EXHIBIT 10.6
KOS PHARMACEUTICALS, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
This Nonqualified Stock Option Agreement (the "Agreement"), effective
as of June 20, 1996, is made by and between Kos Pharmaceuticals, Inc., a Florida
corporation (the "Company"), and Xxxxxxx X. Cutie, Ph.D., (the "Recipient").
WHEREAS, the Company wishes to grant an option to purchase shares of
the Company's common stock to the Recipient pursuant to the terms of the Kos
Pharmaceuticals, Inc. 1996 Stock Option Plan (the "Plan").
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties agree as follows:
1. GRANT OF OPTION. In consideration of service to the Company
and for other good and valuable consideration, the Company grants to the
Recipient an option to purchase 50,000 shares of the Company's common stock in
accordance with the terms and conditions of the Plan and this Agreement (the
"Option").
2. OPTION PRICE. The purchase price of the shares of stock
covered by the Option shall be $7.00 per share, which is the Fair Market Value
of the Company's common stock on the effective date of this Agreement; provided,
however, that in the event, subsequent to the effective date of this Agreement
but prior to December 31, 1996, any federal agency directly or indirectly
determines that the Fair Market Value of the Company's common stock on the
effective date of this Agreement is an amount greater than $7.00 per share or
questions the accuracy of the Committee's determination of the Fair Market Value
of the Company's common stock on the effective date of this Agreement, the
Committee shall have the right to increase the purchase price of the shares of
stock covered by the Option to a greater amount that the Committee, in its sole
and absolute discretion, deems appropriate. Any increase in the purchase price
made by the Committee in accordance with this Section 2 shall be final and
binding upon the Recipient, the Company and all other interested persons.
3. ADJUSTMENTS IN OPTION.
(a) Subject to the limitation of subsection 3(b) below,
in the event that the outstanding shares of stock subject to the Option are
changed into or exchanged for a different number or kind of shares of the
Company or other securities of the Company by reason of merger, consolidation,
recapitalization, reclassification, stock split, stock dividend or combination
of shares, the shares subject to the Option and the price per share shall be
equitably adjusted to reflect such changes. Such adjustment in the Option shall
be made without change in the total price applicable to the unexercised portion
of the Option (except for any change in the aggregate price resulting from
rounding-off of share quantities or prices) and with any necessary corresponding
adjustment in the Option price per share. Any such adjustment made by the
Committee shall be final and binding upon the Recipient, the Company and all
other interested persons.
(b) The provisions of subsection 3(a) above shall not
result in any adjustment of either the number of shares subject to the Option or
the price per share in the event of any merger, consolidation, recapitalization,
reclassification, stock split, stock dividend, combination of shares, or any
other similar transaction on or before July 15, 1996.
4. PERSON ELIGIBLE TO EXERCISE OPTION. During the lifetime of
the Recipient, only the Recipient may exercise the Option or any portion
thereof. After the death of the Recipient, any exercisable portion of the Option
may, prior to the time when the Option becomes unexercisable under the terms of
the Plan, be exercised by the Recipient's personal representative or by any
other person empowered to do so under the Recipient's will, trust or under then
applicable laws of descent and distribution.
5. MANNER OF EXERCISE. The Option, or any portion thereof, may
be exercised only in accordance with the terms of the Plan and solely by
delivery to the Secretary of the Company of all of the following items prior to
the time when the Option or such portion becomes unexercisable under the terms
of the Plan:
(a) Notice in writing signed by the Recipient or the
other person then entitled to exercise the Option or portion thereof, stating
that the Option or portion thereof is thereby exercised, such notice complying
with all applicable rules (if any) established by the Committee;
(b) Full payment (in cash or by cashiers' or certified check)
for the shares with respect to which the Option or portion thereof is exercised;
(c) Full payment (in cash or by cashiers' or certified
check) upon demand an amount sufficient to satisfy any federal (including FICA
and FUTA amounts), state, and/or local withholding tax requirements at the time
the Recipient or his beneficiary recognizes income for federal, state, and/or
local tax purposes as the result of the receipt of Shares pursuant to the
exercise of the Option or portion thereof;
(d) A bona fide written representation and agreement,
in a form satisfactory to the Committee, signed by the Recipient or other person
then entitled to exercise the Option or portion thereof, stating that the shares
of stock are being acquired for his own account, for investment and without any
present intention of distributing or reselling said shares or any of them except
as may be permitted under the Securities Act of 1933, as amended (the "Act"),
and then applicable rules and regulations thereunder, and that the Recipient or
other person then entitled to exercise such Option or portion will indemnify the
Company against and hold it free and harmless from any loss, damage, expense or
liability resulting to the Company if any sale or distribution of the shares by
such person is contrary to the representation and agreement referred to above.
The Committee may, in its absolute discretion, take whatever additional actions
it deems appropriate to ensure the observance and performance of such
representations and agreement and to effect compliance with all federal and
state securities laws or regulations. Without limiting the generality of the
foregoing, the Committee may require an opinion of counsel acceptable to it to
the effect that any subsequent transfer of shares acquired on an Option exercise
does not violate the Act and may issue stop-transfer orders covering such
shares. The written representations and agreement referred to in the first
sentence of this subsection (d),
however, shall not be required if the shares to be issued pursuant to such
exercise have been registered under the Act, and such registration is then
effective in respect of such shares; and
(e) In the event the Option or any portion thereof
shall be exercised pursuant to Section 4 of the Agreement by any person or
persons other than the Recipient, appropriate proof, satisfactory to the
Committee, of the right of such person or persons to exercise the Option.
6. CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES. The shares of
stock deliverable upon the exercise of the Option, or any portion thereof, may
be either previously authorized but unissued shares or issued shares which have
been reacquired by the Company. Such shares shall be fully paid and
nonassessable.
7. RIGHTS OF SHAREHOLDERS. The Recipient shall not be, nor have
any of the rights or privileges of, a shareholder of the Company in respect of
any shares purchasable upon the exercise of any part of the Option unless and
until certificates representing such shares shall have been issued by the
Company to the Recipient.
8. VESTING AND EXERCISABILITY. A Recipient's interest in the
Option shall vest according to the schedule described in this Section 8 and
shall be exercisable as to not more than the vested percentage of the shares
subject to the Option at any point in time. To the extent the Option is either
unexercisable or unexercised, the unexercised portion shall accumulate until the
Option both becomes exercisable and is exercised, subject to the provisions of
Section 9 of the Agreement. The Option granted shall become vested according to
the following schedule:
DATE PERCENT VESTED
---- --------------
Date of Grant 75%
September 1, 1997 100%
The Committee, in its sole and absolute discretion, may accelerate the
vesting of the Option at any time. Notwithstanding the vested percentage of the
Recipient's interest in the Option, the Option may not be exercised unless and
until an Initial Public Offering occurs.
9. DURATION OF OPTION. Except as specified below, the Option shall
expire on June 20, 2006. Notwithstanding the foregoing, the Option may expire
prior to June 20, 2006, in the following circumstances:
(a) In the case of the Recipient's death, the Option
shall expire on the one-year anniversary of the Recipient's death.
(b) If the Recipient's employment or affiliation with
the Company terminates as a result of his retirement at age sixty-five, the
Option will expire on June 20, 2006.
(c) If the Recipient ceases employment or affiliation
with the Company on or before December 31, 2001, for any reason other than death
or retirement (as described in
subsection 9(b) above), the Option shall expire thirty days following the last
day that the Recipient is employed by or affiliated with the Company. If the
Recipient ceases employment or affiliation with the Company after December 31,
2001, for any reason other than death or retirement (as described in subsection
9(b) above), the Option shall expire one year following the last day that the
Recipient is employed by or affiliated with the Company. After the last day that
the Recipient is employed by or affiliated with the Company, the Option may be
exercised only for the number of Shares for which it could have been exercised
on such last day pursuant to Section 8 of the Agreement, subject to any
adjustment under Section 3 of the Agreement.
(d) Notwithstanding any provisions set forth above in
this Section 9, if the Recipient shall (i) commit any act of malfeasance or
wrongdoing affecting the Company or its affiliates, (ii) breach any covenant not
to compete or employment agreement with the Company or any affiliate, or (iii)
engage in conduct that would warrant the Recipient's discharge for cause, any
unexercised part of the Option shall expire immediately upon the earlier of the
occurrence of such event or the last day the Recipient is employed by the
Company.
10. CHANGE IN CONTROL. Contingent upon the occurrence of a Change in
Control, the Board of Directors of the Company may, but is not required to, take
one or more of the following actions:
(a) accelerate the vesting of the Option;
(b) terminate the Option effective upon the date of the
Change in Control and make, within ninety days after the date of the Change in
Control, a cash payment to the Recipient equal to the difference between the
exercise price of the Option and the fair market value of the shares that would
have been subject to the terminated Option on the date of the Change in Control;
or
(c) accelerate the expiration of the Option to a date not
earlier than the fifteenth day after the Change in Control.
11. ADMINISTRATION. The Committee shall have the power to interpret
this Agreement and to adopt such rules for the administration, interpretation
and application of the Agreement as are consistent herewith and to interpret or
revoke any such rules. All actions taken and all interpretations and
determinations made by the Committee in good faith shall be final and binding
upon the Recipient, the Company and all other interested persons. No member of
the Committee shall be personally liable for any action, determination or
interpretation made in good faith with respect to this Agreement or any similar
agreement to which the Company is a party.
12. OPTIONS NOT TRANSFERABLE. Neither the Option nor any interest or
right therein or part thereof shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other means
whether such disposition is voluntary or involuntary or by operation of law, by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy) and any attempted disposition thereof shall
be null and void and of no effect; provided, however, that this Section 12 shall
not prevent transfers by will or by the applicable laws of descent and
distribution.
13. OPTION SHARE TRANSFER RESTRICTIONS.
(a) Without the prior written consent of the Company,
for a period of 180 days following the date of an Initial Public Offering, an
Option Holder may not (i) directly or indirectly offer, sell, assign, transfer,
encumber, pledge, contract to sell, grant an option to purchase or otherwise
dispose of, other than by operation of law, any Option Shares, or (ii) enter
into any swap or other arrangement that transfers to another, in whole or in
part, any of the economic consequences of ownership of Option Shares, whether
any such transaction described in this subsection clauses (i) or (ii) above is
to be settled by delivery of Common Stock or such other securities, in cash or
otherwise. The Company may place legends and/or stop-transfer orders with the
transfer agent of any Option Shares in order to give effect to this subsection
13(a).
(b) Subject to subsection 13(a) above, an Option Shareholder
may Dispose Of Option Shares only if either (i) a registration statement
pertaining to such Option Shares has been filed with and declared effective by
the Securities and Exchange Commission and remains effective on the date the
Option Shareholder Disposes Of such Option Shares, or (ii) an exemption from the
registration requirements of applicable securities laws is available.
14. SHARES TO BE RESERVED. The Company shall at all times during
the term of the Option reserve and keep available such number of shares of stock
as will be sufficient to satisfy the requirements of this Agreement.
15. NOTICES. Any notice to be given under the terms of this
Agreement to the Company shall be addressed to the Company in care of its
Secretary and any notice to be given to the Recipient shall be addressed to him
at the address given beneath his signature below. By a notice given pursuant to
this Section 15, either party may hereafter designate a different address for
notices to be given to him. Any notice which is required to be given to the
Recipient shall, if the Recipient is then deceased, be given to the Recipient's
personal representative if such representative has previously informed the
Company of his status and address by written notice under this Section 15. Any
notice shall have been deemed duly given when enclosed in a properly sealed
envelope addressed as aforesaid, deposited (with postage prepaid) in a United
States postal receptacle.
16. TITLES. Titles are provided herein for convenience only and are
not to serve as a basis for interpretation or construction of this Agreement.
17. INCORPORATION OF PLAN BY REFERENCE. The Option is granted in
accordance with the terms and conditions of the Plan, the terms of which are
incorporated herein by reference, and the Agreement shall in all respects be
interpreted in accordance with the Plan. Any term used in the Agreement that is
not otherwise defined in the Agreement shall have the meaning assigned to it by
the Plan.
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties as of the date first written above.
KOS PHARMACEUTICALS, INC.
By: /s/ Xxxxxx Xxxx
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Title: President
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RECIPIENT
/s/ Xxxxxxx X. Cutie
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Xxxxxxx X. Cutie
