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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 10, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ALGOS PHARMACEUTICAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED
IN ITS CHARTER)
DELAWARE
(State or other Jurisdiction of
incorporation or organization)
22-3142274
(I.R.S. Employer Identification Number)
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1333 CAMPUS PARKWAY
NEPTUNE, NEW JERSEY 07753-6815
(732) 938-5959
(Address of principal executive offices)
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JOHN W. LYLE
ALGOS PHARMACEUTICAL CORPORATION
1333 CAMPUS PARKWAY
NEPTUNE, NEW JERSEY 07753-6815
(732) 938-5959
(Name, address, including zip code, and telephone number,
including area code, of Agent for Service)
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Copy to:
RAYMOND Y. LIN, ESQ.
LATHAM & WATKINS
885 THIRD AVENUE, SUITE 1000
NEW YORK, NEW YORK 10022
(212) 906-1200
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
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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, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement of the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=========================================================================================================
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE AMOUNT OF
AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
TITLE OF SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) PRICE(1) FEE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value per
share............................. 3,200,000 $30.9375 $99,000,000 $27,522.00
=========================================================================================================
</TABLE>
(1) For purposes of computing the registration fee only. Pursuant to Rule
457(c), the proposed maximum offering price per share is based on $30.9375
representing the average of the high and low prices for Algos common stock
reported on the composite tape for the Nasdaq National Market on March 3,
1999.
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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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Subject to Completion, Dated March 10, 1999
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 MAY
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 STATE.
PROSPECTUS
3,200,000
ALGOS PHARMACEUTICAL CORPORATION
Common Stock
This prospectus relates to an aggregate offering of up to 3,200,000 shares of
common stock, $.01 par value per share of Algos Pharmaceutical Corporation.
We are filing this registration statement pursuant to the terms of a purchase
and registration rights agreement we entered into on November 9, 1998 with
Biotech Target S.A., a Panamanian Corporation, and pursuant to a stockholders'
agreement that we entered into in 1994 with the parties listed on Schedules A
and B thereto which granted certain registration rights to such parties. The
shares of common stock may be offered and sold from time to time by the security
holders of Algos listed under the caption "Selling Security Holders" or who are
referenced in a supplement or amendment to this prospectus.
The shares offered were acquired by the selling security holders in
transactions exempt from registration under the Securities Act of 1933, as
amended and applicable state securities laws.
You should read this prospectus and any prospectus supplements carefully
before you invest.
Our common stock is listed on the Nasdaq National Market under the symbol
"ALGO." On March 3, 1999, the last reported sales price of our common stock on
the Nasdaq National Market was $31.00 per share.
This investment involves risks. See the "Risk Factors" section beginning on
page 5.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED THAT
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
See "Plan of Distribution" for a description of the manner of offer and sale
by the selling security holders.
The date of this prospectus is March __, 1999
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WE HAVE NOT AUTHORIZED ANY DEALER, SALESMAN OR OTHER PERSON TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS AND ANY ACCOMPANYING SUPPLEMENT TO
THIS PROSPECTUS. YOU MUST NOT RELY UPON ANY INFORMATION OR REPRESENTATION NOT
CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS OR ANY ACCOMPANYING
PROSPECTUS SUPPLEMENT AS IF WE HAD AUTHORIZED IT. THIS PROSPECTUS AND ANY
ACCOMPANYING SUPPLEMENT TO THIS PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED
SECURITIES TO WHICH THEY RELATE, NOR DO THIS PROSPECTUS AND ANY ACCOMPANYING
SUPPLEMENT TO THIS PROSPECTUS CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF
AN OFFER TO BUY SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. YOU SHOULD NOT
ASSUME THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS AND ANY SUPPLEMENT TO
THIS PROSPECTUS IS CORRECT ON ANY DATE AFTER THEIR RESPECTIVE DATES, EVEN THOUGH
THIS PROSPECTUS OR A SUPPLEMENT IS DELIVERED OR SECURITIES ARE SOLD ON A LATER
DATE.
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ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission using a "shelf" registration process. Under
this shelf process, the selling security holders may sell any combination of the
common stock and shares issuable upon the exercise of the warrants described in
this prospectus in one or more offerings up to an aggregate offering of
3,200,000 shares of common stock. We are filing this registration statement
pursuant to the terms of a purchase agreement we entered into on November 9,
1998 with Biotech Target S.A., a Panamanian Corporation. Under that agreement,
Biotech purchased 1,000,000 shares of Algos common stock and a warrant to
purchase 250,000 shares of Algos common stock and received registration rights
with respect to such shares. See the "Private Placement" section beginning on
page 4. In addition, pursuant to the terms of a stockholders' agreement that we
entered into in 1994 with the parties listed on Schedules A and B thereto which
granted certain registration rights to such parties, such parties have elected
to include their shares of Algos common stock in this registration statement in
the amounts set forth in the "Selling Security Holders" section beginning on
page 12.
This prospectus provides you with a general description of the securities the
selling security holders may offer. Each time the selling security holders sell
securities, the selling security holders will provide a prospectus and, if the
information contained herein regarding such transaction is no longer accurate, a
prospectus supplement that will contain specific information about the terms of
that offering. The prospectus supplement may also add, update or change
information contained in this prospectus. You should read both this prospectus
and the prospectus supplement, if applicable, together with additional
information described under the heading "Where You Can Find More Information."
WHERE YOU CAN FIND MORE INFORMATION
Algos files annual and quarterly reports, proxy statements and other
information with the Securities and Exchange Commission (the "SEC"). You may
read and copy any document we file with the SEC at the SEC's public reference
rooms at 450 Fifth Street, N.W., Judiciary Plaza, Room 1024, Washington, D.C.
20549, and at the SEC's regional offices at Seven World Trade Center, 13th
Floor, New York, New York 10048, and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can be
obtained at prescribed rates upon request from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549. Please call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms. The SEC also maintains a website that contains reports,
proxy and information statements, and other information regarding registrants
that file electronically with the SEC through its Electronic Data Gathering,
Analysis and Retrieval System. The SEC's website is located at
http://www.sec.gov.
WE HAVE FILED A REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART AND
RELATED EXHIBITS WITH THE SEC UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"). THE REGISTRATION STATEMENT CONTAINS ADDITIONAL INFORMATION
ABOUT US AND THE SECURITIES. YOU MAY INSPECT THE REGISTRATION STATEMENT AND
EXHIBITS WITHOUT CHARGE AT THE OFFICE OF THE SEC AT 450 FIFTH STREET, N.W.,
JUDICIARY PLAZA, WASHINGTON, D.C. 20549, AND YOU MAY OBTAIN COPIES FROM THE SEC
AT PRESCRIBED RATES.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file with
the SEC, which means that we can disclose important information to you by
referring to those documents. The information incorporated by reference is an
important part of this prospectus. Any statement contained in a document which
is incorporated by reference in this prospectus is automatically updated and
superseded if information contained in this prospectus, or information that we
later file with the SEC, modifies or replaces this information. We incorporate
by reference the following documents we filed with the SEC:
Annual Report of Algos on Form 10-K for the year ended December 31,
1997;
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Quarterly Reports of Algos on Form 10-Q for the quarters ended March 31,
1998, June 30, 1998 and September 30, 1998;
The description of Algos common stock, which is registered under Section
12 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), contained in its Registration Statement on Form S-1 filed with
the SEC on May 22, 1996 and as amended by Forms S-1A filed on August 30,
1996, September 6, 1996, September 17, 1996, and September 25, 1996; and
All other reports and other documents filed by Algos with the SEC since
December 31, 1997, pursuant to Section 13(a) or 13(d) of the Exchange
Act.
All documents subsequently filed by Algos with the SEC pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this prospectus
and prior to the offering will be deemed to be incorporated by reference into
this prospectus and to be a part of this prospectus from the dates of the filing
of such documents.
To receive a free copy of any of the documents incorporated by reference in
this prospectus (other than exhibits, unless they are specifically incorporated
by reference in the documents), call or write Algos Pharmaceutical Corporation,
1333 Campus Parkway, Neptune, New Jersey 07753-6815, Attention: Investor
Relations (732) 938-5959.
You should rely only on the information incorporated by reference or set
forth in this prospectus or the applicable prospectus supplement. We have not
authorized anyone else to provide you with different information. The selling
security holders may only use this prospectus to sell securities if it is
accompanied by a prospectus supplement to the extent one is required. We are
only offering these securities in states where the offer is permitted. You
should not assume that the information in this prospectus or the applicable
prospectus supplement is accurate as of any date other than the dates on the
front of these documents.
FORWARD-LOOKING STATEMENTS
Some of the information included and incorporated by reference in this
prospectus contains "forward-looking" statements, within the meaning of Section
27A of the Securities Act of 1933, as amended (the "Securities Act") and Section
21E of the Exchange Act, that are based on management's beliefs and assumptions,
current expectations, estimates and projections. Statements that are not
historical facts, including statements that are preceded by, followed by, or
that include the words "believes," "anticipates," "plans," "expects," or similar
expressions and statements about Algos' development and commercialization
schedule and future use of funds are forward-looking statements. Many of the
factors that will determine Algos' future results are beyond the ability of
Algos to control or predict. These statements are subject to risks and
uncertainties and, therefore, actual results may differ materially. You should
not rely on any forward-looking statement. Algos undertakes no obligations to
update any forward-looking statements whether as a result of new information,
future events or otherwise. Important factors that may affect Algos' future
results include, but are not limited to: uncertainty associated with
pre-clinical studies and clinical trials and regulatory approval; uncertainty of
market acceptance of new products; impact of competitive products and pricing;
product development; changes in laws and regulations; customer demand; possible
future litigation; the availability of future financing; and reimbursement
policies of government and private health insurers and others. You should
evaluate any statement contained herein in light of these important factors.
We caution you not to place undue reliance on forward-looking statements.
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THE COMPANY
Algos Pharmaceutical Corporation is developing a new class of proprietary
analgesic and anesthetic drugs for managing moderate-to-severe pain, based on an
understanding of the intracellular mechanisms controlling pain perception.
The first applications of Algos' technology are superior N-methyl-D-aspartate
("NMDA")-enhanced analgesics and anesthetics. These drugs combine existing
analgesics and anesthetics with an NMDA-receptor antagonist drug that has
already been approved for human use in other applications. Independent research
and Algos' pre-clinical studies and clinical trials conducted to date have shown
that these products may provide significantly superior pain relief compared to
currently available analgesics and anesthetics, including narcotic drugs such as
morphine, hydrocodone and oxycodone and anesthetic drugs such as lidocaine. In
addition, Algos is using its NMDA-receptor antagonist technology to develop
other products, including (i) an intranasal treatment product for migraine and
(ii) addiction treatment products.
The United States market for moderate-to-severe pain reached $1.8 billion in
1998. MorphiDex'TM' will compete in the strong opioid segment of this market
which has grown at the rate of 35% in dollars annually over the past three years
and is expected to approach $1 billion in sales in 1999.
Algos filed a New Drug Application with the United States Food and
Drug Administration for its lead product, MorphiDex'TM', on August 19,
1998. This filing was made pursuant to the Prescription Drug User Fee
Act. Under this act, the Food and Drug Administration must review and
act on the MorphiDex'TM' New Drug Application within 12 months of filing.
MorphiDex'TM' is a patented combination of morphine and the NMDA-receptor
antagonist dextromethorphan. The New Drug Application consists of data
covering 2,200 patients in 14 double-blind, single-dose and
multiple-dose studies.
In addition to MorphiDex'TM', Algos or its development partner has a number
of other products in the pipeline. Products that have reached Phase II or Phase
III clinical trials or are scheduled to commence Phase II or Phase III clinical
trials in 1999 include:
narcotic analgesic/NMDA-receptor antagonist combination products: (1)
HydrocoDex'TM', expected to be used primarily to treat
moderate-to-moderately severe post-operative pain, trauma pain, and
chronic pain conditions and (2) OxycoDex'TM', expected to be used
primarily to treat moderate-to-moderately severe pain;
an oral neuropathic pain product consisting of an NMDA-receptor
antagonist in combination with a potentially synergistic drug;
anesthetic/NMDA-receptor antagonist combination products: (1) LidoDex
NS'TM', an intranasal formulation of lidocaine and an NMDA-receptor
antagonist for the treatment of migraine headaches, to be developed
in collaboration with Interneuron Pharmaceuticals, Inc. and (2)
LidoDex IED'TM', an injectible local anesthetic/NMDA-receptor
antagonist combination product intended to provide fast onset and
extended duration of effect for use in in-patient and out-patient
surgeries;
non-narcotic analgesic/NMDA-receptor antagonist combination products
licensed to McNeil Consumer Products Company: (1) a combination
product consisting of an NMDA-receptor antagonist and acetaminophen
and (2) a combination product consisting of an NMDA-receptor
antagonist and an over-the-counter non-steroidal anti-inflammatory
drug ("NSAID"); and
addiction treatment products including treatments for: (1) opiate
addiction, which Algos is developing in collaboration with the
National Institute on Drug Abuse and (2) nicotine addiction.
Algos is evaluating other applications of its proprietary NMDA-receptor
antagonist technology and may choose to advance such additional products to
clinical development. In addition, Algos may develop other platform
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technologies for the management of pain. Algos' drug development program is
based upon a continuous review of clinical results, newly published scientific
papers, the possibility of joint development or research arrangements with
research institutes or commercial organizations, the availability of resources,
including acceptable third party clinical facilities, and available funds.
Finally, based on clinical results, marketing studies or other factors, Algos
may elect to delay, modify, or suspend the development of any of its products in
clinical development.
Algos' goal is to become the leading company in the management of
moderate-to-severe pain. Algos intends to achieve this goal by:
introducing superior proprietary products;
minimizing development time, cost and risk;
leveraging its proprietary technology across multiple product
opportunities;
outsourcing to efficiently deploy resources; and
maximizing market penetration and margin potential through a combination of
Algos direct sales and strategic alliances.
Algos believes that its analgesic and anesthetic products can be developed
cost effectively because: (i) the products combine existing drugs with extensive
clinical safety profiles and (ii) clinical trials for new analgesics and
anesthetics are less costly and quicker to conduct than clinical trials for many
other pharmaceutical product categories.
Algos 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 an increase in chronic pain due
to the aging of the population;
heightened physician awareness of the benefits of effective pain treatment
including reductions in healing and recovery time;
generally concentrated distribution channels that permit more
cost-effective selling and marketing;
higher profit margins from branded proprietary products; and
the potential for rapid acceptance of new pain management pharmaceuticals
by members of the medical profession.
In the United States, Algos has nine issued patents, two patent applications
which have received a notice of allowance and eight pending patent applications.
This patent estate covers method and composition for NMDA-enhanced analgesics
and anesthetics. In addition, forty foreign patent applications are pending.
Algos was incorporated in Delaware in 1992. Its executive offices are located
at 1333 Campus Parkway, Neptune, New Jersey 07753-6815, and its telephone number
is (732) 938-5959.
PRIVATE PLACEMENT
On November 9, 1998, Algos entered into a purchase agreement with Biotech
Target S.A., a Panamanian Corporation pursuant to which Biotech purchased
1,000,000 shares of
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Algos common stock and a warrant to purchase 250,000 shares of Algos common
stock at an initial exercise price of $25.00 per share for an aggregate purchase
price of $25.0 million. The warrant may be exercised by Biotech after November
9, 1999. Under the terms of the Agreement, Algos agreed to register the resales
of shares of common stock purchased by Biotech. In addition, Algos agreed to
register the resale of the shares of common stock issuable upon exercise of
the warrant by November 9, 1999. Pursuant to such agreements Algos is filing
this registration statement. In connection with such registrations, Algos also
agreed to indemnify Biotech from liability caused by any untrue statements of
material fact or the failure to state a material fact in this registration
statement.
RISK FACTORS
Algos operates in a rapidly changing environment that involves a number of
risks that may significantly affect Algos' results, some of which are beyond
Algos' control. The following discussion highlights some of these risks, and
others are discussed elsewhere herein and in other documents filed by Algos with
the Securities and Exchange Commission.
DEVELOPMENT STAGE OF ALGOS; CONTINUING LOSSES; UNCERTAINTY OF FUTURE
PROFITABILITY
Since its formation in January 1992, Algos 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. Algos has no revenues
from product sales and no history of commercial manufacturing or marketing. To
date, substantially all of its funding has been provided by contributions of
capital made by its founders, sales of its stock and payments under the license
agreement dated June 26, 1996 with McNeil Consumer Products Company (the "McNeil
License Agreement"). See "Risk Factors--Certain Risks Associated with the McNeil
License Agreement." There can be no assurance that Algos will have any source of
product revenue or that its operations will eventually generate sufficient
revenues to achieve profitability. Algos has experienced losses since its
inception and losses are continuing and are expected to continue. Therefore,
Algos has a limited history upon which investors may base an evaluation of its
likely performance. Algos' prospects must be considered in light of the
potential problems, expenses, complications, and delays frequently encountered
in connection with the formation of a new business and the development of new
pharmaceutical products, including obtaining the necessary regulatory approvals,
the utilization of unproven technology and the competitive market environment in
which Algos plans to operate.
UNCERTAINTY ASSOCIATED WITH PRE-CLINICAL STUDIES AND CLINICAL TRIALS
In order to receive regulatory approval to sell its products commercially,
Algos must demonstrate in pre-clinical studies and clinical trials that its
potential products are safe and effective in humans. Although the results of
Algos' pre-clinical studies and clinical trials to date have been encouraging,
the results of 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 Algos.
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 Algos'
current trials or future clinical trials may result in increased costs, program
delays or both, which could have a material adverse effect on Algos. There can
be no assurance that if clinical trials are completed Algos will be able to
submit a New Drug Application or that any such application will be reviewed
and approved by the United States Food and Drug Administration ("FDA") in a
timely manner, or at all. See "Business--Government Regulation" in Algos' 1997
Annual Report on Form 10-K.
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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 Algos from obtaining, or affect the timing of, future regulatory
approvals. The effect of government regulation may be to delay marketing of
Algos' new products for a considerable period of time, to impose costly
procedures upon Algos' activities and to furnish a competitive advantage to
larger companies that compete with Algos. There can be no assurance that FDA or
other regulatory approval for any products developed by Algos 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 Algos' products and the
ability to generate product revenue. Algos is also subject to certain United
States Drug Enforcement Agency ("DEA") regulations including restrictions on
storage, transportation and administration, for its narcotic products, that
could limit the distribution and commercial usage of such products. Government
regulation may increase at any time creating additional hurdles for Algos. The
extent of potentially adverse government regulation which might arise from
future legislation or administrative action cannot be predicted. See
"Business--Government Regulation" in Algos' 1997 Annual Report on Form 10-K.
UNCERTAINTY OF MARKET ACCEPTANCE
Even if regulatory approvals are obtained, uncertainty exists as to whether
Algos' products will be accepted by the market. A number of factors may limit
the market acceptance of Algos' products, including the timing of regulatory
approvals and market entry relative to competitive products, the availability of
alternative products, the price of Algos' 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 Algos. There
can be no assurance of Algos' ability, or the length of time required, to
achieve market acceptance of Algos' products. In addition, some of Algos'
products contain narcotic ingredients that may require stringent record-keeping
obligations, strict storage requirements and other limitations on such products'
availability that could limit the distribution and commercial usage of such
products.
NEED FOR ADDITIONAL FUNDS
The amount and timing of Algos' expenditures will depend on the progress of
its research and development, the cost and timing of regulatory approvals, the
amount of spending on sales, marketing and distribution activities in connection
with the possible commercialization of MorphiDex'TM', general market conditions,
relationships with potential strategic partners, changes in the focus and
direction of Algos' research and development programs, competitive and
technological advances and other factors. Algos' 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. Algos 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 Algos. Insufficient funds may
require Algos to delay, scale back or eliminate certain of its research,
development or commercialization programs or to make arrangements with third
parties to develop or commercialize products or technologies that Algos would
otherwise seek to develop or commercialize itself. As a result, Algos may not be
able to independently develop or commercialize any or all of the products
described in its 1997 Annual Report on Form 10-K.
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LIMITED SALES AND MARKETING EXPERIENCE
Algos intends to market and sell some or all of its products, if successfully
developed and approved, through a direct sales force in the United States. Algos
currently has limited marketing and sales staff, and has yet to establish any
product distribution channels. In order to market its products directly, Algos
must develop a sales force with technical expertise. There can be no assurance
that Algos will be able to successfully establish a direct sales organization or
distribution channels. Failure to establish a sales force capability in the
United States may have a material adverse effect on Algos.
RELIANCE ON THIRD-PARTY MANUFACTURERS
Algos currently uses, and expects to continue to use, outside contractors to
manufacture drug supplies for its clinical trials. In addition, Algos currently
intends to use outside contractors to manufacture products approved for sale, if
any. There is no assurance that supplies from any such contractor will not be
reduced or interrupted due to FDA and/or DEA regulatory requirements or other
reasons. Such a reduction or interruption could have a material adverse effect
on Algos' development and commercialization activities. Algos currently uses a
single contract manufacturer for supplies of its most developmentally advanced
product, MorphiDex'TM', and suppliers of raw materials are limited. The
regulatory qualification of additional suppliers and/or manufacturers may
require significant time and expense. In addition, the acquisition of narcotics
as components of certain of Algos' products is subject to quota restrictions
imposed and administered by the DEA. There is no assurance that Algos will be
able to obtain its requested quantities of such narcotics.
DEPENDENCE ON QUALIFIED PERSONNEL
Because of the specialized scientific nature of Algos' business, Algos 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 Algos. While Algos has consulting
agreements with certain key individuals and institutions and has employment
agreements with its key executives, there can be no assurance that Algos will be
successful in retaining such personnel or their services under existing
agreements. The loss of John Lyle, Algos' Chief Executive Officer, could have a
material adverse effect on Algos. Algos currently maintains a $6.0 million life
insurance policy on Mr. Lyle. There is intense competition for qualified
personnel in the areas of Algos' activities, and there can be no assurance that
Algos 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
Algos' 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. Algos' policy is to seek patent protection and enforce intellectual
property rights. No assurance can be given that any patent issued or licensed to
Algos 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, Algos 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 United States than abroad. In addition, foreign patents may be more
difficult to protect and/or the remedies available may be less extensive than in
the United States. Patent applications in the United States are maintained in
secrecy until patents issue and, since publication of discoveries in the
scientific or patent literature tends to lag behind actual discoveries, Algos
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 Algos' pending patent
applications will be allowed, or if allowed, whether the scope of the claims
allowed will be sufficient to protect Algos' products.
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Algos 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 Algos' products or know-how or
require licensing and the payment of significant fees or royalties by Algos in
order to produce its products. Moreover, there can be no assurance that Algos'
technology does not infringe upon any valid claims of patents owned by others.
If Algos were found to be infringing on a patent held by another, Algos might
have to seek a license to use the patented technology. There can be no assurance
that, if required, Algos would be able to obtain such a license on terms
acceptable to Algos, if at all. If a legal action were to be brought against
Algos or its licensors or licensees, Algos could incur substantial costs in
defending itself, and there can be no assurance that such an action would be
resolved in Algos' favor. If such a dispute were to be resolved against Algos,
Algos could be subject to significant damages and the testing, manufacture or
sale of one or more of Algos' 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 Algos 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 Algos to protect its trade
secrets. See "Risk Factors--Dependence on Qualified Personnel."
UNCERTAIN AVAILABILITY OF HEALTH CARE REIMBURSEMENT
Algos' 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 Algos 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 Algos' products, the market acceptance of these
products could be adversely affected.
LIMITED PRODUCT LIABILITY INSURANCE
Algos will be exposed to potential product liability risks, which are
inherent in the testing, manufacturing and marketing of human therapeutic
products. Algos is contractually obligated under certain of its license
agreements to indemnify the individuals and/or institutions from whom it has
licensed the technology against claims relating to the manufacture and sale of
the products to be sold by Algos. McNeil Consumer Products Company, however, has
agreed to indemnify Algos for third party claims or suits resulting from the
manufacture, use or sale of the products pursuant to the McNeil License
Agreement. Algos' indemnification liability, as well as direct liability to
consumers for any defects in the products sold, could expose Algos to
substantial risk and losses. Algos currently carries certain liability insurance
for its clinical trial activities but does not have product liability insurance
covering commercial use of its products. Algos plans to purchase such product
liability insurance as it deems appropriate prior to marketing its products.
McNeil Consumer Products Company is required by the McNeil License Agreement to
maintain product liability insurance and may sell insurance to cover its
indemnification obligations to Algos. However, there can be no assurance that
Algos will be able to obtain or maintain such insurance on acceptable terms or
that any insurance obtained will provide adequate coverage against potential
liabilities.
CERTAIN RISKS ASSOCIATED WITH THE MCNEIL LICENSE AGREEMENT
The McNeil License Agreement extends until the later of the expiration of
Algos' 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 Consumer Products Company, at any time upon 60 days
notice; and (iii) by Algos upon certain other circumstances. Under certain
circumstances, the McNeil License Agreement could terminate with respect to
either acetaminophen
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or NSAID products without terminating with respect to the other category. In the
event of a termination by McNeil Consumer Products Company, 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 Algos. In such
event, Algos retains the rights to the results of the two clinical studies
funded by Algos, and McNeil Consumer Products Company retains the rights to the
results of the clinical studies funded by it during the term of the McNeil
License Agreement.
COMPETITION AND TECHNOLOGICAL CHANGES, UNCERTAINTY AND OBSOLESCENCE
Algos' success will depend, in part, upon its ability to successfully achieve
market share at the expense of existing and established products in Algos'
target markets. Algos' 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 Algos. Algos is also in competition with other pharmaceutical
companies, hospitals, research organizations, individual scientists and
non-profit organizations engaged in the development of new pharmaceuticals. Many
of these companies and entities have greater research and development
capacities, experience, recognition and marketing, financial and managerial
resources than Algos and represent significant competition for Algos. Also,
Algos' competitors may succeed in developing competing technologies and
obtaining FDA approval for products more rapidly than Algos. There can be no
assurance that developments by others will not render Algos' products or
technologies non-competitive or obsolete.
CONCENTRATION OF OWNERSHIP
Algos' directors and officers beneficially own approximately 24% of Algos
common stock and two additional stockholders and related investors control
approximately 17% of the common stock (assuming all warrants held by such
entities are currently exercisable). As a result, these stockholders, if
they acted together, would have the ability to influence significantly the
election of Algos' directors as well as the management and policies of Algos.
This concentration of ownership may have the effect of delaying or preventing a
change of control of Algos.
POSSIBLE VOLATILITY OF STOCK PRICE
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. The market price of Algos common stock may prove to be
highly volatile from a variety of variable influences. Announcements of
technological innovations, regulatory matters or new commercial products by
Algos or its competitors, developments or disputes concerning patent or
proprietary rights, publicity regarding actual or potential clinical results
relating to products under development by Algos or its competitors, regulatory
developments in both the United States and foreign countries, public concern as
to the safety of pharmaceutical products, 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 Algos common stock. The timing and
amount of Algos' development and commercialization expenditures are subject to
significant uncertainties; operating results for any accounting period may not
be indicative of expected results for future periods.
ABSENCE OF DIVIDENDS
Algos has never declared or paid any cash dividends on its capital stock.
Algos 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 Algos'
Board of Directors after taking into account various factors, including Algos'
financial condition, operating results, current and anticipated cash needs and
plans for expansion.
EFFECT OF ANTI-TAKEOVER PROVISIONS
Algos' Amended and Restated Certificate of Incorporation provides for a
classified Board of Directors 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 Algos entitled to vote. Algos'
Amended and Restated Certificate of
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Incorporation requires that any action required or permitted to be taken by
stockholders of Algos 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 Chairman of the Board or the President of Algos or by the majority
of the whole of 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. Algos is subject to the
anti-takeover provisions of Section 203 of the Delaware General Corporation Law,
which prohibits Algos 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 Algos. Certain other provisions of Algos' Amended and
Restated Certificate of Incorporation could also have the effect of delaying or
preventing changes of control or management of Algos, which could adversely
affect the market price of the common stock. See "Certain Provisions of Delaware
Law and of Our Charter and By-Laws."
YEAR 2000
A potential problem exists for all companies that rely on computers as the
year 2000 approaches. Any of Algos' computer software applications and systems
that use only the last two digits of a year to refer to a year may not properly
recognize the year 2000. This phenomenon (the "Year 2000 Issue") could cause a
disruption of operations, including, among other things, a temporary inability
to engage in normal business activities.
Algos is in the process of evaluating the impact of the Year 2000 Issue and
currently believes that the financial and operational systems of Algos, as
currently used, will function adequately with respect to the Year 2000 Issue
given that Algos is not significantly reliant on its computer software
applications and systems during its developmental stage. In addition, Algos has
very limited information concerning the compliance status of its third party
contractors. Algos' current third party contractors generally test Algos
products and provide Algos with the results of those tests. Algos believes that
any Year 2000 Issue for such third-party contractors would not be material,
since many activities could be performed without the aid of a computer. As part
of the commercialization of MorphiDex'TM', Algos intends to have third parties
manufacture and distribute its products. Algos will evaluate each potential
third party manufacturer's and distributor's readiness for the Year 2000 Issue
and will reevaluate the Year 2000 Issue as it relates to Algos as part of its
preparation for the commercialization of MorphiDex'TM'. Algos has filed a
New Drug Application for MorphiDex'TM' and may make significant additions to
and changes in its existing computer software applications and systems and/or
the use of such systems in anticipation of the possible commercialization of
MorphiDex'TM'. If Algos makes any such additions or changes, it would affect
Algos' exposure to the Year 2000 Issue since Algos would become more reliant on
its computer software applications and systems. Therefore, Algos' assessment of
its Year 2000 Issue is not complete and Algos cannot complete its assessment
or develop any contingency plans until mid-1999.
At this time, Algos does not expect that the cost of its Year 2000 Issue
compliance program will be material to its business, financial condition or
results of operations and does not currently anticipate any material disruption
in its operations. Algos has not incurred significant costs to date related to
the Year 2000 Issue.
USE OF PROCEEDS
Algos will not receive any proceeds from the sale of the shares of common
stock. Algos will receive proceeds from the exercise of any warrants to purchase
common stock of Algos if and when such warrants are exercised. Unless we
indicate otherwise in the applicable prospectus supplement, Algos intends to use
the net proceeds from the exercise of any warrants to fund anticipated research,
product development and commercialization activities and for working capital.
Algos also intends to use such proceeds 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 Algos' next generation of pain management products for
which Algos has not allocated any specific amounts. A portion of the net
proceeds also may be used to acquire technology, licenses, or companies that
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complement the business of Algos, although currently there are no agreements or
other arrangements regarding any such acquisitions by Algos. The amount and
timing of such expenditures will depend on a number of factors, including
progress of Algos' research and development programs, the number and breadth of
these programs, the progress of the development and commercialization efforts of
Algos, the ability of Algos 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. Pending such uses, the net proceeds will be invested in
interest bearing or income producing accounts.
DIVIDEND POLICY
Algos has never declared or paid any cash dividends on its capital stock.
Algos 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 Algos'
Board of Directors after taking into account various factors, including Algos'
financial condition, operating results, current and anticipated cash needs and
plans for expansion.
CERTAIN PROVISIONS OF DELAWARE LAW AND OF OUR CHARTER AND BY-LAWS
Algos is 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.
Algos' Amended and Restated By-Laws provides for a Board of Directors
classified into three classes, with the directors elected at Algos' annual
meetings. Directors in each class will be elected for three-year terms on a
staggered basis. All directors elected to Algos' 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.
Algos' Amended and Restated By-Laws also provides 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 Algos. 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 Algos. Only such business shall be conducted at
a special meeting of stockholders as is brought before the meeting pursuant to
Algos' 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.
Algos' Amended and Restated Certificate of Incorporation also requires that
any action required or permitted to be taken by stockholders of Algos must be
effected at a duly called annual or special meeting of stockholders and
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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 Algos or by the majority of the
whole Board of Directors.
The Delaware General Corporate 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. Algos' 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 Algos to amend or repeal any of the
provisions discussed in this section entitled "Certain Provisions of Delaware
Law and of Our Charter and By-Laws" 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 Algos' 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 Algos' 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 Algos or the
acquisition or attempted acquisition of control by a holder of a substantial
block of Algos' 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 Corporate Law, Algos' Amended and
Restated Certificate of Incorporation provides that directors of Algos shall not
be personally liable to Algos 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 Algos 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 Delaware General
Corporate Law or (iv) for any transaction from which the director derives an
improper personal benefit.
Algos' Amended and Restated Certificate of Incorporation and Amended and
Restated By-Laws provide that Algos 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.
SELLING SECURITY HOLDERS
The table on the following page sets forth information with respect to the
beneficial ownership of common stock by each selling security holder as of the
close of business on March 5, 1999, and the shares which may be offered by each
from time to time hereby. Unless otherwise indicated, each person has sole
voting and sole dispositive power with respect to all shares shown.
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<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
--------------------
SELLING SECURITY PRIOR TO THE OFFERING NUMBER OF SHARES NUMBER OF SHARES
HOLDERS --------------------- OFFERED(2) SOLD
- ------- ---------- ----
NUMBER PERCENT(1)
------ ---------
<S> <C> <C> <C> <C>
Biotech Target S.A. 1,250,000 7.1 1,250,000
EBC Zurich AG(3) 1,734,700 9.9 1,734,700
Josephthal & Co. 16,932 (4) 16,932
(formerly Josephthal
Lyon & Ross
Incorporated)
Robert Zelinka 17,181 (4) 17,181
Peter James Larkworthy 830 (4) 830
Alexander Cotsalas 830 (4) 830
Robert T. McAleer 5727 (4) 5727
Deborah J. Nash 492 (4) 332
Philip L. Dodge 498 (4) 498
Timothy L. Jones 996 (4) 996
</TABLE>
(1) Calculated as a fraction expressed as a percentage, the numerator of
which is the sum of (a) the number of shares of common stock owned by each
selling security holder prior to the offering plus (b) the number of warrant
shares such selling security holder has a right to acquire and the denominator
of which is the sum of (a) the total number of shares of common stock
outstanding plus (b) the number of warrant shares such selling security holder
has the right to acquire. In the case of Biotech Target S.A., this percentage
takes into account shares issuable upon the exercise of a warrant that does not
become exercisable until November 9, 1999.
(2) Algos has reserved 171,974 additional shares of its common stock for
registration for additional selling security holders not indicated in this
table.
(3) EBC Zurich AG has informed Algos that it has no present intention of selling
shares pursuant to this registration statement but reserves the right to
determine, from time to time, whether it wishes to sell shares pursuant to
this registration statement.
(4) less than 1 percent
PLAN OF DISTRIBUTION
The shares offered hereby may be sold from time to time to purchasers
directly by any of the selling security holders or certain transferees or
affiliates of such selling security holders. Alternatively, a selling security
holder may from time to time offer the shares offered hereby through
underwriters, dealers or agents who may receive compensation in the form of
underwriting discounts, concessions or commissions from the selling security
holder and/or the purchasers of the shares for whom they act as agents. EBC
Zurich AG has informed Algos that it has no present intention of selling shares
pursuant to this registration statement but reserves the right to determine,
from time to time, whether it wishes to sell shares pursuant to this
registration statement.
Sales of the shares offered hereby may be made on the Nasdaq National Market
or the over-the-counter market or otherwise at prices and on terms then
prevailing or at prices related to the then-current market price, or in
negotiated transactions. Such prices will be determined by the selling security
holder or by agreement between the selling security holder and underwriters or
dealers.
The shares may be sold in or by:
a block trade in which the broker or dealer so engaged will attempt to
sell the shares as agent, but may position and resell a portion of the
block as principal to facilitate the transaction,
purchases by a broker or dealer as principal and resale by such broker
or dealer for its account pursuant to this prospectus,
an exchange distribution in accordance with the rules of such exchange,
ordinary brokerage transactions and transactions in which the broker
solicits purchases, and
privately negotiated transactions.
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In effecting sales, brokers or dealers engaged by the selling security holder
may arrange for other brokers or dealers to participate. A selling security
holder also may, from time to time with the consent of Algos, authorize
underwriters acting as its agent to offer and sell shares upon such terms and
conditions as shall be set forth in any prospectus supplement. Underwriters,
brokers or dealers will receive commissions or discounts from a selling security
holder in amounts to be negotiated. Such underwriters, brokers or dealers and
any other participating brokers or dealers may be deemed to be "underwriters"
within the meaning of the Securities Act in connection with such sales and any
discounts and commissions received by them, and any profit realized by them on
the resale of the shares may be deemed to be underwriting discounts and
commissions under the Securities Act.
In order to comply with certain state securities laws, if applicable, the
shares will be sold in such jurisdictions only through registered or licensed
brokers or dealers. In certain states, the shares may not be sold unless such
shares have been registered or qualified for sale in such state or an exemption
from registration or qualification is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person
engaged in a distribution of the shares may not simultaneously engage in
market-making activities with respect to such shares, except in accordance with
applicable laws. In addition to, and without limiting the foregoing, each
selling security holder and any other person participating in a distribution
will be subject to the applicable provisions of the Exchange Act and the rules
and regulations thereunder, including, without limitation, Rule 10b-5 and
Regulation M, which provisions may limit the timing of purchases and sales of
any of the shares by a selling security holder or any other person. All of the
foregoing may affect the marketability of the shares.
Pursuant to certain contractual obligations, Algos will pay all the fees and
expenses incident to the registration of the shares, including those shares
issuable upon the exercise of the warrants (other than underwriting discounts
and commissions, if any, and a selling security holder's counsel fees and
expenses, if any). In addition, Algos has agreed to maintain the effectiveness
of the Registration Statement until November 9, 2003 (unless extended) or such
shorter period that will terminate on the date as of which all securities
registered hereunder have been sold or may be freely sold without registration
under the Securities Act. Algos has agreed to indemnify the selling security
holders against certain liabilities, including liabilities under the Securities
Act. In addition, each of the selling security holders has agreed to indemnify
Algos against certain liabilities, including liabilities under the Securities
Act.
LEGAL MATTERS
Certain legal matters in connection with the offering will be passed upon for
Algos by Latham & Watkins. Roger H. Kimmel, a director of Algos, is a partner of
Latham & Watkins, and several trusts that have been established for the benefit
of the Kimmel family own shares of the common stock. In addition, other partners
of Latham & Watkins, in the aggregate, own less than 2.0% of the common stock.
EXPERTS
The financial statements incorporated in this prospectus by reference to the
Annual Report on Form 10-K for the year ended December 31, 1997, have been so
incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
----------------
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======================================== ======================================
NO DEALER, SALESPERSON, OR ANY OTHER
PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE
OFFERING MADE HEREBY, AND, IF GIVEN OR 3,200,000
MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY ALGOS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN ALGOS PHARMACEUTICAL CORPORATION
OFFER TO BUY, ANY OF THE SECURITIES
OFFERED HEREBY IN ANY JURISDICTION TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO
MAKE SUCH AN OFFER OR SOLICITATION IN Common Stock
SUCH JURISDICTION. 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 ALGOS
SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO THE DATES
AS OF WHICH SUCH INFORMATION IS FURNISHED. -----------------------
PROSPECTUS
-----------------------
---------------------------
TABLE OF CONTENTS
---------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
About This Prospectus................1
Where You Can Find More Information..1
Incorporation of Certain Documents
by Reference.......................1
Forward-Looking Statements...........2
The Company..........................3
Private Placement....................4
Risk Factors.........................5
Development Stage of Algos;
Continuing Losses; Uncertainty
of Future Profitability............5 MARCH ____, 1999
Uncertainty Associated with
Pre-Clinical Studies and
Clinical Trials....................5
Government Regulation; No
Assurance of United States or
Foreign Regulatory Approval........6
Uncertainty of Market Acceptance.....6
Need for Additional Funds............6
Limited Sales and Marketing
Experience.........................7
Reliance on Third-Party
Manufacturers......................7
Dependence on Qualified Personnel....7
Uncertain Ability to Protect
Proprietary Technology.............7
Uncertain Availability of Health
Care Reimbursement.................8
Limited Product Liability Insurance..8
Certain Risks Associated with The
McNeil License Agreement...........8
Competition and Technological
Changes, Uncertainty and
Obsolescence.......................9
Concentration of Ownership...........9
Possible Volatility of Stock Price...9
Absence of Dividends.................9
Effect of Anti-Takeover Provisions...9
Year 2000...........................10
Use of Proceeds.....................10
Dividend Policy.....................11
Certain Provisions of Delaware Law
and of our Charter and By-Laws....11
Selling Security Holders............12
Plan of Distribution................13
Legal Matters.......................14
Experts.............................14
</TABLE>
======================================== ======================================
<PAGE>
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table itemizes the expenses incurred by the Registrant in
connection with the issuance and registration of the common stock being
registered hereunder. All amounts shown are estimates except the SEC
registration fee.
<TABLE>
<S> <C>
SEC Registration Fee................................... $27,522.00
----------
Printing and Engraving Expenses........................ $ 3,000.00
----------
Legal Fees and Expenses (other than Blue Sky).......... $41,000.00
----------
Accounting Fees and Expenses........................... $ 5,000.00
----------
Nasdaq Listing Fees.................................... $17,500.00
----------
Miscellaneous Expenses................................. $ 2,000.00
----------
Total................................................ $96,022.00
==========
</TABLE>
ITEM 15. 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 Algos' 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, Algos 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 the DGCL.
The general effect of the provisions in Algos' Amended and Restated
Certificate of Incorporation and the DGCL is to provide that Algos 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
Algos. With respect to legal proceedings by or in the right of Algos in which a
director or officer is adjudged liable for improper performance of his duty to
Algos or another enterprise for which such person served in a similar capacity
at the request of Algos, indemnification is limited by such provisions to that
amount which is permitted by the court.
ITEM 16. EXHIBITS
The following is a complete list of Exhibits filed as part of this
Registration Statement.
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
- ----------- -----
<S> <C>
1.1 Purchase and Registration Rights Agreement, dated as of November 9,
1998, between Algos Pharmaceutical Corporation and Biotech Target
S.A., a Panamanian corporation
4.1 Warrant to Purchase 250,000 Shares of Common Stock of Algos
Pharmaceutical Corporation, acquired by Biotech Target S.A., a
Panamanian corporation, dated November 9, 1998
5.1 Opinion of Latham & Watkins as to the validity of the Common
Stock
</TABLE>
II-1
<PAGE>
<PAGE>
<TABLE>
<S> <C>
23.1 Consent of PricewaterhouseCoopers LLP
23.3 Consent of Latham & Watkins (included in Exhibit 5.1)
24 Power of Attorney
</TABLE>
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this registration statement or any
material change to such information in this registration statement;
Provided, however, that subparagraphs (i) and (ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in the periodic reports filed by the Registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of
1934, that are incorporated by reference in this registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
The undersigned Registrant hereby further undertakes that, for the purposes
of determining any liability under the Securities Act of 1933, each filing of
the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
registration statement 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 further undertakes to deliver or cause to
be delivered with the prospectus, to each person to whom the prospectus is sent
or given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the Prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
The undersigned Registrant hereby further 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 under 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 of 1933 shall be deemed to be part of this registration
statement as of the time it was declared effective.
II-2
<PAGE>
<PAGE>
(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.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 15 above, or
otherwise, the Registrant has been advised that in the opinion of the Commission
such indemnification is against public policy as expressed in the Securities 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 Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this 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 the 10th day of March,
1999.
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 Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ---- ----- ----
<S> <C> <C>
/s/ JOHN W. LYLE President, Chief Executive March 10, 1999
- --------------------------- Officer and Director
(JOHN W. LYLE)
/s/ DONALD G. DRAPKIN Director March 10, 1999
- ---------------------------
(DONALD G. DRAPKIN)
/s/ JAMES R. LEDLEY Assistant Secretary March 10, 1999
- --------------------------- and Director
(JAMES R. LEDLEY)
/s/ DIETER A. SULSER Director March 10, 1999
- ---------------------------
(DIETER A. SULSER)
/s/ MICHAEL HYATT Director March 10, 1999
- ---------------------------
(MICHAEL HYATT)
/s/ ROGER H. KIMMEL Director March 10, 1999
- ---------------------------
(ROGER H. KIMMEL)
/s/ GARY ANTHONY Chief Financial Officer March 10, 1999
- ---------------------------
(GARY ANTHONY)
</TABLE>
II-4
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
- ---------- -----
<S> <C>
1.1 Purchase and Registration Rights Agreement, dated as of November 9,
1998, between Algos Pharmaceutical Corporation and Biotech Target
S.A., a Panamanian corporation
4.1 Warrant to Purchase 250,000 Shares of Common Stock of Algos
Pharmaceutical Corporation, acquired by Biotech Target S.A., a
Panamanian corporation, dated November 9, 1998
5.1 Opinion of Latham & Watkins as to the validity of the Common Stock
23.1 Consent of PricewaterhouseCoopers LLP
23.3 Consent of Latham & Watkins (included in Exhibit 5.1)
24 Powers of Attorney
------------
</TABLE>
II-5
STATEMENT OF DIFFERENCES
------------------------
The trademark symbol shall be expressed as............................... 'TM'
<PAGE>
<PAGE>
EXECUTION COPY
PURCHASE AND REGISTRATION RIGHTS AGREEMENT
PURCHASE AND REGISTRATION RIGHTS AGREEMENT (the "AGREEMENT"), dated as
of November 9, 1998, between Algos Pharmaceutical Corporation, a Delaware
corporation (the "COMPANY"), and Biotech Target S.A., a Panamanian corporation
(the "PURCHASER").
RECITAL
The Purchaser desires to purchase from the Company, and the Company
desires to sell to Purchaser, shares of the Company's common stock, par value
$.01 per share (the "COMMON STOCK") and a warrant to purchase shares of the
Common Stock, on the terms set forth herein.
AGREEMENT
In consideration of the foregoing, and the representations,
warranties, covenants and conditions set forth herein, the parties hereto,
intending to be legally bound, hereby agree as follows:
I. PURCHASE OF STOCK AND WARRANT, ETC.
1.1. Purchase of Stock and Warrant. Subject to all of the terms and
conditions of this Agreement, the Purchaser agrees to purchase from the Company,
and the Company agrees to sell to the Purchaser, one million (1,000,000) shares
of its Common Stock (the "SHARES") and one warrant (the "WARRANT") in the form
attached hereto as Exhibit A to purchase 250,000 shares of its Common Stock at
an initial exercise price of $25.00 per share (the "WARRANT SHARES") for an
aggregate purchase price of $25.0 million. The aggregate purchase price for the
Shares and the Warrant is referred to in this Agreement as the "Purchase Price."
1.2. Delivery of Funds and Certificates. At closing of the purchase
and sale of the Shares and the Warrant, the Company will deliver to the
Purchaser a duly executed stock certificate, registered in the Purchaser's name
and representing the Shares and a duly executed Warrant in the Purchaser's name
in the form attached hereto as Exhibit A, against payment in United States
dollars of the Purchase Price therefor by delivery by wire transfer of
immediately available funds to such bank account as the Company shall designate
in the amount of the Purchase Price.
II. PURCHASER'S REPRESENTATIONS, WARRANTIES AND AGREEMENTS
2.1. Investment Intention. The Purchaser represents and warrants that
it is purchasing the Shares, the Warrant and the Warrant Shares solely for its
own account for the purpose of investment and not with a view to or for sale in
connection with any distribution of any thereof. The Purchaser agrees that it
will not, directly or indirectly, offer, transfer, sell,
<PAGE>
<PAGE>
pledge, hypothecate or otherwise dispose of any of the Shares, the Warrant or
the Warrant Shares (or solicit any offers to buy, purchase, or otherwise acquire
or take a pledge of any of the Shares, the Warrant or the Warrant Shares),
except in compliance with the Securities Act of 1933, as amended (the "ACT"),
and the rules and regulations thereunder, and state securities laws.
2.2. Legends. Each certificate representing the Shares shall bear the
following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED BY THE HOLDER
SOLELY FOR ITS OWN ACCOUNT FOR THE PURPOSE OF INVESTMENT AND NOT WITH A VIEW TO
OR FOR SALE IN CONNECTION WITH ANY DISTRIBUTION OF ANY THEREOF. THE SECURITIES
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"),
OR STATE SECURITIES LAWS AND MAY NOT BE SOLD, ASSIGNED, PLEDGED OR OTHERWISE
TRANSFERRED WITHOUT REGISTRATION UNDER THE ACT OR AN EXEMPTION THEREFROM."
2.3. Transfer Obligations. If any of the Shares, the Warrant or the
Warrant Shares are offered, sold, transferred, pledged, hypothecated or
otherwise disposed of in accordance with an exemption from the registration
requirements of the Act, the Purchaser shall deliver to the Company (and to the
transfer agent with respect to the Shares if so requested by the Company) prior
to the time of such offer, sale, transfer, pledge or other disposition such
documentation (including, without limitation, opinions of counsel) as the
Company may request in connection therewith.
2.4. Ability to Bear Risk. The Purchaser represents and warrants that
(a) its financial situation is such that it can afford to bear the economic risk
of holding the unregistered Shares, the Warrant and the Warrant Shares for an
indefinite period and (b) it can afford to suffer the complete loss of its
investment in the Shares, the Warrant and the Warrant Shares.
2.5. Access to Information; Evaluation of Risks. The Purchaser
represents and warrants that (a) it is an accredited investor, as the term is
defined in Regulation D under the Act, and that it understands and has taken
cognizance of all the risk factors related to the purchase of the Shares, the
Warrant and the Warrant Shares, (b) it has received and carefully reviewed the
Company's Annual Report on Form 10-K for the year ended December 31, 1997 (the
"ANNUAL REPORT"), the Company's Quarterly Reports on Form 10-Q for the periods
ended March 31, 1998 and June 30, 1998 (the "QUARTERLY REPORTS") and the
Company's press releases dated August 19, 1998, September 14, 1998, September
24, 1998 and October 20, 1998 (the "PRESS RELEASES") and has been granted the
opportunity to ask questions of, and receive answers from, representatives of
the Company concerning the terms and conditions of the purchase of the Shares,
the Warrant and the Warrant Shares and to obtain any additional information
which it deems necessary to make an informed investment decision with respect to
the purchase of the Shares, the Warrant and the Warrant Shares and to verify the
accuracy of the information contained in the Annual Report, the Quarterly
Reports and the Press Releases and (c) its knowledge and experience in
2
<PAGE>
<PAGE>
financial and business matter is such that it is capable of evaluating the risks
of the investment in the Shares, the Warrant and the Warrant Shares.
2.6. Federal Securities Laws Matters. The Purchaser represents that it
is familiar with Release No. 5226 issued by the Securities and Exchange
Commission (the "COMMISSION") under the Act, it has consulted with its counsel
with regard thereto, and it is fully aware of the position of the Commission
limiting the resale to the public of any of the Shares, the Warrant, the Warrant
Shares or any part thereof.
III. COMPANY'S REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to the Purchaser as of the Closing
Date as follows:
3.1. Organization and Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and has full power and authority to own and operate its properties and
assets and to carry on its business as presently conducted and as proposed to be
conducted. The Company is qualified as a foreign corporation to do business in
each jurisdiction in the United States in which the ownership of its property or
the conduct of its business requires such qualification, except where any
statutory fines or penalties or any corporate disability imposed for the failure
to qualify would not materially or adversely affect the Company, its assets,
financial condition or operations. The Company has no subsidiaries.
3.2. Corporate Power; Authorization. The Company has all requisite
corporate power to, and has taken all requisite corporate action to, execute and
deliver this Agreement and the Warrant, to sell and issue the Shares and the
Warrant and to carry out and perform all of its obligations under this Agreement
and the Warrant. Each of this Agreement and the Warrant constitutes the legal,
valid and binding obligation of the Company, enforceable in accordance with its
terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting the
enforcement of creditors' rights generally, (ii) as limited by equitable
principles generally and (iii) as to those provisions of each agreement relating
to indemnity, as may be limited by applicable laws. The execution and delivery
of this Agreement and the Warrant does not, and the performance of this
Agreement and the Warrant and the compliance with the provisions hereof and
thereof and the issuance, sale and delivery of the Shares and the Warrant by the
Company will not materially conflict with, or result in a material breach or
violation of the terms, conditions or provisions of, or constitute a material
default under, or result in the creation or imposition of any material lien
pursuant to the terms of, the Certificate of Incorporation or Bylaws of the
Company or (a) any material governmental statute, law, rule applicable to the
Company or (b) material order, writ, judgment, injunction, decree, determination
or award which has been entered against the Company and of which the Company is
aware, the violation of which would materially and adversely affect the Company,
its assets, financial condition or operations.
3
<PAGE>
<PAGE>
3.3. Issuance and Delivery of the Shares. The Shares, when issued and
paid for in compliance with the provisions of this Agreement, will be validly
issued, fully paid and nonassessable. The issuance and delivery of the Shares is
not subject to preemptive, co-sale, right of first refusal or any other similar
rights of the stockholders of the Company or any liens or encumbrances;
provided, however, that the Shares may be subject to restrictions on transfer
under state and/or federal securities laws as set forth herein or as otherwise
required by such laws at the time a transfer is proposed.
3.4. Full Disclosure. The Company has furnished to the Purchaser the
following documents filed with the Commission (collectively, the "SEC
DOCUMENTS") and the Company warrants that the information contained in such
documents, as of their respective dates, did not contain any untrue statement of
a material fact, and did not omit to state any material fact necessary to make
any statement, in light of the circumstances under which such statement was
made, not misleading:
(a) The Quarterly Reports.
(b) The Annual Report.
3.5. Litigation. Except as set forth in the SEC Documents, there is no
pending or, to the Company's knowledge, threatened action, suit or other
proceeding before any court, governmental body or authority, or arbitrator to
which the Company is a party or to which its property or assets are subject.
3.6. Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any Federal, state, or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement and the Warrant except for (a) compliance with
the securities and blue sky laws in the states and other jurisdictions in which
shares of Common Stock are offered and/or sold, and (b) the filing of a
registration statement and all amendments thereto with the SEC as contemplated
by Section IV of this Agreement.
3.7. No Material Adverse Change. Since June 30, 1998, there have not
been any changes in the assets, liabilities, financial condition or operations
of the Company from that reflected in the SEC Documents except changes in the
ordinary course of business or which have not been, either individually or in
the aggregate, materially adverse.
4
<PAGE>
<PAGE>
IV. REGISTRATION RIGHTS
4.1. On or prior to March 9, 1999, the Company shall prepare and cause
to be filed with the Commission pursuant to Rule 415 under the Act a shelf
registration statement on the appropriate form relating to resales of the Shares
by the Purchaser (the "REGISTRATION STATEMENT"). The Purchaser agrees to fully
cooperate with the Company in connection with the preparation and filing of the
Registration Statement, including, without limitation, by providing the Company
with such information about the Purchaser for inclusion in the Registration
Statement as may be required by the Act, and the Company's obligations under
this Article III shall be contingent upon the Purchaser complying with its
obligations set forth in this sentence.
4.2. The Company shall use its reasonable best efforts to cause such
Registration Statement to be declared effective by the Commission as promptly as
practicable following the filing thereof.
4.3. The Company shall use its reasonable best efforts to keep the
Registration Statement continuously effective under the Act until the two year
anniversary of the date of this Agreement or until the end of such shorter
period as will terminate on the earlier of (a) the date when all the Shares
covered by the Registration Statement have been sold pursuant thereto other than
to an affiliate of the Purchaser and (b) the date on which the Purchaser and its
affiliates no longer own any of the Shares. Notwithstanding the foregoing, the
Company shall not be required to keep the Registration Statement effective in
the event that (i) an event occurs and is continuing as a result of which the
Registration Statement, any related prospectus or any document incorporated
therein by reference as then amended or supplemented would, in the Company's
good faith judgment, contain an untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, and
(ii)(A) the Company determines in its good faith judgment that the disclosure of
such event at such time would have an adverse effect on the business, operations
or prospects of the Company or (B) the disclosure otherwise relates to a
material business transaction which has not yet been publicly disclosed; which
period shall not exceed an aggregate of 60 days in any twelve-month period. The
Purchaser agrees to give the Company at least one Business Day notice of its
intent to resell its Shares under the Registration Statement so that the Company
can confirm that no event mentioned in the preceding sentence has occurred and
that the Registration Statement is available for such use. The term "BUSINESS
DAY" as used herein means each Monday, Tuesday, Wednesday, Thursday and Friday
that is not a day on which banking institutions in New York are generally
authorized or obligated by law or executive order to close.
V. INDEMNITY
5.1. The Company agrees to indemnify and hold harmless the Purchaser,
its directors, officers and each person, if any, who controls the Purchaser
(within the meaning of Section 15 of the Act or Section 20 of the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT")), from and against any and
all losses, claims, damages, liabilities, judgments,
5
<PAGE>
<PAGE>
(including without limitation, any legal or other expenses incurred in
connection with investigating or defending any matter, including any action that
could give rise to any such losses, claims, damages, liabilities or judgments)
caused by any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement, preliminary prospectus or prospectus
(or any amendment or supplement thereto) provided by the Company to the
Purchaser or any prospective purchaser of registered Shares, or caused by any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or judgments are
caused by (i) an untrue statement or omission or alleged untrue statement or
omission that is based upon information relating to the Purchaser furnished in
writing to the Company by or on behalf of the Purchaser or (ii) an untrue
statement or omission or alleged untrue statement or omission that is corrected
in any subsequent Registration Statement, preliminary prospectus or prospectus
(or any amendment or supplement thereto) that was delivered to the Purchaser by
the Company.
5.2. The Purchaser agrees to indemnify and hold harmless the Company
and its directors and officers, and each person, if any, who controls (within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act) the
Company, to the same extent as the foregoing indemnity from the Company set
forth in Section 5.1 above, but only with reference to information relating to
the Purchaser furnished in writing to the Company by or on behalf of the
Purchaser expressly for use in any Registration Statement except insofar as such
losses, claims, damages, liabilities or judgments are caused by an untrue
statement or omission or alleged untrue statement or omission that was corrected
in writing by the Purchaser and delivered to the Company for use in the
Registration Statement at issue prior to the date of such Registration
Statement.
5.3. In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 5.1 or 5.2 (the
"INDEMNIFIED PARTY"), the indemnified party shall promptly notify the person
against whom such indemnity may be sought (the "INDEMNIFYING PERSON") in writing
and the indemnifying party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all fees and expenses of such counsel, as incurred (except that
in the case of any action in respect of which indemnity may be sought pursuant
to both Sections 5.1 and 5.2, the Purchaser shall not be required to assume the
defense of such action pursuant to this Section 5.3, but may employ separate
counsel and participate in the defense thereof, but the fees and expenses of
such counsel, except as provided below, shall be at the expense of the
Purchaser). Any indemnified party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of the indemnified party
unless (i) the employment of such counsel shall have been specifically
authorized in writing by the indemnifying party or (ii) the indemnifying party
shall have failed to assume the defense of such action or employ counsel
reasonably satisfactory to the indemnified party. In any such case, the
indemnifying party shall not, in connection with any one action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the fees and
expenses of more
6
<PAGE>
<PAGE>
than one separate firm of attorneys (in addition to any local counsel) for all
indemnified parties and all such fees and expenses shall be reimbursed as they
are incurred. Such firm shall be designated in writing by the Purchaser, in the
case of the parties indemnified pursuant to Section 5.1, and by the Company, in
the case of parties indemnified pursuant to Section 5.2. The indemnifying party
shall indemnify and hold harmless the indemnified party from and against any and
all losses, claims, damages, liabilities and judgments by reason of any
settlement of any action (i) effected with its written consent or (ii) effected
without its written consent if the settlement is entered into more than twenty
business days after the indemnifying party shall have received a request from
the indemnified party for reimbursement for the fees and expenses of counsel (in
any case where such fees and expenses are at the expense of the indemnifying
party) and, prior to the date of such settlement, the indemnifying party shall
have failed to comply with such reimbursement request. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement or compromise of, or consent to the entry of judgment with respect
to, any pending or threatened action in respect of which the indemnified party
is or could have been a party and indemnity or contribution may be or could have
been sought hereunder by the indemnified party, unless such settlement,
compromise or judgment (i) includes an unconditional release of the indemnified
party from all liability on claims that are or could have been the subject
matter of such action and (ii) does not include a statement as to or an
admission of fault, culpability or a failure to act, by or on behalf of the
indemnified party.
VI. MISCELLANEOUS
6.1. Notices. All notices and other communications required or
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been given if delivered personally or sent by certified mail,
return receipt requested, postage prepaid, to the parties to this Agreement at
the following address or to such other address as either party to this Agreement
shall specify by notice to the other:
if to the Company:
Algos Pharmaceutical Corporation
1333 Campus Parkway
Neptune, New Jersey 07753
Attention: President and Chief Executive Officer
with a copy to:
Algos Pharmaceutical Corporation
1333 Campus Parkway
Neptune, New Jersey 07753
Attention: General Counsel
and
7
<PAGE>
<PAGE>
Latham & Watkins
885 Third Avenue
New York, New York 10022
Attention: Raymond Y. Lin
if to the Purchaser:
Biotech Target S.A.
Swiss Bank Tower
Panama 1
Republic of Panama
with a copy to:
Baker & McKenzie
815 Connecticut Avenue, N.W.
Washington, D.C. 20006-4078
Attention: Thomas J. Egan, Jr.
All such notices and communications shall be deemed to have been received on the
date of delivery or on the third business day after the mailing thereof.
6.2. Fees. The Company agrees to pay to the Purchaser, upon receipt of
written invoice(s), all reasonable fees and expenses of legal counsel incurred
in connection with the execution and delivery of this Agreement and the Warrant
and the consummation of the transactions contemplated hereby and thereby;
provided, however, that in no event shall the Company be obligated to pay any
such fees and expenses in excess of $25,000.
6.3. Binding Effect; Benefits. This Agreement shall be binding upon
and inure to the benefit of the parties to this Agreement and their respective
successors and assigns. Nothing in this Agreement, express or implied, is
intended or shall be construed to give any person other than the parties to this
Agreement or their respective successors or assigns any legal or equitable
right, remedy or claim under or in respect of any agreement or any provision
contained herein.
6.4. Waiver. Either party hereto may by written notice to the other
(a) extend the time for the performance of any of the obligations or other
actions of the other under this Agreement; (b) waive compliance with any of the
conditions or covenants of the other contained in this Agreement; and (c) waive
or modify performance of any of the obligations of the other under this
Agreement. Except as provided in the preceding sentence, no action taken
pursuant to this Agreement, including, without limitation, any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
taking such action of compliance with any representations, warranties, covenants
or agreements contained herein. The waiver by any party
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hereto of a breach of any provision of this Agreement shall not operate or be
construed as a waiver of any preceding or succeeding breach and no failure by
either party to exercise any right or privilege hereunder shall be deemed a
waiver of such party's rights or privileges hereunder or shall be deemed a
waiver of such party's rights to exercise the same at any subsequent time or
times hereunder.
6.5. Amendment. This Agreement may be amended, modified or
supplemented only by a written instrument executed by each of the parties
hereto.
6.6. Assignability. Neither this Agreement nor any right, remedy,
obligation or liability arising hereunder or by reason hereof shall be
assignable by either party hereto without the prior written consent of the other
party.
6.7. Applicable Law; Consent to Jurisdiction. (a) This Agreement shall
be construed and enforced in accordance with, and be governed by, the internal
laws of the State of New York, without regard to its choice of law rules, and
the parties consent to the exclusive jurisdiction of the federal and state
courts located in the city of New York to resolve any dispute relating to this
Agreement.
(b) To the extent not prohibited by applicable law which cannot be waived,
each of the parties hereto hereby waives, and covenants that he or it will not
assert (whether as plaintiff, defendant, or otherwise), any right to trial by
jury in any forum in respect of any issue, claim, demand, cause of action,
action, suit or proceeding arising out of or based upon this Agreement or the
subject matter hereof, in each case whether now existing or hereafter arising
and whether in contract or tort or otherwise. Any of the parties hereto may file
an original counterpart or a copy of this Section 6.7 with any court as written
evidence of the consent of each of the parties hereto to the waiver of his or
its right to trial by jury.
(c) Each of the parties hereto by execution hereof (i) hereby irrevocably
submits to the jurisdiction of the federal and state courts located in the City
of New York, State of New York, for the purpose of any action, suit or
proceeding arising out of or based upon this Agreement or the subject matter
hereof and (ii) hereby waives to the extent not prohibited by applicable law,
and agrees not to assert, by way of motion, as a defense or otherwise, in any
such action, suit or proceeding, any claim that he or it is not subject
personally to the jurisdiction of the above-named courts, that he or it is
immune from extraterritorial injunctive relief or other injunctive relief, that
this or its property is exempt or immune from attachment or execution, that any
such action, suit or proceeding may not be brought or maintained in one of the
above-named courts, that any such action, suit or proceeding brought or
maintained in one of the above-named courts should be dismissed on grounds of
forum non conveniens, should be transferred to any court other than one of the
above-named courts, should be stayed by virtue of the pendency of any other
action, suit or proceeding in any court other than one of the above-named
courts, or that this Agreement or the subject matter hereof may not be enforced
in or by any of the above-named courts. Each of the parties hereto hereby
consents to service of process in any such suit, action or proceeding in any
manner permitted by the laws of the State of New York, agrees that
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service of process by registered or certified mail, return receipt requested, at
the address specified in or pursuant to Section 6.1 hereof is reasonably
calculated to give actual notice and waives and agrees not to assert by way of
motion, as a defense or otherwise, in any such action, suit or proceeding any
claim that service of process made in accordance with Section 6.1 hereof does
not constitute good and sufficient service of process. The provisions of this
Section 6.7 shall not restrict the ability of any party to enforce in any court
any judgment obtained in a federal or state court located in the City of New
York, State of New York.
6.8. Survivability. The representations and warranties contained in
this Agreement shall survive the closing of the transactions contemplated
hereunder.
6.9. Section and Other Headings. The section and other headings
contained in this Agreement are for reference purposes only and shall not affect
the meaning or interpretation of this Agreement.
6.10. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
[signature page follows]
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IN WITNESS WHEREOF, the Company and the Purchaser have executed this
Agreement as of the day and year first above written.
BIOTECH TARGET S.A.
By: /s/ A. Hove
-------------------------------
Name: A. Hove
--------------------------
Title: Signatory Authority
-------------------------
BIOTECH TARGET S.A.
By: /s/ A. Bremer
-------------------------------
Name: A. Bremer
--------------------------
Title: Signatory Authority
-------------------------
ALGOS PHARMACEUTICAL CORPORATION
By: /s/ W. Bradford Middlekauff
-------------------------------
Name: W. Bradford Middlekauff
--------------------------
Title: Vice President, Business
Development and General
Counsel
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EXHIBIT A
WARRANT
<PAGE>
<PAGE>
WARRANT NO. 1
================================================================================
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN ACQUIRED
BY THE HOLDER SOLELY FOR ITS OWN ACCOUNT FOR THE PURPOSE OF INVESTMENT AND NOT
WITH A VIEW TO OR FOR SALE IN CONNECTION WITH ANY DISTRIBUTION OF ANY THEREOF.
NEITHER THIS WARRANT NOR SUCH SECURITIES HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED ("ACT"), OR STATE SECURITIES LAWS AND MAY NOT
BE SOLD, ASSIGNED, PLEDGED OR OTHERWISE TRANSFERRED OR ENCUMBERED EXCEPT IN
COMPLIANCE WITH THE TERMS AND CONDITIONS HEREOF.
********************************************************************************
WARRANT
to
Purchase
250,000 shares of
COMMON STOCK
of
ALGOS PHARMACEUTICAL CORPORATION
********************************************************************************
This certifies that, for value received and in reliance upon, and
subject to, the agreements and representations contained herein, including,
without limitation, in Article V hereof, BIOTECH TARGET S.A. (the "HOLDER,"
which term shall also include any transferee who acquires this Warrant in
accordance with the terms of Article III hereof) is entitled to purchase from
Algos Pharmaceutical Corporation, a Delaware corporation (the "COMPANY"), during
the period specified in Section 1.1, at a purchase price of $25.00 per share
(the "EXERCISE PRICE") Two Hundred and Fifty Thousand (250,000) fully paid and
non-assessable shares (the "WARRANT SHARES") of the Company's Common Stock, par
value $.0l per share (the "COMMON STOCK"), upon and subject to the terms and
conditions set forth in this Warrant. The Exercise Price and the number of
Warrant Shares purchasable upon exercise of this Warrant are subject to
adjustment from time to time as provided in Article II.
================================================================================
<PAGE>
<PAGE>
ARTICLE I.
EXERCISE OF WARRANTS
1.1. Exercise Period. Subject to the provisions of Article III of this
Warrant, this Warrant may be exercised after November 9, 1999. Unless exercised,
this Warrant shall automatically expire at 5:00 p.m. New York, New York time on
November 9, 2003 (the "EXPIRATION DATE").
1.2. Method of Exercise. Subject to the provisions of Article III of
this Warrant, to exercise this Warrant in whole or in part, the Holder shall
deliver to the Company at the address specified in Section 8.9 hereof: (i) a
written notice, substantially in the form of the Exercise Notice appearing at
the end of this Warrant, of its election to exercise this Warrant, which notice
shall specify the number of shares of Common Stock to be purchased, (ii) a
certified or official bank check payable to the order of the Company in an
amount equal to the aggregate Exercise Price of the number of shares of Common
Stock being purchased, as adjusted as provided in Article II hereof, and (iii)
this Warrant. The Company shall as promptly as practicable, and in any event
within 20 days after receipt by the Company of such notice, execute and deliver
or cause to be executed and delivered, in accordance with said notice, a
certificate or certificates representing the aggregate number of shares of
Common Stock, specified in such notice, issued in the name of the Holder. Such
certificate or certificates shall be deemed to have been issued to the Holder,
and the Holder shall be deemed for all purposes to have become a holder of
record of such shares as of the date notice and payment is received by the
Company. If this Warrant shall have been exercised only in part, the Company
shall at the time of delivery of said certificate or certificates deliver to the
Holder a new Warrant evidencing the right of the Holder to purchase the
remaining Warrant Shares, which new warrant shall in all other respects be
identical to this Warrant or, at the request of the Holder, appropriate notation
shall be made on this Warrant and the same returned to the Holder.
1.3. Warrant Shares Fully Paid. All Warrant Shares issued upon the
exercise of this Warrant shall be validly issued, fully paid and non-assessable.
ARTICLE II.
DISTRIBUTIONS, REORGANIZATIONS, CONVERSION AND MERGERS
2.1. Merger, Sale of Assets, etc. If at any time while this Warrant, or
any portion thereof, is outstanding and unexpired there shall be (a) a
reorganization of the Company (other than a combination, reclassification,
exchange or subdivision of shares otherwise provided for herein), (b) a merger
or consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a reverse triangular merger in which the
Company is the surviving entity but the shares of the Company's capital stock
outstanding immediately prior to the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or
otherwise, or (c) a sale or transfer of the Company's properties and assets as,
or substantially as, an entirety to any other person, then the Company shall
provide the Holder
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with not less than thirty (30) days, prior written notice of such event and an
opportunity to exercise this Warrant prior to the consummation of such event, so
that, as a part of such reorganization, merger, consolidation, sale or transfer,
the Holder shall be entitled to receive upon exercise of this Warrant the number
of shares of stock or other securities or property of the successor corporation
resulting from such reorganization, merger, consolidation, sale or transfer that
a holder of shares deliverable upon exercise of this Warrant would have been
entitled to receive in such reorganization, consolidation, merger, sale or
transfer. If the Holder does not exercise this Warrant prior to or
simultaneously with any such reorganization, consolidation, merger, sale,
transfer or other disposition, this Warrant shall be canceled. The Company shall
not effect any such consolidation, merger, sale, transfer or other disposition
unless prior to or simultaneously with the consummation thereof the successor
corporation (if other than the Company) resulting from such consolidation or
merger, or the corporation purchasing or otherwise acquiring such assets or
other appropriate corporation or entity shall agree to deliver to the Holder
upon its exercise and payment of the Exercise Price then in effect, such shares
of stock, securities or assets, as, in accordance with the foregoing provisions,
such Holder would be entitled to purchase.
2.2. Reclassification, etc. If the Company, at any time while this
Warrant, or any portion thereof, remains outstanding and unexpired, by
reclassification of securities or otherwise, shall change any of the securities
as to which purchase rights under this Warrant exist into the same or a
different number of securities or any other class or classes, this Warrant shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities that were subject to the purchase rights under this Warrant
immediately prior to such reclassification or other change and the Exercise
Price therefore shall be appropriately adjusted, all subject to further
adjustment as provided in this Section 2.
2.3. Split, Subdivision or Combination of Shares. If the Company at any
time while this Warrant, or any portion thereof, remains outstanding and
unexpired shall split, subdivide or combine the securities as to which purchase
rights under this Warrant exist, into a different number of securities of the
same class, the Exercise Price for such securities shall be proportionately
decreased in the case of a split or subdivision or proportionately increased in
the case of a combination.
2.4. Adjustments for Dividends in Stock or Other Securities or Property.
If while this Warrant, or any portion thereof, remains outstanding and unexpired
the holders of the securities as to which purchase rights under this Warrant
exist at the time shall have received, or, on or after the record date fixed for
the determination of eligible Stockholders, shall have become entitled to
receive, without payment therefore, other or additional stock or other
securities or property (other than cash) of the Company by way of dividend, then
and in each case, this Warrant shall represent the right to acquire, in addition
to the number of shares of the security receivable upon exercise of this
Warrant, and without payment of any additional consideration therefore, the
amount of such other or additional stock or other securities or property (other
than cash) of the Company that such Holder would hold on the date of such
exercise had it been the holder of record of the security receivable upon
exercise of this Warrant on the date hereof and
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had thereafter, during the period from the date hereof to and including the date
of such exercise, retained such shares and/or all other additional stock
available by it as aforesaid during such period, giving effect to all
adjustments called for during such period by the provisions of this Section 2.
2.5. Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 2, the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to each Holder a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Company shall, upon written request, at
any time, of such Holder, furnish or cause to be furnished to such Holder a like
certificate setting forth: (a) such adjustments and readjustments; (b) the
Exercise Price at the time in effect; and (c) the number of shares and the
amount, if any, of other property that at that time would be received upon the
exercise of the Warrant.
2.6. No Impairment. The Company will not, by any voluntary action, avoid
or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 2 and in
the taking of all such action as may be necessary or appropriate in order to
protect the rights of the Holder against impairment.
2.7. Notifications by the Company. If any time prior to the expiration
of this Warrant:
(i) an event described under Section 2.2, 2.3 or 2.4 occurs; or
(ii) there is a voluntary or involuntary dissolution, liquidation
or winding-up of the Company;
the Company shall give notice of such action to the Holder and, if applicable,
notice of the date on which the books of the Company shall close or a record
shall be taken for such dividend or distribution or the date on which such
conversion, dissolution, liquidation or winding-up shall take place, as the case
may be. Such notice shall also specify the date as of which the holders of the
Company's capital stock of record shall participate in such dividend or
distribution, or shall be entitled to exchange their capital stock or securities
or other property deliverable upon such conversion, dissolution, liquidation or
winding-up, as the case may be. Such notice shall be given not less than 20 days
prior to the action in question and not less than 10 days prior to the record
date or the date on which the Company's transfer books are closed in respect
thereto. The notice required pursuant to this Section 2.7 is in addition to any
other notice the Company is required to provide pursuant to Sections 2.1 and 2.5
hereof.
2.8. Successive Application. The foregoing provisions of this Article II
shall similarly apply to successive reclassifications, capital reorganizations
and changes of shares of the Company's capital stock, and to successive
consolidations, mergers and sales.
2.9. Basis for Adjustments. Any adjustment effected pursuant to this
Article II shall be made on the basis of the number of Warrant Shares which the
Holder would have been
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entitled to acquire by exercise of this warrant immediately prior to the event
giving rise to the adjustment, and to the Exercise Price hereunder, per share,
on the basis of the respective Exercise Price in effect immediately prior to the
event giving rise to the adjustment. Promptly upon the occurrence of each
adjustment hereunder, the President or a Vice President of the Company shall
give written notice thereof to the Holder, which notice shall state the Exercise
Price resulting from such adjustment and the increase or decrease, if any, in
the number of Warrant Shares purchasable upon the exercise of this Warrant,
setting forth in reasonable detail the method of calculation and the facts upon
which such calculation is based.
ARTICLE III.
RESTRICTIONS ON EXERCISE AND TRANSFER
3.1. Restrictions on Exercise and Transfer. Notwithstanding any
provisions contained in this Warrant to the contrary, this Warrant shall not be
exercisable or transferable, in whole or in part, and the related Warrant Shares
shall not be transferable except with either the prior written consent of the
Company or upon satisfaction of the conditions specified in Section 3.2, which
conditions are intended, among other things, to insure compliance with the
provisions of the Act in respect of the exercise or transfer of this Warrant or
transfer of the Warrant Shares.
3.2. Conditions of Exercise and Transfer. The Holder, by its acceptance
hereof, agrees that it will not, directly or indirectly, offer, transfer, sell,
pledge, hypothecate or otherwise dispose of this Warrant, in whole or in part,
or any Warrant Shares (or solicit any offers to buy, purchase or otherwise
acquire or take a pledge of this Warrant, in whole or in part, or any of the
Warrant Shares) or exercise this Warrant, in whole or in part, except in
compliance with the Act, and the rules and regulations thereunder, and state
securities laws. If this Warrant (or any portion thereof) or any of the Warrant
Shares are offered, sold, transferred, pledged, hypothecated or otherwise
disposed of or exercised in accordance with an exemption from the registration
requirements of the Act, the Holder shall deliver to the Company (and to the
transfer agent with respect to the Company's Common Stock if so requested by the
Company) prior to the time of such offer, sale, transfer, pledge or other
disposition or exercise such documentation (including, without limitation,
opinions of counsel) as the Company may request in connection therewith.
3.3. Non-Recognition of Prohibited Transfers. Any transfer or attempt to
transfer this Warrant, in whole or in part, and/or any of the Warrant Shares
otherwise than in accordance with the terms and conditions of this Warrant
Agreement, or to a person younger than 18 years of age, shall be void and shall
not be binding upon the Company, and the purported transferee thereof shall not
be deemed to be the holder of such Warrants and/or Warrant Shares, nor entitled
to any of the rights of a holder thereof. The Company may refuse the transfer of
any Warrant and/or Warrant Shares on its books or records attempted to be made
in violation of this Agreement.
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ARTICLE IV.
CERTAIN COVENANTS OF THE COMPANY
4.1. Reservation of Shares. The Company covenants and agrees that it
will reserve and set apart and have at all times, free from preemptive rights, a
number of shares of Common Stock deliverable upon the exercise of this Warrant
sufficient to enable it at any time to fulfill its obligations under this
Warrant.
4.2. Binding Effect. This Warrant shall be binding upon any corporation
succeeding to the Company by merger, consolidation or acquisition of all or
substantially all of the Company's assets.
ARTICLE V.
REPRESENTATIONS, WARRANTIES AND AGREEMENTS
5.1. Investment Intention. The Purchaser represents and warrants that it
is purchasing this Warrant and the Warrant Shares solely for its own account for
the purpose of investment and not with a view to or for sale in connection with
any distribution of any thereof.
5.2. Ability to Bear Risk. The Purchaser represents and warrants that
(a) its financial situation is such that it can afford to bear the economic risk
of holding the unregistered Warrant and Warrant Shares for an indefinite period
and (b) it can afford to suffer the complete loss of its investment in the
Warrant and Warrant Shares.
5.3. Access to Information; Evaluation of Risks. The Purchaser
represents and warrants that (a) it is an accredited investor, as the term is
defined in Regulation D under the Act, and that it understands and has taken
cognizance of all the risk factors related to the purchase of this Warrant and
the Warrant Shares, (b) it has received and carefully reviewed the Company's
Annual Report on Form 10-K for the year ended December 31, 1997 (the "ANNUAL
REPORT"), the Company's Quarterly Reports on Form 10-Q for the periods ended
March 31, 1998 and June 30, 1998 (the "QUARTERLY REPORTS") and the Company's
press releases dated August 19, 1998, September 14, 1998, September 24, 1998 and
October 20, 1998 (the "PRESS RELEASES") and has been granted the opportunity to
ask questions of, and receive answers from, representatives of the Company
concerning the terms and conditions of the purchase of the Warrants and to
obtain any additional information which it deems necessary to make an informed
investment decision with respect to the purchase of the Warrant and to verify
the accuracy of the information contained in the Annual Report, the Quarterly
Reports and the Press Releases and (c) its knowledge and experience in financial
and business matter is such that it is capable of evaluating the risks of the
investment in this Warrant and the Warrant Shares.
5.4. Federal Securities Laws Matters. The Purchaser represents that it
is familiar with Release No. 5226 issued by the Securities and Exchange
Commission (the "COMMISSION") under the Act, it has consulted with its counsel
with regard thereto, and it is fully aware of the position of the Commission
limiting the resale to the public of this Warrant or any of the Warrant Shares
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or any part thereof.
ARTICLE VI.
REGISTRATION RIGHTS
6.1. On or prior to November 9, 1999, the Company shall prepare and
cause to be filed with the Commission pursuant to Rule 415 under the Act a shelf
registration statement on the appropriate form relating to the offer and sale by
the Company of the Warrant Shares to the Holder upon exercise of this Warrant
and resales of the Warrant Shares by the Holder (the "REGISTRATION STATEMENT").
The Purchaser agrees to fully cooperate with the Company in connection with the
preparation and filing of the Registration Statement, including, without
limitation, by providing the Company with such information about the Purchaser
for inclusion in the Registration Statement as may be required by the Act, and
the Company's obligations under this Article VI shall be contingent upon the
Purchaser complying with its obligations set forth in this sentence.
6.2. The Company shall use its reasonable best efforts to cause such
Registration Statement to be declared effective by the Commission as promptly as
practicable following the filing thereof.
6.3. The Company shall use its reasonable best efforts to keep the
Registration Statement continuously effective under the Act until the Expiration
Date or such shorter period as will terminate on the earlier of (a) the date
when all the Warrants covered by the Registration Statement have been exercised
and (b) the date on which the Purchaser and its affiliates no longer own any of
the Warrants. Notwithstanding the foregoing, the Company shall not be required
to keep the Registration Statement effective in the event that (i) an event
occurs and is continuing as a result of which the Registration Statement, any
related prospectus or any document incorporated therein by reference as then
amended or supplemented would, in the Company's good faith judgment, contain an
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, and (ii)(A) the Company determines in its
good faith judgment that the disclosure of such event at such time would have an
adverse effect on the business, operations or prospects of the Company or (B)
the disclosure otherwise relates to a material business transaction which has
not yet been publicly disclosed; which period shall not exceed an aggregate of
60 days in any twelve-month period. The Purchaser agrees to give the Company at
least one Business Day notice of its intent to exercise this Warrant and receive
Warrant Shares under the Registration Statement so that the Company can confirm
that no event mentioned in the preceding sentence has occurred and that the
Registration Statement is available for such use. The term "BUSINESS DAY" as
used herein means each Monday, Tuesday, Wednesday, Thursday and Friday that is
not a day on which banking institutions in New York are generally authorized or
obligated by law or executive order to close.
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ARTICLE VII.
INDEMNITY
7.1. The Company agrees to indemnify and hold harmless the Holder, its
directors, officers and each person, if any, who controls the Holder (within the
meaning of Section 15 of the Act or Section 20 of the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT")), from and against any and all losses,
claims, damages, liabilities, judgments, (including without limitation, any
legal or other expenses incurred in connection with investigating or defending
any matter, including any action that could give rise to any such losses,
claims, damages, liabilities or judgments) caused by any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement, preliminary prospectus or Prospectus (or any amendment or supplement
thereto) provided by the Company to the Holder or any prospective purchaser of
registered Warrant Shares, or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or judgments are caused by (i) an untrue statement or
omission or alleged untrue statement or omission that is based upon information
relating to the Holder furnished in writing to the Company by or on behalf of
the Holder or (ii) an untrue statement or omission or alleged untrue statement
or omission that is corrected in any subsequent Registration Statement,
preliminary prospectus or Prospectus (or any amendment or supplement thereto)
that was delivered to the Holder by the Company.
7.2. The Holder agrees to indemnify and hold harmless the Company and
its directors and officers, and each person, if any, who controls (within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act) the Company,
to the same extent as the foregoing indemnity from the Company set forth in
section 7.1 above, but only with reference to information relating to the Holder
furnished in writing to the Company by or on behalf of the Holder expressly for
use in any Registration Statement, insofar as such losses, claims, damages,
liabilities or judgments are caused by an untrue statement or omission or
alleged untrue statement or omission that was corrected in writing by the Holder
and delivered to the Company for use in the Registration Statement at issue
prior to the date of such Registration Statement.
7.3. In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 7.1 or 7.2 (the
"INDEMNIFIED PARTY"), the indemnified party shall promptly notify the person
against whom such indemnity may be sought (the "INDEMNIFYING PERSON") in writing
and the indemnifying party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all fees and expenses of such counsel, as incurred (except that
in the case of any action in respect of which indemnity may be sought pursuant
to both Sections 7.1 and 7.2, the Holder shall not be required to assume the
defense of such action pursuant to this Section 7.3, but may employ separate
counsel and participate in the defense thereof, but the fees and expenses of
such counsel, except as provided below, shall be at the expense of the Holder).
Any indemnified party shall have the right to employ separate counsel in any
such action and participate in the defense thereof, but the fees and expenses of
such counsel shall be at the
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expense of the indemnified party unless (i) the employment of such counsel shall
have been specifically authorized in writing by the indemnifying party or (ii)
the indemnifying party shall have failed to assume the defense of such action or
employ counsel reasonably satisfactory to the indemnified party. In any such
case, the indemnifying party shall not, in connection with any one action or
separate but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
fees and expenses of more than one separate firm of attorneys (in addition to
any local counsel) for all indemnified parties and all such fees and expenses
shall be reimbursed as they are incurred. Such firm shall be designated in
writing by the Holder, in the case of the parties indemnified pursuant to
Section 7.1, and by the Company, in the case of parties indemnified pursuant to
Section 7.2. The indemnifying party shall indemnify and hold harmless the
indemnified party from and against any and all losses, claims, damages,
liabilities and judgments by reason of any settlement of any action (i) effected
with its written consent or (ii) effected without its written consent if the
settlement is entered into more than twenty business days after the indemnifying
party shall have received a request from the indemnified party for reimbursement
for the fees and expenses of counsel (in any case where such fees and expenses
are at the expense of the indemnifying party) and, prior to the date of such
settlement, the indemnifying party shall have failed to comply with such
reimbursement request. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement or compromise of, or
consent to the entry of judgment with respect to, any pending or threatened
action in respect of which the indemnified party is or could have been a party
and indemnity or contribution may be or could have been sought hereunder by the
indemnified party, unless such settlement, compromise or judgment (i) includes
an unconditional release of the indemnified party from all liability on claims
that are or could have been the subject matter of such action and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of the indemnified party.
ARTICLE VIII.
MISCELLANEOUS
8.1. Entire Agreement. This Warrant constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof.
8.2. Binding Effects; Benefits. This Warrant shall inure to the benefit
of and shall be binding upon the Company and the Holder and their respective
heirs, legal representatives, successors and permitted assigns. Nothing in this
Warrant, expressed or implied, is intended to or shall confer on any person
other than the Company and the Holder, or their respective legal
representatives, successors or permitted assigns, any rights, remedies,
obligations or liabilities under or by reason of this Warrant.
8.3. Amendments and Waivers. This Warrant may not be modified or amended
except by an instrument or instruments in writing signed by the party against
whom enforcement of any such modification or amendment is sought. Either party
hereto may, by an instrument in writing, waive compliance by the other party
with any term or provision of this Warrant on the part of such other party
hereto to be performed or complied with. The waiver by any party hereto of a
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breach of any term or provision of this Warrant shall not be construed as a
waiver of any subsequent breach.
8.4. Assignment. Neither this Warrant nor any rights, remedy, obligation
or liability arising hereunder or by reason hereof shall be assignable by the
Holder, except in compliance with the provisions of Article III.
8.5. Section and Other Headings. The Article, Section and other headings
contained in this Warrant are for reference purposes only and shall not be
deemed to be a part of this Warrant or to affect the meaning or interpretation
of this Warrant.
8.6. Limitations of Liability; Not Stockholders. No provision of this
Warrant shall be construed as conferring upon the Holder the right to vote,
consent, receive dividends or receive notice other than as expressly provided
herein in respect of meetings of stockholders for the election of directors of
the Company or any other matter whatsoever as a stockholder of the Company. No
provision hereof, in the absence of affirmative action by the Holder to purchase
Warrant Shares, and no mere enumeration herein of the rights or privileges of
the Holder, shall give rise to any liability of the Holder for the purchase
price of any Warrant Shares or as a stockholder of the Company, whether such
liability is asserted by the Company or by creditors of the Company.
8.7. Loss, Destruction, Etc. of Warrants. Upon receipt of evidence
satisfactory to the Company of the loss, theft, mutilation or destruction of
this Warrant and, in the case of any such loss, theft or destruction upon
delivery of a bond of indemnity in such form and amount as shall be reasonably
satisfactory to the Company, or in the event of such mutilation upon surrender
and cancellation of the Warrant, the Company will make and deliver a new
Warrant, of like tenor, in lieu of such lost, stolen, destroyed or mutilated
Warrant. Any Warrant issued under the provisions of this Section 8.7 in lieu of
any Warrant alleged to be lost, destroyed or stolen, or in lieu of any mutilated
Warrant, shall constitute an original contractual obligation on the part of the
Company.
8.8. Law Governing. This Warrant shall be governed by, and construed and
enforced in accordance with, the laws of the State of New York without regard to
its conflicts of law principles.
8.9. Notices. All notices and other communications required or permitted
to be given under this Warrant shall be in writing and shall be deemed to have
been duly given if delivered personally or sent by United States mail, postage
prepaid, to the parties hereto at the following addresses or to such other
address as any party hereto shall hereafter specify by notice to the other party
hereto:
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if to the Company, to:
Algos Pharmaceutical Corporation
1333 Campus Parkway
Neptune, New Jersey 07753
Attention: President and Chief Executive Officer
with a copy to:
Algos Pharmaceutical Corporation
1333 Campus Parkway
Neptune, New Jersey 07753
Attention: General Counsel
and
Latham & Watkins
885 Third Avenue
New York, New York 10022
Attention: Raymond Y. Lin
if to the Holder:
Biotech Target S.A.
Swiss Bank Tower
Panama 1
Republic of Panama
with a copy to:
Baker & McKenzie
815 Connecticut Avenue, N.W.
Washington, D.C. 20006-4078
Attention: Thomas J. Egan, Jr.
Except as otherwise provided herein, all such notices and communications shall
be deemed to have been received when delivered personally, on the date of
delivery thereof, or when mailed, on the fifth business day after the mailing
thereof.
8.10. Separability. Any term or provision of this Warrant which is
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Warrant or affecting the validity or enforceability of any of the terms or
provisions of this Warrant in any other jurisdiction.
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8.11. Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the then applicable Exercise Price of a share of Common Stock as
of the date of such exercise.
8.12. Counterparts. This Warrant may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together constitute one and the same instrument.
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IN WITNESS WHEREOF, each of the parties hereto has signed, or caused
this Warrant to be signed by its duly authorized officer, as of November 9,
1998.
ALGOS PHARMACEUTICAL CORPORATION
By: /s/ W. Bradford Middlekauff
---------------------------------
BIOTECH TARGET S.A.
By: /s/ A. Hove
---------------------------------
A. Hove
Title: Signatory Authority
BIOTECH TARGET S.A.
By: /s/ A. Bremer
---------------------------------
A. Bremer
Title: Signatory Authority
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EXERCISE NOTICE
(To be executed upon exercise of this Warrant)
ALGOS PHARMACEUTICAL CORPORATION
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant, to purchase ________ shares of Common Stock covered
by this Warrant and herewith tenders payment for such Warrant Shares by
certified or official bank check payable to the order of ALGOS PHARMACEUTICAL
CORPORATION in the amount of $_____________ in accordance with the terms of this
Warrant. The undersigned requests that (a) a certificate for such Warrant Shares
be registered in the name of __________________* and that such certificates be
delivered to __________________________________whose address is
___________________________________ and (b) if such shares do not include all of
the shares issuable as provided in this Warrant, that a new Warrant of like
tenor and date for the balance of the Warrant Shares issuable hereunder be
delivered to ___________________________.*
Date______________________ Signature_______________________
Social Security Number__________
Address_________________________
- --------------------
* Either the Holder or a transferee approved in accordance with Article III of
this Warrant.
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[L&W LETTERHEAD]
March 10, 1999
Algos Pharmaceutical Corporation
1333 Campus Parkway
Neptune, New Jersey
Re: Registration Statement No. 333-______ on Form S-3; with respect
to 3,200,000 shares of Common Stock, par value $.01 per share
Ladies and Gentlemen:
In connection with the registration of 3,200,000 shares of common
stock of Algos Pharmaceutical Corporation, a Delaware corporation (the
"Company"), par value $.01 per share (the "Shares"), under the Securities Act
of 1933, as amended (the "Act"), by the Company on Form S-3 filed with the
Securities and Exchange Commission (the "Commission") on March 10, 1999
(File No. 333-____), you have requested our opinion with respect to the
matters set forth below.
In our capacity as your counsel in connection with such registration,
we are familiar with the proceedings taken and proposed to be taken by the
Company in connection with the authorization, issuance and sale of the Shares,
and for the purposes of this opinion, have assumed such proceedings will be
timely completed in the manner presently proposed. In addition, we have made
such legal and factual examinations and inquiries, including an examination
of originals or copies certified or otherwise identified to our satisfaction
of such documents, corporate records and instruments, as we have deemed
necessary or appropriate for purposes of this opinion.
In our examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, and the
conformity to authentic original documents of all documents submitted to us as
copies.
We are opining herein as to the effect on the subject transaction only
of the internal laws of the State of New York and the General Corporation Law of
the State of Delaware, and we express no opinion with respect to the
applicability thereto, or the effect thereon, of the laws of any other
jurisdiction or, in the case of Delaware, any other laws, or as to matters of
municipal law or the laws of any local agency within any state.
Subject to the foregoing, it is our opinion that those Shares that
have been issued and are outstanding as of the date hereof have been duly
authorized and were, at issuance, validly issued, fully paid and nonassessable.
Subject to the foregoing, it is our opinion that those Shares
that have not been issued as of the date hereof but are subject to issuance
pursuant to the terms and conditions of a warrant, will, upon issuance,
delivery and payment therefor, be validly issued, fully paid and nonassessable.
<PAGE>
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Algos Pharmaceutical Corporation
March 10, 1999
Page 2
It is our understanding that this opinion is to be used only in
connection with the offer and sale of the Shares while the Registration
Statement is in effect.
We consent to your filing this opinion as an exhibit to the
Registration Statement and to the reference to our firm contained under the
heading "Legal Matters."
Very truly yours,
/s/ Latham & Watkins
<PAGE>
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CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-3 of our report dated, March 4, 1998 relating to
the financial statements appearing in Algos Pharmaceutical Corporation's (a
development stage enterprise) Annual Report on Form 10-K for the year ended
December 31, 1997. We also consent to the reference to us under the heading
'Experts' in such Registration Statement.
PricewaterhouseCoopers LLP
Florham Park, New Jersey
March 10, 1999
<PAGE>
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POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints John W. Lyle, with full power to act, as
his true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities to sign any or all amendments to this registration statement,
including post-effective amendments, and to file the same with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person hereby ratifying and
confirming all that said attorney-in-fact and agents of any of them, or any
substitute or substitutes, lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ---- ----- ----
<S> <C> <C>
/s/ JOHN W. LYLE President, Chief Executive March 10, 1999
- -------------------------------------------- Officer and Director
(JOHN W. LYLE)
/s/ DONALD G. DRAPKIN Director March 10, 1999
- --------------------------------------------
(DONALD G. DRAPKIN)
/s/ JAMES R. LEDLEY Assistant Secretary and March 10, 1999
- -------------------------------------------- Director
(JAMES R. LEDLEY)
/s/ DIETER A. SULSER Director March 10, 1999
- --------------------------------------------
(DIETER A. SULSER)
/s/ MICHAEL HYATT Director March 10, 1999
- --------------------------------------------
(MICHAEL HYATT)
/s/ ROGER H. KIMMEL Director March 10, 1999
- --------------------------------------------
(ROGER H. KIMMEL)
/s/ GARY ANTHONY Chief Financial Officer March 10, 1999
- --------------------------------------------
(GARY ANTHONY)
</TABLE>
