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<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 8-A
FOR REGISTRATION OF CERTAIN CLASSES OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF THE
SECURITIES EXCHANGE ACT OF 1934
ALGOS PHARMACEUTICAL CORPORATION
- - --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 22-3142274
---------------------------------------- --------------
(STATE OF INCORPORATION OR ORGANIZATION) (IRS EMPLOYER
IDENTIFICATION NO.)
4900 ROUTE 33, COLLINGWOOD PLAZA; NEPTUNE, NEW JERSEY 07753
----------------------------------------------------- ----------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
If this Form relates to the If this Form relates to the
registration of a class of debt registration of a class of debt
securities and is effective upon filing securities and is to become effective
pursuant to General simultaneously with the
Instruction A(c)(1) please check the effectiveness of a concurrent
following box. [ ] registration statement under the
Securities Act of 1933 pursuant to
General Instruction A(c)(2) please
check the following box. [ ]
Securities to be registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
------------------- ------------------------------
COMMON STOCK, $.01 PAR VALUE NASDAQ NATIONAL MARKET
- - ----------------------------------- -------------------------------------
- - ----------------------------------- -------------------------------------
Securities to be registered pursuant to Section 12(g) of the Act:
NONE
- - --------------------------------------------------------------------------------
(TITLE OF CLASS)
- - --------------------------------------------------------------------------------
(TITLE OF CLASS)
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ITEM 1. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
For a description of the common stock, $.01 par value per share
(the "Common Stock") of the Registrant, see the information under the caption
"Description of Capital Stock" in the Registration Statement on Form S-1 (File
No. 333-04313) of the Registrant (the "Registration Statement"), which
description is hereby incorporated by reference herein. In addition, any
prospectus contained in the Registration Statement that is filed pursuant to
Rule 424(b) under the Securities Act of 1933 shall be deemed incorporated by
reference herein. Application has been made to list the Common Stock on the
Nasdaq National Market.
ITEM 2. EXHIBITS.*
Exhibit No. Description
- - ----------------- ---------------------------------------------------------
1.1 Registration Statement on Form S-1 (File No. 333-04313)
of the Registrant
4.1 Certificate of Incorporation of the Registrant
4.2 Bylaws of the Registrant
4.3 Algos Pharmaceutical Corporation Stockholders Agreement
5.1 Specimen certificate of common stock
- - --------
* Not filed with or incorporated by reference in copies of this
registration statement filed with the Securities and Exchange Commission
pursuant to Instruction II of the Instructions as to Exhibits.
2
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Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereto duly authorized.
/s/ John W. Lyle
------------------------------------
John W. Lyle
President and Chief Executive Officer
September 24, 1996
3
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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.
________________________________________________________________________________
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<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
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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
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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
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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
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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
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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
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<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
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<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
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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,
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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>
35
<PAGE>
<PAGE>
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
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<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.
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<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').
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<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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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.
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<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
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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.
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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
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<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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<PAGE>
<PAGE>
____________________________________ ___________________________________
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>
FORM OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ALGOS PHARMACEUTICAL CORPORATION
(originally incorporated December 20, 1991
as U.S. Medical Technologies, Inc.)
--------------------------------------------
Adopted in accordance with the provisions of Section 242 and
Section 245 of the General Corporation Law of the State of Delaware (the
"GCL")
--------------------------------------------
I, the President and Chief Executive Officer of Algos Pharmaceutical
Corporation (the "Corporation"), a corporation existing under the laws of the
State of Delaware, do hereby certify as follows:
FIRST: That the Corporation was incorporated December 20, 1991.
SECOND: That the Certificate of Incorporation of the Corporation has
been amended and restated in its entirety as follows:
ARTICLE I
NAME
The name of the Corporation is Algos Pharmaceutical Corporation.
ARTICLE II
REGISTERED OFFICE
The address of the Corporation's registered office is 1013 Centre Road,
in the City of Wilmington, County of New Castle, Delaware 19805. The name of its
registered agent at such address is The Prentice-Hall Corporation System, Inc.
2
<PAGE>
<PAGE>
ARTICLE III
PURPOSES
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the GCL.
ARTICLE IV
CAPITAL STRUCTURE
The total number of shares of stock which the Corporation shall have
authority to issue is sixty million (60,000,000) divided into fifty million
(50,000,000) shares of common stock, of the par value of $0.01 per share (the
"Common Stock"), and ten million (10,000,000) shares of preferred stock, of the
par value of $0.01 per share (the "Preferred Stock").
The Board of Directors of the Corporation is authorized, subject to
limitations prescribed by law and the provisions of this Article IV, to provide
for the issuance of the shares of Preferred Stock in series, and by filing a
certificate pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each such
series, and to fix the designation, powers, privileges, preferences and rights
of the shares of each such series and the qualifications, limitations or
restrictions thereof.
The authority of the Board of Directors of the Corporation with respect
to each series shall include, but not be limited to, determination of the
following:
(a) The number of shares constituting that series and the
distinctive designation of that series;
(b) The dividend rate on the shares of that series, whether
dividends shall be cumulative, and, if so, from which date or dates, and the
relative rights of priority, if any, of payment of dividends on shares of that
series;
(c) Whether that series shall have voting rights, in addition to
the voting rights provided by law, and, if so, the terms of such voting rights,
[provided that no series of Preferred Stock shall have a class vote unless the
same has been approved in writing by the holders of at least a majority of the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors];
(d) Whether that series shall have conversion privileges, and, if
so, the terms and conditions of such conversion, including provision for
adjustment of the conversion rate in such events as the Board of Directors shall
determine;
(e) Whether or not the shares of that series shall be redeemable,
and, if so, the terms and conditions of such redemption, including the date or
dates upon or after which they shall be redeemable, and the amount per share
payable in case of redemption, which amount may vary under different conditions
and at different redemption dates;
3
<PAGE>
<PAGE>
(f) Whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so, the terms and
amount of such sinking fund;
(g) The rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, and the relative rights of priority, if any, of payment of shares
of that series; and
(h) Any other relative rights, preferences and limitations of
that series.
Dividends on outstanding shares of Preferred Stock shall be paid or
declared and set apart for payment before any dividends shall be paid or
declared and set apart for payment on the Common Stock with respect to the same
dividend period.
If upon any voluntary or involuntary liquidation, dissolution or winding
up of the Corporation, the assets available for distribution to holders of
shares of Preferred Stock of all series shall be insufficient to pay such
holders the full preferential amount to which they are entitled, then such
assets shall be distributed ratably among the shares of all series of Preferred
Stock in accordance with the respective preferential amounts (including unpaid
cumulative dividends, if any) payable with respect thereto.
ARTICLE V
VOTING RIGHTS
Subject to the voting rights provided by law or granted to any series of
Preferred Stock, all rights to vote and all voting power shall be exclusively
vested in the Common Stock.
ARTICLE VI
STOCKHOLDER ACTION AND THE BOARD OF DIRECTORS
Any action required or permitted to be taken by stockholders of the
Corporation must be effected at a duly called annual or special meeting of
stockholders and may not be effected by a consent in writing. Special meetings
may be called only by the Chairman of the Board or the President of the
Corporation or by the majority of the whole Board of Directors.
The number of directors constituting the entire Board of Directors of
the Corporation shall be fixed by, or in the manner provided in, the
Corporation's By-Laws from time to time.
ARTICLE VII
BYLAWS
In furtherance and not in limitation of the powers conferred by the laws
of the State of Delaware, a majority of the entire Board of Directors of the
Corporation is expressly authorized to make, alter and repeal from time to time
the By-Laws of the Corporation, subject to the power of the
4
<PAGE>
<PAGE>
stockholders of the Corporation to alter or repeal any by-law made by the Board
of Directors of the Corporation.
ARTICLE VIII
BUSINESS COMBINATIONS
In addition to any affirmative vote required by law, and except as
otherwise expressly provided in section (b) of this Article, any business
combination (as hereinafter defined) shall require the affirmative vote of the
holders of at least 66 2/3% of the outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors, considered
for the purpose of this Article as one class ("Voting Shares"). Such affirmative
vote shall be required (unless subsection (b)(A) or (b)(B) of this Article
applies) notwithstanding the fact that no vote may be required, or that some
lesser percentage may be specified, by law or in any agreement with any national
securities exchange or otherwise.
(a) 1. The term "business combination" as used in this Article
shall mean any transaction which is referred to in any one or more of the
following clauses (A) through (E):
(A) any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with or into (i) any Interested Stockholder
(as hereinafter defined) or (ii) any other corporation (whether or not itself an
Interested Stockholder) which, after such merger or consolidation, would be an
Affiliate (as hereinafter defined) of an Interested Stockholder, or
(B) any sale, lease, exchange, mortgage, pledge, transfer
or other disposition (in one transaction or a series of related transactions) to
or with any Interested Stockholder or any Affiliate of any Interested
Stockholder of any assets of the Corporation or any Subsidiary having an
aggregate fair market value of more than twenty five percent (25%) of the Fair
Value (as hereinafter defined) of the shares of Common Stock of the Corporation
outstanding immediately prior to such transaction, or
(C) the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of related transactions) of any
securities of the Corporation or any Subsidiary to any Interested Stockholder or
any Affiliate of any Interested Stockholder in exchange for cash, securities or
other property (or a combination thereof) having an aggregate fair market value
of more than twenty-five (25%) of the Fair Value of the shares of Common Stock
of the Corporation outstanding immediately prior to such transaction, or
(D) the adoption of any plan or proposal for the
liquidation or dissolution of the Corporation proposed by or on behalf of an
Interested Stockholder or any Affiliate of an Interested Stockholder, except
that this provision shall not limit the right of stockholders to elect
voluntarily to wind up or dissolve the Corporation, or
(E) any reclassification of securities (including any
reverse stock split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any similar
transaction (whether or not with or into or otherwise involving an Interested
Stockholder) which has the effect, directly or indirectly, of increasing the
proportionate
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share of the outstanding shares of any class of equity securities of the
Corporation or any Subsidiary or any class of securities exchangeable for or
convertible into any such class of equity securities of the Corporation or any
Subsidiary which is directly or indirectly owned by any Interested Stockholder
or any Affiliate of any Interested Stockholder.
(b) A business combination shall not be subject to the provisions
of section (a) of this Article, and shall require only such affirmative vote as
is required by law, if either:
(A) the business combination has been approved by a
majority of the whole Board of Directors of the Corporation; or
(B) the aggregate amount of the cash and fair market
value of consideration other than cash to be received per share by holders of
Common Stock in such business combination shall be at least equal to the highest
of the following:
(i) the highest per share price (including brokerage
commissions, transfer taxes and soliciting dealers' fees) paid by such
Interested Stockholder for any shares of Common Stock acquired by it within the
two-year period prior to the business combination;
(ii) the Fair Value per share of Common Stock on the
Determination Date for such business combination; and
(iii) the Fair Value per share of Common Stock on the
Announcement Date of such business combination.
(c) For the purposes of this Article:
1. A "person" shall mean any individual, firm,
corporation or other entity.
2. "Interested Stockholder" shall mean, in respect of any
business combination, any person (other than the Corporation or any Subsidiary)
who or which, as of the record date for the determination of stockholders
entitled to notice of and to vote on such business combination, or immediately
prior to the consummation of any such transaction:
(A) is the beneficial owner, directly or indirectly,
of more than 10% of the Voting Shares, or
(B) is an Affiliate of the Corporation and at any
time within two years prior thereto was the beneficial owner, directly or
indirectly, of not less than 10% of the then outstanding Voting Shares, or
(C) is an assignee of or has otherwise succeeded to
any shares of capital stock of the Corporation which were at any time within two
years prior thereto beneficially owned by any Interested Stockholder, unless
such assignment or succession shall have occurred in a transaction that is a
public offering within the meaning of the Securities Act of 1933, as amended.
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3. A "person" shall be the "beneficial owner" of any
Voting Shares:
(A) which such person or any of its Affiliates and
Associates (as hereinafter defined) beneficially own, directly or indirectly, or
(B) which such person or any of its Affiliates or
Associates has (i) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to any agreement,
arrangement or understanding or upon the exercise of conversion rights, exchange
rights, warrants or options, or otherwise, or (ii) the right to vote pursuant to
any agreement, arrangement or understanding, or
(C) which are beneficially owned, directly or
indirectly, by any other person with which such first mentioned person or any of
its Affiliates or Associates has any agreement, arrangement or understanding for
the purposes of acquiring, holding, voting or disposing of any shares of capital
stock of the Corporation.
4. The outstanding Voting Shares shall include shares
deemed owned through application of paragraph 3 above but shall not include any
other Voting Shares which may be issuable pursuant to any agreement, or upon
exercise of conversion rights, warrants or options, or otherwise.
5. "Affiliate" and "Associate" shall have the respective
meanings given those terms in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934 as in effect on the date of adoption
of this Article.
6. "Subsidiary" shall mean any corporation of which a
majority of any class of equity security as defined in Rule 3a11-1 of the
General Rules and Regulations under the Securities Exchange Act of 1934 as in
effect on the date of the adoption of this Article) is owned, directly or
indirectly, by the Corporation; provided, however, that for the purposes of the
definition of Interested Stockholder set forth in paragraph 2 of this section
(c) the term "Subsidiary" shall mean only a corporation of which a majority of
each class of equity security is owned, directly or indirectly, by the
Corporation.
7. "Fair Value" of a share of capital stock of the
Corporation on a given date shall mean (i) the highest reported closing sale
price during the 30-day period immediately preceding such date of a share of
such capital stock on the principal securities exchange on which shares of such
capital stock are listed, (ii) if shares of such capital stock are not listed on
any national securities exchange, the highest reported closing sale price or, if
there is no closing sale price, closing bid quotation for a share of such
capital stock during the 30-day period immediately preceding such date on the
National Association of Securities Dealers, Inc.'s Automated Quotations System
or any similar system then in use or, (iii) if no such prices or quotations are
available, the fair market value on such date of a share of such capital stock
as determined by the Board in the manner described in paragraph (d).
8. "Determination Date" shall mean the date on which an
Interested Stockholder became an Interested Stockholder.
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9. "Announcement Date" shall mean the date of the first
public announcement of any proposed business combination.
10. In the event of a business combination in which the
Corporation survives, the phrase "consideration other than cash to be received"
as used in clause (B) of section (b) of this Article shall include any Voting
Shares retained by the holders thereof.
(d) A majority of the directors shall have the power and duty to
determine for the purposes of this Article on the basis of information known to
them, (1) the number of Voting Shares beneficially owned by any person, (2)
whether a person is an Affiliate or Associate of another, (3) whether a person
has an agreement, arrangement or understanding with another as to the matters
referred to in paragraph 3 of section (c), or (4) whether the assets subject to
any business combination have, or the consideration received for the issuance or
transfer of securities by the Corporation or any Subsidiary in a proposed
business combination has, an aggregate fair market value of more than 25% of the
Fair Value of the shares of capital stock of the Corporation outstanding
immediately prior to such transaction. The determination of a majority of the
whole Board of Directors shall be final, conclusive and binding on all persons
for all purposes.
(e) Nothing contained in this Article shall be construed to
relieve any Interested Stockholder from any fiduciary obligation imposed by law.
(f) Notwithstanding any other provision contained in this
Certificate of Incorporation or the Corporation's By-Laws, this Article VIII
shall not be amended or repealed, and no provision inconsistent therewith shall
be adopted, unless such adoption, amendment or repeal is approved by the
affirmative vote of the holders of at least 66 2/3% of the voting power of all
shares of capital stock of the Corporation then outstanding entitled to vote
generally for the election of directors.
ARTICLE IX
INDEMNIFICATION AND EXCULPATION OF DIRECTOR LIABILITY
Each person who was or is made a party or is threatened to be made a
party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer of the Corporation or is or was
serving at the request of the Corporation as a director or officer of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis of
such proceeding is alleged action in an official capacity as a director or
officer or in any other capacity while serving as a director or officer, shall
be indemnified and held harmless by the Corporation to the fullest extent
permitted by Delaware law as the same exists or may hereafter be amended (but,
in the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment), against all
expense, liability and loss (including attorneys fees, judgments, fines, excise
taxes or penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director or
officer and shall inure to the benefit of his or her
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heirs, executors and administrators; provided, however, that except as provided
below, the Corporation shall indemnify any such person seeking indemnification
in connection with a proceeding (or part thereof) initiated by such person only
if such proceeding (or part thereof) was authorized by the Board. The right to
indemnification conferred in this paragraph shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that, if the GCL requires the payment of such expenses incurred by a
director or officer in his or her capacity as a director or officer (and not in
any other capacity in which service was or is rendered by such person while a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of a proceeding, such payment
shall be made only upon delivery to the Corporation of an undertaking, by or on
behalf of such director or officer, to repay all amounts so advanced if it shall
ultimately be determined that such director or officer is not entitled to be
indemnified under this paragraph or otherwise.
If a claim under the preceding paragraph of this Article is not paid in
full by the Corporation within 90 days after a written claim has been received
by the Corporation, the claimant may at any time thereafter bring suit against
the Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the Corporation) that the claimant has
not met the standards of conduct which make it permissible under the GCL for the
Corporation to indemnify the claimant for the amount claimed. Neither the
failure of the Corporation (including any required action by directors,
independent legal counsel, or stockholders) to have made a determination prior
to the commencement of such action that indemnification of the claimant is
proper in the circumstances because he or she has met the applicable standard of
conduct set forth in the GCL, nor an actual determination by the Corporation
(including any required action by directors, independent legal counsel, or
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
Article shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaw, agreement, vote of stockholders or disinterested directors
or otherwise.
The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expense, liability or
loss under the GCL.
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation and its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) for unlawful payments of dividends or unlawful stock
repurchases or redemptions, as provided in Section 174 of the GCL, or (iv) for
any transaction from which the director derived any improper
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personal benefit. If the GCL is amended to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the GCL, as so amended. Any repeal or modification of this
paragraph by the stockholders of the Corporation shall not adversely affect any
right or protection of a director of the Corporation existing at the time of
such repeal or modification.
ARTICLE X
AMENDMENTS
The Corporation reserves the right at any time, and from time to time,
to amend, alter, change or repeal any provision contained in this Amended and
Restated Certificate of Incorporation, and other provisions authorized by the
laws of the State of Delaware at the time in force may be added or inserted, in
the manner now or hereafter prescribed by law; and all rights, preferences and
privileges of whatsoever nature conferred upon stockholders, directors or any
other persons whomsoever by and pursuant to this Amended and Restated
Certificate of Incorporation in its present form or as hereafter amended are
granted subject to the rights reserved in this article provided, however, that
amendment or repeal of Articles VI, IX and this Article X, and any reduction of
the number of authorized shares of Common Stock and Preferred Stock requires the
affirmative vote of the holders of at least 662/3% of the outstanding voting
stock of the Corporation.
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IN WITNESS WHEREOF, the undersigned has executed this Amended and
Restated Certificate of Incorporation as of _____________, 1996.
ALGOS PHARMACEUTICAL CORPORATION
By:_____________________________________
John W. Lyle
President and Chief Executive Officer
ATTEST:
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FORM OF
AMENDED AND RESTATED
BY-LAWS OF
ALGOS PHARMACEUTICAL CORPORATION
<PAGE>
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FORM OF AMENDED AND RESTATED
BY-LAWS OF
ALGOS PHARMACEUTICAL CORPORATION
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I OFFICES........................................................ 1
SECTION 1.1. REGISTERED OFFICE........................................... 1
SECTION 1.2. OTHER OFFICES............................................... 1
ARTICLE II STOCKHOLDERS................................................... 1
SECTION 2.1. ANNUAL MEETINGS......................................... 1
SECTION 2.2. DEFERRED MEETING FOR ELECTION OF
DIRECTORS, ETC .................................. 1
SECTION 2.3. OTHER SPECIAL MEETINGS.................................. 1
SECTION 2.4. FIXING RECORD DATE...................................... 2
SECTION 2.5. NOTICE OF MEETINGS OF STOCKHOLDERS...................... 2
SECTION 2.6. WAIVERS OF NOTICE....................................... 4
SECTION 2.7. LIST OF STOCKHOLDERS.................................... 4
SECTION 2.8. QUORUM OF STOCKHOLDERS; ADJOURNMENT...................... 5
SECTION 2.9. VOTING; PROXIES......................................... 5
SECTION 2.10. SELECTION AND DUTIES OF INSPECTORS AT
MEETING OF STOCKHOLDERS................................. 5
SECTION 2.11. ORGANIZATION............................................ 6
SECTION 2.12. ORDER OF BUSINESS....................................... 6
ARTICLE III DIRECTORS...................................................... 7
SECTION 3.1. NUMBER AND TERM......................................... 7
SECTION 3.2. RESIGNATIONS............................................ 7
SECTION 3.3. VACANCIES............................................... 7
SECTION 3.4. REMOVAL................................................. 7
SECTION 3.5. INCREASE OR DECREASE OF NUMBER.......................... 7
SECTION 3.6. POWERS.................................................. 7
SECTION 3.7. COMMITTEES.............................................. 7
SECTION 3.8. MEETINGS................................................ 9
SECTION 3.9. TELEPHONE MEETING....................................... 9
SECTION 3.10. QUORUM.................................................. 9
SECTION 3.11. COMPENSATION........................................... 10
SECTION 3.12. ACTION WITHOUT MEETING................................. 10
SECTION 3.13. ANNUAL REPORT.......................................... 10
ARTICLE IV OFFICERS...................................................... 10
SECTION 4.1. OFFICERS............................................... 10
SECTION 4.2. REMOVAL OF OFFICERS..................................... 10
SECTION 4.3. RESIGNATIONS............................................ 10
SECTION 4.4. VACANCIES............................................... 11
SECTION 4.5. COMPENSATION............................................ 11
SECTION 4.6. PRESIDENT............................................... 11
</TABLE>
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<TABLE>
<S> <C> <C>
SECTION 4.7. VICE PRESIDENTS......................................... 11
SECTION 4.8. SECRETARY ......................................... 12
SECTION 4.9. TREASURER ......................................... 12
SECTION 4.10. ASSISTANT SECRETARIES AND ASSISTANT
TREASURERS.............................................. 13
ARTICLE V CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS,
ETC............................................................ 13
SECTION 5.1. EXECUTION OF CONTRACTS.................................. 13
SECTION 5.2. LOANS................................................... 13
SECTION 5.3. CHECKS, DRAFTS, ETC..................................... 13
SECTION 5.4. DEPOSITS................................................ 13
ARTICLE VI STOCKS AND DIVIDENDS........................................... 14
SECTION 6.1. CERTIFICATES REPRESENTING SHARES........................ 14
SECTION 6.2. TRANSFER OF SHARES...................................... 14
SECTION 6.3. TRANSFER AND REGISTRY AGENTS............................ 14
SECTION 6.4. LOST, DESTROYED, STOLEN AND MUTILATED
CERTIFICATES............................................ 14
SECTION 6.5. REGULATIONS............................................. 15
SECTION 6.6. RESTRICTION ON TRANSFER OF STOCK........................ 15
SECTION 6.7. DIVIDENDS, SURPLUS, ETC................................. 16
ARTICLE VII MISCELLANEOUS.................................................. 16
SECTION 7.1. SEAL.................................................... 16
SECTION 7.2. FISCAL YEAR............................................. 16
ARTICLE VIII INDEMNIFICATION AND INSURANCE.................................. 16
SECTION 8.1. INDEMNIFICATION................................................ 16
SECTION 8.2. INSURANCE...................................................... 17
SECTION 8.3. INDEMNIFICATION AGREEMENTS..................................... 17
ARTICLE IX AMENDMENTS..................................................... 17
</TABLE>
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ARTICLE I
OFFICES
SECTION 1.1. REGISTERED OFFICE. The registered office of Algos
Pharmaceutical Corporation (the "Corporation") shall be located at 1013 Centre
Road, City of Wilmington, County of New Castle, State of Delaware 19805. The
Prentice-Hall Corporation System, Inc. shall be the registered agent of the
Corporation.
SECTION 1.2. OTHER OFFICES. The Corporation may have other
offices either within or without the State of Delaware at such place or places
as the Board of Directors may from time to time appoint or the business of the
Corporation may require.
ARTICLE II
STOCKHOLDERS
SECTION 2.1. ANNUAL MEETINGS. Annual meetings of stockholders for
the election of directors and for such other business as may be stated in the
notice of the meeting, shall be held at such place, either within or without the
State of Delaware, and at such time and date as the Board of Directors, by
resolution, shall determine and as set forth in the notice of the meeting. In
the event the Board of Directors fails to so determine the time, date and place
of meeting, the annual meeting of stockholders shall be held at the registered
office of the Corporation in Delaware within three months of the end of the
fiscal year.
If the date of the annual meeting shall fall upon a legal
holiday, the meeting shall be held on the next succeeding business day. At each
annual meeting, the stockholders entitled to vote shall elect the appropriate
class or classes of the Board of Directors and may transact such other corporate
business as shall be stated in the notice of the meeting.
SECTION 2.2. DEFERRED MEETING FOR ELECTION OF DIRECTORS, ETC. If
the annual meeting of stockholders for the election of the appropriate class or
classes of the directors and the transaction of other business is not held
within the time specified in Section 2.1, the Board of Directors shall call a
meeting of stockholders for the election of the appropriate directors and the
transaction of other business as soon thereafter as convenient.
SECTION 2.3. OTHER SPECIAL MEETINGS. A special meeting of
stockholders, unless otherwise prescribed by statute, may be called at any time
but only by the Chairman of the Board or by the President of the Corporation or
by the majority of the whole Board of Directors, to be held on the date, at the
time and place within or without the State of Delaware as the Chairman of the
Board of Directors or the President or the Board of Directors, whichever has
called the meeting, shall direct. At any special meeting of stockholders only
such business shall be
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conducted as is brought before such meeting pursuant to the notice thereof given
pursuant to Section 2.5 of the Amended and Restated By-laws (the "By-laws") or
in any waiver of notice thereof given pursuant to Section 2.6 of the By-laws.
SECTION 2.4. FIXING RECORD DATE. For the purpose of determining
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or for the purpose of determining stockholders entitled to
receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion
or exchange of stock, of for the purpose of any other lawful action, the Board
of Directors may fix, in advance, a date as of the record date for any such
determination of stockholders. Such date shall not be more than sixty nor less
than ten days before the date of such meeting, nor more than sixty days prior to
any other action. If no such record date is fixed:
2.4.1 The record date for the determination of
stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding
the day on which notice is given, or, if no notice is given, or, if
notice is waived, at the close of business on the day next preceding the
day on which the meeting is held;
2.4.2 The record date for determining stockholders
entitled to express consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is necessary,
shall be the day on which the first written consent is expressed; and
2.4.3 The record date for determining stockholders for any
purpose other than those specified in Sections 2.4.1 and 2.4.2 shall be
at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto.
When a determination of stockholders entitled to notice of or to vote at any
meeting of stockholders has been made as provided in this Section 2.4, such
determination shall apply to any adjournment thereof, unless the Board of
Directors fixes a new record date for the adjourned meeting.
SECTION 2.5. NOTICE OF MEETINGS OF STOCKHOLDERS.
At any meeting of the stockholders, only such business
(including the nomination of persons for election as directors as described
below) shall be conducted as shall have been properly brought before the
meeting. To be properly brought before a meeting, business must be (a) specified
in the notice of meeting (or any supplement thereto) given by or at the
direction of the Board of Directors, (b) otherwise properly brought before the
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meeting by or at the direction of the Board of Directors, or (c) otherwise
properly brought before the meeting by a stockholder. For business to be
properly brought before a meeting by a stockholder, the stockholder must have
given timely notice thereof in writing to the Secretary of the Corporation. In
the case of an annual meeting, to be timely, a stockholder's notice shall be
delivered to and received by the Secretary of the Corporation at the principal
executive offices of the Corporation not less than 60 days nor more than 90 days
prior to the meeting; provided, however, that in the event that less than 70
days' notice or prior public disclosure of the date of the meeting is given or
made to stockholders, notice by the stockholder to be timely must be so received
no later than the close of business on the tenth day following the day on which
such notice of the date of the meeting was mailed or such public disclosure was
made. In the case of a special meeting, to be timely, a stockholder's notice
must be delivered not more than ninety days prior to the special meeting and not
later than the later of sixty days prior to the special meeting and ten days
following the day on which public announcement of the meeting is first made by
the Corporation.
A stockholder's notice to the Secretary shall set forth as to
each matter the stockholder proposes to bring before the annual meeting (a) a
brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (b)
the name and address, as they appear on the Corporation's books, of the
stockholder proposing such business, (c) the class and number of shares of the
Corporation which are beneficially owned by the stockholder and (d) any material
interest of the stockholder in such business. Notwithstanding anything in the
By-Laws to the contrary, no business shall be conducted at an annual meeting
except in accordance with the procedures set forth in this Section 2.5.
In the case of nominations of persons for election as directors,
only persons who are nominated in accordance with the following procedures shall
be eligible for election as directors. Nominations of persons for election to
the Board of Directors of the Corporation may be made at a meeting of
stockholders (i) by or at the direction of the Board of Directors, (ii) by any
nominating committee or person appointed to make such nominations by the Board
of Directors, or (iii) by any stockholder of the Corporation entitled to vote
for the election of directors at the meeting who complies with the notice
procedures set forth in this Section 2.5. Such nominations, if made by a
stockholder of the Corporation as such, shall be made pursuant to timely notice
(as described in the first paragraph of this Section 2.5) in writing addressed
to the Secretary of the Corporation. Such stockholder's notice shall set forth:
(a) as to each person whom the stockholder proposes to nominate for election or
re-election as a director (i) the name, age, business address and residence
address of the person, (ii) the principal occupation or
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employment of the person, (iii) the class and number of shares of stock of the
Corporation which are beneficially owned by the person and (iv) any other
information relating to the person that would be required to be disclosed in
solicitations for proxies for the election of directors pursuant to Regulation
14A under the Securities Exchange Act of 1934, as amended, or any successor
thereto, and (b) as to the stockholder giving the notice (i) the name and record
address of the stockholder and (ii) the class and number of shares of the
Corporation which are beneficially owned by the stockholder. The Corporation may
require any proposed nominee to furnish such other information as may reasonably
be required by the Corporation to determine the eligibility of such proposed
nominee to serve as a director of the Corporation. No person shall be eligible
for election as a director of the Corporation unless nominated in accordance
with the procedures set forth herein.
The presiding officer of an annual meeting shall, if the facts
warrant, determine and declare to the meeting that business or a nomination of a
director was not properly brought before the meeting in accordance with this
Section 2.5, and if the presiding officer should so determine, the presiding
officer shall so declare to the meeting and say such business not properly
brought before the meeting shall not be transacted or that the defective
nomination shall be disregarded.
SECTION 2.6. WAIVERS OF NOTICE. Whenever notice is required to be
given to the stockholders under any provision of the General Corporation Law of
the State of Delaware (the "GCL") or the Amended and Restated Certificate of
Incorporation (the "Certificate of Incorporation") or the By-laws, a written
waiver thereof, signed by a stockholder entitled to notice, whether before or
after the time stated therein, shall be deemed equivalent to notice. Attendance
of a stockholder at a meeting shall constitute a waiver of notice of such
meeting, except when the stockholder attends a meeting for the express purpose
of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice.
[SECTION 2.7.] LIST OF STOCKHOLDERS. The Secretary shall prepare
and make, or cause to be prepared and made, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified, or at the place where the
meeting is to be held. The list shall also be
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produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
SECTION 2.8. QUORUM OF STOCKHOLDERS; ADJOURNMENT. The holders of
a majority of the shares of stock entitled to vote at any meeting of
stockholders, present in person or represented by proxy, shall be necessary and
sufficient to constitute a quorum for the transaction of any business at such
meeting, except where otherwise provided by the GCL. When a quorum is once
present to organize a meeting of stockholders, it is not broken by the
subsequent withdrawal of any stockholder. The holders of a majority of the
shares of stock present in person or represented by proxy at any meeting of
stockholders, including an adjournment meeting, whether or not a quorum is
present, may adjourn such meeting to another time and place.
SECTION 2.9. VOTING; PROXIES. Unless otherwise provided in the
Certificate of Incorporation, every stockholder of record shall be entitled at
every meeting of stockholders to one vote for each share of capital stock
standing in his name on the record of stockholders determined in accordance with
Section 2.4 of the By-laws. If the Certificate of Incorporation provides for
more or less than one vote for any share on any matter, every reference in the
By-laws or the GCL to a majority or other proportion of stock shall refer to
such majority to other proportion of the votes of such stock. The provisions of
Sections 212 and 217 of the GCL shall apply in determining whether any shares of
capital stock may be voted and the persons, if any, entitled to vote such
shares; but the Corporation shall be protected in treating the persons in whose
names shares of capital stock stand on the record of stockholders as owners
thereof for all purposes. Directors shall be chosen by a plurality of the votes
cast at the election and each other matter, except as otherwise provided by law
or by the Certificate of Incorporation or by the By-laws, shall be decided by a
majority of the votes cast on such matter. All elections of directors shall be
by written ballot unless otherwise provided in the Certificate of Incorporation.
In voting on any other question on which a vote by ballot is required by law or
is demanded by any stockholder entitled to vote, the voting shall be by ballot.
Each ballot shall be signed by the stockholder voting or by his proxy, and shall
state the number of shares voted. On all other questions, the voting may be by
voice vote. Every stockholder entitled to vote at a meeting of stockholders or
to express consent or dissent to corporate action in writing without a meeting,
may authorize another person or persons to act for him by proxy. The validity
and enforceability of any proxy shall be determined in accordance with Section
212 of the GCL.
SECTION 2.10. SELECTION AND DUTIES OF INSPECTORS AT MEETING OF
STOCKHOLDERS. The Board of Directors, in advance of any meeting of stockholders,
may appoint one or more inspectors to act at the meeting or any adjournment
thereof. If inspectors
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are not so appointed, the person presiding at such meeting may, and on the
request of any stockholder entitled to vote thereat shall, appoint one or more
inspectors. In case any person appointed fails to appear or act, the vacancy may
be filled by appointment made by the Board of Directors in advance of the
meeting or at the meeting by the person presiding thereat. Each inspector,
before entering upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of inspector at such meeting with strict
impartiality and according to the best of his ability. The inspector or
inspectors shall determine the number of shares outstanding and the voting power
of each, the shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots or consents,
count and tabulate all votes, ballots or consents, hear and determine all
challenges and questions arising in connection with the right to vote, determine
the result, and shall do such acts as are proper to conduct the election or vote
with fairness to all stockholders. On request of the person presiding at the
meeting or any stockholder entitled to vote thereat, the inspector or inspectors
shall make a report in writing of any challenge, question or matter determined
by him or them and execute a certificate of any fact found by him or them. Any
report or certificate made by the inspector or inspectors shall be prima facie
evidence of the facts stated and of the vote as certified by him or them.
SECTION 2.11. ORGANIZATION. At every meeting of stockholders, the
President, or in the absence of the President, a Vice President, and in case
more than one Vice President shall be present, that a Vice President designated
by the Board of Directors (or in the absence of any such designation, the most
senior Vice President, based on age, present), shall act as chairman of the
meeting. At every meeting of stockholders, the Secretary, or in the absence of
the Secretary, an Assistant Secretary, shall act as secretary of the meeting. In
case none of the officers above designated to act as chairman or secretary of
the meeting, respectively, shall be present, a chairman or a secretary of the
meeting, as the case may be, may be chosen by a majority of the votes case at
such meeting by the holders of shares present in person or represented by proxy
and entitled to vote at the meeting.
SECTION 2.12. ORDER OF BUSINESS. The order of business at all
meetings of stockholders shall be as determined by the chairman of the meeting,
but,the order of business to be followed at any meeting at which a quorum is
present may be changed by a majority of the votes cast at such meeting by the
holders of shares of capital stock present in person or represented by proxy and
entitled to vote at the meeting.
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ARTICLE III
DIRECTORS
SECTION 3.1. NUMBER AND TERM. The number of directors which shall
constitute the whole Board of Directors shall be at least three (3) but not more
than nine (9). The directors need not be stockholders. At the Corporation's 1996
annual stockholders' meeting, the Board of Directors shall be divided into three
classes, with one class having an initial term of one year, one class having an
initial term of two years and one class having a term of three years. At each
annual meeting of stockholders, directors will be elected to succeed those
directors whose terms have expired, and each newly elected director will serve
for a three-year term. All directors elected to the Company's classified Board
of Directors will serve until the election and qualification of their successors
or their earlier resignation or removal.
SECTION 3.2. RESIGNATIONS. Any director, member of a committee or
other officer may resign at any time. Such resignation shall be made in writing,
and shall take effect at the time specified therein, and if no time be
specified, at the time of its receipt by the President or Secretary. The
acceptance of a resignation shall not be necessary to make it effective.
SECTION 3.3. VACANCIES. If the office of any director, member of
a committee or other officer becomes vacant for any reason (whether resulting
from an increase in the number of directors, resignation, removal or otherwise),
the remaining directors in office, though less than a quorum, by a majority
vote, may appoint any qualified person to fill such vacancy, who shall hold
office for the remainder of the term of the directorship in which the vacancy
occurred.
SECTION 3.4. REMOVAL. Upon classification of the Board of
Directors at the Corporation's 1996 annual meeting, a director or directors may
be removed only for cause, in any event, by the affirmative vote of the holders
of a majority of all the shares of stock outstanding and entitled to vote, at a
special meeting of the stockholders called for that purpose.
SECTION 3.5. INCREASE OR DECREASE OF NUMBER. By the affirmative
vote of a majority of the directors, though less than a quorum, the Board of
Directors is authorized to create new directorships and to fill such positions
so created and is permitted to specify the class to which such new position is
assigned, and the person filing such position shall serve for the term
applicable to that class. Any newly created directorship may be filled in the
same manner as a vacancy.
SECTION 3.6. POWERS. The Board of Directors shall exercise all of
the powers of the Corporation except such as are
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by law, or by the Certificate of Incorporation or by these Bylaws, conferred
upon or reserved to the stockholders.
SECTION 3.7. COMMITTEES. The Board of Directors may, by
resolution or resolutions passed by a majority of the Board of Directors,
designate one or more committees, each committee to consist of two or more of
the directors of the Corporation. The Board of Directors may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of any member of such committee or committees, the member or
members thereof present at any such meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member.
Any such committee, to the extent provided in the resolution of
the Board of Directors, or in these By-laws, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the Corporation, and may authorize the seal of the Corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to amending the Certificate of
Incorporation, adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, or amending the
By-laws of the Corporation; and, unless the resolution, these By-laws, or the
Certificate of Incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock.
Regular meetings of any such committee shall be held at such times at
the Corporation's principal office or such places as the committee shall from
time to time determine. Special meetings of such committee may be called at any
time by the President or a majority of the members of the committee, to convene
at such time and place as may be appointed.
A majority of the members of a committee shall constitute a quorum. If a
quorum is not present at any meeting, the members present may adjourn the
meeting until a later date or hour; or the members present, whether constituting
a quorum or not, at his or their option, shall have the power to appoint a
substitute or substitutes from the members of the Board of Directors to act
during the temporary absence of any member or members of the committee.
The members of a committee shall appoint one of their members to act as
secretary and keep the minutes thereof. A copy of the minutes for each committee
meeting held subsequent to the
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last regular meeting of the Board of Directors shall be submitted to the Board
of Directors at its next regular meeting and filed in the Corporation's minute
book.
SECTION 3.8. MEETINGS. Meetings of the Board of Directors,
regular or special, may be held at any place within or without the State of
Delaware.
On the day when and at the place where the annual meeting of
stockholders for the election of directors is held, and as soon as practicable
thereafter, the Board of Directors may hold its annual meeting, without notice
of such meeting, for the purposes of organization, the election of officers and
the transaction of other business. The annual meeting of the Board of Directors
may be held at any other time and place specified in a notice given as provided
in this section for special meetings of the Board of Directors or in a waiver of
notice thereof.
Regular meetings of the directors may be held without notice at
such place and times as shall be determined from time to time by resolution of
the directors.
Special meetings of the Board may be called by the President or
by the Secretary on the written request of any two or more directors on at least
two days' notice to each director and shall be held at such place or places as
may be determined by the directors, or as shall be stated in the notice of the
meeting.
Anything in the By-laws or in any resolution adopted by the Board
of Directors to the contrary notwithstanding, notice of any meeting of the Board
of Directors need not be given to any director who submits a signed waiver of
such notice, whether before or after such meeting, or who attends such meeting
without protesting, prior thereto or at its commencement, the lack of notice to
him.
SECTION 3.9. TELEPHONE MEETING. Members of the Board of Directors
or any committee designated by such Board of Directors may participate in a
meeting of the Board of Directors or such committee by means of telephone
conference or similar communication equipment by means of which all persons
participating in the meeting can hear each other, and participation pursuant to
this section shall constitute presence at such meeting.
SECTION 3.10. QUORUM. A majority of the directors in office from
time to time shall constitute a quorum for the transaction of business. If at
any meeting of the Board of Directors there shall be less than a quorum present,
a majority of those present may adjourn the meeting from time to time until a
quorum is obtained, and no further notice thereof need be given other than by
announcement at the meeting which shall be so adjourned.
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SECTION 3.11. COMPENSATION. Directors shall not receive any
stated salary for their services as directors or as members of committees, but
by resolution of the Board of Directors a fixed fee and expenses of attendance
may be allowed for attendance at each meeting. Nothing herein contained shall be
construed to preclude any director from serving the Corporation or its
subsidiaries in any other capacity as an officer, agent or otherwise, and
receiving compensation therefor.
SECTION 3.12. ACTION WITHOUT MEETING. Any action required or
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting, if a written consent thereto
is signed by all members of the Board of Directors, or of such committee as the
case may be, and such written consent is filed with the minutes of proceedings
of the Board of Directors or committee.
SECTION 3.13. ANNUAL REPORT. As soon as practicable after the
close of each fiscal year, a report of the business and affairs of the
Corporation to the shareholders shall be made under the direction of the Board
of Directors.
ARTICLE IV
OFFICERS
SECTION 4.1. OFFICERS. The Board of Directors may elect or
appoint a President, a Secretary, and a Treasurer, and may elect or appoint one
or more Vice Presidents and such other officers, as it may determine. The Board
of Directors may designate one or more Vice Presidents as Executive Vice
Presidents, and may use descriptive words or phrases to designate the standing,
seniority or area of special competence of the Vice Presidents elected or
appointed by it. Each officer shall hold his office until his successor is
elected and qualified or until his earlier death, resignation or removal in the
manner provided in section 4.2 of the By-laws. Any two or more offices may be
held by the same person. The Board of Directors may require any officer to give
a bond or other security for the faithful performance of his duties, in such
amount and with such sureties as the Board of Directors may determine. All
officers as between themselves and the Corporation shall have such authority and
perform such duties in the management of the Corporation as may be provided in
the By-laws or as the Board of Directors may from time to time determine.
SECTION 4.2. REMOVAL OF OFFICERS. Any officer elected or
appointed by the Board of Directors may be removed by the Board of Directors
with or without cause. The removal of an officer without cause shall be without
prejudice to his contract rights, if any. The election or appointment of an
officer shall not of itself create contract rights.
SECTION 4.3. RESIGNATIONS. Any officer may resign at
any time by notifying the Board of Directors or the President in
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writing. Such resignation shall take effect at the date of receipt of such
notice or at such later time as is therein specified, and, unless otherwise
specified, the acceptance of such resignation shall not be necessary to make it
effective. The resignation of an officer shall be without prejudice to the
contract rights of the Corporation, if any.
SECTION 4.4. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled for
the unexpired portion of the term in the manner prescribed in the By-laws for
the regular election or appointment to such office.
SECTION 4.5. COMPENSATION. Salaries or other compensation of the
officers may be fixed from time to time by the Board of Directors. No officer
shall be prevented from receiving a salary or other compensation by reason of
the fact that he is also a director.
SECTION 4.6. PRESIDENT. The President shall be the chief
executive officer of the Corporation and shall have general supervision over the
business of the Corporation, subject, however, to the control of the Board of
Directors and of any duly authorized committee. The President shall, if present
preside at all meetings of the stockholders and at all meetings of the Board of
Directors. He may, with the Secretary or the Treasurer or an Assistant Secretary
or an Assistant Treasurer, sign certificates for shares of the Corporation. He
may sign and execute, in the name of the Corporation, deeds, mortgages, bonds,
contracts and other instruments, except in cases where the signing and execution
thereof shall be expressly delegated by the Board of Directors or by the By-laws
to some other officer or agent of the Corporation, or shall be required by law
otherwise to be signed or executed; and, in general, he shall perform all duties
incident to the office of President and such other duties as from time to time
may be assigned to him by the Board of Directors.
SECTION 4.7. VICE PRESIDENTS. At the request of the President, or
in his absence, at the request of the Board of Directors, the Vice Presidents
shall (in such order as may be designated by the Board of Directors or, in the
absence of any such designation, in order of seniority based on age) perform all
of the duties of the President and in so acting shall have all the powers of and
be subject to all the restrictions upon the President. Any Vice President may
also, with the Secretary or the Treasurer or an Assistant Secretary or an
Assistant Treasurer, sign certificates for shares of the Corporation; may sign
and execute in the name of the Corporation, deeds, mortgages, bonds, contracts
or other instruments authorized by the Board of Directors, except in cases where
the signing and execution thereof shall be expressly delegated by the Board of
Directors or by the By-laws to some other officer or agent of the Corporation,
or shall be required by law otherwise to be signed or executed; and shall
perform such other duties as from time to
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time may be assigned to him by the Board of Directors or by the President.
SECTION 4.8. SECRETARY. The Secretary, if present, shall act as
Secretary of all meetings of the stockholders and of the Board of Directors, and
shall keep the minutes thereof in the proper book or books to be provided for
that purpose; he shall see that all notices required to be given by the
Corporation are duly given and served; he may, with the President or a Vice
President, sign certificates for shares of the Corporation; he shall be
custodian of the seal of the Corporation and may seal with the seal of the
Corporation or a facsimile thereof, all certificates for shares of capital stock
of the Corporation and all documents the execution of which on behalf of the
Corporation under its corporate seal is authorized in accordance with the
provisions of the By-laws; he shall have charge of the stock ledger and also of
the other books, records and papers of the Corporation relating to its
organization and management as a Corporation, and shall see that the reports,
statements and other documents required by law are properly kept and filed; and
shall, in general, perform all duties incident to the office of Secretary and
such other duties as from time to time may be assigned to him by the Board of
Directors or by the President, including the power to sign with the President or
a Vice President, certificates for shares of the capital stock of the
Corporation.
SECTION 4.9. TREASURER. The Treasurer shall have charge and
custody of, and be responsible for, all funds, securities and notes of the
Corporation; receive and give receipts for moneys due and payable to the
Corporation from any source whatsoever; deposit all such moneys in the name of
the Corporation in such banks, trust companies or other depositories as shall be
selected in accordance with these By-laws; against proper vouchers, cause such
funds to be disbursed by checks or drafts on the authorized depositories of the
Corporation signed in such manner as shall be determined in accordance with any
provisions of the By-laws, and be responsible for the accuracy of the amounts of
all moneys so disbursed; regularly enter or cause to be entered in books to be
kept by him or under his direction full and adequate account of all moneys
received or paid by him for the account of the Corporation; have the right to
require, from time to time, reports or statements giving such information as he
may desire with respect to any and all financial transactions of the Corporation
from the officers or agents transacting the same; render to the Board of
Directors, whenever the Board of Directors shall require him so to do, an
account of the financial condition of the Corporation and of all his
transactions as Treasurer; exhibit at all reasonable times his books of account
and other records to any of the directors upon application at the office of the
Corporation where such books and records are kept; and in general, perform all
duties incident to the office of Treasurer and such other duties as from time to
time may be assigned to him by the Board of Directors, including
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the power to sign with the President or a Vice President, certificates for
shares of the capital stock of the Corporation.
SECTION 4.10. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS.
Assistant Secretaries and Assistant Treasurers shall perform such duties as
shall be assigned to them by the Secretary or by the Treasurer, respectively, or
by the Board of Directors or by the President. Assistant Secretaries and
Assistant Treasurers may, with the President or a Vice President, sign
certificates for shares of the Corporation.
ARTICLE V
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
SECTION 5.1. EXECUTION OF CONTRACTS. The Board of Directors may
authorize any officer, employee or agent, in the name and on behalf of the
Corporation, to enter into any contract or execute and satisfy any instrument,
and any such authority may be general or confined to specific instances, or
otherwise limited.
SECTION 5.2. LOANS. The President or any other officer, employee
or agent authorized by the By-laws or by the Board of Directors may effect loans
and advances at any time for the Corporation from any bank, trust company or
other institutions or from any firm, corporation or individual, and for such
loans and advances may make, execute and deliver promissory notes, bonds or
other certificates or evidences of indebtedness of the Corporation, and, when
authorized by the Board of Directors so to do, may pledge and hypothecate or
transfer any securities or the property of the Corporation as security for any
such loans or advances. Such authority conferred by the Board of Directors may
be general or confined to specific instances or otherwise limited.
SECTION 5.3. CHECKS, DRAFTS, ETC. All checks, drafts and other
orders for the payment of money out of the funds of the Corporation and all
notes or other evidences of indebtedness of the Corporation shall be signed on
behalf of the Corporation in such manner as shall from time to time be
determined by resolution of the Board of Directors.
SECTION 5.4. DEPOSITS. The funds of the Corporation not otherwise
employed shall be deposited from time to time to the order of the Corporation in
such banks, trust companies, brokerage firms or other depositories as the Board
of Directors may select or as may be selected by an officer, employee or agent
of the Corporation to whom such power may from time to time be delegated by the
Board of Directors.
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ARTICLE VI
STOCKS AND DIVIDENDS
SECTION 6.1. CERTIFICATES REPRESENTING SHARES. The shares of the
Corporation shall be represented by certificates in such form (consistent with
the provisions of Section 158 of the GCL) as shall be approved by the Board of
Directors. Such certificates shall be signed by the Chairman of the Board of
Directors or the President or a Vice President and by the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer, and may be
sealed with the seal of the Corporation or a facsimile thereof. The signatures
of the officers upon a certificate may be facsimiles, if the certificate is
countersigned by a transfer agent or registered by a registrar other than the
Corporation itself or its employee. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon any
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, such certificate may, unless otherwise
ordered by the Board of Directors, be issued by the Corporation with the same
effect as if such person were such officer, transfer agent or registrar at the
date of issue.
SECTION 6.2. TRANSFER OF SHARES. Transfers of shares of capital
stock of the Corporation shall be made only on the books of the Corporation by
the holder thereof or by his duly authorized attorney appointed by a power of
attorney duly executed and filed with the Secretary or a transfer agent of the
Corporation, and on surrender of the certificate or certificates representing
such shares of capital stock properly endorsed for transfer and upon payment of
all necessary transfer taxes. Every certificate exchanged, returned or
surrendered to the Corporation shall be marked "Cancelled" with the date of
cancellation, by the Secretary or an Assistant Secretary or the transfer agent
of the Corporation. A person in whose name shares of capital stock shall stand
on the books of the Corporation shall be deemed the owner thereof to receive
dividends, to vote as such owner and for all other purposes as respects the
Corporation, its stockholders and creditors for any purpose, except to render
the transferee liable for the debts of the Corporation to the extent provided by
law, until such transfer shall have been entered on the books of the Corporation
by an entry showing from and to whom transferred.
SECTION 6.3. TRANSFER AND REGISTRY AGENTS. The Corporation may
from time to time maintain one or more transfer offices or agents and registry
offices or agents at such place or places as may be determined from time to time
by the Board of Directors.
SECTION 6.4. LOST, DESTROYED, STOLEN AND MUTILATED CERTIFICATES.
The holder of any shares shall immediately notify the Corporation of any loss,
destruction, theft or mutilation of the certificate representing such shares,
and the Corporation may
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issue a new certificate to replace the certificate alleged to have been lost,
destroyed, stolen or mutilated. The Board of Directors may, in its discretion,
as a condition to the issue of any such new certificate, require the owner of
the lost, destroyed, stolen or mutilated certificate, or his legal
representatives, to make proof satisfactory to the Board of Directors of such
loss, destruction, theft or mutilation and to advertise such fact in such manner
as the Board of Directors may require, and to give the Corporation and its
transfer agents and registrars, or such of them as the Board of Directors may
require, a bond in such form, in such sums and with such surety or sureties as
the Board of Directors may direct, to indemnify the Corporation and its transfer
agents and registrars against any claim that may be made against any of them on
account of the continued existence of any such certificate so alleged to have
been lost, destroyed, stolen or mutilated and against any expense in connection
with such claim.
SECTION 6.5. REGULATIONS. The Board of Directors may make rules
and regulations as it may deem expedient, not inconsistent with the By-laws or
with the Certificate of Incorporation, concerning the issue, transfer and
registration of certificates representing shares of its capital stock.
SECTION 6.6. RESTRICTION ON TRANSFER OF STOCK. A written
restriction on the transfer or registration of transfer of capital stock of the
Corporation, if permitted by Section 202 of the GCL and noted conspicuously on
the certificate representing such capital stock, may be enforced against the
holder of the restricted capital stock of any successor or transferee of the
holding including an executor, administrator, trustee, guardian or other
fiduciary entrusted with like responsibility for the person or estate of the
holder. Unless noted conspicuously on the certificate representing such capital
stock, a restriction even though permitted by Section 202 of the GCL, shall be
ineffective except against a person with actual knowledge of the restriction. A
restriction on the transfer or registration of transfer of capital stock of the
Corporation may be imposed either by the Certificate of Incorporation or by an
agreement among any number of stockholders or among such stockholders and the
Corporation. No restriction so imposed shall be binding with respect to capital
stock issued prior to the adoption of the restriction unless the holders of such
capital stock are parties to an agreement or voted in favor of the restriction.
In connection with any offer by the Corporation of any company securities to a
non-United States person, the Corporation shall not, and shall instruct its
transfer agent not to effect any transfer of those shares in the United States
or to or for the account or benefit of a United States person unless the
purchaser delivers to the corporation an opinion of counsel satisfactory to the
Corporation that such transfer is permitted under the United States Securities
Act of 1933.
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SECTION 6.7 DIVIDENDS, SURPLUS, ETC. Subject to the provisions of
the Certificate of Incorporation and of law, the Board of Directors:
6.7.1 may declare and pay dividends or make other
distributions on the outstanding shares of capital stock in such amounts
and at such time or times as, in its discretion, the conditions of the
affairs of the Corporation shall render advisable;
6.7.2 may use and apply, in its discretion, any of the
surplus of the Corporation in purchasing or acquiring any shares of
capital stock of the Corporation, or purchase warrants therefor, in
accordance with law, or any of its bonds, debentures, notes, scrip or
other securities or evidences or indebtedness;
6.7.3 may set aside from time to time out of such surplus
or net profits such sum or sums as, in its discretion, it may think
proper, as a reserve fund to meet contingencies, or for equalizing
dividends or for the purpose of maintaining or increasing the property
or business of the Corporation, or for any other purpose it may think
conducive to the best interests of the Corporation.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1 SEAL. The corporate seal of the Corporation shall
bear the name of the Corporation and the words "Dela- ware 1992.11 The
Corporation may also have such other seals as the Board of Directors shall deem
appropriate, including "OFFICIAL CORPORATE SEAL." A corporate seal may be used
by causing it or a facsimile thereof to be impressed or affixed or reproduced.
SECTION 7.2 FISCAL YEAR. The fiscal year of the Corporation shall
be determined, and may be changed, by resolution of the Board of Directors.
ARTICLE VIII
INDEMNIFICATION AND INSURANCE
SECTION 8.1 INDEMNIFICATION. The Corporation shall, to the
fullest extent permitted by Delaware law, as the same may be amended and
supplemented, indemnify any and all persons to whom it shall have power to
indemnify under said section from and against any and all of the expenses,
liabilities or other matters referred to in or covered by said section, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any By-law, agreement,
vote of stockholders or disinterested directors or otherwise, both as to an
action in his official capacity and to action in another capacity while holding
such office, and shall continue as to a person who has ceased to be a director,
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officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person. The right to indemnification
conferred in this paragraph shall be a contract right and shall include the
right to be paid by the Corporation the expenses incurred in defending any such
proceeding in advance of its final disposition; provided, however, that, if the
GCL requires the payment of such expenses incurred by a director or officer in
his or her capacity as a director or officer (and not in any other capacity in
which service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding, such payment shall be made only upon
delivery to the Corporation of an undertaking, by or on behalf of such director
or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this paragraph or otherwise.
SECTION 8.2 INSURANCE. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer or employee
of the Corporation, or is or was serving at the request of the Corporation as a
director, officer or employee of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Article VIII or of the GCL.
SECTION 8.3 INDEMNIFICATION AGREEMENTS. Without limiting the
generality of the foregoing and subject to the provisions of the Certificate of
Incorporation, the Corporation shall have the express authority to enter into
such agreements as the Board of Directors deems appropriate for the
indemnification of present or future directors and officers of the Corporation
in connection with their service to or status with the Corporation or any other
corporation, entity or enterprise with whom such person is serving at the
express written request of the Corporation.
ARTICLE IX
AMENDMENTS
The By-laws may be altered or repealed and By-laws may be made at
any annual meeting of the stockholders or at any special meeting thereof, if
notice of the proposed alteration or repeal of By-law or By-laws to be made be
contained in the notice of such special meeting, by the affirmative vote of
66 2/3% of the stock issued and outstanding and entitled to vote thereat, or by
the affirmative vote of a majority of the Board of Directors at any regular
meeting of the Board of Directors, or at any special meeting of the Board of
Directors, if notice of the proposed alteration or repeal, or By-law or By-laws
to be made, be contained in the notice of such special meeting.
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STOCKHOLDERS' AGREEMENT
among
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ALGOS PHARMACEUTICAL CORPORATION,
ITS PRINCIPAL STOCKHOLDERS
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and
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ITS SERIES A PREFERRED STOCKHOLDERS
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ALGOS PHARMACEUTICAL CORPORATION
STOCKHOLDERS' AGREEMENT
STOCKHOLDERS' AGREEMENT (this "Agreement"), dated as of the date set
forth on the execution page by and among Algos Pharmaceutical Corporation, a
Delaware corporation (the "Company"), the individuals and entities listed on
Schedule A attached hereto (each individually, a "Principal Stockholder" and
collectively, the "Principal Stockholders,"), and each of the individuals and
entities listed on Schedule B attached hereto (each individually an "Investor"
and collectively, the "Investors") (each of the Principal Stockholders and the
Investors is hereinafter referred to as a "Stockholder", it being understood and
agreed that any holder of the Company's Common Stock or Series A Preferred Stock
(each as defined below) during the term of this Agreement shall become a party
to this Agreement and shall be referred to within the term "Stockholder").
W I T N E S S E T H:
WHEREAS, the Company and the Investors have entered into a Subscription
and Stock Purchase Agreement (the "Purchase Agreement") for the purchase of up
to 80 Units (the "Units") consisting of 10,000 shares of the Company's Series A
Preferred Stock per Unit (collectively, the "Offered Shares"); and
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WHEREAS, the Principal Stockholders own shares of Common Stock, par
value $.01, of the Company (the "Common Stock") as set forth in Schedule A
attached hereto; and
WHEREAS, the Investors have acquired shares of Series A Preferred
Stock, $.01 par value per share, of the Company ("Series A Preferred Stock") as
set forth on Schedule B attached hereto, which shares are convertible into
Common Stock on a one-for-one basis; and
WHEREAS, the Stockholders each desire to grant to the others certain
rights in connection with the shares of Common Stock or Series A Preferred Stock
now or hereafter owned by them (collectively, with any shares of Common Stock or
Series A Preferred Stock hereafter issued by the Company during the term of this
Agreement, the "Shares") as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants herein set
forth and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto hereby agree as follows:
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ARTICLE I
CERTAIN DEFINITIONS
1.1 Certain Definitions. For purposes of this Agreement, the
following terms shall have the following meanings:
(a) "business day" shall mean any day except a Saturday, a Sunday or
other day on which commercial banks are required or authorized to close in New
York, New York.
(b) "Final Closing Date" means the date on which the sale of
all of the Offered Shares to be sold has occurred.
(c) "IPO" shall mean an initial public offering of the Common
Stock.
(d) "Person" shall mean and include an individual, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization and a
government or other department or agency thereof.
ARTICLE II
TRANSFER OF SHARES
2.1 Restrictions. No Stockholder shall sell, assign, pledge, or in any
manner, transfer any of the Shares or any right or interest therein, to any
Person (each such action, a "Transfer") except as permitted by this Agreement.
2.2 Permitted Transfers. (a) Notwithstanding anything to
the contrary contained herein, a Stockholder may at any time effect
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any of the following Transfers (each a "Permitted Transfer" and each
transferee, a "Permitted Transferee":
(i) A Stockholder's Transfer of any or all Shares owned by
such Stockholder following such Stockholder's death by will or
intestacy to such Stockholder's legal representative, heir or legatee.
(ii) A Stockholder's Transfer of any or all Shares owned by
such Stockholder as a gift or gifts during such Stockholder's lifetime
to such Stockholder's spouse, children, grandchildren or a trust for
the benefit of any of the foregoing.
(iii) A corporate Stockholder's Transfer of all Shares owned
by it (i) pursuant to and in accordance with the terms of any merger,
consolidation, reclassification of Shares or capital reorganization of
such corporate Stockholder or (ii) pursuant to a sale of all or
substantially all of the stock or assets of such Stockholder.
(iv) A Transfer by a Stockholder which is made pursuant to
Section 2.3, 2.4, 2.5 or 2.6.
(v) A Transfer by a Stockholder to the Company.
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(vi) A Transfer by an Investor to another Stockholder;
provided that, upon request of the Company, counsel for the
transferring Investor shall prior to the Transfer deliver to the
Company an opinion, in form and substance satisfactory to the Company,
that such Transfer will not violate applicable securities law.
(b) In any such Transfer referred to above in Section 2.2(a)
(other than a Sale of the Business as provided in Section 2.5 or a public
offering pursuant to Section 2.6 in each of which events this Agreement shall
terminate in accordance with the provisions of Section 4.9), the Permitted
Transferee shall receive and hold such Shares subject to the provisions of this
Agreement as if such Permitted Transferee were an original signatory hereto and
shall be deemed to be a party to this Agreement.
2.3 Right of First Refusal. (a) If an Investor shall at any time desire
to sell any of his Shares (the "Selling Stockholders"), other than (i) to a
Permitted Transferee, or (ii) in an offering registered under the Securities Act
of 1933, as amended (the "Securities Act"), the Investor shall give notice (the
"First Refusal Notice") to the Company and the Principal Stockholders. The First
Refusal Notice shall specify (i) the price (which shall be payable all in cash)
and other terms upon which the Investor is prepared to sell the Shares, (ii) the
number of shares such Investor is prepared to sell, and (iii) the name of the
Person or Persons offering to purchase the Shares (and if any such Person is
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an entity, the names of each of the individuals owning, directly or indirectly,
more than 10% of the equity or ownership interests of such Person). The
Principal Stockholders shall have the first option to purchase all (but not
part) of the offered Shares at the price per share and on the other terms stated
in the First Refusal Notice, pro rata in accordance with their then ownership of
Shares in the Company. For purposes of the preceding sentence, a Principal
Stockholder's stock ownership percentage shall be determined excluding the
Selling Stockholder's share ownership. If within 20 days from the date of the
First Refusal Notice, the Principal Stockholders do not notify the Selling
Stockholder of their full exercise of their respective options to purchase their
pro rata portion of the offered Shares, then the Selling Stockholder shall
promptly notify those Principal Stockholders who or which have exercised their
respective options, of the amount of offered Shares remaining, and those
Principal Stockholders shall, for a period of 10 days thereafter, have the right
to elect to purchase the remaining offered Shares in the same proportion that
the amount of Shares they have individually committed to purchase pursuant to
the exercise of their respective options bears to the aggregate amount of Shares
committed to be purchased by all Stockholders, or otherwise as the Principal
Stockholders electing to purchase the offered Shares shall agree amongst
themselves in writing. If the Principal Stockholders do not exercise their
options to purchase any of the offered Shares, or if they elect to purchase less
than all of the offered Shares, then the Company shall thereafter have ten days
from the expiration of the 30-day
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period following the date of the First Refusal Notice in which to elect to
purchase all, but not less than all, of the offered Shares, or the balance of
the offered Shares which the other Principal Stockholders have not elected to
purchase. No option under this Section 2.3(a) to purchase the offered Shares
shall be effective unless the exercise of such options by the Principal
Stockholders and/or the Company shall be for all of the offered Shares. The
closing of the sale of the offered Shares to the Principal Stockholders and/or
the Company under this Section 2.3(a) shall occur within 10 business days after
receipt by the Selling Stockholder of notice that the options for all of the
offered Shares have been exercised, in accordance with Section 2.3(c).
(b) If no option is exercised pursuant to Section 2.3(a) within 40 days
after the date of the Selling Stockholder's First Refusal Notice, or if the
Principal Stockholders and/or the Company fail to elect to purchase all of the
offered Shares, then at any time within 90 days following the expiration of such
40-day period, the Selling Stockholder may sell all, but not less than all, of
the offered Shares to the purchaser(s) identified in, at a price per share no
less than the price (payable all in cash) and upon terms no less favorable than
those stated in, the First Refusal Notice; provided that (i) prior to such sale,
counsel for the Selling Stockholder shall have delivered to the Company an
opinion, in form and substance satisfactory to the Company, that such sale will
not violate the Securities Act, and (ii) any such purchaser shall have executed
and delivered an agreement to be bound by the terms of
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this Agreement as applicable to the transferor Investor. If the sale is not
consummated within such 90-day period, any transfer of Shares will again be
subject to the provisions of this Section 2.3.
(c) If the Principal Stockholders and/or the Company elect to purchase
all of the Shares offered for sale by a Selling Stockholder pursuant to this
Section 2.3, the closing of the purchase shall take place within ten business
days after the Selling Stockholder has received notice of the options' exercise,
at the Company's office, or at such other time, place or date as the parties may
agree. At the closing, the Selling Stockholder shall sell, transfer and deliver
to the Company and/or those Principal Stockholders electing to purchase the
same, certificates representing the offered Shares, free and clear of all liens,
security interests or adverse claims of any nature, duly endorsed for transfer,
and with all applicable stock transfer taxes paid and the Company and/or those
Principal Stockholders electing to purchase the offered Shares shall deliver to
the Selling Stockholder, in full payment of the purchase price for the offered
Shares, a certified or bank check or checks in the amount of the purchase price
for the offered Shares. If the person selling the Shares is the executor of the
estate of a deceased Investor, he shall also deliver to the Company and/or the
Principal Stockholders purchasing the Shares copies of letters testamentary or
letters of administration evidencing his appointment and qualification.
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2.4 Sales by Principal Stockholders Subject to Tag-Along Rights. (a) In
the event that any of the Principal Stockholders proposes to effect a Transfer
(other than a Permitted Transfer described in Section 2.2(a) above) of any of
the Shares owned by it (the "Transfer Stock"), then such Stockholder (the
"Selling Principal Stockholder") shall promptly give written notice (the
"Notice") to the Company and the Investors at least thirty days prior to the
closing of such Transfer. The Notice shall describe in reasonable detail the
proposed Transfer including, without limitation, the name of, and the number of
shares of Stock to be purchased by, the transferee, the purchase price of each
share of Transfer Stock to be sold, any other significant terms of such sale and
the date such proposed sale is expected to be consummated, it being understood
that if such proposed Transfer by the Selling Principal Stockholder is in a
public offering pursuant to a registration statement filed under Section 2.7,
the provisions of this Section 2.4 shall not apply.
(b) Subject to the provisions of Section 2.6, each Investor shall have
the right, exercisable upon irrevocable written notice to the Selling Principal
Stockholder within twenty days after receipt of the Notice, to participate in
such sale of Transfer Stock on the same terms and conditions as set forth in the
Notice, including, without limitation, the making of all representations,
warranties, several (and not joint and several) indemnifications (including
participating in any escrow arrangements) and similar agreements, and to sell
all or any portion of the number of the
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Shares owned by it as determined in accordance with the calculation set forth
below. Each Investor electing to participate in the sale described in the Notice
(each a "Participant") shall indicate in its notice of election to the Selling
Principal Stockholder the maximum number of its Shares it desires to sell in
such sale. Each such Participant shall be entitled to sell a "pro rata portion"
of such maximum number. To the extent one or more of the Stockholders exercise
such right of participation in accordance with the terms and conditions set
forth in this section 2.4, the number of shares of Transfer Stock that the
Selling Principal Stockholder may sell in the transaction shall be
correspondingly reduced. For purposes of this Section 2.4, "pro rata portion"
shall mean for any Participant the number of Shares determined by multiplying
(i) the total number of Shares owned by such Participant by (ii) a fraction the
numerator of which is the number of Shares of Transfer Stock proposed to be sold
in the Notice and the denominator of which is the sum of (A) the total number of
Shares owned by the Selling Principal Stockholder immediately prior to the sale
proposed in the Notice and (B) the total number of Shares owned by all of the
Participants. Not later than 5 days prior to the date scheduled for such sale,
the Selling Principal Stockholder shall provide notice to each Participant of
the "pro rata portion" of Shares to be sold by such Participant in such sale.
(c) Any Participant shall effect its participation in the sale by
delivering on the date scheduled for such sale to the Selling Principal
Stockholder for delivery to the prospective transferee one or more certificates,
in proper form for transfer,
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which represent the number of Shares which such Participant is entitled to sell
in accordance with this Section 2.4. Such stock certificate or certificates that
any Participant delivers to the Selling Principal Stockholder shall be delivered
on such date to such transferee in consummation of the sale of the Shares
pursuant to the terms and conditions specified in the Notice, and the Selling
Principal Stockholder shall concurrently therewith remit to each such
Participant that portion of the sale proceeds to which such Participant is
entitled by reason of its participation in such sale. The Selling Principal
Stockholder's sale of Shares in any sale proposed in a Notice shall be effected
on the terms and conditions set forth in such Notice.
(d) The exercise or non-exercise of the rights of the Stockholders
hereunder to participate in one or more sales of Shares made by the Selling
Principal Stockholder shall not adversely affect their rights to participate in
subsequent sales of Shares subject to this Section 2.4.
2.5 Grant by Investors of Bring-Along Rights. (a) Each time the
Stockholders of the Company meet, or act by written consent in lieu of meeting,
for the purpose of approving a "Sale of the Business" (as such term is
hereinafter defined), each Investor agrees to vote all of its Shares as directed
by a majority of the Company's Board of Directors (the "Board"). In order to
effect the foregoing covenant, each Investor hereby grants to the Board with
respect to all of such Investor's Shares an irrevocable proxy (which is deemed
to be coupled with an interest) for the term
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of this Agreement with respect to any Stockholder vote or action by written
consent to effect the Sale of the Business. As used herein, "Sale of the
Business" shall mean any transaction or series of transactions (whether
structured as a stock sale, merger, consolidation, reorganization, asset sale or
otherwise) negotiated on an arm's-length basis, which results in the sale or
transfer of all or substantially all of the assets or shares of capital stock of
the Company to an unaffiliated bona fide third party in which all consideration
payable to holders of the Common Stock and the Series A Preferred Stock is
distributed pro rata pursuant to stock ownership.
(b) In furtherance of its covenants in Section 2.5(a), each Investor
hereby agrees to cooperate fully with the Principal Stockholders and the
purchaser in any such Sale of the Business to execute and deliver all documents
and instruments as the Principal Stockholders and the purchaser request to
effect such Sale of the Business, including, without limitation, the making of
all representations and warranties relating to such Investor and its holding of
Shares and several (and not joint and several) indemnifications (including
participating in any escrow arrangements) and similar arrangements, but
excluding employment agreements and covenants not to compete (the determination
of whether or not to enter into any such agreements being in the sole and
absolute discretion of each Stockholder). The Principal Stockholders agree that
upon such Sale of the Business each Investor will receive its pro rata share of
the consideration paid
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by the purchaser determined on the basis of such Investor's Share
ownership.
2.6 Registration Rights. (a) If at any time after the earlier of (x)
270 days following an IPO and (y) five years from the Final Closing Date (as
defined in Section 1.1), any group of Stockholders desires to effect a Transfer
of any or all of its Shares which Transfer, in the opinion of the Company's
counsel, requires the registration of such Shares by the Company, then such
Stockholders may request that the Company proceed with the relevant registration
of the Shares to be so transferred subject to the conditions set forth in
Section 2.6(b) and the Company shall give prompt notice thereof to all of the
other Stockholders. Any Stockholder who gives notice to the Company within ten
(10) business days after its receipt of the Company's notice, of its desire to
effect a Transfer of any or all of its Shares may also request that the Company
proceed with the relevant registration of such Shares subject to the conditions
set forth in Section 2.6(b) (all of such Stockholders requiring the registration
of their Shares collectively referred to as a "Demanding Group").
(b) Subject to the terms set forth below, at the request of any such
Demanding Group pursuant to Section 2.6(a), the Company shall, as expeditiously
as possible, use its reasonable best efforts to effect the registration or
qualification of all of the Shares held by such Demanding Group (or so much
thereof as such Investors shall have specified in such request) with, and give
notice to or obtain approval by, any governmental authority under any federal or
state law which may be required to permit the sale
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or the disposition (in accordance with the intended methods thereof) of such
Shares, and upon such registration such Transfers may be effected in conformity
therewith. Notwithstanding anything herein to the contrary, the Company shall
not be obligated to effect registration under the Securities Act pursuant to the
preceding sentence (i) on more than one occasion at the request of any one
Demanding Group; provided that if, after requesting registration, such Demanding
Group can only sell less than 50% of the Shares specified to be sold in such
request as a result of underwriters' cutbacks, then such Demanding Group shall
not be deemed to have exercised its right to the demand registration to which it
is entitled hereunder but there shall have been an effective registration
statement of the Company for purposes of clause (ii) of this Section 2.6(b),
(ii) within 12 months of an effective registration statement of the Company
under the Securities Act, (iii) unless the Demanding Group holds Shares with a
minimum aggregate fair value (determined in good faith by the Board of
Directors) of $5 million, and if such Demanding Group consists solely of
Investors, holds more than 25% of the total number of Offered Shares outstanding
on the date of such request, or (iv) if the Board of Directors of the Company
determines in the exercise of its reasonable judgment that due to a pending or
contemplated acquisition or disposition, to effect such registration at such
time would have a material adverse effect on the Company or the Company and its
subsidiaries, taken as a whole, or on any such acquisition or disposition;
provided, however, in
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the event of a situation described in this clause (iv), the Company may defer
registration for a period not to exceed 180 days.
(c) If after the consummation by the Company of an IPO, the Company
intends, whether or not in connection with a Demanding Group's request for
registration pursuant to Sections 2.6(a) and (b) or otherwise, to register
Shares on Form S-1, Form S-2 or Form S-3 or any corresponding form (other than
Form S-4, Form S-8 or any other form used to register Shares offered in
connection with any of the Company's employee benefit plans) applicable at the
time under the Securities Act as then in effect (or any similar statute then in
affect), the Company will give written notice to each Stockholder of its
intention to do so, at least 30 business days prior to the time of the filing of
any registration statement or qualification papers, and at the written request
of any Stockholder (other than, in the case of registration pursuant to Sections
2.8(a) and (b), the Demanding Group that has requested such registration (the
"Requesting Stockholder") given within 20 business days after receipt of any
such notice (which request shall specify the number of Shares intended to be
sold or disposed of by such Stockholder and shall describe the nature of any
proposed sale or other disposition thereof which may include a distribution over
a reasonable period of time), the Company will use its best efforts to cause
such Shares to be registered or qualified to the extent required (in the opinion
of the Company's counsel) to permit the sale or other disposition thereof (in
accordance with the methods described by such Stockholder) (such right of each
Stockholder (other than, in the case of registration
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pursuant to Sections 2.6(a) and (b), the Requesting Stockholder) to participate
in the proposed offering, a "piggy-back right"). The number of Shares that any
Stockholder (including, in the case of registration pursuant to Sections 2.6(a)
and (b), the Requesting Stockholder) intends to sell shall be subject to
underwriters' cutbacks resulting from the underwriters' conclusion that the
inclusion of all of the Shares requested to be included in the proposed offering
would materially adversely affect the distribution of Shares in such offering or
the market price of the Company's Common Stock if such Common Stock is publicly
traded. Such underwriters' cutbacks shall be made on a pro rata basis by
multiplying the number of Shares that each Stockholder desires to sell in the
proposed offering by a fraction the numerator of which shall be the number of
Shares that the underwriters deem appropriate to sell in the proposed offering
and the denominator of which shall be the total number of Shares that all of the
Stockholders (including, in the case of registration pursuant to Sections 2.6(a)
and (b), the Requesting Stockholder) initially desire to sell in the proposed
offering.
(d) The Company shall endeavor in good faith to keep effective and
maintain any registration, qualification, notification or approval specified in
subparagraphs (a) and (b) of this Section 2.6 for such period not exceeding 90
days as may be necessary for any Stockholder participating in such registration
to dispose of any Shares registered thereunder in the manner specified and from
time to time shall amend or supplement the prospectus used
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in connection therewith to the extent necessary in order to comply with
applicable law. In connection with the registration of Shares under the
Securities Act pursuant to this Agreement, the Company shall furnish each
Stockholder whose Shares are registered thereunder and each underwriter, if any,
with a copy of the registration statement and all amendments thereto and shall
supply each such Stockholder and each underwriter, if any, with copies of any
prospectus and all amendments and supplements thereto), in such quantities as
may be reasonable necessary for the purposes of the proposed sale or
distribution covered by such registration.
(e) In connection with the Company's registration obligations pursuant
to this Section 2.6, the Company shall:
(i) prepare and file with the Securities and Exchange
Commission ("SEC") a registration statement on any appropriate form under the
Securities Act, which form shall be selected by the Company and shall be
available for the sale of the Shares in accordance with the intended method or
methods of distribution thereof, and use its reasonable best efforts to cause
such registration statement to become effective;
(ii) prepare and file with the SEC such amendments and
post-effective amendments to the registration statement as may be necessary to
keep such registration statement effective for the required duration thereof;
cause the related prospectus to be supplemented by any required prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424 under the
Securities
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Act; and comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement during the
applicable period in accordance with the intended methods of disposition by the
sellers thereof set forth in such registration statement or supplement to such
prospectus;
(iii) notify the selling Stockholders and the managing underwriters, if
any, promptly, and (if requested by any such Stockholder) confirm such advice in
writing, (A) when a prospectus or any prospectus supplement or posteffective
amendment has been filed, and, with respect to a registration statement or any
post-effective amendment, when the same has become effective, (B) of any request
by the SEC for amendments or supplements to a registration statement or related
prospectus or for additional information, (C) of the issuance by the SEC of any
stop order suspending the effectiveness of a registration statement or the
initiation or any proceedings for that purpose, (D) of the receipt by the
Company of any notification with respect to the suspension of the qualification
of any of the Shares for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose, and (E) of the existence of any
fact which results in a registration statement, a prospectus or any document
incorporated therein by reference containing an untrue statement of a material
fact or omitting to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading;
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(iv) use its reasonable best efforts to obtain the withdrawal
of any order suspending the effectiveness of a registration statement at the
earliest possible moment;
(v) provide a CUSIP number for all Shares, not later than the
effective date of the applicable registration statement;
(vi) in connection with an underwritten offering, (A) obtain opinions
of counsel to the Company and updates thereof (which counsel and opinions (in
form, scope and substance) shall be reasonably satisfactory to the managing
underwriters, addressed to the underwriters, covering the matters customarily
covered in opinions requested in underwritten offerings and such other matters
as may be reasonably requested by such underwriters; (B) obtain "cold comfort"
letters and updates thereof from the Company's independent certified public
accountants, addressed to the underwriters, such letters to be in customary form
and covering matters of the type customarily covered in "cold comfort" letters
to underwriters in connection with underwritten offerings; and (C) make
available for inspection during normal business hours by any underwriter
participating in any disposition pursuant to a registration statement, and any
attorney or accountant retained by such underwriter, all financial and other
records, pertinent corporate documents and properties of the Company, and cause
the Company's officers, directors and employees to supply all information
reasonably requested by such underwriter, attorney or accountant in connection
with such registration statement; provided
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that such underwriters shall be selected by the Company and shall execute prior
thereto an agreement with the Company that all such records, information or
documents shall be kept confidential by such persons unless (1) disclosure of
such records, information or documents is required by law or by a court or
administrative order or (2) such records, information or documents are or become
(but only when they become) generally available to the public other than as a
result of disclosure in violation of this paragraph; and
(vii) if any fact contemplated by Section 2.6(e)(iii)(E) above shall
exist, prepare a supplement or post-effective amendment to the applicable
registration statement or the related prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of the Shares being sold thereunder, such prospectus
will not contain an untrue statement of material fact or omit to state any
material fact necessary to make the statements therein under the circumstances
under which they were made, not misleading.
(f) All out-of-pocket expenses, disbursements and fees in connection
with any action to be taken under this Section 2.6 shall be borne by the
Company, including the reasonable fees and expenses of one counsel for all
participating Stockholders except in connection with a registration on Form S-3
(or such corresponding form applicable at the time under the Securities Act) in
which case the fees and expenses of counsel, if any, for participating
Stockholders shall be for each participating Stockholder's own account. In no
event, however, shall the foregoing expenses include the underwriters' discount
in connection with an offering.
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(g) In the event of any registration under the provisions Of this
Section 2.6, the Company, to the extent permitted by law, will indemnify any
Stockholder participating in such registration, its respective officers and
directors, if any, and each Person, if any, who controls such Stockholder within
the meaning of Section 15 of the Securities Act, against all losses, claims,
damages and liabilities caused by any untrue statement of a material fact
contained in the registration statement or prospectus (and as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto), or caused by any omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading and
will reimburse such Stockholder, its officers and directors and any Person, if
any, who controls such Stockholder within the meaning of Section 15 of the
Securities Act, against any legal or other expenses reasonably incurred by such
Stockholder, officer, director or Person in connection with investigating or
defending any such losses, claims, damages and liabilities, except insofar as
such losses, claims, damages ar liabilities are caused by any untrue statement
or omission contained in information furnished in writing to the Company by such
Stockholder participating in such registration or by underwriters expressly for
use therein. If the offering pursuant to any registration statement is made
through underwriters, the Company agrees to enter into an underwriting agreement
in customary form with such underwriters, and to the extent permitted by law, to
indemnify such underwriters, their officers and directors, if any, and each
Person, if any, who
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controls such underwriters within the meaning of Section 15 of the Securities
Act to the same extent as provided in the preceding sentence with respect to the
indemnification by the Company of Stockholders participating in such
registration. The obligation of the Company under this Section 2.6 to register
securities for any of the Stockholders shall be subject to the condition that
each such Stockholder and the underwriters involved in the offering shall
furnish to the Company in writing such information as shall be reasonably
requested by the Company for use in connection with the preparation of any such
registration statement or prospectus and, to the extent permitted by law, shall
indemnify the Company, its directors and officers, any other underwriter, the
other Stockholders participating in such registration and each Person, if any,
who controls the Company, any other underwriter or such other Stockholders,
within the meaning of Section 15 of the Securities Act, against all losses,
claims, damages and liabilities caused by any untrue statement or omission
contained in information so furnished in writing to the Company by such
Stockholder or such underwriter expressly for use therein.
(h) If the indemnification provided for in this Section 2.6 from the
indemnifying party is unavailable to any indemnified party hereunder in respect
of any losses, claims, damages or liabilities referred to herein, then the
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities in such proportion as is
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appropriate to reflect the relative fault of the indemnifying party and
indemnified parties in connection with the actions which resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault of such indemnifying party and indemnified
parties shall be determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact, has been
made by, or relates to information supplied by, such indemnifying party or
independent parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The amount paid
or payable by a party under this Section 2.6 as a result of the losses, claims,
damages and liabilities referred to above shall be deemed to include any legal
or other fees or expenses reasonably incurred by such party in connection with
any investigation or proceeding. The parties hereto agree that it would not be
just and equitable if contribution pursuant to this Section 2.6(h) were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to herein.
(i) As expeditiously as possible after the effectiveness of any
registration statement pursuant to this Section 2.6 and prior to such date as
shall be certified to the Company as the date upon which the Transfer
contemplated by such registration statement will be effected by any
participating Stockholder, the Company will deliver in exchange for certificates
representing Shares so
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registered bearing the legends set forth in Section 3.1, certificates therefor
not bearing such legends as shall be required to effect such Transfer. In the
event that the proposed Transfer is not made as contemplated by any such
participating Stockholder, by acceptance thereof such Stockholder shall be
deemed to have agreed that it will deliver such certificates not bearing such
legends to the Company in exchange for new certificates bearing the legends set
forth in Section 3.1 if the Company shall request and the Company agrees that it
will make such exchange.
(j) The obligations of the Company under this Sections 2.6 shall also
be subject to the following additional limitations:
(i) The Company shall not be obligated to qualify any Shares
for sale under the Blue Sky or securities laws of any state in which it would be
required to qualify as a foreign corporation or to file a general consent to the
service of process solely as the result of such qualification.
(ii) If any Stockholder desires to effect an underwritten
offering, the Company shall not be required to file any registration statement
in respect thereof unless the underwriter shall be selected by the Company.
(k) Each of the Stockholders agrees that in connection with any IPO,
such Stockholder will not, without the prior written consent of the Company,
directly or indirectly, offer to sell,
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sell, contract to sell (including, without limitation, any short sale), grant
any option for the sale of, acquire any option to dispose of, or otherwise
dispose of any Shares for a period of 180 days following the date of the
consummation of such IPO. Following any other underwritten public offering of
Common Stock, each such Stockholder will not, without the prior written consent
of the Company, directly or indirectly, offer to sell, sell, contract to sell
(including, without limitation, any short sale), grant any option for the sale
of, acquire any option to dispose of, or otherwise dispose of any Shares for a
period of 180 days following the date of the consummation of any such public
offering.
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ARTICLE III
LEGENDS
3.1 Shares. From and after the date hereof, all stock certificates
representing Shares held by any of the Stockholders shall bear a legend which
shall state substantially as follows:
The shares represented by this certificate are subject to certain
restrictions against transfer set forth in a Stockholders Agreement
between the Company and its holders of Common Stock and Series A
Preferred Stock. A copy of such Stockholders Agreement has been filed
in the registered office of the Company in the State of Delaware, where
the same may be inspected daily during business hours.
3.2 Non-Investor Shares. In addition to the legend required by section
3.1 above, all stock certificates representing Shares held by any of the
Stockholders other than the Investors shall bear a legend which shall state
substantially an follows:
The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Securities Act"),
and such shares may not be offered, sold, pledged or otherwise
transferred except (1) pursuant to an exemption from, or in a
transaction not subject to, the registration requirements under the
Securities Act or (2) pursuant to an effective registration statement
under the
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Securities Act, in each case, in accordance with any applicable
securities laws of any State of the United States.
3.3 Investor Shares. In addition to the legend required by Section 3.1
above, all stock certificates representing Shares held by any of the Investors
shall bear a legend which shall state substantially as follows:
This security (or its predecessor) evidenced hereby was originally
issued in a transaction exempt from registration under Section 5 of the
United States Securities Act of 1933 (the "Securities Act") and
applicable state securities laws and the security evidenced hereby, may
not be offered, sold or otherwise transferred in the absence of such
registration or an applicable exemption therefrom. The holder of the
security evidenced hereby agrees for the benefit of the Company that
(a) such security may be resold, pledged or otherwise transferred, only
(1) in a transaction meeting the requirements of Rule 144 under the
Securities Act, or in accordance with another exemption from the
registration requirements of the Securities Act (and based upon an
opinion of counsel if the Company so requests), (2) to the Company, or
(3) pursuant to an effective registration statement under the
Securities Act, in each case, in accordance with any applicable
Securities laws of any state of the United States or any other
applicable jurisdiction and (b) the holder will, and each subsequent
holder is required to, notify any
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purchaser from it of the security evidenced hereby of the
resale restrictions set forth in (a) above.
3.4 Delivery of Certificates. Promptly upon execution and delivery of
this Agreement, each Stockholder shall deliver to the Secretary of the Company
all certificates then held by such Stockholder representing Shares which do not
have such legends affixed thereto as are required by this Article III. The
Company shall cause such legends to be affixed promptly to each of such
certificates and such certificates to be returned promptly to the registered
holder thereof. The Company agrees that it will not cause or permit the Transfer
of any Shares to be made on its books unless the Transfer is permitted by this
Agreement and has been made in accordance with the terms.
ARTICLE IV
MISCELLANEOUS
4.1 Entire Agreement. This Agreement contains the entire
agreement between the parties hereto with respect to the subject
matter and supersedes all prior arrangements or understandings
(whether written or oral) with respect thereto.
4.2 Captions. The Article and Section captions used herein are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
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4.3 Counterparts. For the convenience of the parties, any number of
counterparts of this Agreement may be executed by the parties hereto and each
such executed counterpart shall be deemed to be an original instrument.
4.4 Notices. All notices, consents, requests, instructions, approvals
and other communications provided for herein and all legal process in regard
hereto shall be validly given, made or served, if in writing and delivered by
personal delivery, overnight courier, telecopier or registered or certified
mail, return-receipt and postage prepaid addressed as follows:
If to the Company, to:
Collingwood Plaza
4900 Route 33
Wall Township, New Jersey 07753
Attention: John W. Lyle, President
Fax: (908) 938-2825
If to any of the Principal Stockholders, to the addresses set forth
opposite each of their names on Schedule A attached hereto, and
If to any of the Investors, to the addresses set forth opposite each of
their names on Schedule B hereto.
or to such other address as any such party hereto may, from time to time,
designate in writing to all other parties hereto, and any such communication
shall be deemed to be given, made or served as of the date so delivered or, in
the case of any communication delivered by mail, as of the date so received.
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4.5 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the Company, the Stockholders and their respective
heirs, devisees, legal representatives, successors, permitted assigns and other
permitted transferees. The rights of a Stockholder under this Agreement may not
be assigned or otherwise conveyed by any Stockholder except in connection with a
Transfer of Shares which is in compliance with this Agreement.
4.6 GOVERNING LAW. THIS AGREEMENT SHALL BE, GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK, WITHOUT REGARD TO SUCH STATE'S CHOICE OF LAW PROVISIONS.
4.7 Submission to Jurisdiction. (a) Each of the parties hereto hereby
irrevocably acknowledge and consents that any legal action or proceeding brought
with respect to any of the obligations arising under or relating to this
Agreement shall be brought in this courts of the State of New York or in the
United States District Court for the Southern District of New York, as the party
bringing such action or proceeding may elect, and each of the parties hereto
hereby irrevocably submits to and accepts with regard to any such action or
proceeding, for itself and in respect of its property, generally and
unconditionally, the jurisdiction of the aforesaid courts. Subject to Section
4.7(b), the foregoing shall not limit the rights of any party to serve process
in any other manner permitted by law. The foregoing consents to jurisdiction
shall not constitute general consents to service of process in the State of New
York for any purpose except as provided
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above and shall not be deemed to confer rights on any Person other than the
respective parties to this Agreement.
(b) Each of the parties hereto hereby waives any right it may have
under the laws of any jurisdiction to commence by publication any legal action
or proceeding with respect to this Agreement. To the fullest extent permitted by
applicable law, each of the parties hereby irrevocably waives the objection
which it may now or hereafter have to the laying of the venue of any suit,
action or proceeding arising out of or relating to this Agreement in any of the
courts referred to in Section 4.7(a) and hereby further irrevocably waives any
claim that any such court is not a convenient forum for any such suit, action or
proceeding.
(c) The parties hereto agree that any judgment obtained by any party
hereto or its successors or assigns in any action, suit or proceeding referred
to above may, in the discretion of such party (or its successors or assigns), be
enforced in any jurisdiction, to the extent permitted by applicable law.
(d) The parties hereto agree that the remedy at law for any breach of
this Agreement may be inadequate and that should any dispute arise concerning
the sale or disposition of any Shares or the voting thereof or any other similar
matter hereunder, this Agreement, shall be enforceable in a court of equity by
an injunction or a decree of specific performance. Such remedies shall, however,
be cumulative and nonexclusive, and shall be in addition to any other remedies
which the parties hereto may have.
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4.8 Benefits Only to Parties. Nothing expressed by or mentioned in this
Agreement is intended or shall be construed to give any Person, other than the
parties hereto and their respective successors or permitted assigns, any legal
or equitable right, remedy or claim under or in respect of this Agreement or any
provisions herein contained, this Agreement and all conditions and provisions
being intended to be and being for the sole and exclusive benefit of the parties
hereto and their respective successors and permitted assigns, and for the
benefit of no other Person.
4.9 Termination. This Agreement shall terminate upon the
happening of any one of the following events:
(a) the voluntary or involuntary dissolution of the
Company;
(b) the sale of the Business as provided in Section 2.5;
(c) the consummation of an IPO, except that the
provisions of Section 2.6 and this Article IV shall continue
after such consummation; and
(d) if this Agreement has not been renewed or extended by a
written instrument on or prior to the tenth anniversary of the date of
this Agreement; provided, however, the provisions of Section 4.11 shall
survive any termination of this Agreement.
4.10 Publicity. Except as otherwise required by applicable
laws or regulations, none of the parties hereto shall issue or
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cause to be issued any press release or make or cause to be made any other
public statement in each case relating to or connected with or arising out of
this Agreement or the matters contained herein, without obtaining the prior
approval of the Principal Stockholders and the Company to the contents and the
manner of presentation and publication thereof.
4.11 Confidentiality. Each of the parties hereto hereby agrees that
throughout the term of this Agreement it shall keep (and shall cause its
directors, officers, employees, representatives and outside advisors and its
affiliates to keep) all non-public information relating to the Company
(including any such information received prior to the date hereof) confidential
except information which (i) becomes known to such Stockholder from a source,
other than the Company, its directors, officers, employee, representatives or
outside advisors, which source is not obligated to the Company to keep such
information confidential or (ii) becomes generally available to the public
through no breach of this Agreement by any party hereto. Each of the parties
hereto agrees that such non-public information (a) shall be communicated only to
those of its directors, officers, employees, representatives, outside advisors
and affiliates who need to know such non-public information and (b) will not be
used by such party or its directors, officers, employees, representatives,
outside advisors or affiliates either to compete with the Company or to conduct
itself in a manner inconsistent with the antitrust laws of the United States or
any state. Notwithstanding the foregoing, a party hereto may disclose non-public
information if required to do
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so by a court of competent jurisdiction or by any governmental agency; provided,
however, that prompt notice of such required disclosure be given to the Company
prior to the making of such disclosure so that the Company may seek a protective
order or other appropriate remedy. In the event that such protective order or
other remedy is not obtained, the party hereto required to disclose the
non-public information will disclose only that portion which such party is
advised by opinion of counsel is legally required to be disclosed and will
request that confidential treatment be accorded such portion of the non-public
information.
4.12 Amendments; Waivers. No provision of this Agreement may be
amended, modified or waived without approval of the holders of (i) a majority of
all of the outstanding shares of Common Stock, and (ii) a majority of all of the
outstanding shares of Series A Preferred Stock.
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Execution
IN WITNESS WHEREOF, the Company and the Principal Stockholders have has
executed this Agreement as of ____________________, 1994.
ALGOS PHARMACEUTICAL CORPORATION
By____________________________
Name: John W. Lyle
Title: President
-----------------------------
Michael Hyatt
-----------------------------
Donald Drapkin
-----------------------------
Joseph Onek
-----------------------------
Howard Gittis
-----------------------------
Inez L. Kimmel
-----------------------------
Karen B. Lyle
The March 17, 1993 Melissa
Kimmel Trust
By____________________________
Name:
Title:
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The March 17, 1993 Todd Kimmel
Trust
By____________________________
Name:
Title:
The Ashley and Brenton Lyle 1993
Trust
By____________________________
Name:
Title:
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SCHEDULE A
PRINCIPAL STOCKHOLDERS
<TABLE>
<CAPTION>
Number of Shares
Name/Address of Common Stock
- - ------------ ----------------
<S> <C>
Michael Hyatt 116,666-2/3
c/o Bear, Stearns & Co., Inc.
245 Park Avenue - 3rd Floor
New York, New York 10167
Donald Drapkin 87,500
c/o Revlon, Inc.
767 Fifth Avenue
New York, New York 10022
Joseph N. Onek 58,333-1/3
c/o Crowell & Moring
1001 Pennsylvania Avenue
Washington, D.C. 20004-2595
Howard Gittis 87,500
c/o Revlon, Inc.
767 Fifth Avenue
New York, New York 10022
Inez L. Kimmel 105,000
c/o Roger H. Kimmel, Esq.
Latham & Watkins
885 Third Avenue - 10th Floor
New York, New York 10022
Karen B. Lyle 210,000
c/o Algos Pharmaceutical Corporation
Collingwood Plaza
4900 Route 33
Wall Township, N.J. 07753
The March 17, 1993 Melissa Kimmel Trust 5,833-1/3
c/o Roger H. Kimmel, Esq.
Latham & Watkins
885 Third Avenue - 10th Floor
New York, New York 10022
The March 17, 1993 Todd Kimmel Trust 5,833-1/3
c/o Roger H. Kimmel, Esq.
Latham & Watkins
885 Third Avenue - 10th Floor
New York, New York 10022
</TABLE>
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<TABLE>
<S> <C>
The Ashley and Brenton Lyle 1993 Trust 23,333-1/3
c/o Algos Pharmaceutical Corporation
Collingwood Plaza
4900 Route 33
Wall Township, N.J. 07753
</TABLE>
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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>
