all such
information and the limitations on use shall be for a period of five (5) years
after the date of termination of this Agreement. Each party shall guard such
information as it normally guards any of its confidential, proprietary
information. Notwithstanding the foregoing, each party shall be relieved of the
confidentiality and limited use obligations of this Agreement if:
6.1.1. the information was previously known to the receiving
party as evidenced by the prior written records of such party;
6.1.2. the information is or becomes generally available to the
public through no fault of the receiving party; or
6.1.3. the information is acquired in good faith in the future
by the receiving party from a third party not under an obligation of confidence
to the disclosing party with respect to such information.
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6.2. Notwithstanding the above obligations of confidentiality and
non-use a party may:
6.2.1. disclose information to a regulatory agency that is
necessary to obtain regulatory approval in a particular jurisdiction; or
6.2.2. disclose information to a government agency if the
disclosure is necessary to protect the health and safety of the party's workers
or the public or as required by law; or
6.2.3. disclose information reasonably required in connection
with the development, manufacture, use, sale, external testing or marketing
trials of products in accordance with the terms of this Agreement; or
6.2.4. disclose information by filing patent applications, the
filing of which is contemplated by this Agreement, without violating the above
secrecy provision.
In making such disclosures, the disclosing party shall obligate the recipient to
secrecy, if possible.
6.3. Except for the filing of a copy of this Agreement with the
Securities & Exchange Commission to the extent required by law and such other
public announcements as may hereafter become required by law, in the reasonable
judgment of counsel, due to changes from the facts and circumstances in
existence as of the Effective Date, no party hereunder shall disclose this
Agreement or make any public announcement or filing concerning this Agreement or
the subject matter hereof without the prior written consent of the other, not to
be unreasonably withheld or delayed. In the event that pursuant to the foregoing
ALGOS shall file a copy of this Agreement with the Securities & Exchange
Commission, it shall use reasonable efforts to seek confidential treatment for
all portions thereof requested by McNEIL. Any announcement or filing shall be
made available to the other party in advance of publication or filing, as the
case may be, for review and comment, not to be unreasonably delayed.
6.4. With respect to information disclosed on or after the Effective
Date between McNEIL and ALGOS under the provisions of this Agreement, the
provisions of this Agreement shall govern and prevail. In the event of any
conflict between this Agreement and the Confidentiality Agreement of July 5,
1995 between McNEIL and ALGOS, as amended, with respect to information disclosed
on or after the Effective Date, the terms of this Agreement shall govern and
prevail.
6.5. The rights and obligations of this Article 6 shall survive
termination of this Agreement.
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ARTICLE 7
PATENT PROSECUTION AND MAINTENANCE
7.1. ALGOS agrees to prosecute or cause to prosecute to allowance or
final rejection in the United States the patent applications included in ALGOS
Patent Rights. ALGOS shall issue as a patent each such application prosecuted to
allowance. ALGOS shall pay all of its attorneys fees and other costs incurred in
the preparation, filing and prosecution of the patent applications included in
the ALGOS Patent Rights to allowance in the United States.
7.2. ALGOS agrees to promptly provide (if not already provided) McNEIL
with copies of:
7.2.1. All patent applications included in ALGOS Patent Rights;
7.2.2. All prior art searches related to such patent
applications and the subject matter of this Agreement; and
7.2.3. All correspondence to and from the U.S. Patent and
Trademark Office and foreign patent offices relating to such patent
applications.
7.3. McNEIL shall have the right to consult with ALGOS regarding the
content of the patent applications included in ALGOS Patent Rights, prior art
searches and correspondence, and to comment thereon. ALGOS shall consider all
such comments offered by McNEIL, it being agreed, however, that all final
decisions respecting conduct of the prosecution of said patent applications
shall rest solely in the discretion of ALGOS, subject to VCU's right to approve
patent filings pursuant to Section 6.1 of the VCU License.
7.4. ALGOS shall promptly notify McNEIL in the event ALGOS decides at
any time to abandon or discontinue prosecution of any one or more of the U.S.
patent applications included in ALGOS Patent Rights. Such notification will be
given as early as possible which in no event will be less than ninety (90) days
prior to the date on which said application(s) will become abandoned. McNEIL
shall have the option, exercisable upon written notification to ALGOS, to assume
full responsibility for the prosecution of the affected patent application(s),
subject to Section 6.2 of the VCU License. If ALGOS abandons or discontinues
prosecution of a U.S. patent application included in ALGOS Patent Rights, then
all such affected U.S. patent application(s) shall be promptly exclusively
licensed to McNEIL, its Affiliates and sublicensees at * * * the running royalty
rate provided for in this Agreement.
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7.5. ALGOS shall file and prosecute patent applications covering Canada,
Japan, the United Kingdom, France, Germany, Italy, Spain, Sweden and the
Netherlands unless otherwise agreed by the parties, and any other foreign
countries which ALGOS may designate in writing (collectively, hereinafter the
"ALGOS List"), and any additional foreign countries which may be designated in
writing by McNEIL (the "McNEIL List"). McNEIL shall be permitted to consult with
ALGOS in the selection of foreign patent counsel and in the preparation and
prosecution of said foreign patent applications. McNEIL agrees to pay the
reasonable attorney fees and costs incurred on or after the Effective Date by
ALGOS, not to exceed a maximum of * * * associated with the filing and
prosecution of foreign patent application(s) in the countries on ALGOS' List and
international or regional patent applications (e.g., the Patent Cooperation
Treaty or European Patent Convention) designating one or more countries in the
ALGOS List. All invoices for such attorney fees shall be forwarded to McNEIL
within sixty (60) days of the service being rendered. ALGOS shall have the first
right to bear the attorney fees and costs associated with patent applications in
countries appearing on McNEIL's List, and in countries appearing on ALGOS' List
to the extent not paid by McNEIL. If ALGOS prosecutes any said foreign patent
application to grant, McNEIL and its Affiliates shall have an exclusive license
under the claims of said granted patent in accordance with the terms of this
Agreement, including the royalties provided herein. In the event ALGOS elects
not to pursue any such foreign patent application, then ALGOS shall give McNEIL
written notice thereof at least thirty (30) days prior to any applicable
deadline. McNEIL may thereafter continue prosecution at McNEIL's own cost. If
McNEIL prosecutes such application to grant, McNEIL and its Affiliates shall
have an exclusive license under the claims of said granted patent in accordance
with the terms of this Agreement, except that they shall pay running royalties
at * * * the rates provided herein.
7.6. ALGOS shall pay all official taxes, annuities and fees required to
keep in force U.S. and foreign patents included in ALGOS Patent Rights and shall
submit evidence to McNEIL that said government fees have been timely paid.
McNEIL shall reimburse ALGOS for such expenses as provided in Section 7.7 below.
If ALGOS elects not to make such payments in any country designated by McNEIL in
the McNEIL List for maintenance of such patents, ALGOS shall provide McNEIL with
timely notice of such election and McNEIL may assume such maintenance. In such
event, McNEIL's exclusive license under the claims of such patents shall
continue in accordance with the terms of this Agreement, including the royalties
provided herein, and McNEIL may credit the amount of such payments against
running royalties and minimum royalties owed on Net Sales made in such country
following the date of the ALGOS notice described above.
7.7. McNEIL agrees to reimburse ALGOS for all official taxes, annuities
and fees incurred on or after the Effective Date by ALGOS and required to keep
in force those U.S. and foreign patents included in ALGOS Patent Rights. In the
event McNEIL
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has no further interest in maintaining a patent, McNEIL shall give ALGOS thirty
(30) days written notice thereof and ALGOS may thereafter continue maintenance
of said patent at its own cost. In such event, McNEIL, its Affiliates and
sublicensees shall have a nonexclusive license under the claims of said granted
patent in accordance with the terms of this Agreement, including the royalties
provided herein.
7.8. It is understood and agreed that any and all costs paid for by
McNEIL for the preparation, filing, prosecution and maintenance of foreign
patent application and patents included in the ALGOS Patent Rights under this
Article 7 shall be * * *
7.9. Should a priority or opposition contest develop in any Patent
Office throughout the world relating to a patent or patent application within
the ALGOS Patent Rights, the parties acknowledge that VCU may have the first
right to control such action pursuant to Section 7.6 of the VCU license. If VCU
does not assume control of the action, ALGOS shall have the right, but not the
obligation, to control the contest and bear the costs thereof. If ALGOS does not
assume control of the action, McNEIL may control the contest and bear the costs
thereof. If McNEIL assumes control of the contest, ALGOS shall provide McNEIL
with all cooperation and documents required by McNEIL to prosecute such priority
or opposition contest including cooperation of any licensor or consultants of
ALGOS. ALGOS shall have the right to participate in such contest, or designate
its own counsel to so participate, at ALGOS' own expense, throughout each step
of such priority or opposition contest. In the event that McNEIL does not wish
to maintain a patent or patent application in any country of the Territory where
such a contest has developed then ALGOS shall be given sixty (60) days notice in
which to elect to continue maintaining such patent or patent applications at
ALGOS' own expense. If ALGOS elects to maintain such a patent or patent
application, such patent or patent application shall be nonexclusively licensed
to McNEIL, its Affiliates and sublicensees in accordance with the terms of this
Agreement, including the royalties provided herein.
7.10. McNEIL shall notify ALGOS in writing at least thirty (30) days in
advance before McNEIL or any of its Affiliates or sublicensees brings any action
challenging any ALGOS Patent Rights. In such notice, McNEIL shall describe in
detail the nature of such action, the position to be advanced by McNEIL, its
Affiliate or sublicensee and the commercial reasons for bringing such action.
McNEIL will consult with ALGOS regarding such action during such 30-day period,
taking ALGOS' views into account in good faith before making any final decision
to bring such action.
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ARTICLE 8
COMPETING PRODUCTS AND INFRINGEMENT
8.1.
8.1.1. If ALGOS or McNEIL become aware of substantial
infringement * * * * by a third party of any issued patent included in ALGOS
Patent Rights, that party shall promptly notify the other party in writing to
that effect. If, prior to the expiration of * * * from said notice, ALGOS
obtains a discontinuance of such infringement or brings suit against the third
party infringer, then the obligation of McNEIL to pay royalties under such
Patented Product shall continue unabated. ALGOS shall bear all the expenses of
any suit brought by it and shall retain all damages or other monies awarded or
received in settlement of such suit. McNEIL will cooperate with ALGOS in any
such suit and shall have the right to consult with the ALGOS and be represented
by its own counsel at its own expense.
8.1.2. If, after the expiration of said * * * from the date of
said notice, ALGOS has not obtained a discontinuance of such infringement, or
brought suit against the third party infringer, then McNEIL may withhold up to *
* * of running royalties and minimum royalties under the patent of the ALGOS
Patent Rights being infringed as provided in Section 8.1.3 until such time as
either the third party infringement has ceased or suit for infringement has been
filed by ALGOS and/or VCU; provided that McNEIL promptly brings suit if ALGOS
and/or VCU does not. McNEIL shall have the right after such * * * notice period,
but not the obligation, to bring suit against such infringer and join ALGOS
and/or VCU as a party plaintiff, provided that McNEIL shall bear all the
expenses of such suit. ALGOS will cooperate with McNEIL in any suit for
infringement of a patent of the ALGOS Patent Rights brought by McNEIL against a
third party, and shall have the right to consult with McNEIL and to participate
in and be represented by independent counsel in such litigation at its own
expense. McNEIL shall incur no liability to ALGOS as a consequence of such
litigation or any unfavorable decision resulting therefrom, including any
decision holding the patent invalid or unenforceable * * * * Further, the
minimum royalty applicable in accordance with Section 4.5 or 4.6 for any Fiscal
Year shall be reduced by the amount of running royalties in such Fiscal Year
withheld hereunder.
8.1.3. * * * of running royalties which are based solely on the
infringed ALGOS Patent Rights which accrue during the pendency of any suit for
infringement brought by McNEIL shall be held in escrow by McNEIL until a final
decision is rendered by a court of competent jurisdiction from which no appeal
can be or is taken. In the event the patent of the ALGOS Patent Rights under
which such running royalties are payable is held to be invalid, the escrowed
running royalties and interest shall be retained by McNEIL to the extent
necessary to offset litigation expenses. In the event
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the validity of such patent of the ALGOS Patent Rights is upheld or the suit is
settled, the accrued running royalties shall be paid to ALGOS with interest, and
any damages or other monies awarded or received in settlement of such suit shall
be applied first to reimburse McNEIL's unreimbursed litigation expenses and the
remainder treated as Net Sales of Patented Product in the Fiscal Quarter
received. Further, the minimum royalty applicable in accordance with Section 4.5
or 4.6 for any Fiscal Year shall be reduced by the amount of running royalties
escrowed by McNEIL during such Fiscal Year. ALGOS shall have the right to direct
the investment of escrowed royalties.
8.2.
8.2.1. In the event ALGOS or McNEIL learn that McNEIL's making,
using or selling of Licensed Product infringes, will infringe or is alleged by a
third party to infringe a third party patent by reason of the combination of an
NMDA Antagonist with Acetaminophen or NSAID, as the case may be, the party
becoming aware of same shall promptly notify the other. ALGOS and McNEIL shall
thereafter attempt to agree upon a course of action which may include: (a)
modifying of the Licensed Product or its use and manufacture so as to be
non-infringing; or (b) obtaining a license or assignment from said third party.
8.2.2. In the event ALGOS or McNEIL cannot agree on modifying the
Licensed Product pursuant to Paragraph 8.2.1, McNEIL shall in the first instance
have the right to negotiate with said third party for such license or
assignment. In the event that such negotiation results in a consummated
agreement, then any lump sum payment and/or royalties to be paid thereunder
shall be paid by McNEIL. * * * of any lump sum payments or royalties to be paid
by McNEIL, its Affiliates and sublicensees under such McNEIL negotiated
agreement shall be credited against running royalties due ALGOS hereunder, but
only to the extent of reducing running royalties due ALGOS by * * * in any
Fiscal Quarter with the remainder being carried over to the next payment period.
The minimum royalty applicable in accordance with Section 4.5 or 4.6 for a
Fiscal Year shall be reduced by the amount credited against running royalties in
such Fiscal Year.
8.3. As ALGOS' exclusive licensee to ALGOS KNOW-HOW under ALGOS Rights
hereunder, McNEIL shall be entitled to enforce any ALGOS contractual rights
protecting the confidentiality and non-use of such KNOW-HOW, including
confidentiality and/or non-disclosure agreements entered into between ALGOS and
any third parties, if ALGOS elects not to enforce such rights within thirty (30)
days after receiving any request for enforcement from McNEIL.
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ARTICLE 9
WARRANTIES, REPRESENTATIONS AND ACKNOWLEDGMENTS
9.1.
9.1.1. ALGOS expressly warrants and represents that it
exclusively owns or controls by agreement or license all of the rights, title
and interest in and to the ALGOS Rights as defined herein and that it has the
full right and authority to enter into this Agreement and to carry out the
transactions contemplated herein. ALGOS represents and warrants that all rights
related to the subject matter of this Agreement developed under ALGOS'
Consulting Agreements with * * * have been assigned or exclusively licensed to
ALGOS. Subject to Section 2.2 of this Agreement and VCU's ownership of the VCU
Patent Rights, ALGOS further represents and warrants that to the best of its
knowledge no academic institution, member of an academic institution,
corporation or any other non-governmental third party holds any property rights
in the subject matter of this Agreement. Further, ALGOS represents that the
patent applications and patents of Schedule A are all existing ALGOS Patent
Rights in the Field. ALGOS warrants that it will promptly update such Schedule A
from time-to-time. ALGOS represents and warrants that no federal government
"funding agreement," as defined in 35 U.S.C. 201(b), is or was applicable to the
work conducted under the Research Agreements between Algos and VCU dated January
2, 1993 and December 15, 1993.
9.1.2. Subject to Section 2.2, ALGOS expressly warrants and
represents that it has no outstanding encumbrances or agreements, either
written, oral, or implied, in connection with the ALGOS Rights (other than the
VCU License), and that it has not granted and will not grant during the term of
this Agreement or any renewal hereof, any conflicting rights, license, consent
or privilege with respect to the rights granted herein.
9.1.3. ALGOS expressly warrants and represents that the VCU
License is in full force and effect as of the Effective Date and that ALGOS is
not in material breach of the VCU License nor has ALGOS received any notice of
termination from VCU under the VCU License.
9.1.4. ALGOS expressly warrants and represents that during the
term of this Agreement it will comply with all terms and provisions of the VCU
License to prevent termination of McNEIL's rights to the VCU Patent Rights.
9.2. McNEIL makes no representation or warranty that it will market
products in the Field under this Agreement. Furthermore, all business decisions
including, without limitation, seeking of regulatory approval to market and
selecting and conducting of clinical trials for supporting an NDA, as well as
design, manufacture,
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sale, price and promotion of products covered under this Agreement and the
decision whether to sell a particular product shall be within the sole
discretion of McNEIL and/or its Affiliates.
9.3. ALGOS hereby acknowledges herein that McNEIL and its Affiliates
already sell a large variety of products and acknowledges that McNEIL and its
Affiliates may now or in the future develop or acquire pharmaceutical products
which may serve a similar therapeutic function or compete with products in the
Field. Further, ALGOS recognizes that McNEIL and its Affiliates have been
actively involved in research and development in the medical field and in the
investigation of entries into the pharmaceutical field for various therapeutic
uses and that McNEIL and its Affiliates intend to continue with such activities.
These activities may result in products which would compete with products in the
Field. Should any such products be developed and/or marketed, they would not be
subject to any royalties or other obligations to ALGOS hereunder if not a
Patented Product or Licensed Product having Regulatory Market Exclusivity.
Moreover, ALGOS realizes that the products in the Field are presently in early
stages of development, and accordingly it is uncertain whether or not any such
product(s) will be successfully developed and marketed by McNEIL.
9.4. ALGOS hereby represents and acknowledges that McNEIL is not
obligated under this Agreement to continue development of or market products in
the Field and that the payments provided by McNEIL to ALGOS in Article 3 and
Article 4 and the termination rights expressly granted to ALGOS in this
Agreement are in complete satisfaction of any duty, express or implied, imposed
upon McNEIL to commercially exploit any of the rights and licenses granted
hereunder, including without limitation, any obligation on the part of McNEIL
and/or its Affiliates to exercise any specific level of effort in developing and
marketing product(s) in the Field. Conversely, McNEIL hereby represents and
acknowledges that Sections 4.5 and 4.6 require the payment of minimum royalties
to ALGOS under certain circumstances, even if McNEIL, its Affiliates and
sublicenses have no Net Sales of Licensed Products.
9.5. ALGOS expressly warrants and represents that, at the time of
execution of this Agreement, it knows of no facts that would render the Licensed
Product obsolete. Further, ALGOS expressly warrants and represents that, at the
time of execution of this Agreement, it knows of no third party patents or
pending applications that would materially affect McNEIL's ability to sell
Licensed Product nor ALGOS' ability to obtain patent protection for ALGOS
Rights.
9.6. Each party expressly warrants and represents that it has no
agreement nor any other obligation to any third party that would in any way
interfere, hamper or limit its ability to carry out and fulfill its obligations
under this Agreement.
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ARTICLE 10
TERM AND TERMINATION
10.1. This Agreement shall remain in force unless otherwise terminated
in accordance with any of the provisions herein, except that ALGOS' obligation
to continually provide ALGOS KNOW-HOW to McNEIL shall cease upon the last to
occur of the following events:
10.1.1. The expiration date of the last to expire issued patent
or abandonment of the sole remaining pending patent application, whichever shall
be last to occur, of the ALGOS Patent Rights, or
10.1.2. Ten (10) years after the Effective Date of this
Agreement.
10.2. Upon any material breach of, or material default under, this
Agreement by a party, the other party may terminate this Agreement in whole or
in part by giving ninety (90) days written notice to the breaching party. Said
notice shall become effective at the end of such period, unless during said
period the breaching party shall cure such breach or default.
10.3. McNEIL shall have the right to terminate the license granted
hereunder in its entirety, or as to all Licensed Products comprising
Acetaminophen, or as to all Licensed Products comprising NSAIDs, upon sixty (60)
days written notice to ALGOS; provided, however, that no such termination notice
shall be delivered before the date * * * after the Effective Date. Upon
termination by operation of this Section 10.3, all terminated licenses granted
to McNEIL hereunder shall cease and McNEIL shall be free of any unaccrued
obligation to make any payments to ALGOS relating to the terminated license
pursuant to Articles 3 and 4 herein.
10.4. ALGOS shall have the right to terminate certain rights of McNEIL
under this Agreement in accordance with the provisions of Sections 5.1, 5.3 and
5.4 hereof and the entire Agreement in accordance with the provisions of Section
3.2.
10.5. ALGOS or McNEIL may terminate this Agreement should the other
party commit an act of bankruptcy, be declared bankrupt, voluntarily file or
have filed against it a petition for bankruptcy or reorganization unless such
petition is dismissed within sixty (60) days of filing, enter into a procedure
of winding up to dissolution or should a trustee or receiver be appointed for
its business assets or operations. All rights and licenses granted under or
pursuant to this Agreement are, and shall otherwise be deemed to be, for the
purposes of Section 365(n)of Title 11, U.S. Code ("Bankruptcy Code") license
rights to "intellectual property" as defined under Section 101(60) of the
Bankruptcy Code. The parties agree that McNEIL, as a licensee of such right,
under this
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Agreement, shall retain and may fully exercise all of its rights and elections
under the Bankruptcy Code.
10.6. Upon termination of any license granted herein, in part or in
whole as to any Licensed Product, McNEIL shall have the right to sell off any
Licensed Product in its inventory provided McNEIL pays to ALGOS the running
royalties calculated in accordance with Section 4.1. The rights and obligations
of Sections 3.3, 4.9, 5.10, 10.6, 10.7, 13.1, 13.4, 13.5, 13.6 and 13.9, and
Articles 6 and 11, shall survive termination of this Agreement.
10.7. Upon termination of this Agreement by ALGOS pursuant to Section
3.2, 10.2 or 10.5, or termination of the license for products comprising
Acetaminophen under Sections 5.1 or 5.3, ALGOS shall have a paid-up, worldwide,
nonexclusive license to use, and have access to, and McNEIL shall provide to
ALGOS, all data in McNEIL's possession generated in the studies described in
Sections 5.1 and 5.2. McNEIL will not be required to transfer any registrations
for Licensed Products or to grant any license rights under any McNEIL patents.
ARTICLE 11
INDEMNIFICATION
11.1. McNEIL shall defend, indemnify and hold ALGOS and VCU, its
directors, officers and employees, harmless from and against any and all claims,
suits or demands for liability, damages, losses, costs and expenses (including
the costs and expenses of attorneys and other professionals) arising out of
third party claims or suits or demands based on bodily injury or property damage
resulting from the clinical testing, manufacture, use or sale of product in the
Field by McNEIL or its Affiliates or sublicensees pursuant to this Agreement.
11.2. ALGOS shall defend, indemnify and hold McNEIL, its directors,
officers and employees, harmless from and against any and all claims, suits or
demands for liability, damages, losses, costs and expenses (including the costs
and expenses of attorneys and other professionals) arising out of third party
claims or suits or demands based on bodily injury or property damage resulting
from the clinical testing by ALGOS or its Affiliates pursuant to this Agreement.
11.3. Each party ("Indemnifying Party") shall defend, indemnify and hold
the other party and its directors, officers and employees, harmless from and
against any and all claims, suits, and demands for liability, damages, losses,
costs and expenses (including the costs and expenses of attorneys and other
professionals) arising out of or
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resulting from the inaccuracy of any representation or the breach by the
Indemnifying Party of any warranty, covenant or agreement contained in this
Agreement.
11.4. In the event that any party hereunder seeks indemnification under
this Article 11, such party shall: (a) promptly inform the indemnifying party of
any claim, suit or demand threatened or filed, (b) permit the indemnifying party
to assume direction and control of the defense of claims resulting therefrom
(including the right to settle such claims for money damages at the sole
discretion of the indemnifying party), and (c) cooperate as requested (at the
expense of the indemnifying party) in the defense of such claims.
11.5. An indemnifying party's (including sublicensees') obligations
under this Article 11 shall not extend to any claims, suits or demands for
liability, damages, losses, costs and expenses, arising from the indemnified
party's failure to comply with the terms and conditions of this Agreement or
arising from the negligence or willful misconduct of the indemnified party, its
agents or employees.
11.6. McNEIL shall maintain commercial general liability insurance and
product liability insurance or self insurance in an amount not less than * * *
per occurrence, bodily injury/property damage combined. Upon written request by
ALGOS and/or VCU, McNEIL shall provide certificates of insurance evidencing such
insurance coverage. The certificates of insurance shall provide 30 days written
notice of cancellation.
ARTICLE 12
VCU LICENSE
12.1. ALGOS shall use its best efforts not to cause the termination and
shall not seek to terminate the VCU License during the term of this Agreement
without the express written consent of McNEIL.
12.2. ALGOS shall use its best efforts to perform all duties and
obligations required under the VCU License. ALGOS shall notify McNEIL within
five (5) days of its receipt of any termination notices from VCU of the VCU
License and at McNEIL's option shall seek to avoid said termination or shall
subrogate McNEIL to ALGOS rights under the VCU License to enable McNEIL to seek
to avoid said termination.
12.3. ALGOS shall inform McNEIL of any renegotiation of the VCU License,
and shall not modify any terms or provisions of the VCU License, if such
renegotiation or modification will adversely affect McNEIL's rights under this
Agreement, without McNEIL's written consent, which shall not be unreasonably
withheld. ALGOS shall promptly provide McNEIL with a copy of such renegotiated
or modified VCU License.
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12.4. In order to provide adequate protection of McNEIL's interest in
avoiding the termination of the VCU license, ALGOS agrees that should ALGOS
default or receive a notice from VCU of default under the VCU license for
failure to timely pay royalties, ALGOS shall notify McNEIL within five (5) days
of its receipt of such notice and, if ALGOS has not already cured any default,
McNEIL at its option may cure any such default on ALGOS' behalf, including
paying any delinquencies. McNEIL may credit any such payments made to VCU to
cure ALGOS' delinquency against future payments due to ALGOS hereunder. The
minimum royalty applicable for any Fiscal Year in accordance with Section 4.5 or
4.6 shall be reduced by the amount of running royalty paid directly to VCU for
Net Sales made during such Fiscal Year.
ARTICLE 13
MISCELLANEOUS
13.1.
13.1.1. Disagreements described in Section 1.15 regarding fair
market values or Section 4.7 regarding deadlines and/or extension of payment
requirements shall be submitted to an independent industry expert selected by
mutual agreement of the parties within sixty (60) days of a request by either
party. If the parties are unable to agree on an independent industry expert,
each shall name one such expert prior to the end of the 60-day period and those
two experts shall mutually select a third independent industry expert within ten
(10) additional days. The third expert shall serve as the deciding expert for
purposes of this Section 13.1.1; the other two shall be relieved of any
responsibilities other than selecting the third expert. Each party shall submit
written materials to each other and the expert within sixty (60) days after his
or her selection. Each party shall then have fifteen (15) days to submit a
written rebuttal to the other's materials. The expert shall determine the fair
market value in dispute, or the justification for, and duration of, any
extension of deadlines and/or payment requirements hereunder, based upon such
submissions. The expert's determination shall be dispositive and be given
retroactive effect. Until such determination is delivered to the parties, McNEIL
shall calculate such fair market values, or the justification for, and duration
of, any extension of deadlines and/or payment requirements, in good faith and
make applicable deadlines and/or payments accordingly.
13.1.2. The parties recognize that disputes as to certain matters
may from time to time arise during the term of this Agreement. It is the
objective of the parties to establish procedures to facilitate the resolution of
disputes arising under this Agreement in an expedient manner by mutual
cooperation and without resort to litigation. To accomplish this objective, the
parties agree to follow the procedures set forth in this Section 13.1 if and
when a dispute arises under this Agreement.
30
<PAGE>
<PAGE>
Any party may, by written notice to the other, have any dispute referred
to their respective executive officers designated below or their successors or
designated corporate officers, for attempted resolution by good faith
negotiations within fourteen (14) days after such notice is received. Said
designated executive officers are as follows:
For McNEIL: President
For ALGOS: Chief Executive Officer
In the event the designated executive officers are not able to
resolve such dispute, either party may at anytime after the 14 day period invoke
the provisions of Section 13.1.3 hereinafter.
13.1.3. Any dispute, controversy or claim arising out of or
relating to this Agreement, or the parties' decision to enter into this
Agreement, including, without limitation, disputes relating to the validity,
construction, enforceability, alleged breach, termination or performance of this
Agreement, other than disputes which are expressly referred to an industry
expert under Section 13.1.1 and disputes arising out of or relating to the
validity, enforceability or infringement of any of the ALGOS Patent Rights,
shall be settled by binding Alternative Dispute Resolution ("ADR") in the manner
described below:
(a) If a party intends to begin an ADR to resolve a
dispute, such party shall provide written notice (the "ADR Request") to counsel
for the other party informing such other party of such intention and the issues
to be resolved. From the date of the ADR Request and until such time as any
matter has been finally settled by ADR, the running of the time period contained
in Section 10.2 as to which party must cure a breach of this Agreement shall be
suspended as to the subject matter of the dispute.
(b) Within ten (10) business days after the receipt of
the ADR Request, the other party may, by written notice to the counsel for the
party initiating ADR, add additional issues to be resolved.
13.1.4. The ADR shall be conducted pursuant to the J.A.M.S./
ENDISPUTE Comprehensive Arbitration Rules and Procedures attached hereto as
Schedule I. Should J.A.M.S./ENDISPUTE or its successor organization not exist at
the time of arbitration, the rules referenced herein shall be followed by the
Panel (as hereinafter defined), who shall also manage the arbitration.
Notwithstanding those rules, the following provisions shall apply to the ADR
hereunder.
31
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<PAGE>
(a) ARBITRATOR. The arbitration shall be conducted by a
panel of three arbitrators ("the Panel"). The Panel shall be selected from a
pool of retired independent United States federal judges to be presented to the
parties by J.A.M.S./ ENDISPUTE. If the parties are unable to agree on a panel of
arbitrators within fifteen (15) days after the pool is presented to them, each
shall name one and those two arbitrators shall mutually select the third from
the pool. Should J.A.M.S./ENDISPUTE or its successor organization not exist at
the time of arbitration, the rules referenced herein shall be followed by the
Panel (as hereinafter defined), who shall also manage the arbitration. Each
arbitrator shall be neutral, disinterested, impartial, and independent of the
parties and others having any known interest in the outcome, and shall abide by
the AAA/ABA Code of Ethics for Arbitrators in Commercial Disputes. There shall
be no ex parte communications with any arbitrator either before or during the
arbitration relating to the dispute or issues involved in the dispute or the
arbitrator's views on any such issue.
(b) PROCEEDINGS. The time periods set forth in the
J.A.M.S./ENDISPUTE rules shall be followed, unless a party can demonstrate to
the Panel that the complexity of the issues or other reasons warrant the
extension of one or more of the time tables. In such case, the Panel may extend
such time tables, but in no event shall the time tables being extended so that
the ADR proceeding extends more than eighteen (18) months from its beginning to
the award. In regard to such time tables, the parties (i) acknowledge that the
issues that may arise in any dispute involving this Agreement may involve a
number of complex matters and (ii) confirm their intention that each party will
have the opportunity to conduct complete discovery with respect to all material
issues involved in a dispute within the framework provided above. The Panel
shall not award punitive damages to either party and the parties shall be deemed
to have waived any right to such damages. The Panel shall, in rendering its
decision, apply the substantive law of the State of New York, without regard to
its conflict of laws provisions, except that the interpretation of and
enforcement of this Section shall be governed by the Federal Arbitration Act.
The Panel shall apply the Federal Rules of Evidence to the hearing. The
proceeding shall take place in the City of New York. The fees of the Panels and
J.A.M.S./ENDISPUTE shall be paid by the losing party which shall be designated
by the Panel. If the Panel is unable to designate a losing party, it shall so
state and the fees shall be split equally between the Parties.
(c) AWARD. The Panel is empowered to award any remedy
allowed by law, including money damages, multiple damages, prejudgment interest
and attorneys' fees, and to grant final, complete, interim, or interlocutory
relief, including injunctive relief but excluding punitive damages. The decision
shall be rendered in writing, including a full and precise statement of the
factual and legal bases for such decision.
32
<PAGE>
<PAGE>
(d) COSTS. Except as set forth in Section 13.1.3(c),
above, each party shall bear its own legal fees. The Panel shall assess its
costs, fees and expenses against the party losing the ADR unless it believes
that neither party is the clear loser, in which case the panel shall divide its
fees, costs and expenses according to its sole discretion.
(e) CONFIDENTIALITY. The ADR proceeding shall be
confidential and the Panel shall issue appropriate protective orders to
safeguard each party's confidential information. Except as required by law, no
party shall make (or instruct the Panel to make) any public announcement with
respect to the proceedings or decision of the Panel without prior written
consent of each other party. The existence of any dispute submitted to ADR, and
the award, shall be kept in confidence by the parties and the Panel, except as
required in connection with the enforcement of such award or as otherwise
required by applicable law.
13.1.5. Any duty to arbitrate under this Agreement shall remain
in effect and enforceable after termination of the contract for any reason.
13.1.6. For the purposes of this Section 13.1, the parties
acknowledge their diversity (ALGOS having its principal place of business in New
Jersey and McNEIL having its principal place of business in Pennsylvania) and
agree to accept the jurisdiction of the Federal District Court in New York, New
York for the purposes of enforcing awards entered pursuant to this Section and
for enforcing the agreements reflected in this Section.
13.1.7. Any dispute arising out of or relating to the validity,
enforceability or infringement of any of the ALGOS Patent Rights shall be
subject to resolution in a court having appropriate jurisdiction in the country
or territory where the patent is issued. Each of ALGOS and McNEIL hereby waives
its right to trial by jury to resolve any such claim or controversy.
13.2. Any delays in or failures of performance by a party under this
Agreement shall not be considered a breach of this Agreement if and to the
extent caused by occurrences beyond the reasonable control of the party
affected, including but not limited to: acts of God; acts, regulations or laws
of any government; strikes or other concerted acts of workers; fires; floods;
explosions; riots; wars; rebellions; and sabotage; and any time for performance
hereunder shall be extended by the actual time of delay caused by such
occurrence.
13.3. This Agreement, or any of the rights and obligations created
herein, shall not be assigned or transferred, in whole or in part, by either
party hereto without the prior written consent of the other party; provided,
however, that either party shall have the right to assign this Agreement to any
Affiliate or to the successor of all or
33
<PAGE>
<PAGE>
substantially all of its business to which this Agreement relates without such
prior written consent. Any attempted assignment or transfer of such rights or
obligations without such consent, except as provided herein, shall be void.
13.4. The waiver by a party, whether express or implied, of any
provisions of this Agreement, or of any breach or default of a party, shall not
be construed to be a continuing waiver of such provision, or of any succeeding
breach or default or of a waiver of any other provisions of this Agreement.
13.5. All matters affecting the interpretation, validity, and
performance of this Agreement shall be governed by the laws of the State of New
York, U.S.A., without regard to its choice or conflict of law principles.
13.6. Any provision hereof which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective only to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions hereof or affecting the validity or enforceability of such provision
in any other jurisdiction. The parties shall replace such ineffective provision
for such jurisdiction with a valid and enforceable provision which most closely
approaches the idea, intent, and purpose of this Agreement, and in particular,
the provision to be replaced.
13.7. ALGOS and McNEIL are independent contractors and shall not be
deemed to be partners, joint ventures or each other's agents, and neither shall
have the right to act on behalf of the other except as expressly provided
hereunder or otherwise expressly agreed to in writing.
13.8. McNEIL shall have the right to promote and sell Licensed Product
under trademarks selected by McNEIL, which trademarks shall be and remain the
property of McNEIL. Nothing herein shall be deemed to give ALGOS, either during
the term of this Agreement or thereafter, any right to McNEIL trademarks or
their use.
13.9. It is the mutual desire and intent of the parties to provide
certainty as to their future rights and remedies against each other by defining
the extent of their mutual undertakings as provided herein. The parties have in
this Agreement incorporated all representations, warranties, covenants,
commitments and understandings on which they have relied in entering into this
Agreement and, except as provided for herein, neither party has made any
covenant or other commitment to the other concerning its future action.
Accordingly, this Agreement and the schedules attached hereto (i) constitutes
the entire agreement and understanding between the parties with respect to the
matters contained herein, and there are no promises, representations,
conditions, provisions or terms related thereto other than those set forth in
this Agreement, and (ii) supersedes all previous understandings, agreements and
representations between the parties, written or oral relating to the subject
matter hereof. The parties hereto may from time to time
34
<PAGE>
<PAGE>
during the continuance of this Agreement modify, vary or alter any of the
provisions of this Agreement, but only by written agreement of all parties
hereto.
13.10. All communications, reports, payments and notices required by
this Agreement shall be addressed to the parties at their respective addresses
set forth below or to such other address as requested by a party by notice in
writing to the other parties.
If to ALGOS Attention: President
Algos Pharmaceutical Corporation
Collingwood Plaza 4900 Route 33
Neptune, New Jersey 07753-6804
If to McNEIL: Attention: President
McNeil Consumer Products Company
7050 Camp Hill Road
Fort Washington, Pennsylvania 19034
With a copy to: Chief Patent Counsel
Johnson & Johnson
One Johnson & Johnson Plaza
New Brunswick, New Jersey 08933
All such notices, reports, payments and communications shall be made by
First Class mail, postage prepaid, and shall be considered made as of the date
of deposit with the United States Post Office.
35
<PAGE>
<PAGE>
IN WITNESS WHEREOF, and intending to be legally bound, the parties
hereto have caused this Agreement to be executed by their duly authorized
representatives as of the Effective Date.
ALGOS PHARMACEUTICAL MCNEIL CONSUMER PRODUCTS
CORPORATION COMPANY, A DIVISION OF
MCNEIL-PPC, INC.
By:________________________________ By:_________________________________
John W. Lyle Brian D. Perkins
President & CEO President
Date:______________________________ Date:_______________________________
36
<PAGE>
<PAGE>
SCHEDULE A
ALGOS PATENT RIGHTS
***********************Schedule Intentionally Omitted***********************
A-1
<PAGE>
<PAGE>
SCHEDULE B
MCNEIL DENTAL PAIN STUDY FOR LICENSED PRODUCT
COMPRISING ACETAMINOPHEN
***********************Schedule Intentionally Omitted***********************
B-1
<PAGE>
<PAGE>
SCHEDULE C
ALGOS DENTAL PAIN STUDY FOR LICENSED PRODUCT
COMPRISING ACETAMINOPHEN
PROTOCOL SYNOPSIS
*********************Schedule Intentionally Omitted********************
C-1
<PAGE>
<PAGE>
SCHEDULE D
MILESTONE PATENT CLAIMS
MILESTONE CLAIM A:
********************Intentionally Omitted****************
MILESTONE CLAIM B:
********************Intentionally Omitted****************
D-1
<PAGE>
<PAGE>
SCHEDULE E
CONFIDENTIALITY AGREEMENT EFFECTIVE JULY 5, 1995
E-1
<PAGE>
<PAGE>
CONFIDENTIALITY AGREEMENT
This Agreement is by and between Algos Pharmaceutical Corporation,
having an address of Collingwood Plaza, 4900 Route 33, Neptune, New Jersey 07753
(hereinafter referred to as "ALGOS") and McNeil Consumer Products Company a
division of McNEIL-PPC, Inc., having an address of 7050 Camp Hill Road, Fort
Washington, Pennsylvania 19034 (hereinafter referred to as "McNEIL").
WITNESSETH
WHEREAS, ALGOS has developed new uses for combination products
containing dextromethorphan and morphine: dextromethorphan and codeine:
dextromethorphan and various other narcotic analgesics; dextromethorphan and
acetaminophen; and dextromethorphan and various nonsteroidal anti-inflammatory
drugs (all hereinafter referred to as "Products") and possesses patent
applications and clinical and animal studies relating to such Products and
business information relating to its organizational structure and its business
strategies for such Products and terms upon which ALGOS is willing to license
and/or sell rights to such Products and/or enter into a business relationship
regarding such Products (all hereinafter referred to as "Information"), which
ALGOS considers proprietary; and
E-2
<PAGE>
<PAGE>
WHEREAS, McNEIL possesses certain information relating to its interest
in the Products (hereinafter referred to as "Information"), which McNEIL
considers proprietary; and
WHEREAS, the parties wish to make mutual disclosures and exchanges of
their respective Information for the sole purpose of enabling the parties to
evaluate their respective interests in entering into a future business
relationship with respect to such Information.
NOW, THEREFORE, for and in consideration of the mutual covenants
contained herein, the parties do agree as follows:
1. Each party agrees to keep the other party's information in confidence
and not to disclose or otherwise use the other party's Information for any
purpose other than for the performance of the evaluation herein described
without the prior written consent of the other party. Accordingly, each party
agrees to treat the Information which it receives as it would its own
proprietary Information and to take all reasonable precautions to prevent the
unauthorized disclosure to any third party of the Information which it receives
hereunder; provided, however, that nothing herein shall prevent either party
from disclosing the other party's Information to an Affiliate (which for the
purposes of this Agreement means any company or other legal entity, in whatever
country organized, controlling, controlled by, or under common control with a
party to
E-3
<PAGE>
<PAGE>
this Agreement), agent or consultant, who is under a similar obligation of
confidentiality to the receiving party hereunder.
2. In order to be deemed confidential, the Information shall be supplied
to the receiving party in written form and identified as being confidential or,
if disclosed orally, shall be confirmed in writing within thirty (30) days of
its oral disclosure. All such Information properly identified as confidential
shall at the disclosing party's request be returned to it, except that one (1)
copy shall be retained by counsel for the receiving party to ensure compliance
hereunder.
3. The above notwithstanding, the receiving party's obligations of
confidence and nonuse with respect to the Information disclosed hereunder shall
not include:
(a) Information which, at the time of disclosure to the receiving
party, is published, known publicly or is otherwise in the public
domain;
(b) Information which, after disclosure to the receiving party, is
published or becomes known publicly or otherwise becomes part of
the public domain, through no fault of the receiving party;
(c) Information which, prior to the time of disclosure to the
receiving party, is known to the receiving party, as evidenced by
its written records;
E-4
<PAGE>
<PAGE>
(d) Information which has been or is disclosed to the receiving party
in good faith by a third party who was not, or is not, under any
obligation of confidence or secrecy to the other party at the
time said third party discloses to the receiving party;
(e) Information which is independently developed by or on behalf of
the receiving party, without reliance on the Information received
hereunder as evidenced by its written records; or
(f) Information which the receiving party is required to disclose in
compliance with applicable laws or regulations or order by a
court or other regulatory body having competent jurisdiction,
provided that the disclosing party is notified of the required
disclosure and permitted to oppose such disclosure by an
appropriate legal means.
4. The above provisions notwithstanding, each party agrees to keep in
strict confidence and not to disclose the identity, interest and participation
of the other party in the work or evaluation and the relationship of the parties
hereunder.
5. Each party represents that it is under no obligation to any third
party that would interfere with its disclosing the above-described Information
to the other party and, further, that any Information which it transmits or
otherwise discloses to the other
E-5
<PAGE>
<PAGE>
party is not Information with respect to which the disclosing party is under any
obligation to keep confidential or which the disclosing party knows to be the
proprietary property of any third party.
6. Except as expressly set forth in this Agreement, no right or license
to use any Information disclosed hereunder, either express or implied, is
granted by the parties to this Agreement.
7. Nothing contained herein shall be construed as granting or implying
any commitment by the parties to enter into any other agreement. Any arrangement
for the parties to enter into a business relationship with respect to the
Information shall be conditional upon a further agreement being negotiated and
executed.
8. Nothing herein shall preclude either party hereto from entering into
a similar relationship with any third party nor shall preclude McNEIL from
conducting research in or entering into a relationship with a third party in the
same or related fields of technology. Moreover, it is understood that McNEIL
and/or its Affiliates are currently working in the same or related fields of
technology and are exploring relationships with third parties in such fields of
technology.
9. The obligations of confidentiality and nonuse set forth herein shall
remain in effect for a period of five (5) years after the date last signed
below.
E-6
<PAGE>
<PAGE>
10. This Agreement does not obligate McNEIL to disclose the results of
its evaluation of the Information it receives nor its reasons for not pursuing
or commercializing the same.
11. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, without regard to its choice of law
provisions.
E-7
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties intending to be legally bound have
caused this Agreement to be executed by their duly authorized representatives as
of the last date written below.
ALGOS PHARMACEUTICAL McNEIL CONSUMER PRODUCTS
CORPORATION COMPANY, a division of
McNeil-PPC, Inc.
By:__________________ By:__________________
Name:________________ Name:________________
Title:_______________ Title:_______________
Date:________________ Date:________________
E-8
<PAGE>
<PAGE>
AMENDMENT
This Amendment is by and between Algos Pharmaceutical Corporation,
having an address of Collingwood Plaza, 4900 Route 33, Neptune, New Jersey,
07753 (hereinafter referred to as "ALGOS") and McNeil Consumer Products Co., a
division of McNeil-PPC, Inc., having an address at 7050 Camp Hill Road, Ft.
Washington, Pennsylvania, 19034 (hereinafter referred to "McNeil").
WHEREAS, ALGOS and McNEIL entered into a Confidentiality Agreement on
June 23, 1995 (hereinafter referred to as "Agreement") relating to certain
dextromethorphan containing combination products for the purposes of enabling
the parties to evaluate their respective interests in entering into a future
business relationship with respect to such products; and
WHEREAS, ALGOS and McNEIL wish to continue their discussion relating to
a possible business relationship and find it necessary to exchange certain
additional confidential and proprietary information not presently covered by the
Agreement; and
WHEREAS, ALGOS and McNEIL wish to amend the Agreement to cover such
additional information.
NOW, THEREFORE, for and in consideration of the mutual covenants
contained herein, the parties do agree as follows:
1. The definition of Products is hereby amended to include topical and
injectable anesthesia and urinary incontinence products of ALGOS which are the
subject of pending patent applications.
2. ALGOS Information is hereby amended to include agreements with
consultants, universities and other third parties; investment history; general
business information relevant to McNEIL evaluating its interest in making an
equity investment in ALGOS; and the terms and conditions of any proposed
business relationship with McNEIL.
3. McNEIL Information is hereby amended to include the terms and
conditions of any proposed business relationship with ALGOS.
4. This Amendment shall be effective on the date last signed below.
5. All other terms of the Agreement shall remain in full force and
effect.
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties intending to be legally bound have
caused this Amendment to be executed by their duly authorized representative as
of the day and year set forth below.
ALGOS PHARMACEUTICAL McNEIL CONSUMER PRODUCTS
CORPORATION COMPANY, a division of
McNeil-PPC, Inc.
By:__________________ By:__________________
Name:________________ Name:________________
Title:_______________ Title:_______________
Date:________________ Date:________________
<PAGE>
<PAGE>
SCHEDULE F
DEVELOPMENT PLANS
*********************Schedule Intentionally Omitted********************
F-1
<PAGE>
<PAGE>
SCHEDULE G
JOHNSON & JOHNSON UNIVERSAL CALENDAR EXAMPLE
G-1
<PAGE>
<PAGE>
Johnson & Johnson
1996 UNIVERSAL CALENDAR
<TABLE>
<CAPTION>
====================================================================================================================================
M T W T F S S M T W T F S S
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2 3 4 5 6 7 1 2 3 4 5 6 7
JAN JUL
(4 WEEKS) (4 WEEKS)
------------------------------------------------------ -----------------------------------------------------
8 9 10 11 12 13 14 8 9 10 11 12 13 14
------------------------------------------------------ -----------------------------------------------------
15 16 17 18 19 20 21 15 16 17 18 19 20 21
------------------------------------------------------ -----------------------------------------------------
22 23 24 25 26 27 28 22 23 24 25 26 27 28
- ------------------------------------------------------------------------------------------------------------------------------------
29 30 31 29 30 31
FEB AUG
(4 WEEKS) (4 WEEKS)
------------------------------------------------------ -----------------------------------------------------
1 2 3 4 1 2 3 4
------------------------------------------------------ -----------------------------------------------------
5 6 7 8 9 10 11 5 6 7 8 9 10 11
------------------------------------------------------ -----------------------------------------------------
12 13 14 15 16 17 18 12 13 14 15 16 17 18
------------------------------------------------------ -----------------------------------------------------
19 20 21 22 23 24 25 19 20 21 22 23 24 25
- ------------------------------------------------------------------------------------------------------------------------------------
26 27 28 29 26 27 28 29 30 31
MAR SEP
(5 WEEKS) (5 WEEKS)
------------------------------------------------------ -----------------------------------------------------
1 2 3 1
------------------------------------------------------ -----------------------------------------------------
4 5 6 7 8 9 10 2 3 4 5 6 7 8
------------------------------------------------------ -----------------------------------------------------
11 12 13 14 15 16 17 9 10 11 12 13 14 15
------------------------------------------------------ -----------------------------------------------------
18 19 20 21 22 23 24 16 17 18 19 20 21 22
------------------------------------------------------ -----------------------------------------------------
25 26 27 28 29 30 31 23 24 25 26 27 28 29
- ------------------------------------------------------------------------------------------------------------------------------------
1 2 3 4 5 6 7 30
OCT
(4 WEEKS)
APR
(4 WEEKS)
------------------------------------------------------ -----------------------------------------------------
8 9 10 11 12 13 14 1 2 3 4 5 6
------------------------------------------------------ -----------------------------------------------------
15 16 17 18 19 20 21 7 8 9 10 11 12 13
------------------------------------------------------ -----------------------------------------------------
22 23 24 25 26 27 28 14 15 16 17 18 19 20
- ------------------------------------------------------------------- -----------------------------------------------------
21 22 23 24 25 26 27
- ------------------------------------------------------------------------------------------------------------------------------------
29 30 28 29 30 31
MAY NOV
(4 WEEKS) (4 WEEKS)
------------------------------------------------------ -----------------------------------------------------
1 2 3 4 5 1 2 3
------------------------------------------------------ -----------------------------------------------------
6 7 8 9 10 11 12 4 5 6 7 8 9 10
------------------------------------------------------ -----------------------------------------------------
13 14 15 16 17 18 19 11 12 13 14 15 16 17
------------------------------------------------------ -----------------------------------------------------
20 21 22 23 24 25 26 18 19 20 21 22 23 24
- ------------------------------------------------------------------------------------------------------------------------------------
27 28 29 30 31 25 26 27 28 29 30
JUN DEC
(5 WEEKS) (5 WEEKS)
------------------------------------------------------ -----------------------------------------------------
1 2 1
------------------------------------------------------ -----------------------------------------------------
3 4 5 6 7 8 9 2 3 4 5 6 7 8
------------------------------------------------------ -----------------------------------------------------
10 11 12 13 14 15 16 9 10 11 12 13 14 15
------------------------------------------------------ -----------------------------------------------------
17 18 19 20 21 22 23 16 17 18 19 20 21 22
------------------------------------------------------ -----------------------------------------------------
24 25 26 27 28 29 30 23 24 25 26 27 28 29
====================================================================================================================================
</TABLE>
G-2
<PAGE>
<PAGE>
SCHEDULE H
VCU LICENSE AGREEMENT
See Exhibit 10.4.1
H-1
<PAGE>
<PAGE>
SCHEDULE I
J.A.M.S./ENDISPUTE RULES
I-1
<PAGE>
<PAGE>
J A M S/ENDISPUTE
COMPREHENSIVE ARBITRATION RULES AND PROCEDURES
J A M S
ENDISPUTE
Innovative
Solutions
To Conflict
Offices Nationwide
1-800-352-5267
1. SCOPE OF RULES
The J A M S/ENDISPUTE
Comprehensive Arbitration Rules and Procedures ("Rules") govern binding
Arbitrations of disputes or claims that are administered by Jo Ao Mo S/
ENDISPUTE and in which any disputed claim or counterclaim exceeds $250,000, not
including interest.
2. PARTY-AGREED
PROCEDURES
The Parties may agree on any procedures not specified herein that are
consistent with the applicable law. The Parties will promptly notify the
J A M S/ENDISPUTE Case Administrator of any Party-agreed procedures and will
confirm these procedures in writing. The Party-agreed procedures will be
enforceable as if contained in these Rules. These Rules will control any matters
not changed by the Party-agreed procedures.
3. AMENDMENT OF RULES
J A M S/ENDISPUTE may amend these Rules. The Rules in effect on the date of
the commencement of an Arbitration (as defined in Rule 5) will apply to that
Arbitration, unless the Parties have specified that another version of the Rules
applies.
4. CONFLICT WITH LAW
If any of these Rules, or a modification of these Rules agreed on by the
Parties, is discovered to be in conflict with a mandatory provision of
applicable law, the provision of law will govern, and no other Rule will be
affected.
5. COMMENCING AN
ARBITRATION
A J A M S/ENDISPUTE Comprehensive Arbitration is commenced by either:
(A) the submission to J A M S/ENDISPUTE by all Parties of a fully executed
J A M S/ENDISPUTE Arbitration Agreement;
(B) the submission to J A M S/ENDISPUTE of a pre-dispute written
contractual provision requiring the Parties to arbitrate the dispute or claim,
along with either written evidence of the intent of all Parties to comply with
the requirement or a written demand by one Party that the other Party(ies)
comply with the requirement; or
(C) the oral agreement of all Parties to participate in an Arbitration
conducted pursuant to these Rules.
The Arbitration process is considered commenced when J A M S/ENDISPUTE
confirms in writing the receipt of the documents described above and the
agreement of all Parties to participate in the Arbitration and to be bound by
its results. The date of commencement of the Arbitration is the date of
J A M S/ENDISPUTE's confirmation letter.
In the event of an oral agreement to participate in an Arbitration, even if
the Arbitration is commenced with the issuance of a J A M S/ENDISPUTE
confirmation letter, the Arbitration Hearing will not take place until all
Parties have executed a J A M S/ENDISPUTE Arbitration Agreement.
If a Party that is a signatory to a pre-dispute written contractual
provision fails to respond to a demand for Arbitration or fails to agree to
participate in the Arbitration process, J A M S/ ENDISPUTE will confirm in
writing the failure to respond or participate and, pursuant to Rule 20, will
schedule, and provide appropriate notice of, a Hearing or other opportunity for
the Party demanding the Arbitration to demonstrate its entitlement to relief.
6. PRELIMINARY AND
OTHER ADMINISTRATIVE
CONFERENCES OPTIONAL
APPEAL PROCEDURE
I-2
<PAGE>
<PAGE>
(A) The Case Administrator(1) will conduct a Preliminary Conference with
the Parties, by telephone, within seven (7) calendar days after the date of
commencement of the Arbitration. The Case Administrator will answer any
questions regarding these rules and will discuss procedural matters such as the
pleading or notice of claim sequence, Arbitrator selection, a schedule for
discovery, if any, and the location and scheduling of the Arbitration Hearing,
including the expectations of the Parties as to the length of time the
Arbitration Hearing is likely to require.
(B) At any subsequent time, the Case Administrator may convene, or the
Parties may request, additional conferences to discuss administrative or
procedural matters.
(C) At either the Preliminary Conference or at subsequent conferences, the
Parties a nd the Case Administrator may identify any substantive, evidentiary,
procedural or discovery-related disputes that should be considered in a
conference with the Arbitrator(s). In addition, at either the Preliminary
Conference or at subsequent conferences, the Case Administrator may offer the
assistance of J A M S/ENDISPUTE in exploring settlement through mediation or
other non-binding alternative dispute resolution processes.
(D) During the Preliminary Conference, the Case Administrator will ask the
Parties if they agree to the Optional Appeal Procedure set forth in Rule 23. All
Parties must agree in writing for the Optional Appeal Procedure to be effective.
Once a Party has agreed to the Optional Appeal Procedure, it cannot unilaterally
withdraw from it, unless it withdraws, pursuant to Rule 12, from the
Arbitration. The Parties may subsequently agree to the Optional Appeal Procedure
at any time prior to the Arbitration Award becoming final pursuant to Rule 22.
7. NUMBER OF
ARBITRATORS AND
APPOINTMENT OF
CHAIRPERSON
(A) J A M S/ENDISPUTE Comprehensive Arbitrations will be conducted by one
neutral Arbitrator, unless all Parties agree otherwise.
(B) In cases involving more than one Arbitrator, the Parties will agree on,
or in the absence of agreement the Case Administrator will designate, a
Chairperson of the Arbitration Panel. The Chairperson will have the authority to
act as a single Arbitrator for the purposes of ruling on all discovery and
procedural matters, including pleading issues, but not with respect to
dispositive, jurisdictional and sanction issues. All references to the
Arbitrator in these Rules will apply to the Chairperson of the Arbitration Panel
where appropriate.
8. SERVICE
Service under these Rules will be made by providing one copy of the
document to each Party and two copies to the Case Administrator. If a three
member Arbitrator panel is used, four copies of all documents will be provided
to the Case Administrator. Service may be made by hand-delivery, Federal Express
or other similar services, facsimile transmission or by U.S. mail. Service is
considered effective upon the date of receipt of the document.
9. NOTICE OF CLAIMS
(A) If a matter has been submitted for a J A M S/ENDISPUTE Comprehensive
Arbitration after a litigation has been commenced in court regarding the same
claim or dispute, the pleadings in the court case, including the Complaint and
Answer (with affirmative defenses and counter or cross claims), will be served
on J A M S/ENDISPUTE within fourteen (14) days of the date of commencement and
will be considered part of the record of the Arbitration.
It will be assumed that the existence of such pleadings constitutes
appropriate notice to the Parties of the claims, counter or cross claims, and
affirmative defenses that each has. If necessary, such notice may be
supplemented pursuant to Rule 9 (B).
(B) If a matter has been submitted prior to or in lieu of the filing of the
case in court or prior to the filing of an Answer, the Parties must give each
other notice of all claims, counter or cross claims and affirmative defenses
(including jurisdictional challenges) that each has. Such notice may be provided
by the service upon the other Party(ies) and upon J A M S/ENDISPUTE, of either
an appropriate pleading (in the form of either a Complaint or Answer) or a
letter. The letter should include a short statement of the factual basis for the
claims, counter or cross claims and affirmative defenses (including the basis of
any jurisdictional challenge).
Notice of claims, counter or cross claims and affirmative defenses may be
exchanged simultaneously, in which case they should be served on J A M S/
ENDISPUTE within fourteen (14) calendar days of the date of commencement of the
Arbitration, or by such other date as the Parties may agree. The responding
Party(ies) may, however, in its sole discretion, wait to receive the notice of
claim before serving its response, including counter or cross claims of
affirmative defenses. In this case, the response, including counter or cross
claims and affirmative defenses, should be served on the other Party(ies) and
upon J A M S/ENDISPUTE within fourteen (14) calendar days of having received
the notice of claim. Any Party that is a recipient of a counter or cross claim
may reply to such counter or cross claim, including asserting jurisdictional
challenges. In this case, the reply should be served on the other Party(ies) and
J A M S/ENDISPUTE within fourteen (14) calendar days of having received the
notice of counter or cross claim.
No claim, counter or cross claim or affirmative defense will be considered
by the Arbitrator in the absence of prior notice to the other Party(ies), unless
all Parties agree that such consideration is appropriate notwithstanding the
lack of prior notice.
If any Party fails to respond to a claim or fails to reply to a counter or
cross claim, that Party will be deemed to have denied the claims, counter or
cross claims made against it but to have waived the right to assert other claims
or challenges to jurisdiction.
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(C) Amendments or additions to claims and counter or cross claims may be
made only on application to the Arbitrator, who may allow such changes upon a
showing of good cause and no prejudice to the opposing Party(ies).
10. INTERPRETATION OF
RULES AND
JURISDICTIONAL
CHALLENGES
(A) Once appointed, the Arbitrator will resolve disputes about the
interpretation and applicability of these Rules, including disputes relating to
the duties of the Arbitrator and the conduct of the Arbitration Hearing, except
that in cases involving more than one Arbitrator all such issues that may be
dispositive with respect to a claim will be ruled on by the Arbitration Panel.
The resolution of the issue by the Arbitrator or Panel is final.
Jurisdictional disputes, including disputes over the existence, validity,
interpretation or scope of the agreement under which Arbitration is sought, will
be submitted to and ruled on by the Arbitrator(s).
(B) Disputes arising before the appointment of the Arbitrator will be
resolved by the Case Administrator, but only those disputes relating to
jurisdiction and the conduct of the Hearing are subject to subsequent review by
the Arbitrator.
11. REPRESENTATION
The Parties may be represented by counsel. Each Party will promptly notify
the Case Administrator and the other Party(ies) of the name, address and
telephone and fax numbers of its counsel. The attorney for a Party may act on
the Party's behalf in complying with these Rules.
12. WITHDRAWAL FROM
ARBITRATION
No Party may terminate or withdraw from an Arbitration after it commences
(as defined in Rule 5) except, by written agreement of all Parties to the
Arbitration.
13. EX PARTE
COMMUNICATIONS
No Party will have any ex parte communication with the Arbitrator(s)
regarding any issue related to the Arbitration. Any necessary ex parte
communication with J A M S/ENDISPUTE, whether before or after the Arbitration
Hearing, will be conducted through the Case Administrator.
14. ARBITRATOR SELECTION
AND REPLACEMENT
(A) Unless the Arbitrator(s) has been previously selected by agreement of
the Parties, the Case Administrator at the Preliminary Conference will recommend
appropriate Arbitrator candidates who have been pre-screened by
J A M S/ENDISPUTE for potential conflicts of interest. Any disclosures that are
mandated by applicable law regarding the Arbitrator candidates will be made at
this time. The Case Administrator will attempt during the Preliminary Conference
to reach agreement among the Parties regarding the selection of the Arbitrator.
Any disclosures that are mandated by applicable law regarding the Arbitrator
Candidates will be made at this time.
(B) If the Parties do not agree on an Arbitrator within seven (7) calendar
days of the Preliminary Conference, the Case Administrator will send the Parties
a list of at least five (5) Arbitrator candidates who have been pre-screened by
J A M S/ENDISPUTE for potential conflicts of interest. Any disclosures that are
mandated by applicable law regarding the Arbitrator candidates will be made at
this time, and J A M S/ENDISPUTE will also provide each Party with a brief
description of the background and experience of each Arbitrator candidate.
Any Party may, within seven (7) calendar days of receipt of the list of
names, challenge an Arbitrator candidate for cause and the Case Administrator
will promptly rule on such challenges. If a challenge for cause is upheld, a
replacement name will be sent to the Party(ies), along with required disclosures
and background information about said candidate.
Within seven (7) calendar days of the receipt by the Parties of the final
list of names, each Party may strike two (2) names, and will rank the remaining
Arbitrator candidates in order of preference. The remaining Arbitrator candidate
with the highest composite ranking will become the Arbitrator.
If this process does not yield an Arbitrator, J A M S/ENDISPUTE will
designate the Arbitrator.
(C) If a Party fails to respond in a timely manner to the list of
Arbitrator candidates, the Case Administrator will deem that Party to have
accepted all of the Arbitrator candidates.
(D) In cases involving more than two Parties or the selection of more than
one Arbitrator, the Case Administrator's list will include a sufficient number
of candidates to yield the specified number of Arbitrators, while allowing each
Party up to two (2) strikes.
(E) Entities whose interests are not adverse with respect to the issues in
dispute will be treated as a single Party for purposes of the Arbitrator
selection process. J A M S/ENDISPUTE will determine whether the interests
between entities are adverse for purposed of Arbitrator selection, considering
such factors as whether the entities are represented by the same attorney and
whether the entities are presenting joint or separate positions at the
Arbitration.
(F) If for any reason the Arbitrator who is selected is unable to fulfill
the Arbitrator's duties, a successor Arbitrator will be chosen in accordance
with this Rule. If a member of a panel of Arbitrators becomes unable to fulfill
his or her duties after the beginning of a Hearing but before the issuance of an
Award, a new Arbitrator will be chosen in accordance with this Rule unless the
Parties agree to proceed with the remaining two Arbitrators. The Case
Administrator will make the final determination as to whether an Arbitrator is
unable to fulfill his or her duties.
(G) All Arbitrators will execute an oath of office before being called on
to make any determinations in the
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Arbitration proceeding and, in any event, before the taking of evidence in the
the Arbitration Hearing.
15. EXCHANGE OF
INFORMATION
(A) The Parties will cooperate in good faith in the voluntary, prompt and
informal exchange of all non-privileged documents and other information relevant
to the dispute or claim.
(B) The Parties will exchange copies of all non-privileged documents
relevant to the dispute or a claim, including copies of all documents in their
possession or control on which they rely in support of their positions or which
they intend to introduce as exhibits at the Arbitration Hearing. The Parties
will serve the documents within twenty-one (21) calendar days after all
pleadings or notice of claims have been received, unless otherwise agreed.
(C) The Parties will exchange the names of all individuals with knowledge
of the dispute or a claim, including all individuals who they may call as
witnesses at the Arbitration Hearing. The Parties will serve the names of such
witnesses within twenty-one (21) calendar days after all pleadings or notice of
claims have been received, unless otherwise agreed.
(D) The Parties will exchange the names of all experts who may be called
upon to testify or whose report may be introduced at the Arbitration Hearing.
The Parties will serve the names of such experts within twenty-one (21) calendar
days after all pleadings or notice of claims have been received, unless
otherwise agreed.
(E) At any time after all pleadings or notice of claims have been received,
but no later than fourteen (14) calendar days before the Arbitration Hearing,
each Party may take on deposition of an opposing Party or of one individual
under the control of the opposing Party. The Parties will attempt to agree on
the time, location and duration of the deposition, and if the Parties do not
agree these issues will be determined by the Arbitrator. Any Party may conduct
depositions of its own witnesses which may be introduced as evidence at the
Arbitration Hearing if the other Party(ies) was given fair opportunity to attend
the deposition and cross-examine the witness.
(F) Upon the request of any Party, the Arbitrator will conduct a conference
for the purpose of determining whether any additional information should be
exchanged. Parties may request additional depositions. If the Arbitrator
determines that the requesting Party has a reasonable need for the requested
information, and that the request is not overly burdensome on the opposing
Party(ies), the Arbitrator may order the additional information exchange. The
producing Party(ies) will promptly comply with any directive of the Arbitrator
by the date specified by the Arbitrator which, in no event, will be later than
fourteen (14) calendar days before the Arbitration Hearing.
(G) As they become aware of new documents or information, including experts
who may be called upon to testify, all Parties remain under a continuing
obligation to provide relevant, non-privileged documents, to supplement their
identification of witnesses and experts, and to honor any informal agreements or
understandings between the Parties regarding documents or information to be
exchanged. Documents which have not been previously exchanged, or witnesses and
experts not previously identified, will not be considered by the Arbitrator(s)
at the Hearing, unless agreed by the Parties.
(H) The Parties will promptly notify the Case Administrator when an
unresolved dispute exists regarding discovery issues. The Case Administrator
will attempt to facilitate an informal resolution of the dispute by the Parties
themselves. If the dispute is not informally resolved, the Case Administrator
will arrange a conference with the Arbitrator, either by telephone or in person,
and the Arbitrator will decide the dispute.
16. SUMMARY DISPOSITION
OF A CLAIM OR ISSUE
(A) Upon agreement of all Parties interested in a particular claim or
substantive issue, the Arbitrator(s) may hear and determine a Motion for Summary
Disposition of that claim or issue.
(B) The Case Administrator will obtain the agreement of the Parties on a
briefing schedule and record for the Motion. If no agreement is reached, the
Arbitrator(s) will set the briefing schedule and contents of the record.
Ordinarily, only opening briefs (of no more than 20 double-spaced pages) and
response briefs (of no more than 10 double-spaced pages) will be allowed in a
sequence to be determined. The briefs may be in the form of a letter.
Ordinarily, oral argument will not be allowed, unless all Parties or the
Arbitrator(s) so request.
(C) The Arbitrator(s) will apply the same burdens as a court in the
jurisdiction would apply under similar circumstances. With respect to
substantive issues, the Arbitrator(s) will apply the same standard in deciding
the Motion as would be applicable to the Arbitration Award.
17. SCHEDULING AND
LOCATION OF
HEARING
Unless previously agreed to by the Parties, the Arbitrator, after
consulting with the Parties, will determine the location, date and time of the
Arbitration Hearing. In determining the location of the Hearing, the Arbitrator
will take into account such factors as the convenience of the Parties and
witnesses as well as the relative resources of the Parties. Absent unusual
circumstances, the Arbitration Hearing will begin within ninety (90) calendar
days of the commencement of the Arbitration. The Arbitrator and the Parties will
attempt to schedule consecutive Hearing days if more than one day is necessary.
18. PRE-HEARING
SUBMISSIONS
(A) The Arbitrator may require a pre-Hearing conference for the purposes
both of narrowing the focus of the Arbitration Hearing by stipulations of fact
or joint statements of issues to be determined and of resolving any outstanding
issues relating to the conduct of the Hearing. The pre-Hearing conference may be
conducted by telephone.
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(B) By at least seven (7) calendar days before the Arbitration Hearing, the
Parties will serve upon each other a list of the witnesses they intend to call,
including any experts, along with a short description of the anticipated
testimony of the witness and an estimate of the length of the witness's direct
testimony. In addition, by at least seven (7) calendar days before the
Arbitration Hearing, the Parties will serve upon each other copies of all
exhibits intended to be used at the Hearing.
The list of witnesses and the copies of all exhibits that the parties
intend to use at the Hearing should also be served upon J A M S/ENDISPUTE for
transmission to the Arbitrator(s). The Parties should pre-mark exhibits and
should attempt themselves to resolve any disputes regarding the admissibility of
exhibits prior to the Hearing.
(C) The Arbitrator(s) may require that each Party submit concise written
statements of position, including summaries of the facts and evidence a Party
intends to present, discussion of the applicable law and the basis for the
requested Award or denial of relief sought. The statements, which may be in the
form of a letter, should not exceed twenty (20) double-spaced pages in length
and should be submitted to J A M S/ENDISPUTE, and served upon the other
Party(ies), by at least seven (7) calendar days before the Hearing date.
Rebuttal statements or other pre-Hearing written submissions may be permitted or
required at the discretion of the Arbitrator(s).
19. SECURING WITNESSES
FOR THE ARBITRATION
HEARING
At the request of another Party, all other Parties will produce for the
Arbitration Hearing all witnesses in their employ or under their control and
without need of subpoena. The Arbitrator may issue subpoenas for the attendance
of witnesses or the production of documents. In the event a Party or a
subpoenaed person objects to the production of a witness or other evidence, the
Party may file an objection with the Arbitrator, who will promptly rule on the
objection, weighing both the burden on the producing Party and the need of the
proponent for the witness.
20. THE ARBITRATION
HEARING
(A) The Arbitrator(s) will ordinarily conduct the Arbitration Hearing in
the manner set forth in these Rules. The Arbitrator(s) may vary these procedures
if the Arbitrator(s) determines that it is reasonable and appropriate to do so.
(B) The Arbitrator(s) will determine the order of proof, which will
generally be similar to that of a court trial.
(C) The Arbitrators(s) will require witnesses to testify under oath if
requested by any Party.
(D) The Arbitrator(s) will consider evidence that he or she finds relevant
and material to the dispute, giving the evidence such weight as he or she
determines is appropriate. The Arbitrator(s) may be guided in that determination
by the Federal Rules of Evidence or by any other applicable judicial rules of
evidence; however, strict conformity to such rules of evidence is not required,
except that the Arbitrator(s) will apply the Federal Rules of Civil Procedures.
(E) The Arbitrator(s) may receive and consider witnesses' deposition
testimony recorded by transcript or videotape, provided that the other Parties
have had the opportunity to attend and cross- examine. The Arbitrator(s) may in
his or her discretion consider witness affidavits or other recorded testimony,
but will give that evidence only such weight as the Arbitrator(s) deems
appropriate.
(F) The Parties will not offer as evidence, and the Arbitrator(s) will
neither admit into the record nor consider, prior settlement offers by the
Parties or statements or recommendations made by a mediator or other person in
connection with efforts to resolve the dispute being arbitrated.
(G) When the Arbitrators(s) determines that all relevant and material
evidence and arguments have been presented, the Arbitrator will declare the
Hearing closed. The Arbitrator(s) may defer the closing of the Hearing until a
date agreed upon by the Arbitrator(s) and the Parties, to permit the Parties to
submit post-Hearing briefs, which may be in the form of a letter, and/or to make
closing arguments. If post-Hearing briefs are to be submitted, or closing
arguments are to be made, the Hearing will be deemed closed upon receipt by the
Arbitrator(s) of such briefs or the making of such closing arguments.
(H) At any time before the Award is rendered, the Arbitrator(s) may, on his
or her own initiative or on application of a Party for good cause shown, re-open
the Hearing. If the Hearing is re-opened and the re-opening prevents the
rendering of the Award within the time limits specified by these Rules, the time
limits will be extended for an appropriate period of time.
(I) The Arbitrator(s) may proceed with the Hearing in the absence of a
Party who, after having executed the Arbitration Agreement and after having
receiving reasonable notice of the Hearing, fails to attend. The Arbitrator(s)
may not render an Award solely on the basis of the default or absence of the
Party, but will require any Party(ies) who is present to submit such evidence as
the Arbitrator(s) may require for the rendering of an Award. If
J A M S/ENDISPUTE reasonably believes that a Party will not attend the Hearing,
the Arbitrator may receive the evidence necessary to render an Award either by a
telephone conference or by affidavit.
(J) Any Party may request that a stenographic or other record be made of
the Hearing, provided that the requesting Party bear the cost of such
stenographic record and that the original of the record by maintained by the
reporting service so that the other Party(ies) has equal access to it.
If a stenographic or other record is made of the Hearing, the requesting
Party(ies) will provide a copy to the Arbitrator. If the Parties agree to the
Optional Appeal Procedure as set forth in Rule 23, they will ensure that a
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stenographic or other record is made of the Hearing and will share the cost.
21. WAIVER OF HEARING
The Parties may agree to waive the oral Hearing and submit the dispute to
the Arbitrator(s) for an Award based on written submissions and other evidence
upon which the Parties agree.
22. THE AWARD
(A) Absent good cause for an extension, the Arbitrator will render the
award within thirty (30) calendar days after the date of the closing of the
Hearing or, if an Arbitration Hearing has been waived, within thirty (30)
calendar days after the date that the Arbitrator(s) received all materials
specified by the Parties.
(B) Where a panel of Arbitrators has heard the dispute, the decision and
Award of a majority of the panel will constitute the Arbitration Award and will
be binding on the Parties.
(C) Unless the Parties specify a different standard in determining the
Award the Arbitrator(s) will be guided by principles of law and equity as
applied to the facts found at the Arbitration hearing, including those facts
relating to custom and agreement between the Parties.
(D) The Arbitrator(s) is authorized to Award any remedy allowed by the
applicable law, including multiple damages, pre or post judgment interest and
attorneys' fees and expenses and to grant final or interlocutory relief,
including injunctive relief, unless the Parties have agreed to a narrower scope
of permissible relief. Notwithstanding this authority, the Arbitrator may not
Award punitive damages unless previously agreed by the Parties or unless
punitive damages are required by law to be an available remedy in such cases. In
the Award, the Arbitrator may also assess Arbitration fees and expenses in favor
of either Party if provided by agreement of the Parties, or in favor of J A M S/
ENDISPUTE in the event that the Arbitrator finds that fees or expenses are due
J A M S/ENDISPUTE.
(E) The Award will consist of a written statement signed by the
Arbitrator(s) regarding the disposition of each claim and the relief, if any,
awarded as to each claim. Unless all Parties agree otherwise, the Arbitrator(s)
will also provide a concise written statement of the reasons for the Award, but
this statement will not become part of the Award nor be admissible in any
judicial proceeding to enforce or vacate the Award.
(F) J A M S/ENDISPUTE will issue the Award by serving copies on the
Parties.
(G) Within seven (7) calendar days after service of the Award, any Party,
with written notice to all other Parties, may serve upon the other Party(ies)
and J A M S/ENDISPUTE a request that the Arbitrator(s) correct any
computational, typographical or similar error in an Award, or the Arbitrator(s)
may correct such errors in the Award on his or her own initiative. The
Arbitrator(s) will make any necessary and appropriate correction to the Award
within seven (7) calendar days of receiving a request, provided that the other
Party(ies) has a reasonable opportunity to respond. The corrected Award will be
served upon the Parties.
(H) The Award is considered final, for purposes of either the Optional
Appeal Procedure pursuant to Rule 23 or for purposes of a judicial proceeding to
enforce, modify or vacate the award pursuant to Rule 24, after seven (7)
calendar days of service of the Award, if no request for a correction is made,
or as of the date of service of a corrected Award.
23. OPTIONAL APPEAL
PROCEDURE
(A) The Appeal Panel will consist of three neutral members, unless the
Parties agree that there will be one neutral member. Upon receipt by the Case
Administrator of the written agreement of the Parties to the Optional Appeal
Procedure, the Case Administrator will recommend to the Parties an Appeal Panel
and will make any disclosures that are mandated by applicable law regarding the
candidates for the Panel. The Case Administrator will seek the agreement of the
Parties as to the selection of Appeal Panel members. If the Parties do not agree
on the composition of the Appeal Panel within seven (7) calendar days of having
received the Case Administrator recommendation for the Appeal Panel, the Case
Administrator will appoint an Appeal Panel.
(B) The procedure for filing and arguing an Appeal is as follows:
(i) If all Parties have agreed to the Optional Appeal Procedure, any party
may Appeal an Arbitration Award that has been rendered pursuant to Rule 22 and
has become final. The Appeal must be served, in writing, to the Case
Administrator and on the opposing Party(ies) within fourteen (14) calendar days
after the Award has become final. The letter or other writing evidencing the
Appeal must specify those elements of the Award that are being Appealed and must
contain a brief statement of the basis for the Appeal.
(ii) Within seven (7) calendar days of the service of the Appeal, the
opposing Party(ies) may serve on the Case Administrator and on the opposing
Party(ies) a Cross-Appeal with respect to any element of the Award. The letter
or other writing evidencing the Cross-Appeal must specify those elements of the
Award that are being Appealed and must contain a brief statement of the basis
for the Cross-Appeal.
(iii) The record on Appeal will consist of the stenographic or other record
of the Arbitration Hearing; and all exhibits, deposition transcripts and
affidavits that had been accepted into the record of the Arbitration Hearing by
the Arbitrator(s). The Parties will cooperate with the Case Administrator in
compiling the record on Appeal, and the Case Administrator will provide the
record to the Appeal Panel. No evidence not previously accepted by the
Arbitrator(s) will be considered by the Appeal Panel, unless the basis of the
Appeal is non-acceptance by the Arbitrator of certain evidence or unless the
Appeal Panel determines that there is good cause to re-open the record pursuant
to Rule 23(d).
(iv) The Parties may elect to rely on the memoranda or briefs previously
submitted to the Arbitrator(s). In the absence of such election, the Case
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Administrator will obtain the agreement of the Parties on a briefing schedule.
If no agreement is reached the Case Administrator will set the briefing
schedule. Ordinarily, only opening briefs (of no more than 25 double-spaced
pages) and response briefs (of no more than 15 double-spaced pages) will be
allowed. The briefs may be in the form of a letter.
(v) The Appeal Panel will conduct an oral argument if all Parties request
such argument or may conduct oral argument, in complex cases or unusual
circumstances, on its own initiative.
If there is to be oral argument, the Case Administrator will obtain the
agreement of the Parties on both the date of such argument and the duration,
including the allocation of time. In the absence of agreement, the Appeal Panel
will set the date and duration of the oral argument, including the allocation of
time.
(C) Once an Appeal has been timely filed, the Arbitration Award is no
longer considered final for purposes of seeking judicial enforcement,
modification or vacating pursuant to Rule 24.
(D) The Appeal Panel will apply the same standard of review as the
first-level appellate court in the jurisdiction would apply under similar
circumstances and will also apply the grounds for review under the applicable
Arbitration review statute. The Appeal Panel will respect the evidentiary
standard set forth in Rule 20(d). The Panel may affirm, reverse or modify an
Award.
It may not remand to the original Arbitrator, but may reopen the record in
order to review evidence that had been improperly excluded by the Arbitrator or
evidence that is now necessary in light of the Panel's interpretation of the
relevant substantive law. A three-member Appeal Panel will make its decision by
majority vote and, absent good cause for an extension, will issue the decision
within twenty-one (21) calendar days of the date of either oral argument, the
receipt of the new evidence or receipt of the record and of all briefs,
whichever is applicable or later. Its decision will consist of a concise written
explanation, unless all Parties agree otherwise.
(E) If a Party refuses to participate in the Optional Appeal Procedure
after having agreed to do so, the Appeal Panel will maintain jurisdiction over
the Appeal and will consider the Appeal as if all Parties were participating,
including retaining the authority to modify any Award or element of an Award
that had previously been entered in favor of the non-participating Party,
assuming it believes that the record, after application of the appropriate
standard of Appeal, justifies such action.
(F) J A M S/ENDISPUTE will serve the Appeal Panel decision on the Parties.
Upon service of the Appeal Panel decision, the Award will be final for purposes
of judicial review.
24. ENFORCEMENT OF THE
AWARD
Proceedings to enforce, confirm, modify or vacate an Award will be
controlled by and conducted in conformity with the Federal Arbitration Act, 9
U.S.C. Sec 1 et. seq. or applicable state law. The prevailing Party(ies) in any
such proceeding will recover from the non-prevailing Party(ies) all reasonable
costs, including attorneys' fees and expenses, incurred in connection with the
judicial proceeding.
25. CONFIDENTIALITY AND
PRIVACY
(A) The Parties, the Case Administrator, and the Arbitrator will maintain
the confidential nature of the Arbitration proceeding and the Award, including
the Hearing and the written explanation of the Award, except as necessary in
connection with a judicial challenge to or enforcement of an Award, or unless
otherwise required by law or judicial decision.
(B) The Arbitrator may issue orders to protect the confidentiality of
proprietary information, trade secrets or other sensitive information.
(C) Subject to the discretion of the Arbitrator or agreement of the
Parties, any person having a direct interest in the Arbitration may attend the
Arbitration Hearing. The Arbitrator will have the discretion to exclude any
non-Party from any part of a Hearing.
26. WAIVER OF OBJECTION
If a Party becomes aware of a violation or failure to comply with these
Rules and fails promptly to object in writing, the objection will be deemed
waived, unless the Arbitrator determines that waiver will cause substantial
injustice or hardship.
27. SETTLEMENT AND
CONSENT AWARD
(A) The Parties may agree, at any stage of the Arbitration process, to
submit the case to J.A.M.S/ENDISPUTE for mediation. The J.A.M.S/ENDISPUTE
mediator assigned to the case will not be an Arbitrator or a member of the
Appeal Panel, unless the Parties so agree pursuant to Rule 27(b).
(B) The Parties may also agree to seek the assistance of the Arbitrator(s)
in reaching settlement. However, the assistance of the Arbitrator(s) in such
settlement efforts will not disqualify the Arbitrator(s) from serving as
Arbitrator(s) if settlement is not reached nor will such assistance be argued to
a reviewing court as the basis for vacating or modifying an Award.
(C) If the Parties inform the Case Administrator in writing that they have
reached a settlement, the Arbitration will be deemed terminated. If the Parties
request, the Arbitrator(s) will set forth the terms of the agreed settlement in
an Award which will be referred to as a Consent Award and will be binding on the
Parties.
28. SANCTIONS
The Arbitrator(s) may order appropriate sanctions for failure of a Party to
comply with its obligations under any of these Rules. These sanctions may
include, but are not limited to, assessment of costs, prohibition of certain
evidence, or in extreme cases ruling on an issue
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submitted to Arbitration adversely to the Party who has failed to comply.
29. DISQUALIFICATION OF
THE ARBITRATOR(S) AND
EXCLUSION OF LIABILITY
The Parties will not call the Arbitrator(s), the Case Administrator or any
other J A M S/ENDISPUTE employee as a witness or as an expert in any pending or
subsequent litigation or other proceeding involving the Parties and relating to
the dispute which is the subject of the Arbitration. The Arbitrator(s), Case
Administrator, and other J A M S/ENDISPUTE employees are also disqualified as
witnesses or experts. The Parties will defend the Arbitrator(s), Case
Administrator and J A M S/ENDISPUTE from any subpoenas from outside Parties
arising from the Arbitration. Neither the Arbitrator(s), Case Administrator nor
J.A.M.S/ENDISPUTE is a necessary party in any litigation or other proceeding
relating to the Arbitration or the subject matter of the Arbitration, and
neither the Arbitrator(s), Case Administrator nor J.A.M.S /ENDISPUTE, including
its employees or agents, will be liable to any Party for any act or omission in
connection with any Arbitration conducted under these Rules.
30. FEES
(A) Each Party will pay its pro-rata share of J.A.M.S/ ENDISPUTE's fees and
expenses as set forth in the J.A.M.S/ENDISPUTE fee schedule in effect at the
time of the commencement of the Arbitration, unless the Parties agree on a
different allocation of fees and expenses. The allocation of such fees and
expenses will not be disclosed to the Arbitrator(s). J.A.M.S/ENDISPUTE's
agreement to render services is not only with the Party, but also with the
attorney or other representative of the Party in the Arbitration.
(B) J.A.M.S/ENDISPUTE may require that the Parties deposit the fees and
expenses for the Arbitration prior to the Hearing and may preclude a Party that
has failed to deposit its pro-rata or agreed-upon share of the fees and expenses
from offering evidence at the Hearing. J.A.M.S/ ENDISPUTE may waive the deposit
requirement upon a showing of good cause.
(C) The Arbitrator may Award against any Party fees that are due to
J A M S/ENDISPUTE. In the event that one Party has not appeared and the other
Party from it has paid the full amount of the fees, the Arbitrator may Award the
defaulting Party's share of the fee obligation against it and in favor of the
Party that has paid.
31. BRACKETED (OR HIGH-
LOW) ARBITRATION
OPTION
(A) At any time before the issuance of the Arbitration Award, the Parties
may agree, in writing, on minimum and maximum amounts of damages that may be
awarded on each claim or on all claims in the aggregate. The Parties will
promptly notify the Case Administrator, and provide to the Case Administrator, a
copy of their written agreement setting forth the agreed upon maximum and
minimum amounts.
(B) The Case Administrator will not inform the Arbitrator(s) of the
agreement to proceed with this option nor of the agreed upon minimum and maximum
levels, unless all Parties agree that he or she should so inform the
Arbitrator(s).
(C) The Arbitrator(s) will render the Award within twenty-one (21) calendar
days after the date of the closing of the Hearing or, if an Arbitration Hearing
has been waived, within twenty-one (21) calendar days after the date of the
Arbitrator(s) receiving all materials specified by the Parties. In rendering the
Award, the Arbitrator(s) will apply the standard set forth in Rule 22(c). The
form of the final Award will be governed by Rule 22(e).
(D) In the event that the Award of the Arbitrator(s) is in between the
agreed upon minimum and maximum amounts, the Award will become final as is. In
the event that the Award of the Arbitrator(s) is below the agreed upon minimum
amount, the final Award issued will be at the agreed upon minimum amount. In the
event that the Award of the Arbitrator(s) is above the agreed upon maximum
amount, the final Award issued will be the agreed upon maximum amount.
32. "FINAL OFFER (OR
BASEBALL)" ARBITRATION
OPTION
(A) At least seven (7) calendar days before the Arbitration Hearing, the
Parties will exchange and provide to the Case Administrator written proposals
for the amount of money damages they would offer or demand, as applicable, and
that they believe to be appropriate based on the standard set forth in Rule
22(c). The Case Administrator will promptly provide a copy of the Parties'
proposals to the Arbitrator(s), unless the Parties agree that they should not be
provided to the Arbitrator(s). Anytime prior to the close of the Arbitration
Hearing, the Parties remain free to exchange revised written proposals of offers
or demands, which will supersede all prior proposals. The revised written
proposals will be provided to the Case Administrator who will promptly provide
them to the Arbitrator(s), unless the Parties agree otherwise.
(B) If the Arbitrator(s) has been informed of the written proposals, in
rendering the Award the Arbitrator(s) will select between the Parties' last
proposals, choosing the proposal that the Arbitrator(s) finds most reasonable
and appropriate in light of the standard set forth in Rule 22(c).
(C) If the Arbitrator(s) has not been informed of the written proposals,
the Arbitrator(s) will render the Award as if pursuant to Rule 22, except that
the Award will thereafter be adjusted to conform to the closest of the last
proposals and the closest of the last proposals will become the Award.
(D) The Arbitrator will render the Award within twenty-one (21) calendar
days after the date of the closing of the Hearing or, if an Arbitration Hearing
has been waived, within twenty-one (21) calendar days after the date of the
Arbitrator(s) receiving all materials specified by the Parties. The form of the
final Award will be governed by Rule 22(e).
(1) All decisions to be made under these Rules by the Case Administrator
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will be made under the supervision of the Director of Professional Services or
Senior Judicial Officer of the particular J A M S/ENDISPUTE office.
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L&W DRAFT
ALGOS PHARMACEUTICAL
CORPORATION
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REGISTRATION RIGHTS AGREEMENT
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Dated as of June __, 1996
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<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "AGREEMENT") is made and
entered into as of July 3, 1996, by and among ALGOS PHARMACEUTICAL CORPORATION,
a Delaware corporation (the "COMPANY"), and VIRGINIA COMMONWEALTH UNIVERSITY
("VCU").
This Agreement is made pursuant to that certain agreement, dated
as of June 27, 1996, between the Company and VCU (the "PREFERRED STOCK
AGREEMENT"), attached as Exhibit A hereto. In order to induce VCU to enter into
the Preferred Stock Agreement, the Company has agreed to provide the
registration rights set forth in this Agreement.
The Company and VCU hereby agree as follows:
1. Definitions
As used in this Agreement, the following capitalized terms shall
have the following meanings:
Commission: The Securities and Exchange Commission.
Common Stock: The Common Stock, par value $.01 per share, of the
Company.
Exchange Act: The Securities Exchange Act of 1934, as amended
from time to time.
NASD: National Association of Securities Dealers, Inc.
Person: An individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political subdivision
thereof.
Preferred Stock: The Series B Convertible Preferred Stock, par
value $.01 per share, of the Company.
Prospectus: The prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement with respect
to the terms of the offering of any portion of the Registrable Securities
covered by such Registration Statement and by all other amendments and
supplements to the prospectus, including post-effective amendments and all
material incorporated by reference in such prospectus.
Registrable Stock: All shares of Common Stock received by VCU
upon conversion of the Preferred Stock.
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Registrable Securities: The Registrable Stock; provided that a
security ceases to be a Registrable Security when it is no longer a Transfer
Restricted Security.
Registration Expenses: See Section 6 hereof.
Registration Statement: Any registration statement of the Company
which covers any of the Registrable Securities pursuant to the provisions of
this Agreement, including the Prospectus, amendments and supplements to such
Registration Statement, including post-effective amendments, all exhibits and
all material incorporated by reference in such Registration Statement.
Securities Act: The Securities Act of 1933, as amended from time
to time.
Shelf Registration: See Section 3 hereof.
Subsequent Shelf Registration: See Section 3 hereof.
Transfer Restricted Securities: The Preferred Stock and the
Registrable Stock upon original issuance thereof, and with respect to any
particular such security, so long as such security was acquired by the holder
thereof other than pursuant to an effective registration under Section 5 of the
Securities Act or pursuant to Rule 144; provided that a security that has ceased
to be a Transfer Restricted Security cannot thereafter become a Transfer
Restricted Security.
underwritten registration or underwritten offering: A
registration in which securities of the Company are sold to an underwriter for
reoffering to the public.
2. Securities Subject to this Agreement
(a) Registrable Securities. The securities entitled to the
benefits of this Agreement are the Registrable Securities.
(b) Holders of Registrable Securities. A Person is deemed to be a
holder of Registrable Securities whenever such Person owns Registrable
Securities or has the right to acquire such Registrable Securities, whether or
not such acquisition has actually been effected and disregarding any legal
restrictions upon the exercise of such right.
3. Shelf Registration
(a) Filing of First Shelf Registration. At any time after
February 1, 1997 so long as there are any Transfer Restricted Securities and
upon receipt of notice from VCU (the "NOTICE"), the Company shall file a "shelf"
registration statement on any appropriate form pursuant to Rule 415 (or similar
rule that may be adopted by the Commission) under the Securities Act (a "SHELF
REGISTRATION"), as promptly as practicable for the amount of Registrable
Securities specified in the Notice. The Company agrees to
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use its best efforts to cause the Shelf Registration to become effective and
thereafter to keep it continuously effective for a period of three months from
the date on which the Commission declares the Shelf Registration effective or
such shorter period which will terminate when all the Registrable Securities
covered by the Shelf Registration have been sold pursuant to such Shelf
Registration.
(b) Filing of Subsequent Shelf Registrations. So long as there
are any Transfer Restricted Securities, upon receipt of a subsequent Notice (the
"SUBSEQUENT NOTICE"), the Company also agrees to file a subsequent Shelf
Registration (the "SUBSEQUENT SHELF REGISTRATION") as promptly as practicable
for the amount of Registrable Securities specified in the Subsequent Notice. The
Company agrees to use its best efforts to cause such Subsequent Shelf
Registration declared effective as soon as reasonably practicable after filing.
The Company agrees to use its best efforts to keep each Subsequent Shelf
Registration continuously effective for a period of three months following the
dates on which each such Subsequent Shelf Registration is declared effective or
until all Registrable Securities included therein have been sold, if earlier. In
the event that at the time the Company is required to file a Subsequent Shelf
Registration, a previously filed Shelf Registration is effective covering all of
the Registrable Securities, the Company may satisfy its obligations as to such
Subsequent Shelf Registration by extending the effectiveness of such previously
filed Shelf Registration or registration statement by the period of
effectiveness required for such Subsequent Shelf Registration. The Company shall
notify VCU and any other holders of Registrable Securities of any such
extension. The Company further agrees to supplement or make amendments to any
Subsequent Shelf Registration, if required by the rules, regulations or
instructions applicable to the registration form utilized by the Company or by
the Securities Act or rules and regulations thereunder for shelf registration.
4. Hold-Back Agreements
Restrictions on Public Sale by Holder of Registrable Securities.
VCU and each other holder of Registrable Securities agree that, to the extent
that the Company or other shareholders of the Company conduct a public offering
of the Company's securities, if requested by the managing underwriters in such
underwritten offering, that such holder of Registrable Securities will not
effect any public sale or distribution of securities of the Company of the same
class as the securities included in such registration statement, including a
sale pursuant to Rule 144 under the Securities Act (except as part of such
underwritten registration), during the 10-day period prior to, and during the
30-day period beginning on, the closing date of each underwritten offering made
pursuant to such registration statement, to the extent timely notified in
writing by the Company or the managing underwriters.
5. Registration Procedures
In connection with the Company's Shelf Registration obligations
pursuant to Section 3 hereof, the Company will use its best efforts to effect
such registration to permit the sale of such Registrable Securities in
accordance with the intended method or
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methods of distribution thereof, and pursuant thereto the Company will as
expeditiously as possible:
(a) use its best efforts to keep such Registration Statement
continuously effective and provide all requisite financial statements for the
period specified in Section 3 of this Agreement; upon the occurrence of any
event that would cause any such Registration Statement or the Prospectus
contained therein (A) to contain a material misstatement or omission or (B) not
to be effective and usable for resale of Transfer Restricted Securities during
the period required by this Agreement, the Company shall file promptly an
appropriate amendment to such Registration Statement, in the case of clause (A),
correcting any such misstatement or omission, and, in the case of either clause
(A) or (B), use its best efforts to cause such amendment to be declared
effective and such Registration Statement and the related Prospectus to become
usable for their intended purpose(s) as soon as practicable thereafter;
(b) prepare and file with the Commission such amendments and
post-effective amendments to the Registration Statement as may be necessary to
keep the Registration Statement effective for the applicable period set forth in
Section 3 hereof, as applicable, or such shorter period as will terminate when
all Transfer Restricted Securities covered by such Registration Statement have
been sold; cause the Prospectus to be supplemented by any required Prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424 under the
Act, and to comply fully with the applicable provisions of Rules 424 and 430A
under the Act in a timely manner; and comply with the provisions of the Act with
respect to the disposition of all securities covered by such Registration
Statement during the applicable period in accordance with the intended method or
methods of distribution by the sellers thereof set forth in such Registration
Statement or supplement to the Prospectus;
(c) advise the underwriter(s), if any, and selling Holders
promptly and, if requested by such Persons, to confirm such advice in writing,
(i) when the Prospectus or any Prospectus supplement or post-effective amendment
has been filed, and, with respect to any Registration Statement or any
post-effective amendment thereto, when the same has become effective, (ii) of
any request by the Commission for amendments to the Registration Statement or
amendments or supplements to the Prospectus or for additional information
relating thereto, (iii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement under the Act or of
the suspension by any state securities commission of the qualification of the
Transfer Restricted Securities for offering or sale in any jurisdiction, or the
initiation of any proceeding for any of the preceding purposes, (iv) of the
existence of any fact or the happening of any event that makes any statement of
a material fact made in the Registration Statement, the Prospectus, any
amendment or supplement thereto, or any document incorporated by reference
therein untrue, or that requires the making of any additions to or changes in
the Registration Statement or the Prospectus in order to make the statements
therein not misleading. If at any time the Commission shall issue any stop order
suspending the effectiveness of the Registration Statement, or any state
securities commission or other regulatory authority shall issue an order
suspending the qualification
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or exemption from qualification of the Transfer Restricted Securities under
state securities or Blue Sky laws, the Company shall use its best efforts to
obtain the withdrawal or lifting of such order at the earliest possible time;
(d) if requested by the managing underwriter or underwriters or a
holder of Registrable Securities being sold in connection with an underwritten
offering, promptly incorporate in a Prospectus supplement or post-effective
amendment such information as the managing underwriters and the holders of a
majority of the Registrable Securities being sold agree should be included
therein relating to the plan of distribution with respect to such Registrable
Securities, including, without limitation, information with respect to the
number of Registrable Securities being sold to such underwriters, the purchase
price being paid therefor by such underwriters and with respect to any other
terms of the underwritten (or best efforts underwritten) offering of the
Registrable Securities to be sold in such offering; and make all required
filings of such Prospectus supplement or post-effective amendment as soon as
notified of the matters to be incorporated in such Prospectus supplement or
post-effective amendment;
(e) furnish to each selling holder of Registrable Securities and
each managing underwriter, without charge, at least one signed copy of the
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits (including those incorporated by reference);
(f) deliver to each selling holder of Registrable Securities and
the underwriters, if any, without charge, as many copies of the Prospectus
(including each preliminary prospectus) and any amendment or supplement thereto
as such Persons may reasonably request; the Company consents to the use of the
Prospectus or any amendment or supplement thereto by each of the selling holders
of Registrable Securities and the underwriters, if any, in connection with the
offering and sale of the Registrable Securities covered by the Prospectus or any
amendment or supplement thereto;
(g) prior to any public offering of Registrable Securities,
register or qualify or cooperate with the selling holders of Registrable
Securities, the underwriters, if any, and their respective counsel in connection
with the registration or qualification of such Registrable Securities for offer
and sale under the securities or blue sky laws of such jurisdictions as any
seller or underwriter reasonably requests in writing and do any and all other
acts or things necessary or advisable to enable the disposition in such
jurisdictions of the Registrable Securities covered by the Registration
Statement; provided that the Company will not be required to qualify generally
to do business in any jurisdiction where it is not then so qualified or to take
any action which would subject it to general service of process in any such
jurisdiction where it is not then so subject;
(h) cooperate with the selling holders of Registrable Securities
and the managing underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold and not
bearing any restrictive legends; and enable such Registrable Securities to be in
such denominations and registered
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in such names as the managing underwriters may request at least two business
days prior to any sale of Registrable Securities to the underwriters;
(i) use its best efforts to cause the Registrable Securities
covered by the applicable Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be necessary
to enable the seller or sellers thereof or the underwriters, if any, to
consummate the disposition of such Registrable Securities;
(j) cause all Registrable Securities covered by the Registration
Statement to be listed on each securities exchange on which similar securities
issued by the Company are then listed;
(k) not later than the effective date of the applicable Shelf
Registration, provide a CUSIP number for all Registrable Securities and provide
the applicable transfer agent with printed certificates for the Registerable
Securities which are in a form eligible for deposit with Depositary Trust
Company;
(l) enter into such agreements (including an underwriting
agreement) and take all such other actions in connection therewith in order to
expedite or facilitate the disposition of such Registrable Securities and in
such connection, whether or not an underwriting agreement is entered into and
whether or not the registration is an underwritten registration (1) make such
representations and warranties to the holders of such Registrable Securities and
the underwriters, if any, in form, substance and scope as are customarily made
by issuers to underwriters in primary underwritten offerings; (2) obtain
opinions of counsel to the Company and updates thereof (which counsel and
opinions (in form, scope and substance) shall be reasonably satisfactory to the
managing underwriters, if any, and the holders of a majority of the Registrable
Securities being sold) addressed to each selling holder and the underwriters, if
any, covering the matters customarily covered in opinions requested in
underwritten offerings and such other matters as may be reasonably requested by
such holders and underwriters; (3) obtain "cold comfort" letters and updates
thereof from the Company's independent certified public accountants addressed to
the selling holders of Registrable Securities and the underwriters, if any, such
letters to be in customary form and covering matters of the type customarily
covered in "cold comfort" letters by underwriters in connection with primary
underwritten offerings; (4) if an underwriting agreement is entered into, the
same shall set forth in full the indemnification provisions and procedures of
Section 7 hereof with respect to all parties to be indemnified pursuant to said
Section; and (5) the Company shall deliver such documents and certificates as
may be requested by the holders of a majority of the Registrable Securities
being sold and the managing underwriters, if any, to evidence compliance with
clause (c)(iv) above and with any customary conditions contained in the
underwriting agreement or other agreement entered into by the Company. The above
shall be done at each closing under such underwriting or similar agreement or as
and to the extent required thereunder;
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(m) make available for inspection by a representative of the
holders of a majority of the Registrable Securities, any underwriter
participating in any disposition pursuant to such Shelf Registration, and any
attorney or accountant retained by the sellers or underwriter, all financial and
other records, pertinent corporate documents and properties of the Company, and
cause the Company's officers, directors and employees to supply all information
reasonably requested by any such representative, underwriter, attorney or
accountant in connection with such Shelf Registration; provided that any
records, information or documents that are designated by the Company in writing
as confidential shall be kept confidential by such Persons unless disclosure of
such records, information or documents is required by court or administrative
order;
(n) promptly prior to the filing of any document which is to be
incorporated by reference into the Registration Statement or the Prospectus
(after initial filing of the Registration Statement), provide copies of such
document to counsel to the selling holders of Registrable Securities and to the
managing underwriters, if any, make the Company's representatives available for
discussion of such document and make such changes in such document prior to the
filing thereof as counsel for such selling holders or underwriters may
reasonably request.
The Company may require each seller of Registrable Securities as
to which any registration is being effected to furnish to the Company such
information regarding the distribution of such securities as the Company may
from time to time reasonably request in writing, including, but not limited to,
such information as may be required for the Company to comply with SEC rules and
regulations relating to "selling security holders."
Each holder of Registrable Securities agrees by acquisition of
such Registrable Securities that, upon receipt of any notice from the Company of
the happening of any event of the kind described in Section 5(e) hereof, such
holder will forthwith discontinue disposition of Registrable Securities until
such holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 5(c)(iv) hereof, or until it is advised in writing (the
"ADVICE") by the Company that the use of the Prospectus may be resumed, and has
received copies of any additional or supplemental filings which are incorporated
by reference in the Prospectus, and, if so directed by the Company, such holder
will deliver to the Company (at the Company's expense) all copies, other than
permanent file copies then in such holder's possession, of the Prospectus
covering such Registrable Securities current at the time of receipt of such
notice. In the event the Company shall give any such notice, the time periods
regarding the maintenance of the Shelf Registration and the filing and
maintenance of Subsequent Shelf Registrations in Section 3 hereof shall be
extended by the number of days during the period from and including the date of
the giving of such notice pursuant to Section 5(c)(iv) hereof to and including
the date when each seller of Registrable Securities covered by such Registration
Statement shall have received the copies of the supplemented or amended
prospectus contemplated hereby or the Advice.
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6. Registration Expenses
(a) All expenses incident to the Company's performance of or
compliance with this Agreement, including without limitation all registration
and filing fees, (other than fees and expenses associated with filings required
to be made with the NASD), fees and expenses of compliance with securities or
blue sky laws (excluding fees and disbursements of counsel for the underwriters
or selling holders), printing expenses (including expenses of printing
certificates for the Registerable Securities in a form eligible for deposit with
Depositary Trust Company and of printing prospectuses), messenger, telephone and
delivery expenses and fees and disbursements of all independent certified public
accountants of the Company (including the expenses of any special audit and
"cold comfort" letters required by or incident to such performance), (all such
expenses being herein called "REGISTRATION EXPENSES") will be borne by the
Company, regardless whether the Registration Statement becomes effective.
(b) In connection with each Shelf Registration hereunder, the
holders of Registrable Securities being registered in such registration shall be
responsible for the fees and disbursements of their own counsel and any fees,
discounts or commissions of any brokers, dealer managers, underwriters or
similar securities industry professionals.
7. Indemnification
(a) Indemnification by Company. The Company agrees to indemnify
and hold harmless, to the full extent permitted by law, each holder of
Registrable Securities, its officers, directors and employees and each Person
who controls such holder (within the meaning of the Securities Act) against all
losses, claims, damages, liabilities and expenses caused by any untrue or
alleged untrue statement of a material fact contained in any Registration
Statement, Prospectus or preliminary Prospectus or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as the
same are caused by or contained in any information furnished in writing to the
Company by such holder expressly for use therein; provided, however, that the
Company shall not be liable in any such case to the extent that any such loss,
claim, damage, liability or expense arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
any such preliminary Prospectus if (i) such holder failed to deliver a copy of
the Prospectus to the person asserting such loss, claim, damage, liability or
expense after the Company had furnished such holder with a sufficient number of
copies of the same and (ii) the Prospectus completely corrected such untrue
statement or omission; and provided, further, that the Company shall not be
liable in any such case to the extent that any such loss, claim, damage,
liability or expense arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission in the Prospectus, if
such untrue statement or alleged untrue statement, omission or alleged omission
is completely corrected in an amendment or supplement to the Prospectus and the
holder of Registrable Securities thereafter fails to deliver such Prospectus as
so amended or supplemented prior to or concurrently with the sale of the
Registrable Securities to the person asserting such loss, claim, damage,
liability or expense after the
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Company had furnished such holder with a sufficient number of copies of the
same. The Company will also indemnify underwriters, selling brokers, dealer
managers and similar securities industry professionals participating in the
distribution, their officers and directors and each Person who controls such
Persons (within the meaning of the Securities Act) to the same extent as
provided above with respect to the indemnification of the holders of Registrable
Securities, if requested.
(b) Indemnification by Holder of Registrable Securities. In
connection with each Shelf Registration, VCU and each other holder of
Registrable Securities will furnish to the Company in writing such information
and affidavits as the Company reasonably requests for use in connection with any
Registration Statement or Prospectus and agrees to indemnify and hold harmless,
to the full extent permitted by law, the Company, its directors and officers and
each Person who controls the Company (within the meaning of the Securities Act)
against any losses, claims, damages, liabilities and expenses resulting from any
untrue statement of a material fact or any omission of a material fact required
to be stated in the Registration Statement or Prospectus or preliminary
Prospectus or necessary to make the statements therein not misleading, to the
extent, but only to the extent, that such untrue statement or omission is
contained in any information or affidavit so furnished in writing by such holder
to the Company specifically for inclusion in such Registration Statement or
Prospectus. In no event shall the liability of any selling holder of Registrable
Securities hereunder be greater in amount than the dollar amount of the proceeds
received by such holder upon the sale of the Registrable Securities giving rise
to such indemnification obligation. The Company shall be entitled to receive
indemnities from underwriters, selling brokers, dealer managers and similar
securities industry professionals participating in the distribution, to the same
extent as provided above with respect to information so furnished in writing by
such Persons specifically for inclusion in any Prospectus or Registration
Statement.
(c) Conduct of Indemnification Proceedings. Any Person entitled
to indemnification hereunder will (i) give prompt notice to the indemnifying
party of any claim with respect to which it seeks indemnification and (ii)
permit such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party; provided, however, that any
Person entitled to indemnification hereunder shall have the right to employ
separate counsel and to participate in the defense of such claim, but the fees
and expenses of such counsel shall be at the expense of such Person unless (a)
the indemnifying party has agreed to pay such fees or expenses, or (b) the
indemnifying party shall have failed to assure the defense of such claim and
employ counsel reasonably satisfactory to such Person or (c) in the reasonable
judgment of any such Person, based upon advice of its counsel, a conflict of
interest may exist between such Person and the indemnifying party with respect
to such claims (in which case, if the Person notifies the indemnifying party in
writing that such Person elects to employ separate counsel at the expense of the
indemnifying party, the indemnifying party shall not have the right to assume
the defense of such claim on behalf of such Person). If such defense is not
assumed by the indemnifying party, the indemnifying party will not be subject to
any liability for any settlement made without its consent (but such consent will
not be unreasonably withheld). No indemnifying party will be required to consent
to entry
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of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation. An indemnifying party who is not entitled to, or elects not to,
assume the defense of a claim will not be obligated to pay the fees and expenses
of more than one counsel for all parties indemnified by such indemnifying party
with respect to such claim, unless in the reasonable judgment of any indemnified
party a conflict of interest may exist between such indemnified party and any
other of such indemnified parties with respect to such claim, in which event the
indemnifying party shall be obligated to pay the fees and expenses of such
additional counsel or counsels.
(d) Contribution. If for any reason the indemnification provided
for in the preceding clauses (a) and (b) is unavailable to an indemnified party
or insufficient to hold it harmless as contemplated by the preceding clauses (a)
and (b), then the indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of such loss, claim, damage or
liability in such proportion as is appropriate to reflect not only the relative
benefits received by the indemnified party and the indemnifying party, but also
the relative fault of the indemnified party and the indemnifying party, as well
as any other relevant equitable considerations, provided that VCU and each other
holder of Registrable Securities shall not be required to contribute in an
amount greater than the dollar amount of the proceeds received by such holders
of Registrable Securities with respect to the sale of any securities. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
8. Participation in Underwritten Registrations
If any of the Registrable Securities covered by any of the Shelf
Registrations are to be sold in an underwritten offering, the investment banker
or investment bankers and manager or managers that will administer the offering
will be selected by VCU; provided that such investment bankers and managers must
be reasonably satisfactory to the Company.
No Person may participate in any underwritten registration
hereunder unless such Person (a) agrees to sell such Person's securities on the
basis provided in any underwriting arrangements approved by the Persons entitled
hereunder to approve such arrangements and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting arrangements.
Nothing in this Section 8 shall be construed to create any additional rights
regarding the registration of Registrable Securities in any Person otherwise
than as set forth herein.
9. Miscellaneous
(a) Remedies. Remedies for breach by the Company of its
obligations to register the Registrable Securities shall be as set forth herein.
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Each holder of Registrable Securities, in addition to being
entitled to exercise all rights provided herein or granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under this Agreement. The Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of the
provisions of this Agreement and hereby agrees to waive the defense in any
action for specific performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company will not on or after
the date of this Agreement enter into any agreement with respect to its
securities which is inconsistent with the rights granted to the holders of
Registrable Securities in this Agreement or otherwise conflicts with the
provisions hereof. Other than as disclosed on Schedule 9(b) hereto, the Company
has not previously entered into any agreement with respect to its securities
granting any registration rights to any Person. The rights granted to the
holders of Registrable Securities hereunder do not in any way conflict with and
are not inconsistent with the rights granted to the holders of the Company's
securities under any such agreements.
(c) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of holders
of at least 66-2/3% of the outstanding Registrable Securities.
(d) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier, or air courier guaranteeing overnight
delivery:
(i) if to a holder of Registrable Securities, at Virginia
Biotechnology Research Park, 800 East Leigh Street, Richmond, Virginia
23219-1534; and
(ii) if to the Company, at Collingwood Plaza, 4900 Route 33,
Neptune, New Jersey 07753-6804, Attention: Chief Executive Officer.
All such notices and communications shall be deemed to have been
duly given: at the time delivered by hand, if personally delivered; five
business days after being deposited in the mail, postage prepaid, if mailed;
when answered back, if telexed; when receipt acknowledged, if telecopied; and on
the next business day if timely delivered to an air courier guaranteeing
overnight delivery.
(e) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, subsequent holders of Registrable Securities.
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(f) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
(h) Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York.
(i) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
(j) Entire Agreement. This Agreement is intended by the parties
as a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein with respect to the registration rights granted by the Company with
respect to the securities sold pursuant to the Preferred Stock Agreement. This
Agreement supersedes all prior agreements and understandings between the parties
with respect to such subject matter.
(k) Attorneys' Fees. In any action or proceeding brought to
enforce any provision of this Agreement, the successful party shall be entitled
to recover reasonable attorneys' fees in addition to its costs and expenses and
any other available remedy.
[Signatures follow on next page]
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IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first written above.
The Company: ALGOS PHARMACEUTICAL
CORPORATION
By: /s/ John W. Lyle
Title: President
VCU: VIRGINIA COMMONWEALTH
UNIVERSITY
By: /s/ James B. Farinholt
Title: Interim Director of Technology
Transfer
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EXHIBIT A
AGREEMENT
This Agreement is entered into as of June __, 1996, by and between Algos
Pharmaceutical Corporation ("Algos") and Virginia Commonwealth University
("VCU") for the purposes set forth below:
The parties hereby agree to take the following actions to satisfy the
requirements of the letter dated June 12, 1996, signed by John W. Lyle,
President and Chief Executive Officer of Algos and acknowledged by James B.
Farinholt, Jr., Interim Director of Technology Transfer of VCU (the "Letter
Agreement"), pursuant to which Algos agreed to transfer 100,000 shares of
Preferred Stock (as defined below) of Algos to VCU as consideration for
Modification No. 3 to the License Agreement between VCU and Algos, effective as
of June 13, 1996 (the "Modification"), as soon as reasonably practicable:
1. Algos will deliver a stock certificate representing 100,000 shares of
Series B Convertible Preferred Stock, $.01 par value (the "Preferred Stock"),
with the terms set forth in the Certificate of Designation of Series B
Convertible Preferred Stock of Algos as set forth in Exhibit A hereto, to VCU.
2. Upon receipt of the Preferred Stock, VCU will deliver a certificate
to Algos and Latham & Watkins, attorneys for Algos, substantially in the form of
Exhibit B hereto.
3. Algos and VCU will execute a Registration Rights Agreement that will
require Algos, upon VCU's request, to file a "shelf registration statement" to
permit the resale of the common stock of Algos that will be received upon the
conversion of the Preferred Stock.
VIRGINIA COMMONWEALTH ALGOS PHARMACEUTICAL
UNIVERSITY CORPORATION
============================== ==============================
By: By:
Title: Title:
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EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
our report dated February 7, 1996, except as to the fourth paragraph of Note 9
for which the date is May 21, 1996, on our audits of the financial statements of
Algos Pharmaceutical Corporation. We also consent to the reference to our firm
under the captions 'Selected Financial Information' and 'Experts.'
COOPERS & LYBRAND L.L.P.
Princeton, New Jersey
September 5, 1996
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EXHIBIT 23.2
CONSENT OF PATENT COUNSEL
We consent to the reference to our firm under the caption 'Experts' in the
Registration Statement on Form S-1.
DILWORTH & BARRESE
September 5, 1996
