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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 5)*
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FLAMEL TECHNOLOGIES S.A.
(Name of Issuer)
ORDINARY SHARES, NOMINAL VALUE (EURO)0.122 PER SHARE
(Title of Class of Securities)
ISIN NO. FR0004018711 (ORDINARY SHARES)
CUSIP 338488109 (ADSs)
(CUSIP Number)(1)
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OSCAR S. SCHAFER
O.S.S. CAPITAL MANAGEMENT LP
598 MADISON AVENUE
NEW YORK, NY 10022
(212) 756-8700
(Name, Address and Telephone Number of Person
Authorized to Receive Notices of Communication)
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JUNE 2, 2005
(Date of Event Which Requires Filing of This Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of ss.ss.240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the
following box. [ ]
- --------------------
(1) The Ordinary Shares have no CUSIP number. The ISIN number for the Ordinary
Shares is FR0004018711. The CUSIP number for the ADSs is 338488109.
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CUSIP No. 338488109 13D (PAGE 2 OF 12 PAGES)
ISIN No. FR0004018711
- -------------------------- --------------------------
- -------- -----------------------------------------------------------------------
1 NAME OF REPORTING PERSONS
O.S.S. Capital Management LP
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
- -------- -----------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X]
(b) [ ]
- -------- -----------------------------------------------------------------------
3 SEC USE ONLY
- -------- -----------------------------------------------------------------------
4 SOURCE OF FUNDS*
AF
- -------- -----------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEM 2(d) or 2(e) [ ]
- -------- -----------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware, USA
- -------- -----------------------------------------------------------------------
NUMBER OF SHARES 7 SOLE VOTING POWER
0
------ ------------------------------------------------
BENEFICIALLY OWNED BY 8 SHARED VOTING POWER
2,665,947
------ ------------------------------------------------
EACH REPORTING 9 SOLE DISPOSITIVE POWER
0
------ ------------------------------------------------
PERSON WITH 10 SHARED DISPOSITIVE POWER
2,665,947
- -------- -----------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,665,947
- -------- -----------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* [ ]
- -------- -----------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
12.3%
- -------- -----------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
PN
- -------- -----------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
- -------------------------- --------------------------
CUSIP No. 338488109 13D (PAGE 3 OF 12 PAGES)
ISIN No. FR0004018711
- -------------------------- --------------------------
- -------- -----------------------------------------------------------------------
1 NAME OF REPORTING PERSONS
Oscar S. Schafer & Partners I LP
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
- -------- -----------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X]
(b) [ ]
- -------- -----------------------------------------------------------------------
3 SEC USE ONLY
- -------- -----------------------------------------------------------------------
4 SOURCE OF FUNDS*
WC
- -------- -----------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEM 2(d) or 2(e) [ ]
- -------- -----------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware, USA
- -------- -----------------------------------------------------------------------
NUMBER OF SHARES 7 SOLE VOTING POWER
0
------ ------------------------------------------------
BENEFICIALLY OWNED BY 8 SHARED VOTING POWER
124,070
------ ------------------------------------------------
EACH REPORTING 9 SOLE DISPOSITIVE POWER
0
------ ------------------------------------------------
PERSON WITH 10 SHARED DISPOSITIVE POWER
124,070
- -------- -----------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
124,070
- -------- -----------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* [ ]
- -------- -----------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0.6%
- -------- -----------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
PN
- -------- -----------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
- -------------------------- --------------------------
CUSIP No. 338488109 13D (PAGE 4 OF 12 PAGES)
ISIN No. FR0004018711
- -------------------------- --------------------------
- -------- -----------------------------------------------------------------------
1 NAME OF REPORTING PERSONS
Oscar S. Schafer & Partners II LP
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
- -------- -----------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X]
(b) [ ]
- -------- -----------------------------------------------------------------------
3 SEC USE ONLY
- -------- -----------------------------------------------------------------------
4 SOURCE OF FUNDS*
WC
- -------- -----------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEM 2(d) or 2(e) [ ]
- -------- -----------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware, USA
- -------- -----------------------------------------------------------------------
NUMBER OF SHARES 7 SOLE VOTING POWER
0
------ ------------------------------------------------
BENEFICIALLY OWNED BY 8 SHARED VOTING POWER
1,239,507
------ ------------------------------------------------
EACH REPORTING 9 SOLE DISPOSITIVE POWER
0
------ ------------------------------------------------
PERSON WITH 10 SHARED DISPOSITIVE POWER
1,239,507
- -------- -----------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,239,507
- -------- -----------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* [ ]
- -------- -----------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
5.7%
- -------- -----------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
PN
- -------- -----------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
- -------------------------- --------------------------
CUSIP No. 338488109 13D (PAGE 5 OF 12 PAGES)
ISIN No. FR0004018711
- -------------------------- --------------------------
- -------- -----------------------------------------------------------------------
1 NAME OF REPORTING PERSONS
O.S.S. Overseas Fund Ltd
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
- -------- -----------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X]
(b) [ ]
- -------- -----------------------------------------------------------------------
3 SEC USE ONLY
- -------- -----------------------------------------------------------------------
4 SOURCE OF FUNDS*
WC
- -------- -----------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEM 2(d) or 2(e) [ ]
- -------- -----------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Cayman Islands
- -------- -----------------------------------------------------------------------
NUMBER OF SHARES 7 SOLE VOTING POWER
0
------ ------------------------------------------------
BENEFICIALLY OWNED BY 8 SHARED VOTING POWER
1,302,370
------ ------------------------------------------------
EACH REPORTING 9 SOLE DISPOSITIVE POWER
0
------ ------------------------------------------------
PERSON WITH 10 SHARED DISPOSITIVE POWER
1,302,370
- -------- -----------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,302,370
- -------- -----------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* [ ]
- -------- -----------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
6.0%
- -------- -----------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
CO
- -------- -----------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
- -------------------------- --------------------------
CUSIP No. 338488109 13D (PAGE 6 OF 12 PAGES)
ISIN No. FR0004018711
- -------------------------- --------------------------
- -------- -----------------------------------------------------------------------
1 NAME OF REPORTING PERSONS
O.S.S. Advisors LLC
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
- -------- -----------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X]
(b) [ ]
- -------- -----------------------------------------------------------------------
3 SEC USE ONLY
- -------- -----------------------------------------------------------------------
4 SOURCE OF FUNDS*
AF
- -------- -----------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEM 2(d) or 2(e) [ ]
- -------- -----------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware, USA
- -------- -----------------------------------------------------------------------
NUMBER OF SHARES 7 SOLE VOTING POWER
0
------ ------------------------------------------------
BENEFICIALLY OWNED BY 8 SHARED VOTING POWER
1,363,577
------ ------------------------------------------------
EACH REPORTING 9 SOLE DISPOSITIVE POWER
0
------ ------------------------------------------------
PERSON WITH 10 SHARED DISPOSITIVE POWER
1,363,577
- -------- -----------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,363,577
- -------- -----------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* [ ]
- -------- -----------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
6.3%
- -------- -----------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
OO
- -------- -----------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
- -------------------------- --------------------------
CUSIP No. 338488109 13D (PAGE 7 OF 12 PAGES)
ISIN No. FR0004018711
- -------------------------- --------------------------
- -------- -----------------------------------------------------------------------
1 NAME OF REPORTING PERSONS
Schafer Brothers LLC
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
- -------- -----------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X]
(b) [ ]
- -------- -----------------------------------------------------------------------
3 SEC USE ONLY
- -------- -----------------------------------------------------------------------
4 SOURCE OF FUNDS*
AF
- -------- -----------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEM 2(d) or 2(e) [ ]
- -------- -----------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware, USA
- -------- -----------------------------------------------------------------------
NUMBER OF SHARES 7 SOLE VOTING POWER
0
------ ------------------------------------------------
BENEFICIALLY OWNED BY 8 SHARED VOTING POWER
2,665,947
------ ------------------------------------------------
EACH REPORTING 9 SOLE DISPOSITIVE POWER
0
------ ------------------------------------------------
PERSON WITH 10 SHARED DISPOSITIVE POWER
2,665,947
- -------- -----------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,665,947
- -------- -----------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* [ ]
- -------- -----------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
12.3%
- -------- -----------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
OO
- -------- -----------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
- -------------------------- --------------------------
CUSIP No. 338488109 13D (PAGE 8 OF 12 PAGES)
ISIN No. FR0004018711
- -------------------------- --------------------------
- -------- -----------------------------------------------------------------------
1 NAME OF REPORTING PERSONS
Oscar S. Schafer
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
- -------- -----------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X]
(b) [ ]
- -------- -----------------------------------------------------------------------
3 SEC USE ONLY
- -------- -----------------------------------------------------------------------
4 SOURCE OF FUNDS*
AF
- -------- -----------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEM 2(d) or 2(e) [ ]
- -------- -----------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware, USA
- -------- -----------------------------------------------------------------------
NUMBER OF SHARES 7 SOLE VOTING POWER
0
------ ------------------------------------------------
BENEFICIALLY OWNED BY 8 SHARED VOTING POWER
2,665,947
------ ------------------------------------------------
EACH REPORTING 9 SOLE DISPOSITIVE POWER
0
------ ------------------------------------------------
PERSON WITH 10 SHARED DISPOSITIVE POWER
2,665,947
- -------- -----------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,665,947
- -------- -----------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* [ ]
- -------- -----------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
12.3%
- -------- -----------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IN
- -------- -----------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
EXPLANATORY NOTE
This Amendment No. 5 to Schedule 13D ("Amendment No. 5") is being filed on
behalf of Oscar S. Schafer & Partners I LP, a Delaware limited partnership ("OSS
I LP"), Oscar S. Schafer & Partners II LP, a Delaware limited partnership ("OSS
II LP" and together with OSS I LP, the "Limited Partnerships"), O.S.S. Advisors
LLC, a Delaware limited liability company (the "General Partner"), O.S.S.
Overseas Fund Ltd., a Cayman Islands exempted company ("OSS Overseas"), O.S.S.
Capital Management LP, a Delaware limited partnership, (the "Investment
Manager"), Schafer Brothers LLC, a Delaware limited liability company ("SB
LLC"), and Mr. Oscar S. Schafer ("Mr. Schafer", and together with the Limited
Partnerships, the General Partner, OSS Overseas, the Investment Manager and SB
LLC, the "Reporting Persons"), who serves as the senior managing member of the
General Partner and SB LLC. This Amendment No. 5 relates to the ordinary shares,
nominal value (euro)0.122 per share ("Ordinary Shares"), of Flamel Technologies
S.A., a SOCIETE ANONYME organized under the laws of the Republic of France (the
"Issuer"), and amends the Schedule 13D filed with the United States Securities
and Exchange Commission (the "SEC") on April 18, 2005, as amended by Amendment
No. 1, filed with the SEC on April 29, 2005, Amendment No. 2, filed with the SEC
on May 11, 2005, Amendment No. 3, filed with the SEC on May 12, 2005, and
Amendment No. 4, filed with the SEC on May 13, 2005 (as so amended, the
"Original Schedule 13D"). Capitalized terms used in this Amendment No. 5 but not
otherwise defined herein shall have the meanings ascribed to them in the
Original Schedule 13D. Except as amended hereby the Original Schedule 13D
remains in effect.
ITEM 4. PURPOSE OF TRANSACTION
Item 4 of the Original Schedule 13D is amended and supplemented by adding
between the ninth and the tenth paragraphs thereof, the following text:
On May 20, 2005, the Issuer filed a report on Form 6-K with the SEC (the
"May 20 Form 6-K") including the materials to be made available to shareholders
in connection with the 2005 AGM. Those materials included the OSS Resolutions,
the biographical information on the candidates for election to the Board of
Directors of Flamel proposed by the OSS Shareholders, and the reasons (L'EXPOSE
DES MOTIFS) for the OSS Resolutions required by paragraph 3 of Art. 135 of
DECRET NO. 67-236, dated March 23, 1967. The Form 6-K filing also included a
letter to shareholders from Gerard Soula, Chairman and Chief Executive Officer
of the Issuer, together with his Chairman's Report, dated May 19, 2005
(collectively, the "May 19 Communication").
On June 1, 2005, the Issuer issued a press release to which it appended a
further letter to shareholders from Mr. Soula (the "June 1 Communication"). On
the afternoon of June 1, 2005, the Issuer hosted a conference call to discuss
the June 1 Communication (the "Conference Call") in which Mr. Soula and Stephen
Willard, the General Counsel and Chief Financial Officer of the Issuer,
participated.
On June 2, 2005, on behalf of the Limited Partnerships and OSS Overseas,
Mr. Schafer sent a letter (the "OSS Letter") to Mr. Soula, in which Mr. Schafer
clarified the intentions of the Limited Partnerships and OSS Overseas and
corrected certain facts that Mr. Schafer believes have been misstated by Mr.
Soula in the May 19 Communication, the June 1 Communication
- 9 -
and on the Conference Call. The OSS Letter is included as Exhibit 8 to this
Amendment No. 5 and is incorporated herein by reference.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
Item 7 of the Original Schedule 13D is amended and restated in its entirety
to read as follows:
The following are filed as exhibits to this statement on Schedule 13D:
Exhibit 1 Joint Filing Agreement (previously filed with the Original
Schedule 13D on April 18, 2005).
Exhibit 2 Notice of Ownership of More than 5% of Share Capital and
Voting Rights Delivered to the Issuer pursuant to Article L.
233-7 of the French Commercial Code (CODE DE COMMERCE)
(previously filed with Amendment No. 1 to Schedule 13D on
April 29, 2005).
Exhibit 3 Notice of Ownership of More than 10% of Share Capital and
Voting Rights Delivered to the Issuer pursuant to Article L.
233-7 of the French Commercial Code (CODE DE COMMERCE)
(previously filed with Amendment No. 2 to Schedule 13D on
May 11, 2005).
Exhibit 4 Letter to Gerard Soula, PRESIDENT ET DIRECTEUR GENERAL of
Flamel Technologies S.A. Requiring Inclusion of Draft
Resolutions on Agenda for 2005 Annual General Meeting
pursuant to Article L. 225-105 of the French Commercial Code
(CODE DE COMMERCE) (previously filed with Amendment No. 4 to
Schedule 13D on May 13, 2005).
Exhibit 5 Text of Draft Resolutions to be Proposed at Annual General
Meeting of Shareholders of Flamel Technologies S.A.
(previously filed with Amendment No. 4 to Schedule 13D on
May 13, 2005).
Exhibit 6 Biographical Information on Nominees for Directors
(previously filed with Amendment No. 4 to Schedule 13D on
May 13, 2005).
Exhibit 7 Reasons (L'EXPOSE DES MOTIFS) for the Proposed Resolutions
(previously filed with Amendment No. 4 to Schedule 13D on
May 13, 2005).
Exhibit 8 Letter to Gerard Soula, PRESIDENT ET DIRECTEUR GENERAL of
Flamel Technologies S.A., dated June 2, 2005.
- 10 -
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: June 2, 2005
/s/ Oscar S. Schafer
------------------------------
Oscar S. Schafer, individually
O.S.S. CAPITAL MANAGEMENT LP
By: Schafer Brothers LLC
as General Partner
By: /s/ Oscar S. Schafer
------------------------------
Name: Oscar S. Schafer
Title: Senior Managing Member
OSCAR S. SCHAFER & PARTNERS I LLP
By: O.S.S. Advisors LLC
as General Partner
By: /s/ Oscar S. Schafer
------------------------------
Name: Oscar S. Schafer
Title: Senior Managing Member
OSCAR S. SCHAFER & PARTNERS II LLP
By: O.S.S. Advisors LLC
as General Partner
By: /s/ Oscar S. Schafer
------------------------------
Name: Oscar S. Schafer
Title: Senior Managing Member
- 11 -
O.S.S. OVERSEAS FUND LTD
By: /s/ Oscar S. Schafer
------------------------------
Name: Oscar S. Schafer
Title: Director
O.S.S. ADVISORS LLC
By: /s/ Oscar S. Schafer
------------------------------
Name: Oscar S. Schafer
Title: Senior Managing Member
SCHAFER BROTHERS LLC
By: /s/ Oscar S. Schafer
------------------------------
Name: Oscar S. Schafer
Title: Senior Managing Member
- 12 -
EXHIBIT 8
[Letterhead of O.S.S. Capital Management LP]
June 2, 2005
BY FACSIMILE AND FEDERAL EXPRESS
Gerard Soula
President, Directeur General
Flamel Technologies S.A.
Parc Club du Moulin a Vent
33 avenue du Dr. Georges Levy
69693 Venissieux cedex France
RE : FLAMEL TECHNOLOGIES S.A. ("FLAMEL") - 2005 ANNUAL MEETING OF SHAREHOLDERS.
Monsieur le President:
I am writing on behalf of Oscar S. Schafer & Partners I LP, Oscar S.
Schafer & Partners II LP and O.S.S. Overseas Fund Ltd (collectively, the "OSS
Shareholders") which acting DE CONCERT, within the meaning of Art. L. 233-10 of
the French Commercial Code, have proposed resolutions for the election of a new
board of directors to be voted on at the Annual Meeting of Shareholders of
Flamel to be held on June 22, 2005 (the "2005 AGM"). The OSS Shareholders are
also, acting DE CONCERT, the largest shareholder in Flamel.
On behalf of the OSS Shareholders, I wrote to you on May 13, 2005 to
express deep concern about the current direction and performance of Flamel and
the decline in the stock price of the ADS, which had fallen approximately 66%
between September 2003 and April 2005. On September 19, 2003, the closing price
of the ADS was $42.85; on April 15, 2005, the last trading day before the OSS
Shareholders and their affiliates filed a statement on Schedule 13D announcing
that they were examining what actions they might take in advance of the 2005
AGM, the closing price of the ADS had fallen to only $14.25. This is the track
record of how your leadership has "continued to enhance shareholder value" and
protected shareholders' investments.
Nowhere in your recent letters to your "fellow shareholders" or your
Chairman's Report, dated May 19, 2005, do you address this decline in the stock
price or propose any credible initiatives for restoring investor confidence in
Flamel. I appreciate that the question of the current stock price may not be a
matter of urgency to a shareholder like yourself, who as recently as October
2003 sold 300,000 ADSs at over $31 per ADS and whose most recent acquisition of
300,000 Flamel shares (referred to on the recent conference call) was through
the exercise of options AT A PRICE OF $1.36 PER SHARE (based on a (euro)1 =
$1.25 exchange rate). However, to many of your "fellow shareholders", including
the OSS Shareholders, who have not been able to buy so low or sell so high, the
question of the stock price performance is one of some significance.
In fact, your recent Chairman's Report, dated May 19, 2005, while promising
to give investors greater insight into the potential value of Flamel and to
provide an appreciation of the last 18 months of "progress that Flamel has made
in terms of development of its strategy, the evolution of its partnerships and
the opportunities for potential new deals" does nothing but repeat the vague
expectations that "potential partners" will be found sometime in the future. As
you said, back in early 2004, "easy to say, difficult to do." But it has been
your responsibility as Chairman and Chief Executive Officer to get the deals
done. Your June 1, 2005 conference call reported how "busy" you are with
potential partners, but still no deals.
In your Chairman's Report, while you quote me in places, you also misstate
the publicly stated expectations of the OSS Shareholders. Let me set the record
straight. As set forth in the EXPOSE DES MOTIFS included elsewhere in the
materials sent to shareholders, it is the expectation of the OSS Shareholders
that the proposed three-person board, if elected, "may take the subsequent
actions necessary (including calling an extraordinary shareholder meeting) to
increase the size of the board and to elect additional directors, which may
include one or more members of the current board of directors." The OSS
Shareholders fully appreciate the need for continuity at Flamel, both with
respect to employees, management and existing business relationships with
partners. Despite your scaremongering, a vote in favor of the resolutions of the
OSS Shareholders is not a vote for discontinuity. The resolutions of the OSS
Shareholders seek only a board of directors that is truly independent of
existing management, in particular you. In this respect, the OSS Shareholders do
not consider it a disadvantage that you do not know the directors they have
proposed or that you did not pick them and propose them as candidates yourself,
as you complained in your Chairman's Report. As set forth in the EXPOSE DES
MOTIFS, the OSS Shareholders believe that the three independent directors
proposed for election bring deep and relevant business experience and a track
record of creating shareholder value. To the extent that these new directors
believe that it will be in the best interests of Flamel and its shareholders to
nominate for subsequent re-election any of the existing directors they will, of
course, be free to do so.
As to continuity with respect to executive management, your own promise (or
threat) to resign your offices, to sell all your shares and your options and, by
implication, to have nothing further to do with Flamel, renders moot any
question of your own continuing role at the company. On election, the directors
proposed by the OSS Shareholders, may have believed that a constructive role
could have been found for Flamel's founder allowing you to make an ongoing
contribution to the success of the company. However, you have foreclosed any
such constructive dialogue and it is you who have promised discontinuity in this
respect. With respect to other executives, as with the possibility of nominating
existing directors for re-election to an expanded board, the possibility of
continuing roles for the existing executive management team remains a question
to be considered by the proposed, independent board, if elected. It is the board
of directors that has the responsibility to appoint, or re-appoint, Flamel's
officers. Nothing in the resolutions proposed by the OSS Shareholders or in
their EXPOSE DES MOTIFS indicates a "drive to replace" existing management.
Lastly, neither the OSS Shareholders nor the proposed board, if elected,
has any intention of distracting Flamel from fulfilling any of its obligations
under any contract with its
-2-
existing business partners, including GlaxoSmithKline, TAP Pharmaceutical
Products, Inc., Merck and Servier.
The directors proposed by the OSS Shareholders are not an improvised slate
nor are they unqualified candidates. Mr. Thurman has a deep experience in the
pharmaceutical industry and has successfully led a previous dissident proxy
contest. Mr. Boonstra has a lifetime of marketing experience and is widely
credited with having revitalized the fortunes of Philips Electronics NV during
his tenure as Chairman and Chief Executive Officer from 1996 to 2001. Elie
Vannier has deep operating and financial experience and has served as chairman
of the French Center for the Study of Corporate Governance. On the contrary, it
is the slate of directors that you support that appears improvised. And the
hasty addition of the two new candidates -- Messrs. Smith and Deming -- may have
unintended consequences. If elected, the OSS Shareholders believe that the eight
person board you support will have five directors who are citizens or residents
of the United States, namely Messrs. Willard, Cesan, Dearstyne, Smith and
Deming. As a result, the OSS Shareholders believe that Flamel may no longer
qualify as a "foreign private issuer" as defined under Rule 3b-4 under the
United States Securities Exchange Act of 1934. Accordingly, Flamel will be
subject to different, more onerous reporting requirements under the United
States securities laws, including, without limitation, the obligation to file
its annual reports on Form 10-K, quarterly reports on Form 10-Q, periodic
reports on Form 8-K and an annual proxy statement. The OSS Shareholders doubt
that Flamel intended this complication when it proposed its slate of directors
and believe that, at this time, complying with the additional and unfamiliar
reporting requirements will itself constitute an unnecessary "distraction" of
scarce management time and resources. As you yourself urge shareholders, now is
not the time for such distractions.
As you point out in your Chairman's Report, the OSS Shareholders continue
to believe in Flamel's enormous potential. However, what they no longer believe
in is Flamel's ability under your leadership as Chairman and Chief Executive
Officer to realize that long-term value for shareholders. Your Chairman's Report
asserts that you are "the founder of Flamel Technologies and . . . have
initiated all the projects which create the value of Flamel today." By the same
token, you are the Chairman and Chief Executive Officer that has repeatedly
failed to deliver the targets that you have set and that you have communicated
to shareholders. In short, by your own assertion, you are accountable for the
current underperformance of Flamel relative to its potential.
You are also "completely convinced that we could continue to create
long-term value for the shareholders", apparently by continuing the same
practices that have destroyed so much shareholder value over the last 18 months.
However, the OSS Shareholders are completely - if reluctantly - convinced, that
investors no longer believe in your ability to deliver this value, particularly
by continuing as if nothing were wrong and no change were necessary. In short,
in your Chairman's Report you ask your fellow shareholders to believe that
Gerard Soula is Flamel and Flamel is Gerard Soula. Indeed, the tone of your
Chairman's Report only supports the impression, increasingly shared by the
investment community and reflected in investors' questions on the June 1
conference call, that the arrogance of your approach and your demands has had
and continues to have an adverse effect on negotiations with potential business
partners. The OSS Shareholders have learned that several potential partners have
indicated an
-3-
unwillingness to deal with Flamel because of the difficulty of dealing with you.
Let us reexamine the recent record. In 2003 and in quarterly conference
calls on April 30, 2004, and July 30, 2004, you told shareholders to expect that
1 new Medusa(R) licensing deal and 2 new Micropump(R) licensing deals would be
signed by the end of the year. You have also told shareholders that part of
Flamel's significant cash reserves will be used to develop a third delivery
technology to complement the Medusa(R) and Micropump(R) technologies. In
September 2004, Bristol Myers Squibb terminated its license agreement with
respect to Basulin, the only Medusa(R) licensing agreement that had been in
effect. As of your May 19, 2005 Chairman's Report, no other Medusa(R) licensing
agreements have been signed. In September 2004, Flamel did sign a Micropump(R)
licensing agreement with TAP Pharmaceutical Products Inc. However, in March
2005, Flamel terminated its Micropump(R) licensing agreement with Biovail
Laboratories Inc. with respect to Genvir(R). As of May 19, 2005, therefore,
Flamel has a net loss of one Medusa(R) licensing agreement and no net gain in
Micropump(R) licensing agreements. And there is no sign of the third delivery
technology. But as of May 19, 2005, shareholders are once again asked to believe
in your "vision . . . that Flamel is on the verge of a major success" and that
only Gerard Soula can lead Flamel to that promised land. The OSS Shareholders
are no longer believers.
Perhaps more could be expected from the commercial development of Flamel's
superior technologies if there were greater stability in Flamel's business
development team. You ask shareholders to believe that only the existing team
can realize Flamel's potential. But what team? Your June 1, 2005 letter
acknowledges that Flamel "must remain concentrated on our objective, attracting
and keeping the most talented people we need on our team." But the OSS
Shareholders understand that Flamel's current Vice President, Business
Development is the SIXTH such executive that Flamel has employed in the last
four years. As stated in the EXPOSE DES MOTIFS, the OSS Shareholders believe in
the superiority of Flamel's technologies. But the factual record shows that
Flamel has been as ineffective at establishing an effective business development
function as it has been in signing up commercial licensing agreements for those
technologies. In practice, you have been in charge of all negotiations with
potential licensing partners; Flamel's unimpressive record is YOUR record. In
practice, you have been responsible for building and retaining a management
team; in that respect, also, Flamel's failures are YOUR failures.
In contrast to your belief that "Flamel: C'est moi", the OSS Shareholders
believe that Flamel is a significant public company should be run for the
benefit of all its shareholders. The OSS Shareholders believe that if Flamel is
to realize its full potential, it must develop a professional management team
under a robustly independent board, able to guide Flamel through the next stage
of its development. Notwithstanding the fact that you are the "founder" and that
two of your own sons and one of your own daughters-in-law work at Flamel (one
son, in the senior position of director of nanotechnology, is the beneficiary of
significant option grants), Flamel is not a family-controlled company. The OSS
Shareholders expect its proposed directors will form the nucleus of a new, truly
independent board that will oversee a professional management team that is
uncompromisingly committed to delivering value to Flamel's public shareholders.
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* * * * * *
The OSS Shareholders do not deny the very significant role that you have
played in the founding of Flamel and the development of its technologies, and
are disappointed that you have expressed your intention to sever all ties with
the Company if the directors they propose are elected. However, the OSS
Shareholders have come to believe that your dominating role at Flamel may now be
more part of the problem than the solution. The proprietary tone of your
Chairman's Report dated May 19, 2005 only confirms that impression. Flamel is
owned by its public shareholders, of which the OSS Shareholders are the largest.
The resolutions proposed by the OSS Shareholders simply seek an independent
board of directors that can provide the strategic leadership and oversight to
enable a professional management team to realize Flamel's long-term value.
Unlike you, the OSS Shareholders believe that Flamel is more than just Gerard
Soula and have reluctantly concluded that Flamel's future may be brighter under
new leadership.
Very truly yours,
/s/ Oscar S. Schafer
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Oscar S. Schafer, individually, and
(1) as senior managing member of:
(a) O.S.S. Advisors LLC, for itself and as
the general partner of
(i) Oscar S. Schafer & Partners I LP;
and
(ii) Oscar S. Schafer & Partners II LP;
and
(b) Schafer Brothers LLC, for itself and as
the general partner of
O.S.S. Capital Management LP
and
(2) as director of O.S.S. Overseas Fund Ltd.
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