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Section 240.14a-101 Schedule 14A.
Information required in proxy statement.
Schedule 14A Information
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
ALGOS PHARMACEUTICAL CORPORATION
.................................................................
(Name of Registrant as Specified In Its Charter)
.................................................................
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction
applies:
............................................................
(2) Aggregate number of securities to which transaction
applies:
.......................................................
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the amount
on which the filing fee is calculated and state how it was
determined):
.......................................................
(4) Proposed maximum aggregate value of transaction:
.......................................................
(5) Total fee paid:
.......................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the
Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
.......................................................
(2) Form, Schedule or Registration Statement No.:
.......................................................
(3) Filing Party:
.......................................................
(4) Date Filed:
.......................................................
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ALGOS PHARMACEUTICAL CORPORATION
1333 CAMPUS PARKWAY
NEPTUNE, NEW JERSEY 07753
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders (the
'1998 Annual Meeting') of ALGOS PHARMACEUTICAL CORPORATION, a Delaware
corporation ('Algos'), to be held on Tuesday, June 9, 1998, at 3:00 p.m., local
time at the Sheraton Eatontown Hotel & Conference Center, 6 Industrial Way East,
Eatontown, New Jersey 07724.
At the 1998 Annual Meeting, you will be asked to consider and vote upon the
following matters, all of which are described more completely in the
accompanying Proxy Statement:
1. To elect two persons to Algos' Board of Directors to serve for a
term of three years and until the election and qualification of their
respective successors;
2. To approve an amendment of the Company's 1996 Stock Option Plan in
order to increase the number of shares of Common Stock authorized for
issuance over the term of the Plan by 800,000 shares; and
3. To transact such other business as may properly come before the
1998 Annual Meeting and any adjournments or postponements thereof.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR EACH OF THE
NOMINEES NAMED IN THE PROXY STATEMENT AND FOR THE PROPOSAL TO AMEND THE 1996
STOCK OPTION PLAN.
Only Stockholders of record at the close of business on April 13, 1998 are
entitled to notice of and to vote at, the 1998 Annual Meeting.
We urge you to review carefully the Proxy Statement. We hope you will
attend the 1998 Annual Meeting. However, whether or not you plan to attend the
1998 Annual Meeting, it is important that your shares are represented.
Accordingly, please complete, sign and date the enclosed proxy and return it in
the enclosed prepaid envelope. If you are present at the 1998 Annual Meeting you
may, if you wish, withdraw your proxy and vote in person.
Very truly yours,
/s/ JOHN W. LYLE
JOHN W. LYLE
Chief Executive Officer and President
April 30, 1998
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ALGOS PHARMACEUTICAL CORPORATION
1333 CAMPUS PARKWAY
NEPTUNE, NEW JERSEY 07753
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON TUESDAY, JUNE 9, 1998
------------------------
To the Stockholders of
ALGOS PHARMACEUTICAL CORPORATION:
The Annual Meeting of Stockholders (the '1998 Annual Meeting') of ALGOS
PHARMACEUTICAL CORPORATION, a Delaware corporation ('Algos'), will be held at
the Sheraton Eatontown Hotel & Conference Center, 6 Industrial Way East,
Eatontown, New Jersey 07724 on Tuesday, June 9, 1998, at 3:00 p.m., local time,
for the following purposes:
1. To elect two persons to Algos' Board of Directors to serve for a
term of three years and until the election and qualification of their
respective successors;
2. To approve an amendment of the Company's 1996 Stock Option Plan in
order to increase the number of shares of Common Stock authorized for
issuance over the term of the Plan by 800,000 shares; and
3. To transact such other business as may properly come before the
1998 Annual Meeting and any adjournments or postponements thereof.
The election and other matters are more fully described in the accompanying
Proxy Statement which forms a part of this Notice.
The Board of Directors of Algos has fixed the close of business on April
13, 1998 as the record date (the 'Algos Record Date') for the determination of
stockholders entitled to notice of and to vote at the 1998 Annual Meeting or any
adjournments or postponements thereof. Only stockholders of record at the close
of business on the Algos Record Date are entitled to notice of, and to vote at,
the 1998 Annual Meeting and any adjournments or postponements thereof.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR EACH OF THE
NOMINEES NAMED IN THE PROXY STATEMENT AND FOR THE PROPOSAL TO AMEND THE 1996
STOCK OPTION PLAN.
Whether or not you plan to attend the 1998 Annual Meeting, please complete,
sign, date and return promptly the enclosed form of proxy. A return envelope is
enclosed for your convenience and requires no postage for mailing in the United
States.
By Order of the Board of Directors,
/s/ JAMES R. LEDLEY
JAMES R. LEDLEY
Assistant Secretary
April 30, 1998
<PAGE>
<PAGE>
ALGOS PHARMACEUTICAL CORPORATION
1333 CAMPUS PARKWAY
NEPTUNE, NEW JERSEY 07753
-------------------------
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 9, 1998
-------------------------
INTRODUCTION
This Proxy Statement is furnished to the stockholders of Algos
Pharmaceutical Corporation, a Delaware corporation (the 'Company'), in
connection with the solicitation of proxies on behalf of the Company's Board of
Directors (the 'Board of Directors') to be voted at the 1998 Annual Meeting of
Stockholders (the '1998 Annual Meeting') to be held on Tuesday, June 9, 1998 at
10:00 a.m., local time at the Sheraton Eatontown Hotel & Conference Center, 6
Industrial Way East, Eatontown, New Jersey 07724 or at such other time and place
to which the 1998 Annual Meeting may be adjourned, for the purposes set forth in
the accompanying Notice of Meeting. This Proxy Statement and Notice of Meeting
and the related proxy card are first being mailed to stockholders beginning on
or about May 15, 1998. The Company's principal executive office is located at
1333 Campus Parkway, Neptune, New Jersey 07753.
RECORD DATE
The Board of Directors has fixed the close of business on April 13, 1998 as
the record date (the 'Record Date') for the 1998 Annual Meeting. Only
stockholders of record on that date are entitled to vote at the meeting in
person or by proxy.
PROXIES
John W. Lyle and James R. Ledley were appointed by the Board of Directors
to vote the shares represented by the proxy card. Upon receipt by the Company of
a properly signed and dated proxy card, the shares represented thereby will be
voted in accordance with the instructions on the proxy card. If a stockholder
does not return a signed proxy card, his or her shares cannot be voted by proxy.
Stockholders are urged to mark the boxes on the proxy card to show how their
shares are to be voted. If a stockholder returns a signed proxy card without
marking the boxes, the shares represented by the proxy card will be voted as
recommended by the Board of Directors herein and on the proxy card, FOR the
election of the persons named under 'Election of Directors' as nominees for
election as Directors of the Company (each a 'Nominee' and, collectively, the
'Nominees') for terms to expire on the date of the third annual meeting of the
Company's stockholders following the 1998 Annual Meeting and for the proposal to
amend the 1996 Stock Option Plan. The proxy card also confers discretionary
authority on the proxies to vote on any other matter not presently known to the
management that may properly come before the meeting or any adjournment thereof.
Any proxy delivered pursuant to this solicitation is revocable at the option of
the person(s) executing the same (i) upon receipt by the Company before the
proxy is voted of a duly executed proxy bearing a later date, (ii) by written
notice of revocation to the Assistant Secretary of the Company received before
the proxy is voted or (iii) by such person(s) voting in person at the 1998
Annual Meeting. Duly executed proxies in the form enclosed, unless properly
revoked, will be voted at the 1998 Annual Meeting. The expenses incidental to
the preparation and mailing of this proxy material are being paid by the
Company. The Company will reimburse banks, brokerage firms and other custodians,
nominees and fiduciaries for reasonable expenses incurred by them in sending
proxy materials to stockholders. To assure that a quorum will be present in
person or by proxy at the Annual Meeting, it may be necessary for certain
officers, directors, employees or other agents of the Company to solicit proxies
by telephone, facsimile or other means or in person. No other solicitation
currently is planned beyond the mailing of this proxy material to stockholders
and to
<PAGE>
<PAGE>
brokerage firms, nominees, custodians and fiduciaries, who may be requested to
forward the proxy materials to the beneficial owners of shares held of record by
them.
VOTING SHARES AND QUORUM REQUIRED
On the Record Date, the Company had outstanding 15,999,551 shares of Common
Stock, par value $.01 per share (the 'Common Stock'). Holders of Common Stock on
the Record Date (the 'Common Stockholders') are entitled to one vote per share
on all matters submitted to a vote of stockholders. The presence in person or by
proxy of the holders of a majority of the issued and outstanding Common Stock,
excluding Common Stock held by the Company, is necessary to constitute a quorum
at the 1998 Annual Meeting.
The affirmative vote of a plurality of the shares of Common Stock
represented in person or by proxy at the 1998 Annual Meeting is required to
elect the Directors and a majority of the shares of Common Stock represented is
required to approve the proposal to amend the 1996 Stock Option Plan. Business
that might have been transacted at the 1998 Annual Meeting as originally called
may be conducted at any adjournment at which the requisite quorum is present.
Pursuant to the laws of the State of Delaware, the inspectors of the
election will not count shares represented by proxies that reflect abstentions
or 'broker non-votes' (i.e., shares held by brokers or nominees that are
represented at the 1998 Annual Meeting, but with respect to which the broker or
nominee is not empowered to vote on a particular proposal) as votes cast with
respect to the election of Directors, and therefore, neither abstentions nor
broker non-votes will affect the election of Nominees receiving the plurality of
votes. With respect to all other proposals scheduled to come before the 1998
Annual Meeting, abstentions with respect to a particular proposal will have the
effect of a vote against such proposal. Broker non-votes, however, will be
treated as unvoted for purposes of determining approval of such proposal and
will not be counted as votes for or against such proposal.
MATTERS TO BE VOTED UPON
1. ELECTION OF DIRECTORS
The Company's by-laws (the 'By-laws') provide that the Board of Directors
is divided into three classes. Each year the stockholders elect Directors to
succeed those Directors whose terms have expired, and each newly elected
Director will serve for a three-year term.
The Nominees set forth below have been duly nominated to stand for election
as Directors of the Company to serve for a term of three (3) years, or until
their successors are elected and qualified.
Each of the Nominees has indicated a willingness to serve as a member of
the Board of Directors if elected. The Board of Directors recommends a vote FOR
each of the Nominees. If any of the Nominees should become unavailable prior to
the 1998 Annual Meeting, the proxy will be voted for a substituted nominee or
nominees designated by the Board of Directors. The information provided below
with respect to the Nominees is as of the Record Date.
2
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To be elected by the Common Stockholders:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION AND
NAME AGE OTHER INFORMATION
- ---------------------------- --- -------------------------------------------------------------------
<S> <C> <C>
Roger H. Kimmel*............ 51 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 Weider Nutrition
International, Inc. and TSR Paging, Inc. Mr. Kimmel is a member
of the Compensation Committee of the Company's Board of
Directors.
Dieter A. Sulser............ 49 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.
</TABLE>
- ------------
* Member of the Compensation Committee.
CONTINUING DIRECTORS
JOHN W. 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., a
public orthopaedic pharmaceutical company formed in 1986. He served as
Osteotech, Inc.'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 President of
CIBA-GEIGY Corporation's Self-Medication Division. 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.
DONALD G. DRAPKIN has been a Director of the Company since January 1994.
Mr. Drapkin has been Vice Chairman and Director of MacAndrews & Forbes Holdings
Inc., and various of its affiliates for more than five years. Mr. Drapkin is a
Director of the following corporations which file reports pursuant to the
Securities Exchange Act of 1934, as amended: Anthracite Capital, Inc., BlackRock
Asset Investors, Cardio Technologies, Inc., The Cosmetic Center, Inc., Genta,
Inc., Playboy Enterprises, Inc., Revlon, Inc., Revlon Consumer Products
Corporation, VIMRx Pharmaceuticals, Inc. and Weider Nutrition International,
Inc. (On December 27, 1996, Marvel Holdings Inc., Marvel (Parent) Holdings,
Inc., and Marvel Entertainment Group, Inc., of which Mr. Drapkin was a director,
and several of their subsidiaries, and Marvell III Holdings, Inc., of which Mr.
Drapkin is a director, filed voluntary petitions for reorganization under
Chapter 11 of the United States Bankruptcy Code.) Mr. Drapkin is a member of the
Compensation and Audit Committees of the Company's Board of Directors.
MICHAEL HYATT has been a Director of the Company since November 1996. For
more than five years, Mr. Hyatt has been a Senior Managing Director of Bear
Stearns & Co., Inc. Mr. Hyatt is a member of the Audit Committee of the
Company's Board of Directors.
JAMES R. LEDLEY has been a Director of the Company since January 1992. Mr.
Ledley also serves as Assistant Secretary for the Company. 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 th law firm of Varet & Fink P.C. (previously
known as Milgrim Thomajan & Lee P.C.). Mr. Ledley is a member of the
Compensation and Audit Committees of the Company's Board of Directors.
Messers. Lyle and Drapkin are in the class of Directors whose term will
expire in 1999; and Messers. Hyatt and Ledley are in the class of Directors
whose term will expire in 2000.
3
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE NOMINEES NAMED IN
THE PROXY STATEMENT AND PROXIES SOLICITED BY THE BOARD WILL BE VOTED IN FAVOR OF
SUCH NOMINEES UNLESS A STOCKHOLDER HAS INDICATED OTHERWISE ON THE PROXY.
2. AMENDMENT OF THE 1996 STOCK OPTION PLAN
At the 1998 Annual Meeting, the Stockholders of the Company will be asked
to consider and vote upon an amendment to increase by 800,000 shares the
aggregate number of shares of Common Stock reserved for issuance under the
Company's 1996 Stock Option Plan (the 'Plan'). The Company's Stockholders have
previously approved the Plan. A total of 415,000 shares of Common Stock were
originally reserved for issuance under the Plan when it was adopted in 1996. By
the terms of the Plan, the Plan may be amended by the Board of Directors from
time to time in certain respects with Shareholder approval. As of October 1,
1997, options to purchase 358,000 shares were outstanding under the Plan.
Accordingly, an increase to the number of available shares is needed to permit
the Company to continue to grant options to employees. On October 28, 1997, the
Board of Directors voted to approve an amendment to the Plan to increase by
800,000 shares the aggregate numbers of shares of Common Stock which may be
issued under the Plan. The Board believes that the increase in the number of
shares reserved for issuance under the Plan is advisable to give the Company the
flexibility needed to attract, retain and motivate employees, directors and
consultants.
THE BOARD OF DIRECTORS RECOMMENDS APPROVAL OF THE AMENDMENT TO THE PLAN TO
INCREASE BY 800,000 SHARES THE AGGREGATE NUMBER OF SHARES FOR WHICH STOCK
OPTIONS MAY BE GRANTED UNDER THE PLAN AND PROXIES SOLICITED BY THE BOARD WILL BE
VOTED IN FAVOR OF SUCH AMENDMENTS UNLESS A STOCKHOLDER HAS INDICATED OTHERWISE
ON THE PROXY.
4
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the ownership
of Common Stock by each of the Directors and Nominees, the Company's Chief
Executive Officer, each of the Company's other most highly compensated executive
officers, all Directors and executive officers as a group, and each stockholder
who is known by the Company to own beneficially more than 5% of the outstanding
Common Stock, as of the Record Date. Unless otherwise indicated, the address of
each beneficial owner is c/o the Company, 1333 Campus Parkway, Neptune, New
Jersey 07753.
For purposes of the following 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 Proxy Statement. 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 Proxy Statement are deemed to be outstanding, but not for
the purpose of calculating the percentage ownership of any other person.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF SHARES
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED
- -------------------------------------------------------------- ------------------ --------------------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
John W. Lyle(a).......................................... 1,742,616 10.7%
Frank S. Caruso(b)....................................... 376,100 2.3
Donald Johnson(c)........................................ 236,550 1.7
Donald G. Drapkin(d)..................................... 21,600 *
Michael Hyatt(e)......................................... 1,862,450 11.1
Roger H. Kimmel(f)....................................... 930,151 5.8
James R. Ledley(g)....................................... 117,950 *
Dieter A. Sulser(h)...................................... 158,550 *
Directors and Executive Officers as a group(i)........... 4,818,674 29.3
OTHER PRINCIPAL STOCKHOLDERS
Unifina Holding AG and related investors(j).............. 1,734,700 10.8
Karen Lyle(k)............................................ 1,742,616 10.7
Lawrence Canarelli(l).................................... 871,500 5.4
Gilbert Goldstein(m)..................................... 862,750 5.4
Paul Shapiro(n).......................................... 809,250 5.1
Morris J. Kramer(o)...................................... 809,246 5.1
</TABLE>
- ------------
* Represents less than 1%.
(a) Includes (i) 74,700 shares of Common Stock owned directly by Mr. Lyle, (ii)
1,354,966 shares of Common Stock and options to purchase 12,450 shares of
Common Stock owned by Karen Lyle, wife of Mr. Lyle, as to which Mr. Lyle
disclaims beneficial ownership and (iii) options to purchase 300,500 shares
of Common Stock owned directly by Mr. Lyle, and excludes 660,000 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.
(b) Includes (i) 1,000 shares of Common Stock owned directly by Mrs. Caruso,
wife of Dr. Caruso, as to which Dr. Caruso disclaims beneficial ownership
and (ii) 7,200 shares of Common Stock held in a trust for which Dr. Caruso
serves as trustee and as to which shares Dr. Caruso holds either the sole
or the shared power of disposition and the power to vote and (iii) options
to purchase 64,100 shares of Common Stock. 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.
(c) Includes options to purchase 29,900 shares of Common Stock.
(d) Includes options to purchase 5,000 shares of Common Stock. 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.
(footnotes continued on next page)
5
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<PAGE>
(footnotes continued from previous page)
(e) Includes (i) 829,751 shares of Common Stock owned directly by Mr. Hyatt,
(ii) 1,021,003 shares held in five 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 (iii) options to
purchase 11,666 shares of Common Stock, and excludes 221,332 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.
(f) Includes (i) 878,525 shares held in 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 (iii) options to purchase
11,666 shares of Common Stock and excludes 343,060 shares of Common Stock
held in two trusts for the benefit of the children of Mr. Kimmel, as to
which shares Mr. Kimmel has neither the power of disposition nor the power
to vote.
(g) Includes a total of 3,500 shares of Common Stock held in a trust, as to
which shares Mr. Ledley holds the either the sole or the shared power of
disposition and power to vote and options to purchase 5,000 shares of
Common Stock.
(h) Includes (i) options to purchase 5,000 shares of Common Stock and (ii)
141,100 shares of Common Stock and 12,450 warrants to purchase shares of
Common Stock owned directly by Gaby Tschofen 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.
(i) Includes options and warrants to purchase 445,282 shares of Common Stock.
(j) 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.
(k) Includes (i) 1,354,966 shares of Common Stock and options to purchase
12,450 shares of Common Stock, owned directly by Mrs. Lyle and (ii) 74,700
shares of Common Stock and options to purchase 182,600 shares of Common
Stock owned directly by John Lyle, husband of Mrs. Lyle, as to which Mrs.
Lyle disclaims beneficial ownership, and excludes 660,000 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.
(l) Includes 660,000 shares of Common Stock deemed to be beneficially owned by
each of Mrs. Albert and Mr. Canarelli in their shared capacity as trustee
for a trust as to which shares each of Mrs. Albert and Mr. Canarelli share
the power of disposition and the power to vote.
(m) 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.
(n) 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.
(o) Includes 809,244 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.
6
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EXECUTIVE OFFICERS AND KEY EMPLOYEES
Set forth below are the executive officers and key employees of the
Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
EXECUTIVE OFFICERS
John W. Lyle.......................... 53 President and Chief Executive Officer
Frank S. Caruso, Ph.D. ............... 61 Executive Vice President, Research and Development
Gastone Bello, Ph.D. ................. 67 Executive Vice President, Technology Transfer and
Manufacturing
Terence S. Novak...................... 41 Executive Vice President, Sales and Marketing
KEY EMPLOYEES
Donald A. Johnson, Ph.D. ............. 44 Sr. Vice President, Pharmaceutical Development
Gary R. Anthony....................... 37 Chief Financial Officer
</TABLE>
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
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 access 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. Dr. Bello left the Company after December 31,
1997.
Mr. Novak joined Algos in 1998. From 1995 to 1998, Mr. Novak served as Vice
President of Sales and Marketing, Officer and Board Member at Innovex, Inc., a
contract sales and marketing company. From 1994 to 1995, Mr. Novak served as
Executive Director of Managed Care Sales and Marketing at The Vanderveer Group.
Prior to 1994, Mr. Novak served in various positions at Bristol-Myers Squibb,
including District Manager, Regional Sales Director, and Senior Director of
Corporate Accounts. Mr. Novak holds a a B.S. in Biology from Muhlenberg College.
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 1992, he served as Manager of Drug Delivery Systems at Noven
Pharmaceuticals and was responsible for 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.
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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 COMPENSATION
SUMMARY EXECUTIVE COMPENSATION TABLE
The following table sets forth the annual, long-term and other compensation
of the Company's Chief Executive Officer and other most highly compensated
executives whose annual base salaries equal or exceed $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------------------------
ANNUAL COMPENSATION AWARDS
------------------------------------ --------------------- PAYOUTS
OTHER RESTRICTED OPTIONS -----------------------
NAME AND PRINCIPAL ANNUAL STOCK (# OF LTIP ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION AWARDS SHARES) PAYOUTS COMPENSATION
- ------------------------- ------ -------- -------- ------------ ---------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John W. Lyle
President & Chief
Executive Officer...... 1997 $275,000 $137,500 -- -- 40,000 -- --
1996 $254,000 $127,000 -- -- 132,800 -- --
1995 $235,000 $ 75,000 -- -- -- -- --
Frank S. Caruso
Executive Vice
President Research &
Development............ 1997 $185,000 $ 61,050 -- -- 24,000 -- --
1996 $173,500 $ 57,750 -- -- 33,200 -- --
1995 $165,000 $ 25,000 -- -- -- -- --
Gastone Bello
Executive Vice
President, Technology
Transfer and
Manufacturing(a)....... 1997 $125,776 -- -- -- -- -- --
1996 $ 99,500 -- -- -- -- -- --
1995 $ 94,096 -- -- -- -- -- --
Donald Johnson
Senior Vice President,
Pharmaceutical
Development............ 1997 $137,500 $ 30,000 -- -- 20,000 -- --
1996 $130,000 $ 20,000 -- -- -- -- --
1995 $120,417 $ 10,000 -- -- -- -- --
Terence S. Novak
Executive Vice
President, Sales &
Marketing(b)...........
</TABLE>
- ------------
(a) Dr. Bello's employment with the Company terminated January 1998.
(b) Mr. Novak's employment with the Company commenced April 1998.
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The following table sets forth for each of the named executive officers the
value realized from stock options exercised during 1997 and the number and value
of exercisable and unexercisable stock options held at December 31, 1997:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANT OPTION TERM
------------------------------------------------------ --------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARs EXERCISE
UNDERLYING GRANTED TO OR BASE
OPTIONS/SARs EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- ----------------------- ------------ ------------ -------- ---------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
John W. Lyle........... 15,000 11 $15.00 1/31/06 $141,501 $358,592
25,000 19 $16.50 1/15/02 $113,966 $251,835
Frank S. Caruso........ 24,000 18 $15.00 1/31/06 $226,402 $573,747
Gastone Bello.......... -- -- -- -- -- --
Donald Johnson......... 20,000 15 $15.00 1/31/06 $188,668 478,123
Terence S. Novak....... -- -- -- -- -- --
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST YEAR AND YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
OF UNDERLYING IN-THE-MONEY
SHARES UNEXERCISED OPTIONS OPTIONS
ACQUIRED ON VALUE ---------------------------- ----------------------------
EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John W. Lyle.................. -- -- 300,500 96,400 $ 8,817,800 $ 2,467,400
Frank S. Caruso............... 58,100 $784,613 64,100 34,600 $ 1,826,000 $ 766,000
Gastone Bello................. 37,350 $541,744 37,350 -- $ 1,116,000 --
Donald Johnson................ 24,900 $370,500 29,900 15,000 $ 819,000 $ 225,000
Terence S. Novak.............. -- -- -- -- -- --
</TABLE>
EMPLOYMENT AGREEMENTS
Mr. Lyle's employment agreement with the Company expires on December 31,
2000 and is automatically renewable for successive one-year terms unless
terminated by either Mr. Lyle or the Company. Mr. Lyle's employment agreement
provides that he will be employed as the President and Chief Executive Officer
of the Company and that the Company will use its best efforts to cause him to be
elected to the Board of Directors for the term of the agreement. Mr. Lyle is
entitled to a minimum increase of 8% per year or such greater increase as the
Board of Directors, in its sole discretion, deems appropriate to the preceding
year's base salary and for 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 employment agreement acknowledges that during the period
of his employment, he will also serve as the Chief Executive Officer of U.S.
Medical Development, Inc. ('USMDI'), a Delaware corporation, incorporated in
January 1994 by the founders of the Company.
Dr. Caruso's employment agreement with the Company expires on December 31,
1998 and is automatically renewable for successive one-year terms unless
terminated by either Dr. Caruso or the Company. Dr. Caruso is entitled to a 5%
increase per year or such greater increase as the Board of Directors, in its
sole discretion, deems appropriate to the preceding year's base salary and is
entitled to receive continuing payments equal to twelve months salary in the
event of his termination by the Company without cause. Dr. Caruso 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.
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COMPENSATION OF OUTSIDE DIRECTORS
Non-employee members of the Board of Directors will receive cash
compensation of $1,500 per meeting attended as consideration for their services
as Directors of the Company and are reimbursed for reasonable travel expenses
incurred in connection with their attendance at such meetings. Non-employee
Directors upon first 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 in one-third installments upon each of the first,
second and third annual meetings of stockholders following the date of grant
subject to the Director's continued Board membership. In addition, on the date
of the first meeting of the Board of Directors in each calendar year, each
non-employee Director will be granted options to purchase 5,000 shares of Common
Stock, at the fair market value on the date of grant, which shall vest on the
first anniversary of the date of grant.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Kimmel and Mr. Ledley are members of the Compensation Committee of the
Company's Board of Directors. See 'Certain Relationships and Related
Transactions' for a description of certain of their business relationships with
the Company.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
Compensation Policy and Company Performance. The executive compensation
program has been designed with the goal of motivating, rewarding and retaining
executives with the level of talent and ability required to guide the Company's
growth, efficiently manage its resources, achieve its long-range business
objectives and successfully maintain its position as a leader in developing a
new generation of proprietary pain management products. The compensation program
provides the means of achieving these goals by creating incentives to
accomplishing short-term and long-term objectives, by rewarding exceptional
performance that contributes to the business and by utilizing competitive base
salaries that recognize a policy of career continuity.
The Company's financial well being is highly dependent upon the success of
its long-term growth strategy. The nature of this strategy requires long-term
and significant investments, which may take years to generate returns to
stockholders. Therefore, executive compensation decisions are oriented toward
long-term corporate performance and may not fluctuate as greatly as year-to-year
corporate financial results.
The fundamental principle of the compensation program is to compensate
executives for their performance and for the level of responsibility
corresponding to their positions. Assessments of both individual and corporate
performance influence compensation levels. The Compensation Committee recognizes
the importance of fostering a performance-based environment that motivates
individual achievement. Thus, executives are regularly given recognition for the
prior year's results, which are not necessarily financial results, and provided
with incentives to augment their successes in the future.
The Compensation Committee makes compensation determinations for all of the
Company's senior management, including the individuals whose compensation is
detailed in this proxy. Compensation decisions for all executives, including
John W. Lyle, the Company's Chief Executive Officer, are based on the criteria
disclosed above.
There are three primary elements of the Company's compensation program:
base salary, bonus payments and awards under the 1994 Option Plan and the 1996
Option Plan (together, the 'Stock Plans').
Base Salaries. A competitive base salary is necessary to the development
and retention of capable management and is consistent with the Company's
long-term goals.
Current base salary levels for executives result from a review of the
Company's business performance and general economic factors. Within this
framework, executive salaries are governed in part by various employment
agreements and are determined based on individual performance, level of
responsibility within the Company and experience.
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Bonus Payments. Targeted cash bonus payments are awarded to executives in
recognition of contributions to the business during the prior year. An
executive's contributions to the business are measured, in part, by his or her
success in meeting certain goals established by such executive and the Company's
Chief Executive Officer. The aggregate amount of the bonuses awarded in any
calendar year is determined by reference to the terms of the executive
employment agreements, the Company's competitive position, assessment of
progress in attaining long-term goals and business performance considerations.
Because of the Company's developmental stage, these business performance
considerations do not include traditional measurements such as annual cash flow,
earnings per share and return on investments, but rather, how well the Company
has achieved its targeted developmental goals. None of these measurements is
given a specific weight. No formula was used in determining the aggregate amount
of the bonuses awarded to executives in 1997.
The specific cash bonus an executive receives is dependent on individual
performance and level of responsibility. Assessment of an individual's relative
performance is made annually based on a number of factors, including initiative,
business judgment, knowledge of the industry and management skills.
Awards under the Stock Plans. Awards under the Stock Plans are designed to
promote an identity of interests between management and stockholders. Under the
Stock Plans, the Company's executives are eligible to receive grants of options
to purchase Common Stock at or above fair market value on the date of the grant.
Typically, grants of stock options are subject to a significant vesting period.
This approach is designed to increase long-term stockholder value, as the
maximum benefit of this element of executive compensation is only realized if
stock price appreciation occurs over a number of years.
Awards of stock options were granted to certain executives in 1997 based on
individual performance (determined as described above under ' -- Bonus
Payments') and level of responsibility. Award levels are generally intended to
be sufficient in size to provide a strong incentive for executives to work for
long-term business interests and increase such executives' ownership in the
business. See 'Executive Compensation -- Summary Compensation Table' and
'Executive Compensation -- Option/SAR Grants in Last Fiscal Year.'
Policy on the Deductibility of Compensation. Section 162(m) of the Internal
Revenue Code of 1986 as amended (the 'Code'), limits a public company's federal
income tax deduction for compensation paid in excess of $1,000,000 to any of its
five most highly compensated executive officers. However, certain
performance-based compensation, including awards of stock options, is excluded
from the $1,000,000 limit if specific requirements are met.
While the tax impact of any compensation arrangement is one factor which is
considered by the Compensation Committee, such impact is evaluated in light of
the compensation policies discussed above. The Compensation Committee's
compensation determinations have generally been designed to maximize the
Company's federal income tax deduction for possible application in future years.
However, from time to time compensation may be awarded which is not fully
deductible if it is determined that such award is consistent with the overall
design of the compensation program and in the best interests of the Company and
its stockholders.
Chief Executive Officer Compensation. The Chief Executive Officer's salary
is determined based upon Mr. Lyle's employment agreement and the competitive
salary framework described under ' -- Base Salaries,' above, recognizing the
Company's significant growth and the increasing complexity of its business. The
minimum base salary and annual increases set forth in Mr. Lyle's employment
agreement were determined based on the Board of Directors' judgment concerning
his individual contributions to the business, level of responsibility and career
experience. Although none of these factors were given a specific weight, primary
consideration was given to Mr. Lyle's individual contributions to the business.
No particular formulas or measures were used.
The amount of Mr. Lyle's 1997 bonus payment was established in accordance
with Mr. Lyle's employment agreement, based upon the Company's achievement in
product development including the conduct of eleven clinical studies of
MorphiDex'tm', progress toward initiating the filing of a New Drug Application
for MorphiDex'tm', including the drug formulation requirements, and the
completion of a Cooperative Research and Development Agreement with the National
Institute on Drug Abuse, National Institutes of Health for addiction products.
The bonus amount fixed in Mr. Lyle's employment
11
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<PAGE>
agreement reflects Mr. Lyle's level of responsibility within the organization
and overall contributions as Chief Executive Officer.
Conclusion. The Company has had, and continues to have, an appropriate and
competitive compensation program. The balance of a competitive base salary
position, bonus payments and significant emphasis on long-term incentives is a
foundation designed to build stability and to support the Company's continued
growth. This report is submitted by the members of the Compensation Committee:
COMPENSATION COMMITTEE
Donald G. Drapkin
Roger H. Kimmel
James R. Ledley
THE PRECEDING 'REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION'
AND THE 'STOCK PERFORMANCE CHART' THAT APPEARS IMMEDIATELY HEREAFTER SHALL NOT
BE DEEMED TO BE SOLICITING MATERIAL OR TO BE FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, OR INCORPORATED BY REFERENCE IN ANY
DOCUMENTS SO FILED.
STOCK PERFORMANCE CHART
As part of the executive compensation information presented in this Proxy
Statement, the Securities and Exchange Commission (the 'Commission') requires a
comparison of stock performance for the Company with stock performance of a
broad equity market index and an appropriate industry index. The following chart
compares the cumulative total stockholder return on the Common Stock during the
period from September 25, 1996 to December 31, 1997 with the cumulative total
return on the Nasdaq Composite Index and a peer group index of Nasdaq
pharmaceutical companies. The comparison assumes $100 was invested on September
25, 1996 (the effective date of the IPO) in the Common Stock and in each of the
foregoing indices and assumes reinvestment of dividends, if any. The stock
performance shown on the following chart is not necessarily indicative of future
performance.
<TABLE>
<CAPTION>
9/25/96 12/31/96 12/31/97
<S> <C> <C> <C>
Nasdaq Composite Index............................................................ 100.00 105.10 128.92
Peer Group Index.................................................................. 100.00 98.79 102.18
Algos Pharmaceutical Corporation.................................................. 100.00 80.36 214.29
</TABLE>
12
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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 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 stockholders of the Company. The Company has reserved a
total of 830,000 shares of Common Stock for issuances under the 1994 Option
Plan. As of December 31, 1997, options to purchase 10,790 shares are available
for future grants.
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 are generally not transferable except
upon an employee's death, at which time all options that have been granted to
such employee are deemed to be exercisable, subject to certain conditions.
1996 STOCK OPTION PLAN
In April 1996, the Company adopted the Algos Pharmaceutical 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 interests 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 1,215,000 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 including the 800,000 share increase for
which stockholder approval is sought at the 1998 Annual Meeting.
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.
The Compensation Committee administers the 1996 Option Plan which is
intended to satisfy the requirements of Rule 16b-3 under the Securities Exchange
Act of 1934, as amended (the 'Exchange Act'), and Section 162(m) of the Code.
Subject to the terms and conditions of the 1996 Option Plan, the Compensation
Committee has the authority to select the person to whom grants are made, to
designate the number of shares of Common Stock 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. Subject to the requirements of the 1996 Option Plan, the dates on which
options become exercisable and on which they expire shall be set forth in
individual option agreements. 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 Compensation Committee may provide that options continue to be exercisable
following a termination without 'Cause' (as defined in the 1996 Option Plan) or
otherwise. The Company 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 Compensation 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 Option Plan), all outstanding options shall become immediately exercisable
if not assumed by the surviving corporation.
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Incentive stock options ('Incentive Stock Options') granted under the 1996
Option Plan will be designed to comply with the provisions of the Code and will
be subject to certain restrictions contained in the Code. These restrictions
require that Incentive Stock Options (i) have an exercise price not less than
the fair market value of a share of Common Stock on the date of grant, (ii) may
only be granted to employees, (iii) must expire within a specified period of
time following the optionee's termination of employment and (iv) must be
exercised within ten years after the date of the 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 Compensation 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 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 by 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 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').
The Director Plan is administered by the Board of Directors and options
granted under the Director Plan are intended to satisfy the requirements of Rule
16b-3 under the Exchange Act. The Director Plan provides for automatic grants of
non-qualified stock options to purchase 10,000 shares of Common Stock to each
Outside Director at the time of first 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
14
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of an option shall be exercisable after the tenth anniversary of the date of
grant and no portion of an option shall became exercisable following termination
of the Outside Director's services as a Director of the Company.
Unless sooner terminated by the Board of Directors, the Director Plan will
expire ten years after the date of 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 at the first
regular meeting of the Board of Directors each calendar year shall be granted an
option to purchase 5,000 shares of Common Stock, which options shall vest on the
anniversary of the date of grant.
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, the 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
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
the 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 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.
CORPORATE GOVERNANCE
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The business of the Company is managed under the direction of the Board of
Directors. The Board of Directors meets on a regularly scheduled basis during
the year to review significant developments affecting the Company and to act on
matters requiring approval by the Board of Directors. It also holds special
meetings when an important matter requires action by the Board of Directors
between scheduled meetings. In 1997, the Board of Directors met five times.
15
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The Company has established a standing Audit Committee of the Board of
Directors (the 'Audit Committee'). The Audit Committee meets periodically with
management and the Company's independent auditors to review the activities of
each and to discuss audit matters, financial reporting and the adequacy of
internal corporate controls. Donald G. Drapkin, Michael Hyatt and James R.
Ledley currently serve on the Audit Committee. In 1997, the Audit Committee met
one time.
The Company does not have a standing nominating committee. The functions
customarily attributable to a nominating committee are performed by the Board of
Directors as a whole. The Company will consider nominees recommended by
stockholders, although it has not actively solicited recommendations from
stockholders for nominees nor has it established any procedures for this purpose
for the 1998 Annual Meeting other than as set forth in the By-laws. In the
future, stockholders wishing to recommend a person for consideration as a
nominee for election to the Company's Board of Directors can do so in accordance
with the By-laws by giving timely written notice to the Secretary of the
Company, that provides each such nominee's name, appropriate biographical
information and any other information that would be required in a proxy
statement or other filings required to be made in connection with solicitation
of proxies for the election of Directors and the class and the number of shares
of capital stock of the Company that are owned beneficially or of record by the
stockholder making the nomination. Such notice should be accompanied by a
written statement from each nominee consenting to be named as a nominee and to
serve as a Director if elected. To be timely, such notice must be delivered to,
or if mailed, received at, the Company's executive offices not less than 60 days
nor more than 90 days prior to the anniversary of the immediately preceding
annual meeting of stockholders; provided however, that if the annual meeting is
called for a date that is not within 30 days before or after such anniversary
date, notice by the stockholder in order to be timely must be so received not
later than the close of business on the tenth day following the earlier of the
day on which such notice of the date of the annual meeting was mailed or public
disclosure of the date of the annual meeting was made.
The Company has established a standing Compensation Committee of the Board
of Directors (the 'Compensation Committee'). The Compensation Committee has had
the authority to approve any offers to potential employees of the Company for
positions of Senior Vice President or above, or positions with compensation
packages consisting of (a) annual salaries of $150,000 or more, (b) grants of
options to purchase 10,000 shares of Common Stock when the grants are below the
fair market value on the date of grant and vest over a period shorter than four
years or (c) grants to purchase more than 10,000 shares of Common Stock
regardless of strike price of the options or the vesting schedule. The
Compensation Committee met once in 1997. Donald G. Drapkin, Roger H. Kimmel and
James R. Ledley have been appointed to the Compensation Committee.
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.
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.
In August 1996, the Company entered into a transfer agreement (the
'Transfer Agreement') with U.S. Dermatologics, Inc., formerly PharmaDyn, Inc.,
pursuant to which the Company transferred certain intangible assets having no
book value and which were unrelated to any of the Company's products in
development to U.S. Dermatologics, Inc. (the 'Transferred Assets') and received
redeemable preferred stock with an aggregate stated value and liquidation
preference of $2.8 million and all of U.S. Dermatologics, Inc. 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 common
stock, and a share of other earnings. Pursuant to the Transfer Agreement, U.S.
Dermatologics, Inc. licensed to the Company certain rights with respect to sales
of pharmaceutical products that may result from the Transferred Assets for which
the Company will pay royalties at rates the Company believes are consistent with
fair market value. The Company entered into a Services Agreement with U.S.
Dermatologics, Inc. to provide certain consulting and administrative services
for a transitional period.
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The Services Agreement expires in June 1998. The Company's charges for services
provided through December 31, 1997 amount to approximately $180,000 and are due
in 1988. The stockholders of with U.S. Dermatologics, Inc. are primarily the
same as the stockholders of the Company immediately prior to the consummation of
the Company's initial public offering. Messrs. Drapkin, Hyatt, Kimmel and Ledley
are members of the board of directors of U.S. Dermatologics, Inc. Messrs. Hyatt,
Kimmel and Lyle beneficially own approximately 11.4%, 10.2% and 12.8%
respectively, of the outstanding common stock of with U.S. Dermatologics, Inc.
OTHER MATTERS
OTHER BUSINESS FOR MEETING
The Board of Directors does not know of any matters that will be presented
for action at the 1998 Annual Meeting other than those described above and
matters incident to the conduct of the meeting. If, however, any other matters
not presently known to management should come before the 1998 Annual Meeting, it
is intended that the shares represented by the accompanying proxy will be voted
on such matters in accordance with the discretion of the holders of such proxy.
APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed the firm of Coopers & Lybrand L.L.P.
to audit the accounts of the Company with respect to its operations for the
fiscal year ending on December 31, 1998 and to perform such other services as
may be required. Should the firm be unable to perform these services for any
reason, the Board of Directors will appoint other independent auditors to
perform these services. Coopers & Lybrand L.L.P. served as independent auditors
of the Company for the fiscal year ending December 31, 1997.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires directors, officers and persons
who beneficially own more than 10% of a registered class of stock of the Company
to file initial reports of ownership (Form 3) and reports of changes in
beneficial ownership (Forms 4 and 5) with the Commission and the Nasdaq. Such
persons are also required under the rules and regulations promulgated by the
Commission to furnish the Company with copies of all Section 16(a) forms they
file.
Based solely on a review of the copies of such forms, as amended furnished
to the Company, the Company believes that all Section 16(a) filing requirements
applicable to its directors, officers and greater than 10% beneficial owners
were complied with except for one report for Mr. Lyle with respect to the sale
of shares by a Trust for the benefit of the children of Mr. Lyle, which was
filed late.
STOCKHOLDER PROPOSALS FOR 1999
Any stockholder of the Company who wishes to present a proposal at the next
annual meeting of stockholders of the Company, and who wishes to have such
proposal included in the Company's proxy statement for that meeting, must in
accordance with Rule 14a-8 of the Exchange Act, deliver a copy of such proposal
to the Company at 1333 Campus Parkway, Neptune, New Jersey 07753, Attention:
Assistant Secretary, no later than December 31, 1998; however, if next year's
annual meeting of stockholders is held on a date more than 30 days before or
after the corresponding date of the 1998 Annual Meeting, any stockholder who
wishes to have a proposal included in the Company's proxy statement and proxy
for that meeting must deliver a copy of the proposal to the Company within a
reasonable time before the proxy solicitation is made. The Company reserves the
right to decline to include in the Company's proxy statement and proxy any
stockholder's proposal that does not comply with the rules of the Commission
and/or the By-laws for inclusion therein.
See 'Corporate Governance -- Meetings and Committees of the Board of
Directors' and the By-laws for notice procedures to recommend a person for
nomination as a director.
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ANNUAL REPORT
The Company's 1997 Annual Report to Stockholders accompanies this Proxy
Statement. The 1997 Annual Report to Stockholders does not form any part of the
materials for the solicitation of proxies. Upon written request, the Company
will provide stockholders with a copy of its Annual Report on Form 10-K for the
year ended December 31, 1997 (the 'Form 10-K'), as filed with the Commission and
any amendments thereto, without charge. Please direct written requests for a
copy of the Form 10-K, and any amendments thereto, to: Algos Pharmaceutical
Corporation, 1333 Campus Parkway, Neptune, New Jersey, 07753; Attention:
President.
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Appendix 1 Specimen of Proxy Card
ALGOS PHARMACEUTICAL CORPORATION
The undersigned hereby appoints John W. Lyle and James R. Ledley, each of
them with full power of substitution, to act as proxy and to represent the
undersigned at the 1998 annual meeting of stockholders and to vote all shares
of common stock of Algos Pharmaceutical Corporation which the undersigned is
entitled to vote and would possess if personally present at said meeting to
be held at the Sheraton Eatontown Hotel & Conference Center, 6 Industrial Way
East, Eatontown, New Jersey, 07724 on Tuesday, June 9, 1998 at 3:00 p.m., and
at all postponements or adjournments thereof upon the following matters:
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. THIS PROXY WHEN
PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN. IF NO DIRECTION
IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1 AND 2 LISTED ON THE REVERSE
SIDE. PROXIES ARE GRANTED THE DISCRETION TO VOTE UPON ALL OTHER MATTERS THAT
MAY PROPERLY BE BROUGHT BEFORE THE MEETING OR ANY POSTPONEMENT OR ADJOURNMENT
THEREOF.
(Continued, and to be signed on reverse side)
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................................................................................
[X] Please Mark
your votes
as indicated
in this
example.
FOR WITHHELD
1. Election Nominees: Roger H. Kimnel
of Directors [ ] [ ] Dieter A. Sulser
FOR, except vote withheld from the following nominee(s):
- --------------------------------------------------------
The Board of Directors recommends a vote FOR the nominees.
2. Amendment of 1996 FOR WITHHELD
Stock Option Plan [ ] [ ]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT.
Mr. John W. Lyle
Algos Pharmaceutical Corp. Change of
1333 Campus Parkway Address/comments
Neptune, NJ 07753 on reverse side [ ]
I plan to I do not plan
attend the to attend the
meeting [ ] meeting [ ]
SIGNATURE(S) DATE
------------------------------------------------ ---------------
NOTE: Please sign exactly as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such.
STATEMENT OF DIFFERENCES
------------------------
The section symbol shall be expressed as.......'SS'
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