<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 17, 1996
REGISTRATION NO. 333-04313
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
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>
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.
Subject to Completion, dated August 30, 1996
PROSPECTUS
3,500,000 SHARES
ALGOS
PHARMACEUTICAL
CORPORATION
COMMON STOCK
---------------------------
[LOGO]
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
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
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
<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>
<S> <C> <C>
ALGOS PRODUCTS IN DEVELOPMENT
PRODUCT INDICATION STAGE OF DEVELOPMENT
- ------------------------------------ ------------------------------------ ------------------------------------
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>
<CAPTION>
<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
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<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
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<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>
<S> <C> <C>
ALGOS PRODUCTS IN DEVELOPMENT
PRODUCT INDICATION STAGE OF DEVELOPMENT
- ---------------------------- ----------------------------- -----------------------------------------------
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.
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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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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:
AGGREGATED OPTION EXERCISES IN LAST YEAR AND YEAR END OPTION VALUES
<TABLE>
<CAPTION>
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. Notwithstanding the foregoing, upon a
'Corporate Transaction' (as defined in the 1996 Stock Option Plan), all
outstanding options shall become immediately exercisable if not assumed by the
surviving corporation.
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, will be treated as 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
38
<PAGE>
<PAGE>
Rule 16b-3 under the Exchange Act. The Director Plan provides for automatic
grants of non-qualified 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 'Corporate Transaction' 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 become
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, and certain trusts related to the
estate 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.
(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. Prior to the
Offering, 100,000 shares of Series B Preferred Stock were issued and outstanding
and such shares will remain issued and outstanding upon consummation of the
Offering. 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, transfers in the case of death or permanent disability
and the making of 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.
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<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, transfers in the case of death or permanent disability
and the making of 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
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<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 is the executor of the estate of Mrs. Inez
Kimmel, his deceased wife, which owns shares of the Common Stock directly and
through certain related trusts. In addition, two trusts that have been
established for the benefit of Mr. 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>
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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>
CUMULATIVE
FOR THE SIX MONTHS ENDED FROM
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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<PAGE>
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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
- --------- -----------------------------------------------------------------------------------------------------
<C> <S>
***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.`D'`D'
**10.4.2 License Agreement with McNeil.`D'`D'
**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.
`D'`D' 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.
II-2
<PAGE>
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
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. 3 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 17, 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 17, 1996
......................................... Director
(JOHN W. LYLE)
DONALD G. DRAPKIN* Director September 17, 1996
.........................................
(DONALD G. DRAPKIN)
JAMES R. LEDLEY* Assistant Secretary and Director September 17, 1996
.........................................
(JAMES R. LEDLEY)
DIETER A. SULSER* Director September 17, 1996
.........................................
(DIETER A. SULSER)
/S/ ROGER H. KIMMEL Director September 17, 1996
.........................................
(ROGER H. KIMMEL)
/S/ GARY ANTHONY Chief Financial Officer and Principal September 17, 1996
......................................... Accounting Officer
(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
- --------- ---------------------------------------------------------------------------------------------- -----
<C> <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`D'`D'..................................
**10.4.2 License Agreement with McNeil`D'`D'...........................................................
**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.
`D'`D' 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 dagger symbol shall be expressed as.......... `D'
<PAGE>
<PAGE>
[KL Draft 8/27/96]
3,500,000 SHARES
ALGOS PHARMACEUTICAL CORPORATION
COMMON STOCK
UNDERWRITING AGREEMENT
_____ __, 1996
LEHMAN BROTHERS INC.
COWEN & COMPANY
As Representatives of the several
Underwriters named in Schedule 1,
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Dear Sirs:
Algos Pharmaceutical Corporation, a Delaware corporation (the
"Company"), proposes to sell 3,500,000 shares (the "Firm Stock") of the
Company's common stock, par value $0.01 per share (the "Common Stock"). In
addition, the Company proposes to grant to the Underwriters named in Schedule 1
hereto (the "Underwriters") an option to purchase up to an additional 525,000
shares of the Common Stock on the terms and for the purposes set forth in
Section 4 (the "Option Stock"). The Firm Stock and the Option Stock, if
purchased, are hereinafter collectively called the "Stock." This is to confirm
the agreement concerning the purchase of the Stock from the Company by the
Underwriters.
1. Representations, Warranties and Agreements of the Company.
The Company represents, warrants and agrees that:
(a) A registration statement on Form S-1 (No. 333-04313),
including amendments thereto, with respect to the Stock has been
prepared by the Company in conformity with the requirements of the
Securities Act of 1933 (the "Securities Act") and the rules and
regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") thereunder and has been filed with the
Commission under the Securities Act; no other document with respect to
such registration statement has heretofore been filed with the
Commission; a [second] amendment to such registration statement,
including a final prospectus as part thereof is now proposed to be filed
with the Commission. Copies of such registration statement, the
amendments thereto and the form
<PAGE>
<PAGE>
of such final prospectus have been delivered by the Company to you as
the representatives (the "Representatives") of the Underwriters. As used
in this Agreement, "Effective Time" means the date and the time as of
which such registration statement is declared effective by the
Commission; "Effective Date" means the date of the Effective Time;
"Preliminary Prospectus" means each prospectus included in such
registration statement or amendments thereof before it becomes effective
under the Securities Act and any prospectus filed by the Company with
the consent of the Representatives pursuant to Rule 424(a) of the Rules
and Regulations; "Registration Statement" means such registration
statement, as amended at the Effective Time, including all information
contained in the final prospectus filed with the Commission pursuant to
Rule 424(b) of the Rules and Regulations in accordance with Section 5(a)
hereof and deemed to be a part of the Registration Statement as of the
Effective Time pursuant to paragraph (b) of Rule 430A of the Rules and
Regulations; and "Prospectus" means such final prospectus, as first
filed with the Commission pursuant to Rule 424(b) of the Rules and
Regulations with any changes thereto made by the Company with the
consent of the Representatives. The Commission has not issued any order
preventing or suspending the use of any Preliminary Prospectus. "Rule
462(b) Registration Statement" means a registration statement filed
pursuant to Rule 462(b) of the Rules and Regulations relating to the
offering covered by the Registration Statement.
(b) The Registration Statement conforms, and the
Prospectus and any further amendments or supplements to the Registration
Statement or the Prospectus will, when they become effective or are
filed with the Commission, as the case may be, conform in all respects
to the requirements of the Securities Act and the Rules and Regulations
and do not and will not, as of the applicable effective date (as to the
Registration Statement and any amendment thereto) and as of the
applicable filing date (as to the Prospectus and any amendment or
supplement thereto) contain an untrue statement of a material fact or
omit to state a material fact required to be stated or necessary to make
the statements therein not misleading; provided that no representation
or warranty is made as to information contained in or omitted from the
Registration Statement or the Prospectus in reliance upon and in
conformity with written information furnished to the Company through the
Representatives by or on behalf of any Underwriter specifically for
inclusion therein.
(c) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation and is duly qualified to do business and
is in good standing as a foreign corporation in each jurisdiction in
which its ownership or lease of property or the conduct of its business
requires such qualification, and has all power and authority necessary
to own or hold its properties and to conduct the business in which it is
engaged; and the Company has no subsidiaries.
(d) The Company has an authorized capitalization as set
forth in the Prospectus, and all of the issued shares of capital stock
of the Company have been duly and validly authorized and issued, are
fully paid and non-assessable and conform to the description thereof
contained in the Prospectus.
- 2 -
<PAGE>
<PAGE>
(e) The unissued shares of the Stock to be issued and sold
by the Company to the Underwriters hereunder have been duly and validly
authorized and, when issued and delivered against payment therefor as
provided herein, will be duly and validly issued, fully paid and
non-assessable; and the Stock will conform to the description thereof
contained in the Prospectus.
(f) This Agreement has been duly authorized, executed
and delivered by the Company.
(g) The execution, delivery and performance of this
Agreement by the Company and the consummation of the transactions
contemplated hereby will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a default
under, any indenture, mortgage, deed of trust, loan agreement, lease,
license or other agreement or instrument to which the Company is a party
or by which the Company is bound or to which any of the property or
assets of the Company is subject, nor will such actions result in any
violation of the provisions of the charter or by-laws of the Company or
any statute or any order, rule or regulation of any court or government
agency or body having jurisdiction over the Company or any of its
properties or assets; and except for the registration of the Stock under
the Securities Act and such consents, approvals, authorizations,
registrations or qualifications as may be required under the Securities
Exchange Act of 1934 (the "Exchange Act") and applicable state
securities laws in connection with the purchase and distribution of the
Stock by the Underwriters, no consent, approval, authorization or order
of, or filing or registration with, any such court or governmental
agency or body is required for the execution, delivery and performance
of this Agreement by the Company and the consummation of the
transactions contemplated hereby, other than such actions as are
contemplated in the Prospectus or such actions as have already been
taken.
(h) Except as described in the Prospectus, there are no
contracts, agreements or understandings between the Company and any
person granting such person the right to require the Company to file a
registration statement under the Securities Act with respect to any
securities of the Company owned or to be owned by such person or to
require the Company to include such securities in the securities
registered pursuant to the Registration Statement or in any securities
being registered pursuant to any other registration statement filed by
the Company under the Securities Act.
(i) Except as described in the Prospectus, the Company has
not sold or issued any shares of Common Stock during the six-month
period preceding the date of the Prospectus, including any sales
pursuant to Rule 144A under, or Regulations D or S of, the Securities
Act. There is no commitment, plan or arrangement to issue, and no
outstanding option, warrant or other right calling for the issuance of,
any share of capital stock of the Company or of any subsidiary or any
security or other instrument that by its terms is convertible into
exercisable for, or exchangeable for capital stock of the Company,
except as described in the Prospectus.
- 3 -
<PAGE>
<PAGE>
(j) The Company has not sustained, since the date of the
latest audited financial statements included in the Prospectus, any
material loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree,
otherwise than as set forth or contemplated in the Prospectus nor has
the Company incurred or undertaken any liability or obligation, direct
or contingent that are material to the Company except for liabilities or
obligations (i) incurred or undertaken in the ordinary course of
business or (ii) described in the Registration Statement; and, since
such date, there has not been any change in the capital stock or
long-term debt of the Company or any material adverse change, or any
development involving a prospective material adverse change, in or
affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company, otherwise
than as set forth or contemplated in the Prospectus.
(k) The financial statements (including the related notes)
filed as part of the Registration Statement or included in the
Prospectus present fairly the financial condition and results of
operations of the entity purported to be shown thereby, at the dates and
for the periods indicated, and have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis
throughout the periods involved. The pro forma financial statements and
other pro forma financial information (including the notes thereto)
included in the Registration Statement and the Prospectus (i) present
fairly the information shown therein, (ii) have been prepared in
accordance with the applicable requirements of Rule 11-02 of the Rules
and Regulations, (iii) have been prepared in accordance with the
Commission's rules and guidelines with respect to pro forma financial
statements and (iv) have been properly compiled on the basis described
therein and the assumptions used in the preparation of the pro forma
financial statements and other pro forma information (including the
notes thereto) and included in the Registration Statement and the
Prospectus are reasonable and the adjustments used therein are
appropriate to give effect to the transactions or circumstances referred
to therein.
(l) Coopers & Lybrand L.L.P., who have certified certain
financial statements of the Company, whose report appears in the
Prospectus and who have delivered the initial letter referred to in
Section 7(g) hereof, are independent public accountants as required by
the Securities Act and the Rules and Regulations.
(m) The statements in the Prospectus set forth under the
captions "Risk Factors--Uncertain Ability to Protect Proprietary
Technology" and "Business--Patents, Trade Secrets and
Licenses,--Patents" have been reviewed and approved by Dilworth &
Barrese, patent counsel to the Company, as experts on such matters, and
are included therein in reliance upon such review and approval.
(n) The Company does not own any real property. The
Company has good and marketable title to all personal property owned by
it, free and clear of all liens, encumbrances and defects except such as
are described in the Prospectus or such as do not materially affect the
value of such property and do not materially interfere with the use
- 4 -
<PAGE>
<PAGE>
made and proposed to be made of such property by the Company; and all
real property and buildings held under lease by the Company are held by
it under valid, subsisting and enforceable leases, with such exceptions
as are not material and do not interfere with the use made and proposed
to be made of such property and buildings by the Company.
(o) The Company carries, or is covered by, insurance in
such amounts and covering such risks as is adequate for the conduct of
its business and the value of its properties.
(p) The Company owns or possesses adequate rights to use
all patents, patent applications, trademarks, service marks, trade
names, trademark registrations, service mark regulations, copyrights,
licenses and other intangible properties and assets necessary for the
conduct of its business and has no reason to believe that the conduct of
its business will conflict with, and has not received any notice of any
claim of conflict with, any such rights of others, nor, to the best of
the Company's knowledge is there an infringement by others of such
rights of the Company.
(q) There are no legal or governmental proceedings pending
to which the Company is a party or of which any property or assets of
the Company is the subject which, if determined adversely to the
Company, might have a material adverse effect on the financial position,
stockholders' equity, results of operations, business or prospects of
the Company; and to the best of the Company's knowledge, no such
proceedings are threatened or contemplated by governmental authorities
or threatened by others.
(r) There are no contracts or other documents which are
required to be described in the Prospectus or filed as exhibits to the
Registration Statement by the Securities Act or by the Rules and
Regulations which have not been properly described in the Prospectus and
filed as exhibits to the Registration Statement.
(s) No relationship, direct or indirect, exists between or
among the Company on the one hand, and the directors, officers,
stockholders, customers or suppliers of the Company on the other hand,
which is required to be described in the Prospectus which is not so
described.
(t) No labor disturbance by the employees of the Company
exists or, to the knowledge of the Company, is imminent which might be
expected to have a material adverse effect on the financial position,
stockholders' equity, results of operations, business or prospects of
the Company.
(u) The Company is in compliance in all material respects
with all presently applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended, including the regulations and
published interpretations thereunder ("ERISA"); no "reportable event"
(as defined in ERISA) has occurred with respect to any "pension plan"
(as defined in ERISA) for which the Company would have any liability;
the Company has not incurred and does not expect to incur liability
under (i) Title IV of
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ERISA with respect to termination of, or withdrawal from, any "pension
plan" or (ii) Sections 412 or 4971 of the Internal Revenue Code of 1986,
as amended, including the regulations and published interpretations
thereunder (the "Code"); and each "pension plan" for which the Company
would have any liability that is intended to be qualified under Section
401(a) of the Code is so qualified in all material respects and nothing
has occurred, whether by action or by failure to act, which would cause
the loss of such qualification.
(v) The Company has filed all federal state and local
income and franchise tax returns required to be filed through the date
hereof and has paid all taxes due thereon, and no tax deficiency has
been determined adversely to the Company which has had (nor does the
Company have any knowledge of any tax deficiency which, if determined
adversely to the Company, might have) a material adverse effect on the
financial position, stockholders' equity, results of operations,
business or prospects of the Company.
(w) Since the date as of which information is given in the
Prospectus through the date hereof, and except as may otherwise be
disclosed in the Prospectus, the Company has not (i) issued or granted
any securities, (ii) incurred any liability or obligation, direct or
contingent, other than liabilities and obligations which were incurred
in the ordinary course of business, (iii) entered into any transaction
not in the ordinary course of business or (iv) declared or paid any
dividend on its capital stock.
(x) The Company (i) makes and keeps accurate books and
records and (ii) maintains internal accounting controls which provide
reasonable assurance that (A) transactions are executed in accordance
with management's authorization, (B) transactions are recorded as
necessary to permit preparation of its financial statements and to
maintain accountability for its assets, (C) access to its assets is
permitted only in accordance with management's authorization and (D) the
reported accountability for its assets is compared with existing assets
at reasonable intervals.
(y) The Company (i) is not in violation of its charter or
by-laws, (ii) is not in default in any material respect, and no event
has occurred which, with notice or lapse of time or both, would
constitute such a default, in the due performance or observance of any
term, covenant or condition contained in any material indenture,
mortgage, deed of trust, loan agreement, lease, license or other
agreement or instrument to which it is a party or by which it is bound
or to which any of its properties or assets is subject or (iii) except
for any violation or failure to obtain that would not have a material
adverse effect on the Company, is not in violation in any respect of any
law, ordinance, governmental rule, regulation or court decree to which
it or its property or assets may be subject or has failed to obtain any
license, permit, certificate, franchise or other governmental
authorization or permit necessary to the ownership of its property or to
the conduct of its business. Each such indenture, mortgage, deed of
trust, loan agreement, lease, license or other agreement is in full
force and effect.
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(z) Neither the Company, nor any director, officer, agent,
employee or other person associated with or acting on behalf of the
Company, has used any corporate funds for any unlawful contribution,
gift, entertainment or other unlawful expense relating to political
activity; made any direct or indirect unlawful payment to any foreign or
domestic government official or employee from corporate funds; violated
or is in violation of any provision of the Foreign Corrupt Practices Act
of 1977, as amended; or made any bribe, rebate, payoff, influence
payment, kickback or other unlawful payment.
(aa) There has been no storage, disposal, generation,
manufacture, refinement, transportation, handling or treatment of toxic
wastes, medical wastes, hazardous wastes or hazardous substances by the
Company (or, to the knowledge of the Company, any of its predecessors in
interest) at, upon or from any of the property now or previously owned
or leased by the Company in material violation of any applicable law,
ordinance, rule, regulation, order, judgment, decree or permit or which
would require remedial action under any applicable law, ordinance, rule,
regulation, order, judgment, decree or permit, except for any violation
or remedial action which would not have, or could not be reasonably
likely to have, singularly or in the aggregate with all such violations
and remedial actions, a material adverse effect on the financial
position, stockholders' equity or results of operations of the Company;
there has been no material spill, discharge, leak, emission, injection,
escape, dumping or release of any kind onto such property or into the
environment surrounding such property of any toxic wastes, medical
wastes, solid wastes, hazardous wastes or hazardous substances due to or
caused by the Company or with respect to which the Company has
knowledge, except for any such spill, discharge, leak, emission,
injection, escape, dumping or release which would not have or would not
be reasonably likely to have, singularly or in the aggregate with all
such spills, discharges, leaks, emissions, injections, escapes, dumpings
and releases, a material adverse effect on the financial position,
stockholders' equity or results of operations of the Company; and the
terms "hazardous wastes", "toxic wastes", "hazardous substances" and
"medical wastes" shall have the meanings specified in any applicable
local state, federal and foreign laws or regulations with respect to
environmental protection.
(bb) The Company is not "investment company" within the
meaning of such term under the Investment Company Act of 1940 and the
rules and regulations of the Commission thereunder.
2. Purchase of the Stock by the Underwriters. On the basis of the
representations and warranties contained in, and subject to the terms and
conditions of, this Agreement, the Company agrees to sell 3,500,000 shares of
the Firm Stock to the several Underwriters and each of the Underwriters,
severally and not jointly, agrees to purchase the number of shares of the Firm
Stock set opposite that Underwriter's name in Schedule 1 hereto. The respective
purchase obligations of the Underwriters with respect to the Firm Stock shall be
rounded among the Underwriters to avoid fractional shares, as the
Representatives may determine.
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In addition, the Company grants to the Underwriters an option to
purchase up to 525,000 shares of Option Stock. Such option is granted solely for
the purpose of covering overallotments in the sale of Firm Stock and is
exercisable as provided in Section 4 hereof. Shares of Option Stock shall be
purchased severally for the account of the Underwriters in proportion to the
number of shares of Firm Stock set opposite the name of such Underwriters in
Schedule 1 hereto. The respective purchase obligations of each Underwriter with
respect to the Option Stock shall be adjusted by the Representatives so that no
Underwriter shall be obligated to purchase Option Stock other than in 100 share
amounts. The price of both the Firm Stock and any Option Stock shall be [$_____]
per share.
The Company shall not be obligated to deliver any of the Stock to
be delivered on the First Delivery Date or the Second Delivery Date (as
hereinafter defined), as the case may be, except upon payment for all the Stock
to be purchased on such Delivery Date as provided herein.
3. Offering of Stock by the Underwriters.
Upon authorization by the Representatives of the release of the
Firm Stock, the several Underwriters propose to offer the Firm Stock for sale
upon the terms and conditions set forth in the Prospectus.
It is understood that [____________] shares of the Firm Stock
will initially be reserved by the several Underwriters for offer and sale upon
the terms and conditions set forth in the Prospectus and in accordance with the
rules and regulations of the National Association of Securities Dealers, Inc. to
employees and persons having business relationships with the Company who have
heretofore delivered to the Representatives indications of interest to purchase
shares of Firm Stock in form satisfactory to the Representatives, and that any
allocation of such Firm Stock among such persons will be made in accordance with
timely directions received by the Representatives from the Company; provided,
that under no circumstances will the Representatives or any Underwriter be
liable to the Company or to any such person for any action taken or omitted in
good faith in connection with such offering to employees and persons having
business relationships with the Company. It is further understood that any
shares of such Firm Stock which are not purchased by such persons will be
offered by the Underwriters to the public upon the terms and conditions set
forth in the Prospectus.
4. Delivery of and Payment for the Stock. Delivery of and payment
for the Firm Stock shall be made at the offices of Lehman Brothers Inc., Three
World Financial Center, New York, New York 10285, at 10:00 A.M., New York City
time, on the [third] full business day following the Effective Date or at such
other date or place as shall be determined by agreement between the
Representatives and the Company. This date and time are sometimes referred to as
the "First Delivery Date." On the First Delivery Date the Company shall deliver
or cause to be delivered certificates representing the Firm Stock to the
Representatives for the account of each Underwriter against payment to or upon
the order of the Company of the purchase price by certified or official bank
check or checks payable in New York Clearing House (same-day) funds. Time shall
be of the essence, and delivery at the time and place specified pursuant to this
Agreement is a further condition of the obligation of each Underwriter
hereunder.
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Upon delivery, the Firm Stock shall be registered in such names and in such
denominations as the Representatives shall request in writing not less than two
full business days prior to the First Delivery Date. For the purpose of
expediting the checking and packaging of the certificates for the Firm Stock,
the Company shall make the certificates representing the Firm Stock available
for inspection by the Representatives in New York, New York, not later than 2:00
P.M., New York City time, on the business day prior to the First Delivery Date.
At any time on or before the thirtieth day after the Effective
Date the option granted in Section 2 may be exercised by written notice being
given to the Company by the Representatives. Such notice shall set forth the
aggregate number of shares of Option Stock as to which the option is being
exercised, the names in which the shares of Option Stock are to be registered,
the denominations in which the shares of Option Stock are to be issued and the
date and time, as determined by the Representatives, when the shares of Option
Stock are to be delivered; provided, however, that this date and time shall not
be earlier than the First Delivery Date nor earlier than the second business day
after the date on which the option shall have been exercised nor later than the
fifth business day after the date on which the option shall have been exercised.
The date and time the shares of Option Stock are delivered are sometimes
referred to as the "Second Delivery Date" and the First Delivery Date and the
Second Delivery Date are sometimes each referred to as a "Delivery Date".
Delivery of and payment for the Option Stock shall be made at the
place specified in the first sentence of the first paragraph of this Section 4
(or at such other place as shall be determined by agreement between the
Representatives and the Company) at 10:00 A.M., New York City time, on the
Second Delivery Date. On the Second Delivery Date, the Company shall deliver or
cause to be delivered the certificates representing the Option Stock to the
Representatives for the account of each Underwriter against payment to or upon
the order of the Company of the purchase price by certified or official bank
check or checks payable in New York Clearing House (next-day) funds. Time shall
be of the essence, and delivery at the time and place specified pursuant to this
Agreement is a further condition of the obligation of each Underwriter
hereunder. Upon delivery, the Option Stock shall be registered in such names and
in such denominations as the Representatives shall request in the aforesaid
written notice. For the purpose of expediting the checking and packaging of the
certificates for the Option Stock, the Company shall make the certificates
representing the Option Stock available for inspection by the Representatives in
New York, New York, not later than 2:00 P.M., New York City time, on the
business day prior to the Second Delivery Date.
5. Further Agreements of the Company. The Company agrees:
(a) To prepare the Prospectus in a form approved by the
Representatives and to file such Prospectus pursuant to Rule 424(b)
under the Securities Act not later than the Commission's close of
business on the day following the execution and delivery of this
Agreement or, if applicable, such earlier time as may be required by
Rule 430A(a)(3) under the Securities Act; to make no further amendment
or any supplement to the Registration Statement or to the Prospectus
except as permitted herein; to advise the Representatives, promptly
after it receives notice thereof, of the time when
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any amendment to the Registration Statement has been filed or becomes
effective or any supplement to the Prospectus or any amended Prospectus
has been filed and to furnish the Representatives with copies thereof;
to advise the Representatives, promptly after it receives notice
thereof, of the issuance by the Commission of any stop order or of any
order preventing or suspending the use of any Preliminary Prospectus or
the Prospectus, of the suspension of the qualification of the Stock for
offering or sale in any jurisdiction, of the initiation or threatening
of any proceeding for any such purpose, or of any request by the
Commission for the amending or supplementing of the Registration
Statement or the Prospectus or for additional information; and, in the
event of the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or the Prospectus or
suspending any such qualification, to use promptly its best efforts to
obtain its withdrawal;
(b) To furnish promptly to each of the Representatives and
to counsel for the Underwriters a signed copy of the Registration
Statement as originally filed with the Commission, and each amendment
thereto filed with the Commission, including all consents and exhibits
filed therewith;
(c) To deliver promptly to the Representatives such number
of the following documents as the Representatives shall reasonably
request: (i) conformed copies of the Registration Statement as
originally filed with the Commission and each amendment thereto (in each
case excluding exhibits other than this Agreement) and (ii) each
Preliminary Prospectus, the Prospectus and any amended or supplemented
Prospectus; and, if the delivery of a prospectus is required at any time
after the Effective Time in connection with the offering or sale of the
Stock or any other securities relating thereto and if at such time any
events shall have occurred as a result of which the Prospectus as then
amended or supplemented would include an untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the fight of the circumstances under which they
were made when such Prospectus is delivered, not misleading, or, if for
any other reason it shall be necessary to amend or supplement the
Prospectus in order to comply with the Securities Act, to notify the
Representatives and, upon their request, to file such document and to
prepare and furnish without charge to each Underwriter and to any dealer
in securities as many copies as the Representatives may from time to
time reasonably request of an amended or supplemented Prospectus which
will correct such statement or omission or effect such compliance.
(d) To file promptly with the Commission any amendment to
the Registration Statement or the Prospectus or any supplement to the
Prospectus that may, in the reasonable judgment of the Company or the
Representatives, be required by the Securities Act or requested by the
Commission;
(e) Prior to filing with the Commission any amendment to
the Registration Statement or supplement to the Prospectus or any
Prospectus pursuant to Rule 424 of the Rules and Regulations, to furnish
a copy thereof to the Representatives
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and counsel for the Underwriters and obtain the consent of the
Representatives to the filing;
(f) As soon as practicable after the Effective Date, to
make generally available to the Company's security holders and to
deliver to the Representatives an earning statement of the Company
(which need not be audited) complying with Section 11(a) of the
Securities Act and the Rules and Regulations (including, at the option
of the Company, Rule 158);
(g) For a period of five years following the Effective
Date, to furnish to the Representatives copies of all materials
furnished by the Company to its stockholders and all public reports and
all reports and financial statements furnished by the Company to the
principal national securities exchange upon which the Common Stock may
be listed pursuant to requirements of or agreements with such exchange
(or the Nasdaq National Market if the Common Stock is so listed thereon)
or to the Commission pursuant to the Exchange Act or any rule or
regulation of the Commission thereunder;
(h) Promptly from time to time to take such action as the
Representatives may reasonably request to quality the Stock for offering
and sale under the securities laws of such jurisdictions as the
Representatives may request and to comply with such laws so as to permit
the continuance of sales and dealings therein in such jurisdictions for
as long as may be necessary to complete the distribution of the Stock;
provided that in connection therewith the Company shall not be required
to qualify as a foreign corporation or to file a general consent to
service of process in any jurisdiction;
(i) For a period of 180 days from the date of the
Prospectus, not to, directly or indirectly, offer for sale, sell or
otherwise dispose of (or enter into any transaction or device which is
designed to, or could be expected to, result in the disposition by any
person at any time in the future of) any shares of Common Stock (other
than the Stock and shares issued pursuant to employee benefit plans,
qualified stock option plans or other employee compensation plans
existing on the date hereof or pursuant to currently outstanding
options, warrants or rights), sell or grant options, rights or warrants
with respect to any shares of Common Stock (other than the grant of
options pursuant to option plans existing on the date hereof), or waive
the restrictions on sale contained in any agreement or award letter to
which the options or shares of Common Stock of any officer or director
of the Company are subject without the prior written consent of Lehman
Brothers Inc.; and to cause each person that was a stockholder of the
Company prior to the issuance of the Stock to be sold hereunder to agree
not to, directly or indirectly, offer for sale, sell or otherwise
dispose of (or enter into any transaction or device which is designed
to, or could be expected to, result in the disposition by any person at
any time in the future of) any shares of Common Stock for a period of
180 days from the date of the Prospectus, without the prior written
consent of Lehman Brothers Inc.;
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(j) Prior to the Effective Date, to apply for the
inclusion of the Stock on the Nasdaq National Market System and to use
its best efforts to complete that inclusion, subject only to official
notice of issuance or the effectiveness of the Registration Statement
and evidence of satisfactory distribution, prior to the First Delivery
Date;
(k) Prior to filing with the Commission any reports on
Form SR pursuant to Rule 463 of the Rules and Regulations, to furnish a
copy thereof to the counsel for the Underwriters and receive and
consider its comments thereon, and to deliver promptly to the
Representatives a signed copy of each report on Form SR filed by it with
the Commission;
(l) To apply the net proceeds from the sale of the Stock
being sold by the Company as set forth in the Prospectus; and
(m) To comply with all registration, filings and reporting
requirements of the Exchange Act, which may from time to time be
applicable to the Company and to comply with all provisions of all
undertakings contained in the Registration Statement.
6. Expenses. The Company agrees to pay (a) the costs incident to
the authorization, issuance, sale and delivery of the Stock and any taxes
payable in that connection; (b) the costs incident to the preparation, printing
and filing under the Securities Act of the Registration Statement and any
amendments and exhibits thereto; (c) the costs of distributing the Registration
Statement as originally filed and each amendment thereto and any post-effective
amendments thereof (including, in each case, exhibits), any Preliminary
Prospectus, the Prospectus and any amendment or supplement to the Prospectus,
all as provided in this Agreement; (d) the costs of printing and distributing
this Agreement and any other related documents in connection with the offering,
purchase, sale and delivery of the Stock; (e) the filing fees and expenses
(including related fees and expenses of counsel to the Underwriters) incident to
securing any required review by the National Association of Securities Dealers,
Inc. of the terms of sale of the Stock; (f) any applicable listing or other
fees; (g) the fees and expenses of qualifying the Stock under the securities
laws of the several jurisdictions as provided in Section 5(h) and of preparing,
printing and distributing a Blue Sky Memorandum (including related fees and
expenses of counsel to the Underwriters); and (h) all other costs and expenses
incident to the performance of the obligations of the Company under this
Agreement; provided that, except as provided in this Section 6 and in Section 11
the Underwriters shall pay their own costs and expenses, including the costs and
expenses of their counsel, any transfer taxes on the Stock which they may sell
and the expenses of advertising any offering of the Stock made by the
Underwriters.
7. Conditions of Underwriters' Obligations. The respective
obligations of the Underwriters hereunder are subject to the accuracy, when made
and on each Delivery Date, of the representations and warranties of the Company
contained herein, to the performance by the Company of its obligations
hereunder, and to each of the following additional terms and conditions:
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(a) The Prospectus shall have been timely filed with the
Commission in accordance with Section 5(a); no stop order suspending the
effectiveness of the Registration Statement or any part thereof shall
have been issued and no proceeding for that purpose shall have been
initiated or threatened by the Commission; and any request of the
Commission for inclusion of additional information in the Registration
Statement or the Prospectus or otherwise shall have been complied with.
(b) No Underwriter shall have discovered and disclosed to
the Company on or prior to such Delivery Date that the Registration
Statement or the Prospectus or any amendment or supplement thereto
contains an untrue statement of a fact which, in the opinion of Kramer,
Levin, Naftalis & Frankel, counsel for the Underwriters, is material or
omits to state a fact which in the opinion of such counsel, is material
and is required to be stated therein or is necessary to make the
statements therein not misleading.
(c) All corporate proceedings and other legal matters
incident to the authorization, form and validity of this Agreement, the
Stock, the Registration Statement and the Prospectus, and all other
legal matters relating to this Agreement and the transactions
contemplated hereby shall be reasonably satisfactory in all material
respects to counsel for the Underwriters, and the Company shall have
furnished to such counsel all documents and information that they may
reasonably request to enable them to pass upon such matters.
(d) Latham & Watkins shall have furnished to the
Representatives their written opinion, as counsel to the Company,
addressed to the Underwriters and dated such Delivery Date, in form and
substance reasonably satisfactory to the Representatives, to the effect
that:
(i) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws
of its jurisdiction of incorporation, is duly qualified to do
business and is in good standing as a foreign corporations in
each jurisdiction in which its ownership or lease of property or
the conduct of its businesses requires such qualification, except
where the failure to be so qualified or in good standing would
not have a material adverse effect on the Company, and has all
power and authority necessary to own or hold its properties and
conduct the business in which it is engaged;
(ii) The Company has an authorized capitalization
as set forth in the Prospectus, and all of the issued shares of
capital stock of the Company have been duly and validly
authorized and issued, are fully paid and non-assessable and
conform to the description thereof contained in the Prospectus;
the shares of Stock being delivered on such Delivery Date have
been duly and validly authorized and issued, and, when issued and
delivered to and paid for by the Underwriters pursuant to the
terms of this Agreement, will be fully paid and non-assessable;
and the shares of Stock being delivered on such Delivery Date
conform to the
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description thereof contained in the Prospectus. Upon delivery of
the payment for the Stock to be sold by the Company to the
Underwriters pursuant to this Agreement, each Underwriter
(assuming that it acquires such Shares without notice of any
adverse claim, as such term is used in Section 8-302 of the
Uniform Commercial Code in effect in the State of New York) will
acquire good and marketable title to the Stock so sold and
delivered to it, free and clear of all liens, pledges, charges,
claims, security interests, restrictions on transfer, agreements
or other defects of title whatsoever (other than those resulting
from any action taken by such Underwriter);
(iii) Other than as set forth in the Prospectus,
there are no preemptive or other rights to subscribe for or to
purchase, nor any outstanding option, warrant or other right
calling for the issuance of any share of capital stock of the
Company or other instrument that by its terms is convertible
into, exercisable for or exercisable for capital stock of the
Company, nor any rights, by contract or otherwise, to require
registration under the Securities Act of shares of Stock, nor any
restriction upon the voting or transfer of, any shares of the
Stock pursuant to the Company's charter or by-laws or any
agreement or other instrument known to such counsel;
(iv) To the best of such counsel's knowledge and
other than as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company is a party
or of which any property or assets of the Company is the subject
which, if determined adversely to the Company, might have a
material adverse effect on the financial position, stockholders'
equity, results of operations, business or prospects of the
Company; and, to the best of such counsel's knowledge, no such
proceedings are threatened or contemplated by governmental
authorities or threatened by others;
(v) The Registration Statement was declared
effective under the Securities Act as of the date and time
specified in such opinion, the Prospectus was filed with the
Commission pursuant to the subparagraph of Rule 424(b) of the
Rules and Regulations specified in such opinion on the date
specified therein and no stop order suspending the effectiveness
of the Registration Statement has been issued and, to the
knowledge of such counsel, no proceeding for that purpose is
pending or threatened by the Commission;
(vi) The Registration Statement and the Prospectus
and any further amendments or supplements thereto made by the
Company prior to such Delivery Date (other than the financial
statements and related schedules therein, as to which such
counsel need express no opinion) comply as to form in all
material respects with the requirements of the Securities Act and
the Rules and Regulations; (other than the financial statements
and related schedules therein, as to which such counsel need
express no opinion), when they were filed with the
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Commission complied as to form in all material respects with the
requirements of and the rules and regulations of the Commission
thereunder;
(vii) To the best of such counsel's knowledge,
there are no contracts or other documents which are required to
be described in the Prospectus or filed as exhibits to the
Registration Statement by the Securities Act or by the Rules and
Regulations which have not been described or filed as exhibits to
the Registration Statement or incorporated therein by reference
as permitted by the Rules and Regulations;
(viii) This Agreement has been duly authorized,
executed and delivered by the Company, and when duly executed by
the proper officers of the Company and delivered by the Company
will constitute a valid and binding agreement of the Company
enforceable against the Company in accordance with its terms,
subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally, general
equitable principles (wither considered in a proceeding in equity
or at law) or an implied covenant of good faith and fair dealing;
(ix) The Common Stock is duly authorized for
listing on the Nasdaq National Market, subject only to official
notice of issuance;
(x) The issue and sale of the shares of Stock being
delivered on such Delivery Date by the Company and the compliance
by the Company with all of the provisions of this Agreement and
the consummation of the transactions contemplated hereby will not
conflict with or result in a material breach or violation of any
of the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement, lease,
license or other agreement or instrument known to such counsel to
which the Company is a party or by which the Company is bound or
to which any of the property or assets of the Company is subject,
nor will such action result in any violation of the provisions of
the charter or by-laws of the Company, nor will such actions
result in any violation of any statute or any order, rule or
regulation known to such counsel of any court or governmental
agency or body having jurisdiction over the Company or any of its
properties or assets; and, except for the registration of the
Stock under the Securities Act and such consents, approvals,
authorizations, registrations or qualifications as may be
required under the Exchange Act and applicable state securities
laws in connection with the purchase and distribution of the
Stock by the Underwriters, no consent, approval, authorization or
order of, or filing or registration with, any such court or
governmental agency or body is required for the execution,
delivery and performance of this Agreement by the Company and the
consummation of the transactions contemplated hereby;
(xi) To the best of such counsel's knowledge, there
are no contracts, agreements or understandings between the
Company and any person
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granting such person the right to require the Company to file a
registration statement under the Securities Act with respect to
any securities of the Company owned or to be owned by such person
or to require the Company to include such securities in the
securities registered pursuant to the Registration Statement or
in any securities being registered pursuant to any other
registration statement filed by the Company under the Securities
Act; and
(xii) No consent of any party to any material
contract, agreement, instrument, lease or license known to such
counsel to which the Company is a party, or to which any of its
properties or assets are subject, is required for the execution,
delivery, or performance of this Agreement, or the sale or
delivery of the Stock.
In rendering such opinion, such counsel may state that its
opinion is limited to matters governed by the Federal laws of the United States
of America, the laws of the State of New York and the General Corporation Law of
the Sate of Delaware. Such counsel shall also have furnished to the
Representatives a written statement, addressed to the Underwriters and dated
such Delivery Date, in form and substance satisfactory to the Representatives,
to the effect that (x) such counsel has acted as counsel to the Company on a
regular basis and has acted as counsel to the Company in connection with the
preparation of the Registration Statement, and (y) based on the foregoing, no
facts have come to the attention of such counsel which lead it to believe that
the Registration Statement, as of the Effective Date, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein not
misleading, or that the Prospectus as of the Closing Date contains any untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading (it being
understood that such counsel need express no view with respect to the financial
statements and schedules and other financial, accounting and statistical data
included therein, or with respect to the exhibits to the Registration Statement
or with respect to any information furnished by or on behalf of the
Underwriters).
(e) The Representatives shall have received from Kramer,
Levin, Naftalis & Frankel, counsel for the Underwriters, such opinion or
opinions, dated such Delivery Date, with respect to the issuance and
sale of the Stock, the Registration Statement, the Prospectus and other
related matters as the Representatives may reasonably require, and the
Company shall have finished to such counsel such documents as they
reasonably request for the purpose of enabling them to pass upon such
matters.
(f) At the time of execution of this Agreement, the
Representatives shall have received from Coopers & Lybrand L.L.P. a
letter, in form and substance satisfactory to the Representatives,
addressed to the Underwriters and dated the date hereof (i) confirming
that they are independent public accountants within the meaning of the
Securities Act and are in compliance with the applicable requirements
relating to the qualification of accountants under Rule 2-01 of
Regulation S-X of the Commission, (ii) stating, as of the date hereof
(or, with respect to matters involving changes or
- 16 -
<PAGE>
<PAGE>
developments since the respective dates as of which specified financial
information is given in the Prospectus, as of a date not more than five
days prior to the date hereof), the conclusions and findings of such
firm with respect to the financial information and other matters
ordinarily covered by accountants' "comfort letters" to underwriters in
connection with registered public offerings.
(g) With respect to the letter of Coopers & Lybrand L.L.P.
referred to in the preceding paragraph and delivered to the
Representatives concurrently with the execution of this Agreement (the
"initial letter"), the Company shall have furnished to the
Representatives a letter (the "bring-down letter") of such accountants,
addressed to the Underwriters and dated such Delivery Date (i)
confirming that they are independent public accountants within the
meaning of the Securities Act and are in compliance with the applicable
requirements relating to the qualification of accountants under Rule
2-01 of Regulation S-X of the Commission, (ii) stating, as of the date
of the bring-down letter (or, with respect to matters involving changes
or developments since the respective dates as of which specified
financial information is given in the Prospectus, as of a date not more
than five days prior to the date of the bring-down letter), the
conclusions and findings of such firm with respect to the financial
information and other matters covered by the initial letter and (iii)
confirming in all material respects the conclusions and findings set
forth in the initial letter.
(h) The Company shall have furnished to the
Representatives a certificate, dated such Delivery Date, of its Chairman
of the Board or its President and its chief financial officer stating
that:
(i) The representations, warranties and agreements
of the Company in Section 1 are true and correct as of such
Delivery Date; the Company has complied with all its agreements
contained herein; and the conditions set forth in Sections 7(a)
and 7(l) have been fulfilled; and
(ii) They have carefully examined the Registration
Statement and the Prospectus and, in their opinion (A) as of the
Effective Date, the Registration Statement and Prospectus did not
include any untrue statement of a material fact and did not omit
to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and (B)
since the Effective Date no event has occurred which should have
been set forth in a supplement or amendment to the Registration
Statement or the Prospectus.
(i) (i) Neither the Company nor any of its subsidiaries
shall have sustained since the date of the latest audited financial
statements included in the Prospectus any loss or interference with its
business from fire, explosion flood, or other calamity, whether or not
covered by insurance, or from any labor dispute or court or governmental
action, order or decree, otherwise than as set forth or contemplated in
the Prospectus or (ii) since such date there shall not have been any
change in the capital stock or long-term debt of the Company or any of
its subsidiaries or any change, or any
- 17 -
<PAGE>
<PAGE>
development involving a prospective change, in or affecting the general
affairs, management, financial position, stockholders' equity or results
of operations of the Company and its subsidiaries, otherwise than as set
forth or contemplated in the Prospectus, the effect of which, in any
such case described in clause (i) or (ii), is, in the judgment of the
Representatives, so material and adverse as to make it impracticable or
inadvisable to proceed with the public offering or the delivery of the
Stock being delivered on such Delivery Date on the terms and in the
manner contemplated in the Prospectus.
(j) Subsequent to the execution and delivery of this
Agreement there shall not have occurred any of the following: (i)
trading in securities generally on the New York Stock Exchange or the
American Stock Exchange or in the over-the-counter market, shall have
been suspended or minimum prices shall have been established on any such
exchange or such market by the Commission, by such exchange or by any
other regulatory body or governmental authority having jurisdiction,
(ii) a banking moratorium shall have been declared by Federal or state
authorities, (iii) the United States shall have become engaged in
hostilities, there shall have been an escalation in hostilities
involving the United States or there shall have been a declaration of a
national emergency or war by the United States or (iv) there shall have
occurred such a material adverse change in general economic, political
or financial conditions (or the effect of international conditions on
the financial markets in the United States shall be such) as to make it,
in the judgment of a majority in interest of the several Underwriters,
impracticable or inadvisable to proceed with the public offering or
delivery of the Stock being delivered on such Delivery Date on the terms
and in the manner contemplated in the Prospectus.
(k) The Nasdaq National Market shall have approved the
Stock for inclusion subject only to official notice of issuance or
effectiveness of the Registration Statement and evidence of satisfactory
distribution.
(l) The National Association of Securities Dealers, Inc.,
upon review of the terms of the underwriting arrangements for the public
offering of the Stock, shall have raised no objection thereto.
(m) Prior to any Delivery Date, the Company shall have
furnished to the Representatives such other information, Certificates
and documents as they may reasonably request.
All opinions, letters, evidence and certificates mentioned above
or elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to counsel for the Underwriters.
8. Indemnification and Contribution.
(a) The Company shall indemnify and hold harmless each
Underwriter, its officers and employees and each person, if any, who controls
any Underwriter within the meaning of the Securities Act, from and against any
loss, claim, damage or liability, joint or several, or any
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<PAGE>
<PAGE>
action in respect thereof (including, but not limited to, any loss, claim
damage, liability or action relating to purchases and sales of Stock), to which
that Underwriter, officer, employee or controlling person may become subject,
under the Securities Act or otherwise, insofar as such loss, claim, damage,
liability or action arises out of, or is based upon, (i) any untrue statement or
alleged untrue statement of a material fact contained (A) in any Preliminary
Prospectus, the Registration Statement or the Prospectus or in any amendment or
supplement thereto or (B) in any blue sky application or other document prepared
or executed by the Company (or based upon any written information furnished by
the Company) specifically for the purpose of qualifying any or all of the Stock
under the securities laws of any state or other jurisdiction (any such
application, document or information being hereinafter called a "Blue Sky
Application"), (ii) the omission or alleged omission to state in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or in any amendment or
supplement thereto, or in any Blue Sky Application any material fact required to
be stated therein or necessary to make the statements therein not misleading or
(iii) any act or failure to act or any alleged act or failure to act by any
Underwriter in connection with, or relating in any manner to, the Stock or the
offering contemplated hereby, and which is included as part of or referred to in
any loss, claim, damage, liability or action arising out of or based upon
matters covered by clause (i) or (ii) above (provided that the Company shall not
be liable under this clause (iii) to the extent that it is determined in a final
judgment by a court of competent jurisdiction that such loss, claim, damage,
liability or action resulted directly from any such acts or failures to act
undertaken or omitted to be taken by such Underwriter through its gross
negligence or willful misconduct), and shall reimburse each Underwriter and each
such officer, employee or controlling person promptly upon demand for any legal
or other expenses reasonably incurred by that Underwriter, officer, employee or
controlling person in connection with investigating or defending or preparing to
defend against any such loss, claim, damage, liability or action as such
expenses are incurred; provided, however, that the Company shall not be liable
in any such case to the extent that any such loss, claim, damage, liability or
action arises out of, or is based upon, any untrue statement or alleged untrue
statement or omission or alleged omission made in any Preliminary Prospectus,
the Registration Statement or the Prospectus, or in any such amendment or
supplement, or in any Blue Sky Application, in reliance upon and in conformity
with written information concerning such Underwriter furnished to the Company
through the Representatives by or on behalf of any Underwriter specifically for
inclusion therein. The foregoing indemnity agreement is in addition to any
liability which the Company may otherwise have to any Underwriter or to any
officer, employee or controlling person of that Underwriter.
The foregoing indemnity agreement with respect to any Preliminary
Prospectus, Prospectus or Registration Statement shall not inure to the benefit
of any Underwriter from whom the person asserting any such loss, claims, damages
or liabilities purchased Stock (its officers and employees or any person who
controls such Underwriter within the meaning of the Securities Act) if a copy of
the Prospectus (as then amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) was not sent or given by or on
behalf of such Underwriter to such person, if such is required by law, at or
prior to the written confirmation of the sale of such Stock to such person and
if the Prospectus (as so amended or supplemented) would have cured the defect
giving rise to such loss, claim, damage or liability; provided, that the
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<PAGE>
<PAGE>
Company has complied with its obligation under Section 5(c) of this Agreement to
provide copies of the Prospectus to such Underwriter.
(b) Each Underwriter, severally and not jointly, shall indemnify
and hold harmless the Company, each of its officers who signed the Registration
Statement, each of its directors, and each person, if any, who controls the
Company within the meaning of the Securities Act, from and against any loss,
claim, damage or liability, joint or several, or any action in respect thereof,
to which the Company or any such director, officer or controlling person may
become subject, under the Securities Act or otherwise, insofar as such loss,
claim, damage, liability or action arises out of, or is based upon (i) any
untrue statement or alleged untrue statement of a material fact contained (A) in
any Preliminary Prospectus, the Registration Statement or the Prospectus or in
any amendment or supplement thereto, or (B) in any Blue Sky Application or (ii)
the omission or alleged omission to state in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or in any amendment or supplement
thereto, or in any Blue Sky Application any material fact required to be stated
therein or necessary to make the statements therein not misleading, but in each
case only to the extent that the untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity with
written information concerning such Underwriter furnished to the Company through
the Representatives by or on behalf of that Underwriter specifically for
inclusion therein, and shall promptly reimburse the Company and any such
director, officer or controlling person for any legal or other expenses
reasonably incurred by the Company or any such director, officer or controlling
person in connection with investigating or defending or preparing to defend
against any such loss, claim, damage, liability or action as such expenses are
incurred. The foregoing indemnity agreement is in addition to any liability
which any Underwriter may otherwise have to the Company or any such director,
officer, employee or controlling person.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under this Section 8, notify the indemnifying party in
writing of the claim or the commencement of that action; provided, however, that
the failure to notify the indemnifying party shall not relieve it from any
liability which it may have under this Section 8 except to the extent it has
been materially prejudiced by such failure; and provided further, that the
failure to notify the indemnifying party shall not relieve it from any liability
which it may have to an indemnifying party, otherwise than under this Section 8.
If any such claim or action shall be brought against an indemnified party, and
it shall notify the indemnifying party thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it wishes, jointly with
any other similarly notified indemnifying party, to assume the defense thereof
with counsel reasonably satisfactory to the indemnified party. After notice from
the indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that
the Representatives shall have the right to employ counsel to represent jointly
the Representatives and those other Underwriters and their respective officers,
employees and controlling persons who may be subject to liability arising out of
any claim in respect of which indemnity may be sought by
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<PAGE>
<PAGE>
the Underwriters against the Company under this Section 8 if, in the reasonable
judgment of the Representatives, it is advisable for the Representatives and
those Underwriters, officers, employees and controlling persons to be jointly
represented by separate counsel, and in that event the fees and expenses of such
separate counsel shall be paid by the Company. No indemnifying party shall (i)
without the prior written consent of the indemnified parties (which consent
shall not be unreasonably withheld), settle or compromise or consent to the
entry of any judgment with respect to any pending or threatened claim, action,
suit or proceeding in respect of which indemnification or contribution may be
sought hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all liability
arising out of such class action, suit or proceeding, or (ii) be liable for any
settlement of any such action effected without its written consent (which
consent shall not be unreasonably withheld), but if settled with the consent of
the indemnifying party or if there be a final judgment of the plaintiff in any
such action, the indemnifying party agrees to indemnify and hold harmless any
indemnified party from and against any loss or liability by reason of such
settlement or judgment.
(d) If the indemnification provided for in this Section 8 shall
for any reason be unavailable to or insufficient to hold harmless an indemnified
party under Section 8(a) or 8(b) in respect of any loss, claim, damage or
liability, or any action in respect thereof, referred to therein, then each
indemnifying party shall in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability, or action in respect thereof, (i) in
such proportion as shall be appropriate to reflect the relative benefits
received by the Company on the one hand and the Underwriters on the other from
the offering of the Stock or (ii) if the allocation provided by clause (i) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but also
the relative fault of the Company on the one hand and the Underwriters on the
other with respect to the statements or omissions which resulted in such loss,
claim, damage or liability, or action in respect thereof, as well as any other
relevant equitable considerations. The relative benefits received by the Company
on the one hand and the Underwriters on the other with respect to such offering
shall be deemed to be in the same proportion as the total net proceeds from the
offering of the Stock purchased under this Agreement (after deducting expenses)
received by the Company, on the one hand, and the total underwriting discounts
and commissions received by the Underwriters with respect to the shares of the
Stock purchased under this Agreement, on the other hand, bear to the total net
proceeds from the offering of the shares of the Stock under this Agreement, in
each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to whether the untrue or alleged
untrue statement of a material fact or omission or alleged omission to state a
material fact relates to information supplied by the Company or the
Underwriters, the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Underwriters agree that it would not be just and equitable
if contributions pursuant to this Section 8(d) were to be determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to herein. The amount paid or payable by
an indemnified party as a result of the loss, claim, damage or liability, or
action in respect thereof, referred to above in this Section 8 shall be
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<PAGE>
<PAGE>
deemed to include, for purposes of this Section 8(d), any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 8(d), no Underwriter shall be required to contribute
any amount in excess of the amount by which the total price at which the Stock
underwritten by it and distributed to the public was offered to the public
exceeds the amount of any damages which such Underwriter has otherwise paid or
become liable to pay by reason of any untrue or alleged untrue statement or
omission or alleged omission. 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. The Underwriters' obligations to contribute as provided in
this Section 8(d) are several in proportion to their respective underwriting
obligations and not joint.
(e) The Underwriters severally confirm and the Company
acknowledges that the statements with respect to the public offering of the
Stock by the Underwriters set forth on the cover page of, the legend concerning
over-allotments on the inside front cover page of, and the first two paragraphs
appearing under the caption "Underwriting" in, the Prospectus are correct and
constitute the only information concerning such Underwriters furnished in
writing to the Company by or on behalf of the Underwriters specifically for
inclusion in the Registration Statement and the Prospectus.
9. Defaulting Underwriters.
If, on either Delivery Date, any Underwriter defaults in the
performance of its obligations under this Agreement, the remaining
non-defaulting Underwriters shall be obligated to purchase the Stock which the
defaulting Underwriter agreed but failed to purchase on such Delivery Date in
the respective proportions which the number of shares of the Firm Stock set
opposite the name of each remaining non-defaulting Underwriter in Schedule 1
hereto bears to the total number of shares of the Firm Stock set opposite the
names of all the remaining non-defaulting Underwriters in Schedule 1 hereto;
provided, however, that the remaining non-defaulting Underwriters shall not be
obligated to purchase any of the Stock on such Delivery Date if the total number
of shares of the Stock which the defaulting Underwriter or Underwriters agreed
but failed to purchase on such date exceeds 9.09% of the total number of shares
of the Stock to be purchased on such Delivery Date, and any remaining
nondefaulting Underwriter shall not be obligated to purchase more than 110% of
the number of shares of the Stock which it agreed to purchase on such Delivery
Date pursuant to the terms of Section 2. If the foregoing maximums are exceeded,
the remaining non-defaulting Underwriters, or those other underwriters
satisfactory to the Representatives who so agree, shall have the right, but
shall not be obligated, to purchase, in such proportion as may be agreed upon
among them, all the Stock to be purchased on such Delivery Date. If the
remaining Underwriters or other underwriters satisfactory to the Representatives
do not elect to purchase the shares which the defaulting Underwriter or
Underwriters agreed but failed to purchase on such Delivery Date, this Agreement
(or, with respect to the Second Delivery Date, the obligation of the
Underwriters to purchase, and of the Company to sell, the Option Stock) shall
terminate without liability on the part of any non-defaulting Underwriter or the
Company, except that the Company will continue to be liable for the payment of
expenses to the extent set forth in Sections 6 and 11. As used in this
Agreement,
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<PAGE>
<PAGE>
the term "Underwriter" includes, for all purposes of this Agreement unless the
context requires otherwise, any party not listed in Schedule 1 hereto who,
pursuant to this Section 9, purchases Firm Stock which a defaulting Underwriter
agreed but failed to purchase.
Nothing contained herein shall relieve a defaulting Underwriter
of any liability it may have to the Company for damages caused by its default.
If other underwriters are obligated or agree to purchase the Stock of a
defaulting or withdrawing Underwriter, either the Representatives or the Company
may postpone the Delivery Date for up to seven full business days in order to
effect any changes that in the opinion of counsel for the Company or counsel for
the Underwriters may be necessary in the Registration Statement, the Prospectus
or in any other document or arrangement.
10. Termination. The obligations of the Underwriters hereunder
may be terminated by the Representatives by notice given to and received by the
Company prior to delivery of and payment for the Firm Stock if, prior to that
time, any of the events described in Sections 7(i) or 7(j) shall have occurred
or if the Underwriters shall decline to purchase the Stock for any reason
permitted under this Agreement.
11. Reimbursement of Underwriters' Expenses. If the Company shall
fail to tender the Stock for delivery to the Underwriters by reason of any
failure, refusal or inability on the part of the Company to perform any
agreement on its part to be performed, or because any other condition of the
Underwriters' obligations hereunder required to be fulfilled by the Company is
not fulfilled, the Company will reimburse the Underwriters for all reasonable
out-of-pocket expenses (including fees and disbursements of counsel) incurred by
the Underwriters in connection with this Agreement and the proposed purchase of
the Stock, and upon demand the Company shall pay the full amount thereof to the
Representatives. If this Agreement is terminated pursuant to Section 9 by reason
of the default of one or more Underwriters, the Company shall not be obligated
to reimburse any defaulting Underwriter on account of those expenses.
12. Notices, etc. All statements, requests, notices and
agreements hereunder shall be in writing, and:
(a) if to the Underwriters, shall be delivered or sent by
mail, telex or facsimile transmission to Lehman Brothers Inc., Three
World Financial Center, New York, New York 10285, Attention: Syndicate
Department (Fax: 212-526- 6588), with a copy, in the case of any notice
pursuant to Section 8(c), to the Director of Litigation, Office of the
General Counsel, Lehman Brothers Inc., 3 World Financial Center, 10th
Floor, New York, NY 10285;
(b) if to the Company, shall be delivered or sent by mail,
telex or facsimile transmission to the address of the Company set forth
in the Registration Statement, Attention: John W. Lyle
(Fax:____________);
provided, however, that any notice to an Underwriter pursuant to Section 8(c)
shall be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its
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<PAGE>
<PAGE>
acceptance telex to the Representatives, which address will be supplied to any
other party hereto by the Representatives upon request. Any such statements,
requests, notices or agreements shall take effect at the time of receipt
thereof. The Company shall be entitled to act and rely upon any request,
consent, notice or agreement given or made on behalf of the Underwriters by
Lehman Brothers Inc. on behalf of the Representatives.
13. Persons Entitled to Benefit of Agreement. This Agreement
shall inure to the benefit of and be binding upon the Underwriters, the Company,
and their respective successors. This Agreement and the terms and provisions
hereof are for the sole benefit of only those persons, except that (A) the
representations, warranties, indemnities and agreements of the Company contained
in this Agreement shah also be deemed to be for the benefit of the person or
persons, if any, who control any Underwriter within the meaning of Section 15 of
the Securities Act and (B) the indemnity agreement of the Underwriters contained
in Section 8(b) of this Agreement shall be deemed to be for the benefit of
directors of the Company, officers of the Company who have signed the
Registration Statement and any person controlling the Company within the meaning
of Section 15 of the Securities Act. Nothing in this Agreement is intended or
shall be construed to give any person, other than the persons referred to in
this Section 13, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision contained herein.
14. Survival. The respective indemnities, representations,
warranties and agreements of the Company and the Underwriters contained in this
Agreement or made by or on behalf on them, respectively, pursuant to this
Agreement, shall survive the delivery of and payment for the Stock and shall
remain in full force and effect, regardless of any investigation made by or on
behalf of any of them or any person controlling any of them.
15. Definition of the Term "Business Day". For purposes of
this Agreement, "business day" means any day on which the New York Stock
Exchange, Inc. is open for trading.
16. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF NEW YORK.
17. Counterparts. This Agreement may be executed in one or
more counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
18. Headings. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
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<PAGE>
<PAGE>
[Balance of Page Intentionally Blank]
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<PAGE>
<PAGE>
If the foregoing correctly sets forth the agreement of the
Company and the Underwriters, please indicate your acceptance in the space
provided for that purpose below.
Very truly yours,
ALGOS PHARMACEUTICAL CORPORATION
By:_________________________________
Name:
Title:
Accepted:
LEHMAN BROTHERS INC.
COWEN & COMPANY
For themselves and as Representatives
of the Several Underwriters named
in Schedule 1 hereto
By LEHMAN BROTHERS INC.
By ______________________________
Authorized Representative
By COWEN & COMPANY
By ______________________________
Authorized Representative
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<PAGE>
<PAGE>
SCHEDULE 1
<TABLE>
<CAPTION>
Number of
Underwriters Shares
- ------------ ---------
<S> <C>
Lehman Brothers Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cowen & Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
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<PAGE>
<PAGE>
SEE REVERSE FOR
CERTAIN DEFINITION
ALGOS PHARMACEUTICAL CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
COMMON STOCK
THIS IS TO CERTIFY that CUSIP
is the owner of
full-paid and non-assessable shares of Common Stock of the
par value of One Cent ($.01) each of
ALGOS PHARMACEUTICAL CORPORATION
CERTIFICATE OF STOCK
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed.
This Certificate is not valid until countersigned by the Transfer Agent.
WITNESS the facsimile seal of the Corporation and the signatures of its
duly authorized officers.
Dated
[SEAL]
/s/ James Ledley /s/ John W. Lyle
ASSISTANT SECRETARY PRESIDENT
COUNTERSIGNED
AMERICAN STOCK TRANSFER & TRUST COMPANY
(NEW YORK, N.Y.)
BY TRANSFER AGENT
AUTHORIZED SIGNATURE
AMERICAN BANKNOTE COMPANY
800 BLAIR MILL ROAD
MONGHAN, PA 19011
215-857-3480
SALESPERS0N- J. NAPOLITANO-212-657-8100
/home/ed/inprogress/home11/Algos46284
PRODUCTION COORDINATOR - ALBERT DERMOVSPSIAN - 215-620-2100
PROOF OF SEPTEMBER 9, 1998
ALGOS PHARMACEUTICAL
H46264bk
Opr. eg NEW
/net/banknote/home11/A
<PAGE>
<PAGE>
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - __________Custodian___________
TEN ENT - as tenants by the portfolios (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act_____________
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For Value Received, _______________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
________________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated ___________________________________
______________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH
THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE
IN EVENT PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.
AMERICAN BANKNOTE COMPANY
850 BLAIR MILL ROAD
HORGHAM, PA 19316
215-857-3100
SALESPERS0N- J. NAPOLITANO-212-657-8100
/home/ed/inprogress/home11/Algos46284
PRODUCTION COORDINATOR - ALBERT DERMOVSPSIAN - 215-620-2100
PROOF OF SEPTEMBER 9, 1998
ALGOS PHARMACEUTICAL
H46264bk
Opr. eg NEW
/net/banknote/home11/A
<PAGE>
<PAGE>
COLLINGWOOD
PLAZA
LEASE AGREEMENT
with
U.S. MEDICAL TECHNOLOGIES, INC.
<PAGE>
<PAGE>
INDEX
<TABLE>
<CAPTION>
Section Page No.
<S> <C> <C>
1 DESCRIPTION 1
2 LANDLORD'S WORK AND ROOF REPAIR 2
3 TERM 2
4 BASIC RENT 2
5 ASSIGNMENT, SUBLETTING 3
6-A RULES, REGULATIONS 5
6-B REFUSE ADMISSION 6
7 DAMAGES TO BUILDING/WAIVER OF SUBROGATION 6
8 EMINENT DOMAIN 8
9-A BANKRUPTCY OF TENANT 9
9-B DEFAULT OF TENANT 10
10 LESSOR'S REMEDIES ON DEFAULT 10
11 DEFICIENCY 11
12 SUBORDINATION OF LEASE 13
13 SECURITY DEPOSIT 14
14 RIGHT TO CURE LESSEE'S BREACH 15
15 MECHANIC'S LIENS 16
16 RIGHT TO INSPECT AND REPAIR 16
17 SERVICES TO BE PROVIDED BY LESSOR/LESSOR'S EXCULPATION 16
</TABLE>
ii
<PAGE>
<PAGE>
INDEX
<TABLE>
<CAPTION>
Section Page No.
<S> <C> <C>
18 INTERRUPTION OF SERVICES OR USE 17
19 UTILITIES 18
20 ADDITIONAL RENT 18
21 LESSEE'S ESTOPEL 22
22 RIGHT TO SHOW PREMISES 22
23 WAIVER OF JURY TRIAL/NON MANDATORY COUNTERCLAIMS 23
24 LATE CHARGE 23
25 INSURANCE 23
-A LESSEE'S INSURANCE 23
-B LESSOR'S INSURANCE 27
-C WAIVER OF SUBROGATION 28
26 NO OTHER REPRESENTATIONS 28
27 QUIET ENJOYMENT 28
28 INDEMNITY 28
29 APPLICABILITY TO HEIRS AND ASSIGNS 29
30 PARKING SPACES 30
31 LESSOR'S EXCULPATION 30
32 RULES OF CONSTRUCTION/APPLICABLE LAW 31
33 BROKER 32
</TABLE>
iii
<PAGE>
<PAGE>
INDEX
<TABLE>
<CAPTION>
Section Page No.
<S> <C> <C>
34 PERSONAL LIABILITY 33
35 NO OPTIONS 33
36 DEFINITIONS 34
37 LEASE COMMENCEMENT 35
38 NOTICES 36
39 ACCORD AND SATISFACTION 36
40 EFFECT OF WAIVERS 37
41 MORTGAGEE'S NOTICE AND OPPORTUNITY TO CURE 37
42 LESSOR'S RESERVED RIGHTS 38
43 CORPORATE AUTHORITY 38
44 GOVERNMENT REQUIREMENTS 39
45 ADDITIONAL CHARGES 39
46 INTERPRETATION 39
47 HOLDING OVER 39
48 TENANT'S OPTION TO EXPAND OR CANCEL 40
49 TENANT'S OPTION TO EXTEND 40
</TABLE>
iv
<PAGE>
<PAGE>
LEASE, made the 3rd day of March, 1992, between COLLINGWOOD PLAZA
ASSOCIATES (hereinafter called 'Lessor or Landlord'), whose address is 4900
Route 33, Wall Township, New Jersey 07719, and U.S. MEDICAL TECHNOLOGIES, INC.,
of the State of New Jersey (hereinafter called 'Lessee or Tenant'), whose
address is 28 Inlet Terrace, Belmar, New Jersey 07719.
WITNESSETH:
For and in consideration of the covenants herein contained, and upon the
terms and conditions herein set forth, Lessor and Lessee agree as follows:
1. DESCRIPTION. Lessor hereby leases to Lessee, and Lessee hereby hires
from Lessor, for use as executive offices and/or sales offices, the following
space: Approximately 999 (867 square feet office space and 132 square feet
common area) rentable square feet on the second (2nd) floor along with an
option, at tenants discretion to rent 1,000 square feet basement storage space
(hereinafter called 'Demised Premises' or 'Premises') which includes an
allocable share of the Common Facilities, as shown on the plan or plans,
initialed by the parties hereto, marked Exhibit A attached hereto and made part
of this Lease in the building known as Collingwood Plaza located at 4900 Route
33, Wall Township, New Jersey, Lot 54, Block 907, on the tax map of the Township
of Wall, (hereinafter called the 'Building'), which is situated on that certain
parcel of land (hereinafter called 'Office Building Area') as described on
1
<PAGE>
<PAGE>
Exhibit A attached hereto and made part of this Lease, together with the right
to use in common with other leases of the Building, their invitee, customers and
employees, those public areas of the Common Facilities as hereinafter defined.
2. LANDLORD'S WORK AND ROOF REPAIR.
(a) Landlord's Work. Landlord agrees to make the improvements in the Demised
Premises specified in Exhibit B annexed hereto, if any such work is specified
thereon and said work (hereinafter called 'Landlord's Work') shall be
substantially completed prior to the commencement of the term of this Lease.
Architecture, materials used in construction, and structural details of the
Landlord's Work shall be the choice of Landlord except as may otherwise be
specifically provided in Exhibit B. Landlord may substitute material provided
they are equal in quality.
(b) Roof Repair. Notwithstanding anything herein to the contrary, any presently
existing roof leakage in the Demised Premises will be repaired and all ceiling
tiles replaced at Landlord's expense and Landlord agrees to immediately correct
at its own expense any subsequent leakage or damage to the roof, ceiling, tiles,
interior space and furnishings in the Demised Premises.
3. TERM. The Premises are leased for a term of five (5) years, commencing
on April 1, 1992 and to end at 12:00 midnight on March 31, 1997 (hereinafter
referred to as the 'Term' or 'Lease Term').
4. BASIC RENT. The Lessee shall pay to Lessor during
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<PAGE>
<PAGE>
the Lease Term basic rent in the amount set forth in the following schedule
(hereinafter 'rent' or 'basic rent'), payable in such coin or currency of the
United States of America as at the time of payment shall be legal tender for the
payment of public and private debts. The basic rent shall be payable in advance
on the first day of each calendar month during the Lease Term in the amount
indicated in the following schedule:
<TABLE>
<CAPTION>
RENTAL RATE ANNUALLY MONTHLY
- -------------------------------------------------------------------------------------- ---------- -------
<S> <C> <C>
Years 1, 2 & 3:
$11.00 psf plus utility & janitorial $10,989.00 $915.75
* 1,000 square feet storage at $5.25 psf $ 5,250.00 $437.50
Year 4 and 5:
$11.50 psf plus utility & janitorial $11,488.50 $957.37
* 1,000 square feet storage at $5.475 psf $ 5,475.00 $456.25
</TABLE>
5. ASSIGNMENT, SUBLETTING. Tenant shall not assign, mortgage or encumber
this Lease, or sublet, underlet, license or permit the Demised Premises or any
part thereof to be used by others, whether voluntarily or by operation of law or
otherwise, without the prior written consent of Landlord in each instance which
consent shall not be unreasonably withheld or delayed, except that tenant may
sublet the demised premises for any lawful purpose to any subtenant consistent
with the quality of tenants in the building. The sale or transfer of greater
than FIFTY PERCENT (50%) of the stock of Tenant, if Tenant be a corporation, or,
if Tenant be a partnership or joint venture, a sale of an interest in such
partnership or joint venture shall be deemed an
- --------------------------------------------------------------------------------
* Optional storage space
3
<PAGE>
<PAGE>
assignment of this Lease, unless (i) it is made amongst the existing
stockholders, partners or joint venturers of Tenant; or (ii) it results from the
death of a stockholder, partner or joint venturer of Tenant. Any form or manner
of merger or reorganization of a corporate Tenant which results in a shift of
control or management rights to new principals or stockholders shall be deemed
to be an assignment of this Lease. If this Lease be assigned or if the Demised
Premises or any part thereof be underlet or occupied by any person or entity
other than Tenant, Landlord may collect rent from the assignee, undertenant or
occupant, and apply the net amount collected to all rent and/or additional
charges herein reserved, but no such assignment, underletting, occupancy or
collection shall be deemed a waiver of this covenant or the acceptance of the
assignee, undertenant or occupant as tenant, or a release of any performance of
the covenants on Tenant's part herein contained. Any consent by Landlord to an
assignment or underletting shall not in any manner be construed to relieve
Tenant or any assignee or undertenant from obtaining the consent in writing of
Landlord to any further assignment or underletting. Valid consent shall not be
unreasonably delayed or withheld. Any assignment or sublease made by Tenant
without Landlord's prior written consent shall be void and a default under this
Lease, giving Landlord the right to exercise all of its remedies hereunder,
including but not limited to the right to terminate this lease.
Included within and in addition to any other conditions
4
<PAGE>
<PAGE>
or obligations imposed upon Tenant or its successor in the event of an
assumption and/or assignment are the following: (i) the cure of any monetary
defaults and the reimbursement or pecuniary loss within not more than thirty
(30) days of assumption and/or assignment; and (ii) the use of the Demised
Premises for the permitted uses unchanged; and (iii) in the case of any
proceedings under the U.S. Bankruptcy Code the reorganized debtor or assignee of
such debtor in possession or of Tenant's trustee demonstrates in writing that it
has sufficient background including, but not limited to, substantial rental
experience in office buildings of comparable size and financial ability to
operate a similar business establishment out of the leased premises in the
manner contemplated in this Lease and meet all other reasonable criteria of
Landlord as did Tenant upon execution of this Lease; and (iv) the prior written
consent of any mortgagee to which this Lease has been assigned as collateral
security; and (v) the Demised Premises, at all times, remains substantially the
same and no physical changes of any kind may be made to the premises unless in
compliance with the applicable provisions of this Lease.
6. A. RULES, REGULATIONS. Tenant agrees that at all times during the term
of this lease it shall comply with all rules and regulations together with all
reasonable amendments, modifications, deletions and other reasonable rules and
regulations for the use and occupancy of the Office Building as Landlord may
from time to time promulgate, on written notice to
5
<PAGE>
<PAGE>
Lessee, for the safety, care and cleanliness of the Building and the comfort,
quiet and convenience of other occupants of the Building. Rules and Regulations,
when published must be reasonable and uniformly applied to all tenants. Lessee
shall not place a load upon any floor of the Demised Premises exceeding the
floor load per square foot which it was designed to carry and which is allowed
by law. Lessor reserves the right to prescribe the weight and position of all
safes, business machines and mechanical equipment. Such installations shall be
placed and maintained by Lessee, at Lessee's expense, in settings sufficient, in
Lessor's judgment, to absorb and prevent vibration, noise and annoyance.
B. REFUSE ADMISSION. Landlord reserves the right to refuse admissions to
the Office Building and the Demised Premises, outside of ordinary business
hours, to any person not known to any watchman in charge or properly identified
to eject any person from the Office Building whose conduct may tend to be
harmful to the safety and interests of the tenants and the property therein; to
close any part of the Office Building during any riot or other commotion where
person or property may be imperiled.
7. DAMAGES TO BUILDING/WAIVER OF SUBROGATION. If the Building is damaged by
fire or any other cause to such extent that the cost of restoration, as
reasonably estimated by Lessor, will equal or exceed twenty-five (25%) percent
of the replacement value of the Building (exclusive of foundations) just prior
to
6
<PAGE>
<PAGE>
the occurrence of the damage or if any damage to the Premises costing more than
Fifty Thousand and 00/100 ($50,000.00) Dollars occurs within the last twelve
(12) months of the Lease Term, then Lessor may, no later than the sixtieth
(60th) day following the damage, give Lessee a notice of election to terminate
this Lease, or, if the cost of restoration will equal or exceed fifty (50%)
percent of such replacement value and if the Premises shall not be reasonably
usable for the purpose for which they are leased hereunder, then Lessee may, no
later than the sixtieth (60th) day following the damage, give Lessor a notice of
election to terminate this Lease. In either said event of election, this Lease
shall be deemed to terminate on the thirtieth (30th) day after the giving of
said notice, and Lessee shall surrender possession of the premises within a
reasonable time thereafter; and the basic rent, and any Additional Rent paid for
any period beyond the latter of the thirtieth (30th) day after said notice or
the date Lessee surrenders possession shall be repaid to Lessee. If the cost of
restoration shall not entitle Lessor to terminate this Lease, or if, despite the
cost, Lessor does not elect to terminate this Lease pursuant to any right
contained herein or if Lessor shall have no such right, Lessor shall restore the
Building and the Premises with reasonable promptness, subject to Force Majeure,
as hereinafter defined.
In any case in which use of the Premises is affected by any damage to the
Building, there shall be either an abatement or an equitable reduction in basic
rent based upon any decrease in
7
<PAGE>
<PAGE>
usable square footage depending on the period for which and the extent to which
the Premises are not reasonably usable for the purpose for which they are leased
hereunder. The words 'restoration' and 'restore' as used in this Section shall
include repairs. If the damage results from the fault of Lessee, or Lessee's
agents, servants, visitors or licensees, Lessee shall not be entitled to any
abatement or reduction in basic rent, except to the extent of any rent insurance
received by Lessor.
Notwithstanding the provisions of this Section of the Lease, in the event
of any loss or damage to the Building, the Premises and/or any contents (herein
'property damage'), each party waives all claims against the other for any such
loss or damage and each party shall look only to any insurance which it has
obtained to protect against such loss (or in the case Lessee, waives all claims
against any tenant of the Building that has similarly waived claims against such
Lessee) and each party shall obtain, for each policy of such insurance,
provisions waiving any claims against the other party (and against any other
tenant(s) in the Building that has waived subrogation against the Lessee)
for loss or damage within the scope of such insurance.
8. EMINENT DOMAIN. If Lessee's use of the Premises is materially affected
due to the taking by eminent domain of (a) the Premises or any part thereof or
any estate therein; or (b) any other part of the Building; then, in either
event, this Lease shall terminate on the date when title vests pursuant to such
taking. The rent, and any Additional Rent, shall be apportioned
8
<PAGE>
<PAGE>
as of said termination date and any basic or Additional Rent paid for any period
beyond said date shall be repaid to Lessee. In the event of a partial taking
which does not affect a termination of this Lease but does deprive Lessee of the
use of a portion of the Demised Premises, there shall either be an abatement or
an equitable reduction of the basic rent based upon any decrease in usable
square footage depending on the period for which and the extent to which the
Premises so taken are not reasonably usable for the purpose for which they are
leased hereunder. Lessee shall not be entitled to any part of the award for such
taking or any payment in lieu thereof, but Lessee may file a separate claim for
any taking of fixtures and improvements owned by Lessee which have not become
Lessor's property, and for moving expenses, provided the same shall in no way
affect or diminish Lessor's award.
9. BANKRUPTCY OF TENANT. A. Upon the filing of a petition by or against
Tenant under the Bankruptcy Code, Tenant, as debtor and as debtor in possession,
and any trustee who may be appointed agree as follows: (i) to perform each and
every obligation of Tenant under this Lease until such time as this Lease is
either rejected or assumed by order of the United States Bankruptcy Court; and
(ii) to pay monthly in advance on the first day of each month as reasonable
compensation for use and occupancy of the Demised Premises an amount equal to
all rent and other charges otherwise due pursuant to this Lease; and (iii) to
reject or assume this Lease within sixty (60) days of the filing
9
<PAGE>
<PAGE>
of such petition under Chapter 7 of the Bankruptcy Code or within one hundred
twenty (120) days (or such shorter term as Landlord, in its sole discretion, may
deem reasonable so long as notice of such period is given) of the filing of a
petition under any other Chapter; and (iv) to give Landlord at lease forty-five
(45) days prior written notice of any proceeding relating to any assumption of
this Lease; and (v) to give at least thirty (30) days prior written notice of
any abandonment of the Demised Premises; any such abandonment to be deemed a
rejection of this Lease; and (vi) to do all other things of benefit to Landlord
otherwise required under the Bankruptcy Code; and (vii) to be deemed to have
rejected this Lease in the event of the failure to comply with any of the above;
and (viii) to have consented to the entry of an order by an appropriate United
States Bankruptcy Court providing all of the above, waiving notice and hearing
of the entry of same.
B. No default of this Lease by Tenant, either prior to or subsequent to
the filing of such a petition, shall be deemed to have been waived unless
expressly done so in writing by Landlord.
10. LESSOR'S REMEDIES ON DEFAULT. If Lessee defaults in the payment of basic
rent, or any Additional Rent, or defaults in the performance of any of the other
covenants and conditions hereof or permits the Premises to become deserted,
abandoned or vacated, Lessor may give Lessee notice of such default, and if
Lessee does not cure any basic rent or Additional Rent default
10
<PAGE>
<PAGE>
within five (5) days of the giving of such notice within forty-eight (48) hours
of the giving of such notice or any other default within fifteen (15) days after
giving of such notice (or if such other default is of such nature that it cannot
be completely cured within such period, if Lessee does not commence such curing
within such fifteen (15) days and thereafter proceed with reasonable diligence
and in good faith to cure such default), then lessor may terminate this Lease on
not less than ten (10) days' notice to Lessee, and on the date specified in said
notice, Lessee's right to possession of the Demised Premises shall cease, and
Lessee shall then quit and surrender the Premises to Lessor, but Lessee shall
remain liable as hereinafter provided. If this Lease shall have been so
terminated by Lessor, Lessor may at any time thereafter resume possession of the
Premises by any lawful means and remove Lessee or other occupants and their
effects.
11. DEFICIENCY. In any case where Lessor has recovered possession of the
Premises by reason of Lessee's default, Lessor may, at Lessor's option, occupy
the Premises or cause the Premises to be redecorated, altered, divided,
consolidated with other adjoining premises, or otherwise changed or prepared for
reletting, and may relet the Premises or any part thereof as agent of Lessee or
otherwise, for a term or terms to expire prior to, at the same time as, or
subsequent to, the original expiration date of this Lease, at Lessor's option,
and receive the rent therefor. Rent so received shall be applied first to
11
<PAGE>
<PAGE>
the payment of such expenses as Lessor may have incurred in connection with the
recovery of possession, redecorating, altering, dividing, consolidating with
other adjoining premises, or otherwise changing or preparing for reletting, and
the reletting, including brokerage and reasonable attorney's fees, and then to
the payment of damages in amounts equal to the rent hereunder and to the costs
and expenses of performance of the other covenants of Lessee as herein provided.
Lessee agrees, in any such case, whether or not Lessor has relet, to pay to
Lessor damages equal to the basic and Additional Rent and other sums herein
agreed to be paid by Lessee, as and when due, less the net proceeds of the
reletting, if any, as ascertained from time to time, as of the due date, and the
same shall be payable by Lessee on the several rent days above specified, Lessee
shall not be entitled to any surplus accruing as a result of any such reletting,
nor shall any surplus be applied to offset the damages referred to in the
preceding sentence. In reletting the Premises as aforesaid, Lessor may grant
rent concessions, and Lessee shall not be credited therewith. No such reletting
shall constitute a surrender and acceptance or be deemed evidence thereof. If
Lessor elects, pursuant hereto, actually to occupy and use the Premises or any
part thereof during any part of the balance of the Lease Term as originally
fixed or since extended, there shall be allowed against Lessee's obligation for
rent or damages as herein defined, during the period of Lessor's occupancy, the
reasonable value of such occupancy, not to exceed in any event
12
<PAGE>
<PAGE>
the basic and Additional Rent herein reserved and such occupancy shall not be
construed as a release of Lessee's liability hereunder.
Said damages shall become due and payable to Lessor immediately upon such
breach of this Lease and without regard to whether this Lease be terminated or
not, and if this Lease be terminated, without regard to the manner in which it
is terminated. In the computation of such damages, the difference between any
installments of rent (basic and Additional) thereafter becoming due and the fair
and reasonable rental value of the Premises for the period for which such
installment was payable shall be discounted to the date of such default at the
rate of not more than four (4%) percent per annum.
Lessee hereby waives all right of redemption to which Lessee or any person
under Leases might be entitled by any law now or hereafter in force.
Lessor's remedies hereunder are in addition to any remedy allowed by law
and notwithstanding any provision above to the contrary. Lessor shall at all
times have the duty to mitigate its damages hereunder.
Lessee agrees to pay, as Additional Rent, all reasonable attorney's fees
and other expenses incurred by the Lessor in enforcing any of the obligations
under this Lease, this covenant to survive the expiration or sooner termination
of this Lease.
18. SUBORDINATION OF LEASE. This Lease and any option
13
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<PAGE>
contained herein shall, at Lessor's option, or at the option of any holder of
any underlying lease or holder of any first mortgage or trust deed, be subject
and subordinate to any such underlying leases and to any such first mortgage
which may now or hereafter affect the real property of which the Premises form a
part, and also to all renewals, modifications, consolidations and replacements
of said underlying leases and said first mortgage. Although no instrument or act
on the part of Lessee shall be necessary to effectuate such subordination,
Lessee will, nevertheless, execute and deliver such further instruments
confirming such subordination of this Lease as may be desired by the holders of
said first mortgage or by any of the lessors under such underlying leases. If
any underlying lease to which this Lease is subject terminates, Lessee shall, on
timely request, attorn to the owner of the reversion.
13. SECURITY INTEREST. Lessee shall deposit with Lessor on the signing of
this Lease a sum equal to one month rent as referred to in Paragraph 4 as
security for the performance of Lessee's obligations under this Lease, including
without limitation, the surrender of possession of the Premises to Lessor as
herein provided. If Lessor applies any part of said deposit to cure any default
of Lessee, Lessee shall on demand deposit with Lessor the amount so applied so
that Lessor shall have the full deposit on hand at all times during the Term of
this Lease. In the event of a bona fide sale, subject to this Lease, Lessor
shall have the right to transfer the security to the vendee and
14
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<PAGE>
Lessor shall be considered released by Lessee from all liability for the return
of such security; and Lessee agrees to look solely to the new Lessor for the
return of said security, and it is agreed that this shall apply to every
transfer or assignment made of the security to a new lessor. The security
deposited as provided for herein shall not be mortgaged, assigned or encumbered
by Lessee without the written consent of Lessor.
In the event of the insolvency as defined by the U.S. Bankruptcy Code of
Lessee, or in the event of the entry of a judgment of bankruptcy in any court
against Lessee which is not discharged within thirty (30) days after entry, or
in the event a petition is filed by or against Lessee under any chapter of the
bankruptcy laws of the State of New Jersey or the United States of America, then
in such event, Lessor may require the Lessee to deposit additional security in
an amount equal to one (1) year's basic rent and Additional Rent (which
Additional Rent shall be reasonably estimated by Lessor) to adequately assure
Lessee's performance of all of its obligations under this Lease including all
payments subsequently accruing. Failure of Lessee to deposit the security
required by this Section within ten (10) days after Lessor's written demand
shall constitute a material breach of this Lease by Lessee. Notwithstanding
anything herein to the contrary, the security deposits shall be returned by
Landlord to tenant within 18 months of the commencement of the term of the
lease.
14. RIGHT TO CURE LESSEE'S BREACH. If Lessee breaches
15
<PAGE>
<PAGE>
any covenant or condition of this Lease, Lessor may, on reasonable written
notice to Lessee (except that no notice need be given in case of emergency),
cure such breach at the expense of Lessee and the reasonable amount of all
expenses, including attorneys' fees, incurred by Lessor in so doing (whether
paid by Lessor or not) shall be deemed Additional Rent payable on demand.
15. MECHANIC'S LIENS. Lessee shall, within fifteen (15) days after notice
from Lessor, discharge or satisfy by bonding or otherwise any mechanic's liens
for materials or labor claimed to have been furnished to the Premises on
Lessee's behalf. Lessee shall not permit any Notice of Intentions to be filed
against the Premises or Building or Office Building Area as a result of Lessee's
acts and shall cause any such filings to be terminated within three (3) days.
16. RIGHT TO INSPECT AND REPAIR. Lessor may enter the Premises but shall
not be obligated to do so (except as required by any specific provision of this
Lease) at any reasonable time on reasonable notice to Lessee (except that no
notice need be given in case of emergency) for the purpose of inspection or the
making of such repairs, replacement or additions, in, to, on and about the
Premises or the Building, as Lessor deems necessary or desirable. Lessee shall
have no claims or cause of action against Lessor by reason thereof.
17. SERVICES TO BE PROVIDED BY LESSOR/LESSOR'S EXCULPATION. Subject to
intervening laws, ordinances, regulations and executive orders, while Lessee is
not in default
16
<PAGE>
<PAGE>
under any of the provisions of this Lease, Lessor agrees to furnish, except on
holidays as set in Lessor's Rules and Regulations:
A. Cold and hot water for drinking and lavatory purposes.
B. Elevator service during Building Hours.
C. Restroom supplies and exterior window cleaning when reasonably required,
minimum twice yearly.
D. Heating, Ventilation and Air Condition (HVAC) (at tenants' expense as
referred to in paragraph 19).
E. Refuse collection (by outside dumpster).
18. INTERRUPTION OF SERVICES OR USE. Interruption or curtailment of any
service maintained in the Building or at the Office Building Area (unless caused
by Force Majeure, as hereinafter defined) shall not entitle Lessee to any claim
against Lessor or to any abatement of basic rent or Additional Rent, and shall
not constitute a constructive or partial eviction, unless Lessor fails to take
measures as may be reasonable under the circumstances to restore the service. If
Lessor fails to take such measures as may be reasonable under the circumstances
to restore the curtailed service, Lessee's remedies shall be limited to an
abatement of basic rent or Additional Rent for the duration of the curtailment
beyond said reasonable period or to a claim of constructive eviction. If the
Premises are rendered untenantable in whole or in part, for a period of ten
(ten) consecutive business days, by the making of repairs,
17
<PAGE>
<PAGE>
replacements or additions, other than those made with Lessee's consent or caused
by misuse or neglect by Lessee, or Lessee's agents, servants, visitors or
licensees, there shall be a proportionate abatement of rent from and after said
tenth (10th) consecutive business day and continuing for the period of such
untenantability. In no event shall Lessee be entitled to claim a constructive
eviction from the Premises unless Lessee shall first have notified Lessor in
writing of the condition or conditions giving rise thereto, and, if the
complaints be justified, unless Lessor shall have failed, within a reasonable
time after receipt of such notice, to remedy, or commence and proceed with due
diligence to remedy, such condition or conditions, all subject to Force Majeure,
as hereinafter defined.
19. UTILITIES. Tenant shall pay directly to the utility company, all
charges for electricity, and natural gas consumed in or upon the Demised
Premises, which shall be separately metered.
20. ADDITIONAL RENT. It is expressly agreed that Lessee will pay in
addition to the basic rent, provided in Section 3 above, an additional rental to
cover Lessee's Proportionate Share, as hereinafter defined, of the increased
cost to Lessor, for each of the categories enumerated herein, over the 'Base
Period Costs' (as hereinafter defined) for each of said categories.
A. Tax Escalation. If the Real Estate Taxes for the Building and Office
Building Area at which the Demised Premises
18
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<PAGE>
are located for any Lease Year or proportionate part thereof, during the Lease
Term, shall be greater than the Base Real Estate Taxes (adjusted proportionately
for periods less than a Lease Year), then Lessee shall pay to Lessor as
Additional Rent, its Proportionate Share, as hereinafter defined, of all such
excess Real Estate Taxes and, conversely, in the event of a reduction in Real
Estate Taxes there shall be a reduction in Additional Rent on the same basis.
As used in the Subsection 20(A), the words and terms which follow mean and
include the following:
(i) The Base Period Costs for Real Estate Taxes, herein the 'Base Real
Estate Taxes,' shall be those real estate taxes assessed against the
Building and Office Building Area during Calendar Year 1992 or such year
thereafter as the site is reassessed to include the completed office
building.
(ii) 'Real Estate Taxes' shall mean the property taxes and assessments
imposed upon the Building and Office Building Area, or upon the rent, as
such, payable to Lessor, including, but not limited to, real estate, city,
county, village, school and transit taxes, or taxes, assessments or charges
levied, imposed, or assessed against the Building and Office Building Area
by any other taxing authority, whether general or specific, ordinary or
extraordinary, foreseen or unforeseen. If due to a future change in
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the method of taxation, any franchise, income or profit tax shall be levied
against Lessor in substitution for, or in lieu of, or in addition to, any
tax which would otherwise constitute a Real Estate Tax, such franchise,
income or profit tax shall be deemed to be a Real Estate Tax for the
purposes hereof; conversely, any additional real estate tax hereafter
imposed in substitution for, or in lieu of, any franchise, income or profit
tax (which is not in substitution for, or in lieu of, or in addition to, a
Real Estate Tax as hereinbefore provided) shall not be deemed a Real Estate
Tax for the purposes hereof. Notwithstanding anything contained herein to
the contrary, Lessee shall assume and pay to Lessor in full at the time of
paying the basic rent any excise, sales, use, gross receipts or other taxes
(other than a net income or excess profit tax) which may be imposed on or
measured by such Fixed Basic Rent or may be imposed on or on account of the
letting and which Lessor may be required to pay or collect under any law
now in effect or hereafter enacted.
B. Lease Year. As used in this Lease, Lease Year shall mean the twelve (12)
month period commencing on the Commencement Date and each twelve (12) month
period thereafter. Once the base costs are established, in the event any lease
period is less than twelve (12) months, then the Base Period
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Costs for the categories listed above shall be adjusted to equal the proportion
that said period bears to twelve (12) months, and Lessee shall pay to Lessor as
Additional Rent for such period, an amount equal to Lessee's Proportionate
Share, as hereinafter defined, of the excess for said period over the adjusted
base with respect to each of the aforesaid categories.
C. Books and Records. For the protection of Lessee, Lessor shall maintain
books of account which shall be open to Lessee and its representatives at all
reasonable times so that Lessee can determine that such tax Costs have, in fact,
been paid or incurred. Any disagreement with respect to any one or more of said
charges if not satisfactorily settled between Lessor and Lessee shall be
referred by either party to an independent certified public accountant to be
mutually agreed upon, and if such an accountant cannot be agreed upon, the
American Arbitration Association may be asked by either party to select an
arbitrator, whose decision on the dispute will be final and binding upon both
parties, who shall jointly share any cost of such arbitration. Pending
resolution of said dispute, Lessee shall pay to Lessor the sum so billed by
Lessor subject to its ultimate resolution as aforesaid.
D. Right of Review. Once Lessor shall have finally determined said Tax
Costs at the expiration of a Lease Year, then as to the item so established,
Lessee shall only be entitled to dispute said charge as finally established for
a period of six (6) months after such charge is finally established, and Lessee
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specifically waives any rights to dispute any such charge at the expiration of
said six (6) month period.
21. LESSEE'S ESTOPPEL. (A) Lessee shall, from time to time, within ten (10)
days of Lessor's written request, execute, acknowledge and deliver to Lessor a
written statement certifying that the Lease is unmodified and in full force and
effect, or that the Lease is in full force and effect as modified and listing
the instruments of modification; the dates to which the rents and charges have
been paid to the best of Lessee's knowledge, whether or not Lessor is in default
hereunder, and, if so, specifying the nature of the default; and any such other
reasonable information as Lessor may request. It is intended that any such
statement delivered pursuant to this Section may be relied on by a prospective
purchaser of Lessor's interest or mortgagee of Lessor's interest or assignee of
any mortgage of Lessor's interest.
B. Lessee's failure to deliver such statement within such time shall be
conclusive upon Lessee that: (i) this Lease is in full force and effect and not
modified except as Lessor may represent; (ii) not more than one month's rent has
been paid in advance; (iii) there are no such defaults; and, (iv) notices to
Lessee shall be sent to Lessee's mailing address as set forth in this Lease.
Notwithstanding the presumptions of this Section, Lessee shall not be relieved
of its obligation to deliver said statement.
22. RIGHT TO SHOW PREMISES. Lessor may show the
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Premises to prospective purchasers and mortgagees; and, during the twelve (12)
months prior to termination of this Lease, to prospective tenants, during
business hours on reasonable notice to Lessee.
23. WAIVER OF JURY TRIAL/NON-MANDATORY COUNTERCLAIMS. If Lessor commences
any summary proceedings or an action for nonpayment of Rent, Tenant shall not
interpose any non-mandatory counterclaim of any nature or description in any
such proceedings or action. Lessee and Lessor both waive a trial by jury of any
or all issues arising in any action or proceeding between the parties hereto or
their successors, under or connected with this Lease, or any of its provisions.
24. LATE CHARGE. Anything in this Lease to the contrary notwithstanding, at
Lessor's option, Lessee shall pay a 'Late Charge' of eight (8%) percent of any
installment of basic rent or Additional Rent paid more than five (5) days after
Landlords written notice to tenant the due date thereof for each monthly period
or portion thereof that the same remains unpaid, such Late Charge to cover the
extra expenses involved in handling delinquent payments.
25. INSURANCE.
A. Lessee's Insurance.
(1) Lessee covenants and represents, said representation being
specifically designed to induce Lessor to execute this Lease, that during
the entire Lease Term hereof, at its sole cost and expense, Lessee
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shall obtain, maintain and keep in full force and effect the following
insurance:
(a) Comprehensive General Liability Insurance coverage to include
personal injury, bodily injury, broad form property damage, operations
hazard, owner's protective coverage, contractual liability, products and
completed operations liability naming Lessor and Lessor's mortgagee or
trust deed holder and ground lessors (if any) as additional named
insured in limits of not less than Five Hundred Thousand and 00/100
($500,000.00) Dollars, combined single limit.
(b) Worker's Compensation insurance in form and amount as required
by law.
(c) Any other form or forms of insurance or any increase in the
limits of any of the aforesaid enumerated coverage or other forms of
insurance as Lessor or the mortgagees or ground lessors (if any) of
Lessor may reasonably require from time to time if in the reasonable
opinion of Lessor or said mortgagees or ground lessors said coverage
and/or limits become inadequate or less than that commonly maintained by
prudent tenants in similar buildings in the area by tenants making
similar uses.
(2) Tenant shall supply a certificate of
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insurance from Traveler's Insurance Company within 30 days of the date
of commencement of this lease.
(3) In the event of damage to or destruction of the Building
and/or Premises entitling Lessor or Lessee to terminate this Lease
pursuant to the terms hereof, and if this Lease be so terminated,
Lessee will immediately pay to Lessor all of its insurance proceeds,
if any, relating to the leasehold improvements and alterations (but
no Lessee's trade fixtures, equipment, furniture or other personal
property of Lessee in the premises) which have become Lessor's
property on installation or would have become Lessor's property at
the Lease Term's expiration or sooner termination. If the termination
of the Lease, at Lessor's election, is due to damage to the Building,
and if the Premises have not been so damaged, Lessee will deliver to
Lessor, in accordance with the provisions of this Lease, the
improvements and alterations to the Premises which have become on
installation or would have become at the Lease Term's expiration,
Lessor's property.
(4) Lessee agrees that it will not keep or use or offer for sale
(if sales of goods is a permitted use pursuant to this Lease) in or
upon the Premises or within the Building or Office Building Area any
article which may be prohibited by any insurance policy in
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force from time to time covering the Building or Office Building Area.
In the event Lessee's occupancy or conduct of business in or on the
Premises or Building or Office Building Area, whether or not Lessor
has consented to the same, results in any increase in premiums for
insurance carried from time to time by Lessor with respect to the
Building or Office Building Area, Lessee shall pay such increase in
premiums as Additional Rent within ten (10) days after being billed
therefore by Lessor. In determining whether increased premiums are a
result of Lessee's use and occupancy a schedule issued by the
organization computing the insurance rate on the Building or Office
Building Area showing the components of such rate shall be conclusive
evidence of the items and charges making up such rate. Lessee shall
promptly comply with all reasonable requirements of the insurance
authority or of any insurer now or hereafter in effect relating to the
Building, Office Building Area or Premises.
(5) If any insurance policy carried by Lessor, as provided
herein, shall be cancelled or cancellation shall be threatened or the
coverage thereunder reduced or threatened to be reduced in any way by
reason of the use or occupation of the Premises, Office Building Area
or Building or any part thereof by Lessee or any assignee or
sublessee of Lessee or anyone permitted by
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Lessee to be upon the Premises, and if Lessee fails to remedy the
conditions giving rise to said cancellation or threatened cancellation
or reduction in coverage or before (i) forty-eight (48) hours after
notice thereof from Lessor, or (ii) prior to said cancellation or
reduction becoming effective, Lessee shall be in default hereunder and
Lessor shall have all of the remedies available to Lessor pursuant to
this Lease.
B. Lessor's Insurance. Lessor covenants and agrees that throughout the
Lease Term it will insure the Building (excluding any property with respect to
which Lessee is obligated to insure pursuant this lease) against damage by fire
and standard extended coverage perils and public liability insurance in such
reasonable amounts with such reasonable deductibles as required by any mortgagee
or ground lessor if none as would be carried by a prudent owner of a similar
building in the area. Lessee further acknowledges that the exculpatory
provisions of this Lease and the provisions of this Section as to Lessor's
insurance are designed to insure adequate coverage as to Lessee's property and
business without regard to fault and avoid Lessor obtaining similar coverage for
said loss for its negligence or that of its agents, servants or employees which
would result in double coverage for the same perils includable as part of
Operating Expenses which are payable in part by Lessee. Lessor will not carry
insurance of any kind on Lessee's furniture or furnishings, or on any fixtures,
equipment, appurtenances or
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improvements of Lessee under this Lease and Lessor shall not be obligated to
repair any damage thereto or replace the same.
C. Waiver of Subrogation. Any policy or policies of fire, extended coverage
or similar casualty insurance, which either party obtains in connection with the
Premises, Building or Office Building Area shall include a clause or endorsement
denying the insurer any rights of subrogation against the other party (i.e.
Lessor or Lessee) for all perils covered by said policy. Should such waiver not
be available then the policy for which the waiver is not available must name the
other party as an additional named insured affording it the same coverage as
that provided the party obtaining said coverage.
26. NO OTHER REPRESENTATIONS. No representations or promises shall be
binding on the parties hereto except those representations and promises
contained herein or in some future writing signed by the party making such
representation(s) or promise(s).
27. QUIET ENJOYMENT. Lessor covenants that if, and so long as, Lessee pays
the rent, and any Additional Rent as herein provided, and performs the
covenants hereof, Lessor shall do nothing to affect Lessee's right to peaceably
and quietly have, hold and enjoy the Premises for the Lease Term herein
mentioned, subject to the provisions of this Lease.
28. INDEMNITY. Lessee shall indemnify and save harmless Lessor and its
agents against and from (a) any and all claims (i) arising from (x) the conduct
or management by Lessee,
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its subtenants, licensees, its or their employees, agents, contractors or
invitee on the Demised Premises or of any business therein, or (y) any work or
thing whatsoever done, or any condition created (other than by Lessor for
Lessor's account) in or about the Demised Premises during the Term of this Lease
or during the period of time, if any, prior to the Commencement Date that Lessee
may have been given access to the Demised Premises, or (ii) arising from any
negligent or otherwise wrongful act or omission of Lessee or any of its
subtenants or licensees or its or their employees, agents, contractors or
invitee, and (b) all costs, expenses and liabilities incurred in or in
connection with each such claim or action or proceeding brought thereon. In case
any action or proceeding be brought against Lessor by reason of any such
claim, Lessee, upon notice from Lessor, shall resist and defend such action or
proceeding.
29. APPLICABILITY TO HEIRS AND ASSIGNS. The provisions of this Lease shall
apply to, bind and inure to the benefit of Lessor and Lessee and their
respective heirs, successors, legal representatives and assigns. It is
understood that the term 'Lessor' as used in this Lease means only the owner, a
mortgagee in possession or a term lessee of the Building, so that in the event
of any sale of the Building or of any lease thereof or if a mortgage shall take
possession of the Premises, Lessor named herein shall be and hereby is entirely
freed and relieved of all covenants and obligations of Lessor hereunder accruing
thereafter, and it shall be deemed without further agreement that
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the purchaser, the term lessee of the Building, or the mortgagee in possession
has assumed and agreed to carry out any and all covenants and obligations of
Lessor hereunder.
30. PARKING SPACES. Lessee's occupancy of the Demised Premises shall
include the use of the parking lot, for a reasonable number of cars operated by
Lessee and its subtenants, licensees, invitee, concessionaires, officers and
employees. If any vehicle of Lessee, or of any subtenant, licensee,
concessionaire, or of their respective officers, agents or employees, is parked
in any part of the Common Facilities other than the employee parking area(s)
designated therefor by Lessor, and if, after reasonable written notice by Lessor
to Lessee for the removal of an offending vehicle, it's not removed, then Lessee
shall pay to Lessor such reasonable costs of removal as may be incurred by
Lessor from time to time. Lessor reserves the right to reassign assigned parking
to comparable facilities in connection with any modification to the Building or
Office Building Area permitted pursuant to this Lease. Nothing contained herein
shall be deemed to impose any obligation on Lessor to police the parking area.
31. LESSOR'S EXCULPATION. Lessor shall not be liable to Lessee for any loss
suffered by Lessee under any circumstances, including, but not limited to (i)
that arising from the negligence of Lessor, its agents, servants or invitee, or
from defects, errors or omissions in the construction or design of the Premises
and/or the Building and Office Building Area including
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the structural and nonstructural portions thereof or (ii) for loss of
or injury to Lessee or to Lessee's property or that for which Lessee is legally
liable from any cause whatsoever, including but not limited to theft or
burglary; or (iii) for that which results from or is incidental to the
furnishing of or failure to furnish or the interruption in connection with the
furnishing of any service which lessor is obligated to furnish pursuant to this
Lease; or (iv) for that which results from any inspection, repair, alteration or
addition or the failure thereof undertaken or failed to be undertaken by Lessor;
or (v) for any interruption to Lessee's business, however occurring, but this
exculpatory provision shall not preclude Lessee's remedies with respect to
interruption of services or use or in the case of Lessor's wilful or gross
negligence.
The aforesaid exculpatory Section is to induce the Lessor, in its
judgment, to avoid or minimize covering risks which are better quantified and
covered by Lessee either through insurance or self-insurance or combination
thereof thereby permitting potential cost savings in connection with the
Operating Expenses borne by Lessee.
32. RULES OF CONSTRUCTION/APPLICABLE LAW. Any table of contents,
captions, headings and titles in this Lease are solely for convenience of
reference and shall not affect its interpretation. This Lease shall be construed
without regard to any presumption or other rule requiring construction against
the party causing this Lease to be drafted. If any words or phrases
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in this Lease shall have been stricken out or otherwise eliminated, whether or
not any other words or phrases have been added, this Lease shall be construed as
if the words or phrases so stricken out or otherwise eliminated were never
included in this Lease and no implication or inference shall be drawn from the
fact that said words or phrases were so stricken out or otherwise eliminated.
Each covenant, agreement, obligation or other provision of this Lease on
Lessee's part to be performed, shall be deemed and construed as a separate and
independent covenant of Lessee, not dependent on any other provision of this
Lease. All terms and words used in this Lease, regardless of the number or
gender in which they are used, shall be deemed to include any other number and
any other gender as the context may require. This Lease shall be governed and
construed in accordance with the laws of the State of New Jersey. If any of the
provisions of this Lease, or the application thereof to any person or
circumstances, shall to any extent be invalid or unenforceable, the remainder of
this Lease, or the application of such provision or provisions to persons or
circumstances other than those as to whom or which it is held invalid or
unenforceable, shall not be affected thereby, and every provision of this Lease
shall be valid and enforceable to the fullest extent permitted by law.
33. BROKER. Lessee represents and warrants to Lessor that SITAR REALTY
GROUP is the sole broker with whom Lessee has negotiated in bringing about this
Lease, and Lessee agrees to
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indemnify and hold Lessor and its mortgagee(s) harmless from any and all claims
of other brokers and expenses in connection therewith arising out of or in
connection therewith arising out of or in connection with the negotiation of or
the entering into this Lease by Lessor and Lessee. Lessor makes the same
representations to Lessee and similarly indemnifies and holds Lessee harmless.
In no event shall Lessor's mortgagee(s) have any obligation to any broker
involved in this transaction.
34. PERSONAL LIABILITY. Notwithstanding anything in the contrary
provided in this Lease, it is specifically understood and agreed, such agreement
being a primary consideration for the execution of this Lease by Lessor, that
there shall be absolutely no personal liability on the part of Lessor, its
constituent members (to include but not be limited to officers, directors,
partners and trustees), their respective successors, assigns or any mortgagee in
possession (for the purpose of this Section, collectively referred to as
"Lessor"), with respect to any of the terms, covenants and conditions of this
Lease, and that Lessee shall look solely to the equity of Lessor in the Building
for the satisfaction of each and every remedy of Lessee in the event of any
breach by Lessor of any of the terms, covenants and conditions of this Lease to
be performed by Lessor, such exculpation of liability to be absolute and without
any exceptions whatsoever. A deficit capital account of any portion in Lessor
shall not be deemed an asset or property of Lessor.
35. NO OPTION. The submission of this Lease Agreement
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for examination does not constitute a reservation of or option for the Premises,
and this Lease Agreement becomes effective as a Lease Agreement only upon
execution and delivery thereof by Lessor and Lessee.
36. DEFINITIONS. A. Common Facilities. Common facilities shall include, by
way of example and not by way of limitation, the non-assigned parking areas;
lobby; elevator(s); fire stairs; public hallways; public lavatories; all other
general Building facilities that service all Building tenants; air conditioning
rooms; fan rooms; janitors' closets; electrical closets; telephone closets;
elevator shafts and machine rooms; flues; stacks; pipe shafts; and vertical
ducts with their enclosing walls. Lessor may at any time close temporarily any
Common Facilities to make repairs or changes therein or to effect construction,
repairs or changes within the Building or Office Building Area, or to discourage
non-tenant parking, and may do such other acts in and to the Common Facilities
as in its judgment may be desirable to improve the convenience thereof but shall
always in connection therewith endeavor to minimize any inconvenience to Lessee.
B. Force Majeure. Force Majeure shall mean and include those situations
beyond a party's control, including by way of example and not by way of
limitation, acts of God; accidents; repairs; strikes; shortages of labor,
supplies or materials; inclement weather; or, where applicable, the passage of
time while waiting for an adjustment of insurance proceeds.
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Any time limits required to be met by either party hereunder, whether
specifically made subject to Force Majeure or not, except those related to the
payment of rent or Additional Rent, shall, unless specifically stated to the
contrary elsewhere in this Lease, be automatically extended by the number of
days by which any performance called for is delayed due to Force Majeure.
C. Building Hours. As used in this Lease, the Building Hours shall be
Monday through Friday, 7:00 a.m. to 7:00 p.m., and Saturdays from 8:00 a.m. to
1:00 p.m., excluding those holidays as set forth in Lessor's Rules and
Regulations, except that Common Facilities lighting in the Building and Office
Building Area shall be maintained for such additional hours as, in Lessor's sole
judgment, is necessary or desirable to insure proper operation of the Building
and Office Building Area.
D. Additional Rent. As used in this Lease, Additional Rent shall mean all
sums in addition to basic rent payable by Lessee to Lessor pursuant to the
provisions of this Lease.
37. LEASE COMMENCEMENT. Notwithstanding anything contained herein to the
contrary, if Lessor, for any reason whatsoever, including Lessor's negligence,
or failure to complete Landlord's work, cannot deliver possession of the
Premises to Lessee at the commencement of the agreed Lease Term as set forth in
Section 3, this Lease shall not be void or voidable, nor shall Lessor be liable
to Lessee for any loss or damage resulting therefrom, but in that event, the
Lease Term shall be for the full term as specified above to commence from and
after the date
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Lessor shall have delivered possession of the Premises to Lessee or from the
date Lessor would have delivered possession of the Premises to Lessee but for
any reason attributable to Lessee (herein the 'Commencement Date') and to
terminate midnight of the day immediately preceding said first (1st) anniversary
of the Commencement Date, and if requested by Lessor, Lessor and Lessee shall,
by a writing signed by the parties, ratify and confirm said commencement and
termination dates.
38. NOTICES. Any notice by either party to the other shall be in writing
and shall be deemed to have been duly given only if sent by registered mail or
certified mail in a postpaid envelope addressed, if to Lessee, at 28 Inlet
Terrace, Belmar, New Jersey 07719; if to Lessor, at Lessor's address as set
forth above; or, to either at such other address as Lessee or Lessor,
respectively, may designate in writing. Notice shall be deemed to have been duly
given upon the tenth (10th) day after the mailing thereof.
39. ACCORD AND SATISFACTION. No payment by Lessee or receipt by Lessor of a
lesser amount than the rent and additional charges payable hereunder shall be
deemed to be other than a payment on account of the earliest stipulated basic
rent and Additional Rent, nor shall any endorsement or statement on any check or
any letter accompanying any check or payment for rent or Additional Rent be
deemed an accord and satisfaction, and Lesser may accept such check or payment
without prejudice to Lessor's right to recover the balance of such rent and
Additional Rent or
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pursue any other remedy provided herein or by law.
40. EFFECT OF WAIVERS. No failure by Lessor to insist upon the strict
performance of any covenant, agreement, term or condition of this Lease, or to
exercise any right or remedy consequent upon a breach thereof, and no
acceptance of full or partial rent during the continuance of any such breach,
shall constitute a waiver of any such breach or of such covenant, agreement,
term or condition. No consent or waiver, express or implied, by Lessor to or of
any breach of any covenant, condition or duty of Lessee shall be construed as a
consent or waiver to or of any other breach of the same or any other covenant,
condition or duty, unless in writing signed by Lessor.
41. MORTGAGEE'S NOTICE AND OPPORTUNITY TO CURE. Lessee agrees to give
any mortgagees by registered mail, a copy of any notice of default served upon
Lessor, provided that, prior to such notice, Lessee has been notified in writing
(by way of notice of assignment of rents and leases or otherwise) of the address
of such mortgagees and/or trust deed holders. Lessee further agrees that, if
Lessor shall have failed to cure such default within the time provided for in
this Lease, then the mortgagees and/or trust deed holders shall have an
additional thirty (30) days within which to cure such default, or if such
default cannot be cured within that time, then such additional time as may be
necessary, if within such thirty (30) days, any mortgagee and/or trust deed
holder has commenced and is diligently pursuing the remedies necessary to cure
such default
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(including but not limited to commencement of foreclosure proceedings if
necessary to effect such cure), in which event this Lease shall not be
terminated while such remedies are being so diligently pursued.
42. LESSOR'S RESERVED RIGHTS. Lessor and Lessee acknowledge that the
Premises are in a Building which is not open to the general public. Access to
the Building is restricted to Lessor, Lessee, their agents, employees and to
their invited visitors. In the event of a labor dispute including a strike,
picketing, informational or associational activities directed at Lessee or any
other tenant, Lessor reserves the right unilaterally to alter Lessee's ingress
and egress to the Building or make any other change in operating conditions to
restrict pedestrian, vehicular or delivery ingress and egress to a particular
location. Additionally, Lessor reserves unto itself all rights not granted
Lessee, including by way of example and not be way of limitation, the right to
change the name by which the Building is commonly known.
43. CORPORATE AUTHORITY. If Lessee is a corporation, Lessee represents
and warrants that this Lease and the undersigned's execution of this Lease has
been duly authorized and approved by the corporation's Board of Directors. The
undersigned officers and representatives of the corporation executing this Lease
on behalf of the corporation represent and warrant that they are officers of the
corporation with authority to execute this Lease on behalf of the corporation,
and within
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fifteen (15) days of execution hereof, Lessee will provide Lessor with a
corporate resolution confirming the aforesaid.
44. GOVERNMENT REQUIREMENTS. In the event of the imposition of
federal, state, or local governmental control, rules, regulations, or
restrictions on the use or consumption of energy or other utilities or with
respect to any other aspect of this Lease during the Term, both Lessor and
Lessee shall be bound thereby. In the event of a difference in interpretation
of any governmental control, rule, regulation or restriction between Lessor
and Lessee, the interpretation of Landlord shall prevail, and Lessor shall
have the right to enforce compliance, including the right of entry into the
Premises to effect compliance.
45. ADDITIONALS, CHARGES. Whenever in this Lease Tenant is required to
pay an "additional charge(s)" or other monies to Landlord, the same shall be
deemed to be additional rent, and Landlord shall have all remedies for the
collection thereof that Landlord has for the non-payment of rent hereunder.
46. INTERPRETATION. The laws of the State of New Jersey shall govern
the validity, performance and enforcement of this Lease. The invalidity or
unenforceability of any provision hereof shall not affect or impair any other
provision.
47. HOLDING OVER. In the event that Tenant shall remain in occupancy
of the Demised Premises for any period beyond the expiration of the term of this
Lease or any renewals or extensions thereof, such occupancy shall be deemed to
be a month-to-month tenancy at twice the Rent for the last lease year of the
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term, subject to all the other provisions of this Lease prevailing upon such
expiration; and the acceptance of rent or additional charges by Landlord shall
not be deemed to create a new or additional tenancy other than aforesaid.
48. TENANT'S OPTION TO EXPAND OR CANCEL. Tenant shall have the right, at
its election, to expand or cancel the lease as follows:
(a) Notwithstanding anything hereunto the contrary, tenant shall have the
option to lease approximately 500 square feet of space immediately adjacent to
the Demised Premises on the same terms and conditions as the initial Demised
Premises for a term co-terminus with that of the initial Demised Premises.
(b) Tenant may, upon nine (9) months notice to landlord, cancel this lease
and void all obligations hereunder provided that in that case the tenant shall
pay to the landlord the following:
1. Cancellation during . . .
first year: 80% of $17,500.00 or $14,000.00
second year: 60% of $17,500.00 or $10,500.00
third year: 40% of $17,500.00 or $7,000.00
fourth year: 20% of $17,500.00 or $3,500.00
49. TENANT'S OPTION TO EXTEND LEASE. Tenant shall have the right, at its
election, to extend the original term of this lease for two additional periods
of five (5) years each, exercisable upon the following terms and conditions:
(a) Tenant shall give Landlord written notice of such
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election to extend the term hereof not later than twelve (12) months prior
to the expiration of the then current term of this Lease;
(b) At the time of the exercise of such election: (i) Tenant shall
have a satisfactory net worth equal to not less than Tenant's net worth at
the commencement of the term of this Lease; and (ii) Tenant shall not then
be in default under this Lease; and
(c) Each such extended term shall be upon the same terms and
conditions as during the original term hereof except that:
(i) During each year of the first additional term, Tenant shall pay
rent at a rate to be negotiated between Lessor and Lessee but no more
than the prevailing rate in the surrounding geographic area increase
with a maximum of TWENTY-FIVE PERCENT (25%) increase over the previous
year's rate payable in equal monthly installments; and
(ii)Tenant shall have no further election to extend the term of
this Lease beyond the second (2nd) additional term.
Anything contained herein to the contrary notwithstanding, it is understood
and agreed that no exercise of its election to extend shall be effective if
Tenant shall be in default under this Lease at the commencement of such extended
term.
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IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
seals the day and year first above written.
COLLINGWOOD PLAZA ASSOCIATES,
Lessor
By /s/ W. PETER RAGAN
..................................
Dated: 3/3/92 W. PETER RAGAN, Authorized Partner
Dated: 3/3/92 U.S. MEDICAL TECHNOLOGIES, INC.
Lessee
By /s/ JOHN LYLE
..................................
JOHN LYLE
PRESIDENT
.....................................
ASST. SECRETARY
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AMENDMENT TO LEASE AGREEMENT
BETWEEN COLLINGWOOD PLAZA ASSOCIATES, LANDLORD
AND U.S. MEDICAL TECHNOLOGIES, INC., TENANT
THIS AMENDMENT TO LEASE AGREEMENT is made this day of July, 1993, by
and between COLLINGWOOD PLAZA ASSOCIATES ('Landlord') and U.S. Medical
Technologies, Inc. ('Tenant'), for the purpose of amending a certain Lease
Agreement between Landlord and Tenant dated March 3, 1992 (the 'Lease
Agreement').
WITNESSETH
For and in consideration of the covenants contained herein, and upon the
terms and conditions herein set forth, and for other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged,
Landlord and Tenant agree to amend the Lease Agreement as follows:
1 Paragraph 48 of the Lease Agreement is hereby deleted and the following
is substituted in lieu thereof:
48. TENANT'S OPTION TO EXPAND OR CANCEL. Tenant shall have the right,
at its election, to expand or cancel the lease as follows:
(a) Notwithstanding anything contained herein to the contrary, Tenant
shall have the option to lease approximately 500 square feet of space
immediately adjacent to the Demised Premises on the same terms and
conditions as the initial Demised Premises for a term co-terminus with that
of the initial Demised Premises. Landlord agrees that the said
approximately 500 square feet of adjacent space shall be available and
ready for occupancy by Tenant not later than 60 days following the receipt
by Landlord of written notice from Tenant exercising this option.
(b) Tenant may, upon four and one-half (4 1/2) months notice to
Landlord, cancel this lease and void all obligations hereunder provided
that in that case the tenant shall pay to the Landlord the following:
1. Cancellation during . . .
first year: 80% of $17,500.00 or $14,000.00
second year: 60% of $17,500.00 or $10,500.00
third year: 40% of $17,500.00 or $ 7,000.00
fourth year: 20% of $17,500.00 or $ 3,500.00
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2. In the event of any inconsistency between the terms of the Lease
Agreement and the terms of this Amendment, the terms of this Amendment
shall be controlling.
IN WITNESS WHEREOF, the undersigned parties execute this Amendment on the
date first above appearing, intending to be bound hereby and to amend the terms
of the Lease Agreement.
COLLINGWOOD PLAZA ASSOCIATES
Landlord
Dated: 8/16/93 By /s/ W. PETER RAGAN
..................................
W. Peter Ragan, a General Partner
U.S. MEDICAL TECHNOLOGIES, INC.
Tenant
Dated: 8/16/93 By /s/ JOHN W. LYLE
..................................
John W. Lyle, President
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SECOND AMENDMENT TO LEASE AGREEMENT
BETWEEN COLLINGWOOD PLAZA ASSOCIATES,
LANDLORD and U.S MEDICAL TECHNOLOGIES, INC., TENANT
THIS SECOND AMENDMENT TO LEASE AGREEMENT is made this 27 day of June, 1994,
by and between COLLINGWOOD PLAZA ASSOCIATES ("Landlord") and Algos
Pharmaceutical Corp. (formerly known as U.S. Medical Technologies, Inc.)
("Tenant"), for the purpose of amending a certain Lease Agreement between
Landlord and Tenant dated March 3, 1992 (the "Lease Agreement"), and an
amendment thereto dated July, 1993 and executed on August 16, 1993 (the "First
Amendment").
W I T N E S S E T H
For and in consideration of the covenants contained herein, and upon the
terms and conditions herein set forth, and for other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged,
Landlord and Tenant agree to amend the Lease Agreement as follows:
1 Paragraph 48 of the Lease Agreement as amended by the First Amendment
is hereby deleted and the following is substituted in lieu thereof:
48. TENANT'S OPTION TO EXPAND OR CANCEL. Tenant shall have the
right, at its election, to expand or cancel the lease as follows:
(a) Notwithstanding anything contained herein to the contrary,
Tenant shall have the option to lease approximately 400 square feet of
space immediately adjacent to the Demised Premises on the same terms and
conditions as the initial Demised Premises for a term co-terminus with that
of the initial Demised Premises. Tenant agrees to exercise the said option
and to take possession of the said space on the thirtieth (30th) day
following written notice from Landlord; provided, however, that the
Tenant shall not be obligated to take possession of the premises until it
is in move-in condition. For purposes of this Paragraph 48(a), the term
"move-in condition" shall be understood to mean that all of the "Landlord's
Work" as defined in Paragraph 2(a) of the Lease Agreement and the
Collingwood Plaza Workletter appended to the Lease Agreement shall be
completed at Landlord's sole cost. Landlord and Tenant agree that in the
event Tenant reaches agreement with Enterprise Rent-A-Car to purchase the
work-station furniture and room dividers currently in the space, then
Tenant shall be entitled to the first month's rent on the 400 square feet
of space free of charge, in consideration for which Landlord shall have no
obligation to perform the Landlord's Work as defined in Paragraph
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2(a) of the Lease Agreement and the Collingwood Plaza Workletter appended
thereto on the said 400 square feet of space.
(b) Tenant may, upon four and one-half (4 1/2) months' notice to
Landlord, cancel this lease and void all obligations hereunder provided
that in that case the Tenant shall pay to the Landlord the following:
1. Cancellation during . . .
first year: 80% of $17,500.00 or $14,000.00
second year: 60% of 17,500.00 or 10,500.00
third year: 40% of 17,500.00 or 7,000.00
fourth year: 20% of 17,500.00 or 3,500.00
"Combined rent shall mean the annual rent that Tenant would otherwise have
been obligated to pay to Landlord for the year in which the lease was
cancelled based upon the amount of space being occupied by Tenant at the
time of notice of cancellation.
(c) Notwithstanding anything contained herein to the contrary,
Landlord agrees to lease to Tenant approximately 500 square feet of space
located at the northwesterly corner of the building on the same terms and
conditions as the initial Demised Premises for a term co-terminus with that
of the Initial Demised Premises. Landlord agrees to make said approximately
500 square feet of additional space available and ready for occupancy by
July 10, 1994. Landlord agrees that it will perform at its own cost the
Landlord's Work on this space in accordance with Paragraph 2(a) of the
Lease Agreement and the Collingwood Plaza Workletter appended thereto,
which work will include but not necessarily be limited to repainting the
space, installing carpeting to match Tenant's existing carpeting, and
removing the closet and restoring the wall. Landlord further agrees that
Tenant shall be entitled to the same allowances with respect to this space
as were provided in connection with the initial Demised Premises.
(d) Landlord agrees to divide evenly with Tenant the cost of
installing new carpeting in the hallway extending from the initial Demised
Premises to the exit door at the northwesterly corner of the building,
which carpeting will match Tenant's existing carpeting in the initial
Demised Premises.
2. In the event of any inconsistency between the terms of the Lease
Agreement, the terms of the First Amendment and the terms of this Second
Amendment, the terms of this Second Amendment shall be controlling.
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IN WITNESS WHEREOF, the undersigned parties execute this Amendment on the
date first above appearing, intending to be bound hereby and to amend the terms
of the Lease Agreement.
COLLINGWOOD PLAZA ASSOCIATES
Landlord
Dated: 6/27/94 By: /s/ W. PETER RAGAN
--------------------------------------
W. Peter Ragan, a General Partner
ALGOS PHARMACEUTICAL CORP.
(formerly U.S. Medical Technologies, Inc.)
Tenant
Dated: 6/27/94 By: /s/ JOHN W. LYLE
--------------------------------------
John W. Lyle, President
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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 16, 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 17, 1996
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