As filed with the Securities and Exchange Commission on {February}[April 10 ],
2001
Registration No. 333-54048
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
Amendment No. {1}[2]
To
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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UNIGENE LABORATORIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 2833 22-2328609
- --------------------------------------------------------------------------------
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Incorporation Industrial Classification Identification
or Organization) Code Number) Number)
-----------
110 Little Falls Road
Fairfield, New Jersey 07004
(973) 882-0860
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(Address, including Zip Code, and Telephone Number,
including Area Code, of Registrant's Principal Executive Offices)
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WARREN P. LEVY
President With copies to:
Unigene Laboratories, Inc. D. Michael Lefever, Esq.
110 Little Falls Road Covington & Burling
Fairfield, New Jersey 07004 1201 Pennsylvania Avenue, NW
(973) 882-0860 Washington, D.C. 20004-2401
(Name, Address, including Zip Code, (202) 662-5276
and Telephone Number, including Area
Code, of Agent For Service)
-----------
Approximate date of commencement of proposed sale to the public: From time
to time after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box: [x]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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 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 this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration 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,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
=========================================================================================================
Title of Securities Amount to be Proposed Maximum Proposed Maximum Amount of
To be Registered Registered (1) Offering Price Aggregate Registration
Per Share Offering Price Fee
- ---------------------------------------------------------------------------------------------------------
Common Stock, par value 7,331,009 $1.38 (2) $10,116,792(2) $2,529 (3)
$.01 per share [1,668,991 $ .55 (4) $ 917,945(4) $230 (5)]
=========================================================================================================
(1) This Registration Statement registers the offer and sale of {7,331,009}
[9,000,000] shares of common stock, par value $.01 per share of the
registrant (the "Common Stock"). Pursuant to Rule 416 under the Securities
Act of 1933, as amended, the number of shares registered hereby includes
such additional number of shares of Common Stock as are required to prevent
dilution resulting from stock splits, stock dividends or similar
transactions.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) based on the average of the bid and asked prices of
the Common Stock on the OTC Bulletin Board on January 16, 2001.
(3) {The} [This] registration fee was paid in connection with the initial
filing of the Registration Statement on January 19, 2001.
[(4) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) based on the average of the bid and asked prices of
the Common Stock on the OTC Bulletin Board on April 2, 2001.
(5) This registration fee was paid in connection with the filing of this
Amendment No. 2 to the Registration Statement on April 10, 2001.]
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant has filed a
further amendment that specifically states that the registration statement shall
thereafter become effective in accordance with section 8(a) of the securities
act of 1933.
********************************************************************************
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
********************************************************************************
Prospectus Subject To Completion
Dated {February}[April 10], 2001
[9,000,000] [7,331,000} Shares
of
Unigene Laboratories, Inc.
Common Stock
{(par value $.01 per share)}
-------------
This prospectus relates to the offer and sale by Fusion Capital Fund
II, LLC of up to {7,331,009} [9,000,000] shares of common stock of Unigene
Laboratories, Inc., a Delaware corporation.
{On December 18, 2000, Unigene entered into an agreement with Fusion under
which Fusion has committed to purchase from Unigene up to $21,000,000 in Unigene
common stock at the rate of $875,000 per month. 7,331,009 shares of Unigene
common stock are being registered in connection with this agreement.
Unigene will not receive any of the proceeds from the sale of the shares of
Unigene common stock offered in this prospectus. However, Unigene may receive up
to $21,000,000 from the sale of our common stock to Fusion under the agreement
with Fusion.}
The Unigene common stock is listed on the OTC Bulletin Board under the
symbol "UGNE."
Investing in the common stock involves risks. See "Risk Factors"
beginning on page 4.
Fusion is {deemed to be} an "underwriter" within the meaning of the
Securities Act of 1933, as amended. {Any broker executing selling orders on
behalf of Fusion may be deemed to be an "underwriter." Commissions received by
any broker may be deemed to be underwriting commissions.}
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this prospectus is {February}[April ], 2001.
TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY......................................... 3
RISK FACTORS............................................... 4
FORWARD-LOOKING STATEMENTS................................. 9
USE OF PROCEEDS............................................ 10
PRICE RANGE OF COMMON STOCK................................ 10
DIVIDEND POLICY............................................ 10
SELECTED FINANCIAL DATA.................................... 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............. 14
BUSINESS.................................................. 21
MANAGEMENT................................................ 27
PRINCIPAL STOCKHOLDERS.................................... 31
THE FINANCING TRANSACTION................................. 32
SELLING STOCKHOLDER....................................... 36
PLAN OF DISTRIBUTION...................................... 37
LEGAL MATTERS............................................. 38
EXPERTS................................................... 38
ADDITIONAL INFORMATION.................................... 39
INDEX TO FINANCIAL STATEMENTS............................. F-1
2
Prospectus Summary
The following summary highlights information contained elsewhere in this
prospectus. It may not contain all of the information that is important to you.
You should read the entire prospectus carefully, especially the discussion
regarding the risks of investing in Unigene common stock under the heading "Risk
Factors," before investing in Unigene common stock. "Unigene," "Forcaltonin,"
and "Fortical" are registered trademarks of Unigene Laboratories, Inc.
Business
Unigene is a biopharmaceutical company engaged in the research, production
and delivery of {valuable therapeutic peptide hormones}[small proteins, referred
to as peptides, that have demonstrated or may have potential medical use.] We
have a patented manufacturing technology for producing many peptides
cost-effectively. We also have {a} patented {drug delivery} technology that has
been shown to deliver orally {therapeutic level} [medically useful amounts] of
{Calcitonin} [various] {an amidated} peptide[s] into the bloodstream. Our
primary focus has been on the development of Calcitonin products for the
treatment of osteoporosis and other indications.
o Injectable Calcitonin. Our injectable Calcitonin product, which has the
trade name {FORCALTONINTMhas} [FORCALTONIN TM, has] been approved for the
treatment of Paget's disease, [a genetic bone disorder,] and
hypercalcemia,[ a disorder associated with high calcium blood levels,] in
the 15 member states of the European Union. Sales to date [of this product]
have been minimal.
o Nasal Calcitonin. {A} [In December 2000, we successfully completed a]
{clinical} [human] study demonstrating {equivalent bio availability}
[similar blood levels] between our formulation and that of an existing
nasal Calcitonin product {was successfully completed}. {in December 2000}
[We have initiated a] second {clinical} [human] study {is underway and}
[with results] expected {to conclude} in {early} [mid-] 2001. We are
seeking to license our nasal Calcitonin {formulation} [product] in the U.S.
and other countries for the treatment of osteoporosis.
o Oral Calcitonin. In 1997, we entered into an agreement under which we
granted to the Parke-Davis division of Warner-Lambert Company (which merged
with Pfizer in June 2000), a worldwide license to make, use and sell our
oral Calcitonin technology. In December 1999, Warner Lambert filed an
Investigational New Drug application with the U.S. Food and Drug
{Adiminstration} [Administration] (FDA) for the conduct of {clinical}
[human] trials in the United States of our oral Calcitonin product [as a
treatment for osteoporosis]. [Pfizer began a]{A} Phase I/II [human] study
{commenced}in April 2000 [and] patient dosing [for this study] {has been}
[was] completed [in December 2000.] {and} [Pfizer analyzed the] results [of
the study and informed us in March 2001 that the study did not achieve
Pfizer's desired results. Pfizer terminated the license agreement citing
this conclusion. We believe that this study, in which an FDA approved
product also did not work and which produced results contrary to many
published studies, was not capable of determining the performance of our
oral Calcitonin product. We believe that if patients in the study had also
received calcium supplements, in addition to the Calcitonin, the results
would have been more favorable. Therefore, we intend to continue the
development of our oral Calcitonin product as a treatment of osteoporosis,
and have begun discussions with potential licensees in the U.S. and other
countries. In addition, due to the termination of the Pfizer agreement, we
no longer have restrictions on selling bulk Calcitonin. ] {are being
analyzed}
Our business strategy is to develop proprietary products and processes with
applications in human health care to generate revenues from license fees,
royalties on third-party sales and direct sales of bulk or finished products.
Generally, we fund our internal research activities and intend to rely on
licensees, which are likely to be established pharmaceutical companies, to
provide development funding. We also generally expect to rely on these licensees
to take responsibility for obtaining appropriate regulatory approvals,
{clinical} [human] testing, and marketing of products derived from our research
activities. However, we may, in some cases, retain the responsibility for
{clinical} [human] testing and for obtaining the required regulatory approvals
for a particular product.
3
Corporate Information
Unigene {was} [is] incorporated under the laws of the State of Delaware {in
1980}. Our executive offices are located at 110 Little Falls, Fairfield, New
Jersey 07004, and our telephone number at this location is (973) 882-0860. The
address of our web site is www.unigene.com. Information on our web site is not
part of this prospectus.
Unigene Common Stock
Unigene common stock trades on the OTC Bulletin Board under the symbol
"UGNE."
The Offering
[On December 18, 2000, Unigene entered into an agreement with Fusion
under which Fusion has committed to purchase from Unigene up to $21,000,000 in
Unigene common stock at the rate of $875,000 per month.] Fusion Capital Fund II,
LLC, the selling stockholder[,] is offering for sale up to {7,331,009}
[9,000,000] shares of Unigene common stock. The shares being offered consist of
up to 6,000,000 shares of common stock that Fusion has agreed to purchase from
Unigene and {1,331,009} [2,000,000] shares of common stock [and five-year
warrants, for 1,000,000 shares of common stock, exercisable at $.50 per share]
that Unigene has {agreed to} issue [d] to Fusion as compensation for its
purchase commitment. As of {February}[April 2], 2001, there were {45,756,938}
[46,436,940] shares of Unigene common stock outstanding, including the
{1,331,009} [2,000,000] shares that Unigene has {agreed to} issue [d] to Fusion
as compensation for its purchase commitment [but not including the 1,000,000
shares that are issuable upon the exercise of the warrant].
The number of shares ultimately offered for sale [by Fusion] is
dependent upon the number of shares purchased by Fusion. This number may be
affected by other factors more fully described under the heading "The Financing
Transaction."
Risk Factors
An investment in Unigene common stock involves a high degree of risk.
You should carefully consider the following factors and other information in
this prospectus before deciding to invest in shares of Unigene common stock. If
any of the following risks actually occur, our business, financial condition,
results of operations and prospects for growth would likely suffer. As a result,
the trading price of Unigene common stock could decline, and you could lose all
or part of your investment.
Prospective investors should consider carefully these factors
concerning our business before purchasing the securities offered by this
prospectus. {Various} [We make various] statements in this section [which]
constitute "forward-looking statements" under Section 27A of the Securities Act
of 1933. See "Forward-Looking Statements."
We have significant historical losses and expect to continue to incur losses in
the future.
We have incurred annual operating losses since our inception. As a
result, at {September 30,} [December 31] 2000, we had an accumulated deficit of
{$71,619,000} {$75,378,000}. Our gross revenues for the {nine months ended
September 30, 2000 and the} years ended December 31, [2000], 1999, [and] 1998
{and 1997} were {$2,361,000,} [$3,287,000,] $9,589,000, [and] $5,050,000
{$3,003,000}, respectively. [However, our revenues have not been sufficient to
sustain our operations.] These revenues {have} consisted principally of {upfront
payments and} milestone payments received in connection with {the licensing of
our proprietary technology.} {However, our revenues have not been sufficient to
sustain our operations.} [our terminated license agreement with Pfizer. As of
March 31, 2001, we have no significant revenue generating license agreements.]
As a result, during the same periods, we have incurred losses from operations of
{$7,892,000,} [$11,385,000,] $1,997,000, [and] $6,060,000 {and $10,098,000},
respectively. Our net losses for {the nine months ended September 30, 2000 and}
the years ended December 31, [2000,] 1999, [and] 1998 {and 1997} were
{$8,711,000} [$12,469,000] $1,577,000, [and] $6,881,000 {and $10,128,000},
respectively. While our injectable Calcitonin product has been approved for
commercial sale in a number of European countries for the treatment of two minor
indications, we do not
4
anticipate that sales for these indications will produce significant revenues.
We believe that the profitability of Unigene will require the successful
commercialization of our Calcitonin product or another peptide product in the
United States and abroad. {There is the risk that} Unigene might never be
profitable.
We will require additional financing to sustain our operations.
At {September 30,} [December 31,] 2000, we had a working capital deficiency
of [$13,267,000] {$9,670,000}. The independent auditors' report for the year
ended December 31, [2000] {1999}, includes an explanatory paragraph stating that
{the operating losses, accumulated deficit} [our recurring losses from
operations] and working capital deficiency discussed above raise substantial
doubt about our ability to continue as a going concern. We had {an operating
cash flow deficit of $6,278,000 in 1997,} an operating cash flow deficit of
$4,864,000 in 1998, an operating cash flow deficit of $1,400,000 in 1999 and for
the {nine months} [year] ended {September 30,} [December 31] 2000, an operating
cash flow deficit of {$3,086,000} [$3,382,000]. We {believe that we} do not have
sufficient financial resources to fund our operations at the current level.
Therefore, excluding any funding that we might receive from Fusion, we need
additional funds to continue our operations. {The} [Our] agreement with Fusion
could provide {Unigene} [us] with sufficient funding to sustain {its} [our]
operations for up to two years, beginning in the first {quarter} [half] of 2001.
However, assuming we do not receive any funding from Fusion, there is a risk
that we will not be able to generate revenues that are sufficient to sustain our
operations and we would require additional sources of financing in order to
satisfy our working capital needs, which may be unavailable or prohibitively
expensive. Should such financing be unavailable or prohibitively expensive when
we require it, we would not be able to sustain our working capital needs, which
would have a material adverse effect on our business, operating results and
financial condition.
Even if we are able to access $875,000 per month over the next 24
months, available under the common stock purchase agreement with Fusion, we may
still need additional capital to fully implement our business, operating and
development plans. In addition, {one result of the raising of additional capital
through} [our issuance of shares of common stock to Fusion under] the common
stock purchase agreement {with Fusion would be the issuance of additional shares
of our common stock. The issuance of additional shares to Fusion pursuant to the
common stock purchase agreement could} [will] result in {substantial} dilution
to {our} existing stockholders. We only have the right to receive $875,000 per
month under the common stock purchase agreement unless our stock price equals or
exceeds $4.00 per share, in which event greater amounts may be received. In
addition, the agreement may be terminated by Fusion in the event of a default
under the agreement. See "The Financing Transaction-Events of Default." Since we
have initially registered 6,000,000 shares in this offering, the selling price
of our stock to Fusion will have to average at least $3.50 per share for us to
receive the maximum proceeds of $21,000,000 without registering or issuing any
additional shares. We may need to seek shareholder approval to increase the
total number of authorized shares of our common stock. {Sales} [We cannot sell
shares] of Unigene common stock to Fusion {cannot begin until a} [until the SEC
declares effective the] registration statement registering the shares {for
resale by Fusion is declared effective by the SEC} [offered by this prospectus].
Unigene cannot predict with [any] certainty if or when this will occur. We
believe that satisfying our long-term capital requirements will require the
successful commercialization of one of our peptide products. {There is no
assurance} [At this time, we cannot predict with certainty] that any of our
products will be commercially successful.
We may not be successful in our efforts to develop a Calcitonin or other peptide
product that will produce revenues that are sufficient to sustain our
operations.
{Our}[We have obtained regulatory approval in Europe for the sale of
our] injectable Calcitonin product {has been approved for commercial sale in
Europe}, but there is a limited market for the indications for which it has been
approved. None of our products have been approved for sale in the U.S. The [U.S.
5
Food and Drug Administration must approve the] commercial manufacture and sale
of pharmaceutical products in the U.S. {is subject to the approval of the U. S.
Food and Drug Administration.} Similar regulatory approvals are required for the
sale of pharmaceutical products outside of the United States. {The
commercialization of our products requires} [We must conduct] further {clinical}
[human] testing {. These clinical trials must show }[on our products before they
can be approved for commercial sale. We must show in these human trials] that
our products are safe and effective. {in order to obtain the regulatory
approvals required for commercial sale} If any of our products are approved for
commercial sale, {the product} [we] will need to {be manufactured} [manufacture
the product] in commercial quantities at a reasonable cost in order for it to be
a successful product that will generate profits. {for us} Because of our limited
clinical, manufacturing and regulatory experience and the lack of a marketing
organization, we are likely to rely on licensees or other parties to perform one
or more tasks for the commercialization of pharmaceutical {grade} products.
We believe that expanded consumer acceptance of Calcitonin pharmaceutical
products depends on the development of {a consumer accepted delivery system}
[more desirable formulations.] We {are currently conducting} [have initiated]
{clinical} [human] trials {in conjunction with Pfizer} to evaluate {an oral} [a
nasal] {delivery system for} Calcitonin [product with final results expected in
mid-2001]. [Pfizer recently completed a human trial for our oral Calcitonin
product, but after analyzing the results it terminated our license agreement due
to scientific and technical reasons. We disagree with Pfizer's conclusions and
plan to seek other licensees to continue the development of our oral Calcitonin
product. We may not be successful in licensing our Calcitonin products or any of
our other peptide products.] {This} [In addition, we may not be able to
demonstrate the safety or effectiveness of our products]{oral delivery system}
{may not prove successful} in {clinical} [human] trials and [, accordingly,
they] may not receive [the] U.S. Food and Drug Administration and foreign
governmental approvals that are necessary to market [these] {this delivery
system} [products.] Other companies may develop {oral or} other {delivery
systems} [products] to compete with or surpass any [nasal or] oral {delivery
system} [product] that we develop.
We have made a substantial investment in our production facility which we will
need to upgrade or expand in order to manufacture our products in commercial
quantities.
We have constructed and are operating a facility intended to produce
{pharmaceutical grade} Calcitonin and other peptide[s] {hormones}. This facility
has been approved by European regulatory authorities for the manufacture of
Calcitonin for human {pharmaceutical} use, but has not yet been inspected or
approved by the U.S. Food and Drug Administration. The risks associated with
this facility include the failure to achieve targeted production and
profitability goals, the development by others of superior processes and
products, and the absence of a market for products produced by the facility. In
addition, the successful commercialization of an oral Calcitonin product {will}
[may] require us to make additional expenditures to expand or upgrade our
manufacturing operations {to satisfy our supply obligations under the Pfizer
license agreement.} Currently, we cannot determine the cost or timing of these
capital expenditures.
We are dependent on partners for the commercial development of our products.
We do not currently have, nor do we expect to have in the near future,
sufficient financial resources and personnel to develop our products on our own.
Accordingly, we expect to continue to depend on large pharmaceutical companies
for revenues from sales of products, research sponsorship and distribution of
our products. {We have granted to Pfizer a worldwide license to make, use and
sell our oral Calcitonin products in exchange for which we are entitled to
receive milestone payments at various stages in the development process and
royalties on sales if the product is successfully commercialized.} [With the
recent termination of our Pfizer collaboration, we currently have no licenses
for any of our products in the U.S.]
In June 2000, we entered into a joint venture with a pharmaceutical company
in the People's Republic of China for the manufacture and distribution of
injectable and nasal Calcitonin products in China and possibly other Asian
markets, for the treatment of osteoporosis. This joint venture {is in the early
stages of development} [has not yet commenced operations] and it is uncertain
whether it will generate meaningful revenues or profits for Unigene. We also
have entered into distribution agreements for our injectable formulation of
Calcitonin in the United Kingdom, Ireland and Israel. To date, [we have not
received material revenues from] these distribution agreements. {have not
produced material revenues}
6
We intend to pursue additional opportunities to license, or enter into
distribution arrangements for, our {technologies for} [oral, nasal and]
injectable {and nasal formulations of} Calcitonin [products as well as other
possible peptide products]. [ Due to the termination of the Pfizer agreement, we
no longer have restrictions on selling bulk Calcitonin.] However, we may not be
successful in [any of] these efforts.
Because we are a biopharmaceutical company, our operations are subject to
extensive government regulations.
Our laboratory research, development and production activities, as well
as those of our collaborators and licensees, are subject to significant
regulation by federal, state, local and foreign governmental authorities. In
addition to obtaining U.S. Food and Drug Administration approval and other
regulatory approvals of our products, we must obtain approvals for our
manufacturing facility to produce Calcitonin and other peptides for human use.
The regulatory approval process for a pharmaceutical product requires
substantial resources and may take many years. Our inability to obtain approvals
or delays in obtaining approvals would adversely affect our ability to continue
our development program, to manufacture and sell our products, and to receive
revenue from milestone payments, product sales or royalties.
{Our production facility may be audited by the}
[The] FDA or other regulatory agencies [may audit our production
facility] at any time to ensure compliance with [current Good Manufacturing
Practice guidelines, referred to as] cGMP {guidelines}. These guidelines require
that {the} [we conduct our] production operation {be conducted} in strict
compliance with our {written protocols for reagent qualification, process
execution, data recording, instrument calibration and quality monitoring}
[established rules for manufacturing and quality controls.] {The} [Any of these]
agencies can suspend production operations and product sales if they find
significant or repeated {deviations} [changes] from the[se] {protocols}
[guidelines.] A suspension [by any of these agencies] could have a material
adverse effect on our operations.
Our competitors include large pharmaceutical companies with superior resources.
Unigene is engaged in a rapidly {evolving} [changing] and highly
competitive field. To date, Unigene has concentrated its {commercial} efforts on
one {compound} [product] -- Calcitonin -- for treating osteoporosis and other
indications. Like the market for any pharmaceutical product, the market for
treating osteoporosis and these other indications has the potential for rapid,
unpredictable and significant technological change. Competition is intense from
specialized biotechnology companies, major pharmaceutical and chemical companies
and universities and research institutions. Most of our competitors have
substantially greater financial resources, research and development staffs and
facilities, and regulatory experience than we do. Major competitors in the field
of osteoporosis treatment include Novartis, American Home Products, Merck, Eli
Lilly, and Procter and Gamble. Any one of these entities could, at any time,
develop products or a manufacturing process that could render our technology or
products noncompetitive or obsolete.
Our success depends upon our ability to protect our intellectual property
rights.
We filed applications for U.S. patents relating to proprietary peptide
manufacturing [technology] and {drug delivery technologies} [oral formulations]
that we have invented in the course of our research. To date, six U.S. patents
have issued and other applications are pending. We have also made patent
application filings in selected foreign countries and numerous foreign patents
have issued. {There is a} [We face the] risk that any of our pending
applications will not issue as patents. {There is also a} [Our business also is
subject to the] risk that our issued patents will not provide us with
significant competitive advantages if, for example, a competitor were to
independently develop or obtain similar or superior technologies. Although we
believe our patents and patent applications
7
are valid, the invalidation of our key patents or the failure of our pending
applications to issue as patents could have a material adverse effect upon our
business.
We also rely on trade secrets to protect our inventions. Our policy is
to include confidentiality obligations in all research contracts, joint
development agreements and consulting relationships that provide access to our
trade secrets and other know-how. However, {there is a risk that these secrecy
obligations will be breached to our detriment.} [other parties with
confidentiality obligations could breach their agreements {to our
detriment}[causing us harm.If a secrecy obligation were to be breached, we may
not have the financial resources necessary for a legal challenge.] If licensees,
consultants or other third parties use technological information independently
developed by them or by others in the development of our products, disputes may
arise from the use of this information and as to the ownership rights to
products developed using this information. These disputes may not be resolved in
our favor.
Our technology or products could give rise to product liability claims.
Our business exposes us to the risk of product liability claims that
are {inherent in the } [a part of] {clinical} [human] testing, manufacturing and
{commercial use} [sale] of pharmaceutical products. We may not have sufficient
resources to defend against or satisfy these claims. Although we maintain
product liability insurance coverage, product liability or other judgments
against us, as well as the cost of defending such claims in excess of insurance
limits, could have a material adverse effect upon our business and financial
condition.
The loss of our key executives could have a negative effect on our business.
Dr. Warren Levy and Dr. Ronald Levy have been the principal executive
officers since our inception. We rely on them for their leadership and business
direction. Each of them has entered into an agreement with us providing that he
shall not engage in any other employment or business for the period of his
employment with us. The loss of the services of either of these individuals
could have a material adverse effect on our business.
The outcome of our arbitration proceeding with The Tail Wind Fund is uncertain.
In July 2000, the Tail Wind Fund, Ltd., the holder of $2,000,000 in
principal amount of our 5% convertible debentures filed with the American
Arbitration Association a demand for arbitration of its claim that it was owed,
as of June 30, 2000, approximately $3,400,000, consisting of principal,
interest and penalties, resulting from our default under various provisions of
the debentures and related agreements. See "Business -- Litigation" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Capital Resources and Liquidity." We have denied the amount of
Tail Wind's claim and have made certain counterclaims. The outcome of the
arbitration proceeding is uncertain. An extremely unfavorable ruling could have
a material adverse effect on Unigene.
The market price of Unigene common stock may be highly {volatile} [unstable.]
The market price of Unigene common stock has been and {is} [we] expect{ed}
[it] to continue to be highly {volatile} [unstable.] Factors, including
{announcements} [our announcement] of technological {innovations} [improvements]
[or] [announcements by] {us or} other companies, regulatory matters, [research
and development activities,] new or existing products or procedures, [signing or
termination of licensing agreements,] concerns about our financial position,
operating results, litigation, resolution of the arbitration involving our
outstanding convertible debentures, government regulation, developments or
disputes relating to agreements, patents or proprietary rights, and public
concern over the safety of activities or products may have a significant impact
on the market price of our stock. In addition, potential dilutive effects of
future sales of shares of Unigene common stock by Unigene
8
and its stockholders[,] including [sales by] Fusion {pursuant to} [under] this
prospectus and by the exercise and subsequent sale of Unigene common stock by
the holders of [outstanding and future] warrants and options could have an
adverse effect on the price of our stock.
We do not anticipate paying cash dividends on the Unigene common stock.
We have {not} [never] paid any cash dividends on the Unigene common
stock {since our inception} and we do not anticipate paying cash dividends in
the foreseeable future. Rather, we intend to retain any cash flow we generate
for investment in our business. Accordingly, Unigene common stock may not be
suitable for investors who are seeking current income from dividends.
The Unigene common stock is classified as a "penny stock" under SEC rules which
may make it more difficult for Unigene stockholders to resell their Unigene
common stock.
The Unigene common stock is traded on the OTC Bulletin Board. As a result,
the holders of Unigene common stock may find it more difficult to obtain
accurate quotations concerning the market value of the stock. Stockholders also
may experience greater difficulties in attempting to sell the stock than if it
was listed on a stock exchange or quoted on the Nasdaq National Market or the
Nasdaq Small-Cap Market. Because Unigene common stock is not traded on a stock
exchange or on the Nasdaq National Market or the Nasdaq Small-Cap Market, and
the market price of the common stock is less than $5.00 per share, the common
stock is classified as a "penny stock." SEC Rule 15g-9 under the Exchange Act
imposes additional sales practice requirements on broker-dealers that recommend
the purchase or sale of penny stocks to persons other than those who qualify as
an "established customer" or an "accredited investor." This includes the
requirement that a broker-dealer must make a determination that investments in
penny stocks are suitable for the customer and must make special disclosures to
the customer concerning the risks of penny stocks. Application of the penny
stock rules to the Unigene common stock could adversely affect the market
liquidity of the shares, which in turn may affect the ability of holders of the
Unigene common stock to resell the stock.
The sale of Unigene common stock to Fusion could cause substantial dilution and
the sale of the shares acquired by Fusion could cause the price of Unigene
common stock to decline.
The price at which Fusion is obligated to purchase shares of Unigene
common stock under the common stock purchase agreement will fluctuate based on
the market price of our common stock. See "The Financing Transaction--Purchase
of shares under the common stock purchase agreement" for a detailed description
of the purchase price.
All of the shares offered for sale by Fusion under this prospectus are
freely tradeable. However, Fusion has agreed that it will not sell or otherwise
transfer the {1,331,009} [2,000,000] commitment shares [ or the 1,000,000 shares
issuable upon the exercise of its warrant which we issued as of March 30, 2001
to Fusion as part of its commitment fee]until the earlier of the termination of
the common stock purchase agreement, the occurrence of an event of default by us
under this agreement or the maturity date of the agreement which is
approximately two years from the date {hereof} [of this prospectus]. Fusion may
sell none, some or all of the shares of common stock purchased from Unigene at
any time. We have been advised by Fusion that the shares registered in this
offering will be sold over a period of up to 24 months from the date of this
prospectus. Depending upon market liquidity at the time, {a sale} [the resale by
Fusion] of shares registered in this offering at any given time could cause the
trading price of the Unigene common stock to decline. The sale [by Fusion] of a
substantial number of shares {of Unigene common stock under this offering, or }[
purchased from Unigene, or the] anticipation of such sales, could make it more
difficult for Unigene to sell equity or equity related securities in the future
at a time and at a price that it might otherwise wish to effect sales.
9
If Fusion purchased the full amount of shares purchasable under the
common stock purchase agreement on the date of this prospectus, at a price equal
to {$1.44} [$0.55], the closing sale price of the Unigene common stock on
{February 5}[April 2], 2001, Fusion would have been able to purchase a total of
{14,583,333} [38,181,818] shares of our common stock. These shares, along with
the {1,331,009} [2,000,000] shares [ and warrants for 1,000,000 shares of common
stock] that {will be}[have been] issued to Fusion as a commitment fee, would
represent {26%} [48%] of our outstanding common stock as of the date of this
prospectus. {This} [The issuance of these shares] would result in significant
dilution to the ownership interests of other holders of our common stock. The
amount of dilution would be higher if the market price of our common stock is
lower than the current market price at the time Fusion purchases shares under
the common stock purchase agreement, as a lower market price would cause more
shares of our common stock to be issuable to Fusion. See "The Financing
Transaction-Purchase of shares under the common stock purchase agreement" for a
table that shows the number of shares issuable and potential dilution based on
varying market prices. Although we have the right to suspend Fusion purchases if
the market price of our common stock is below $15.00 for three consecutive
trading days, the financial condition of Unigene at the time may require Unigene
to {forgo} [waive] its right to suspend purchases {notwithstanding} [even if
there is] a decline in the market price. If the closing sale price of our common
stock prior to the first trading day of any 30-day period is at least $4.00, we
have the right to require purchase by Fusion of part or all of the remaining
balance of the $21 million during the next two 30-day periods, provided the
closing sale price of our common stock during such 30-day periods remains at
least $4.00.
The existence of the agreement with Fusion to purchase shares of Unigene common
stock could cause downward pressure on the market price of the Unigene common
stock.
Both the actual dilution and the potential for dilution resulting from
sales of Unigene common stock to Fusion could cause holders to elect to sell
their shares of Unigene common stock, which could cause the trading price of the
Unigene common stock to decrease. In addition, prospective investors
anticipating the downward pressure on the price of the Unigene common stock due
to the shares available for sale by Fusion could refrain from purchases or
{effect} [cause] sales or short sales in anticipation of a decline of the market
price.
Forward-Looking Statements
Various statements {made} [that we make] in this prospectus under the
captions "Prospectus Summary," "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business" and
elsewhere in this prospectus are "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933. These forward-looking statements
involve known and unknown risks, uncertainties and other factors that may cause
the actual results, performance or activities of our business, or industry
results, to be materially different from any future results, performance or
activities expressed or implied by the forward-looking statements. These factors
include: general economic and business conditions, our financial condition,
competition, our dependence on other companies to commercialize, manufacture and
sell products using our technologies, the uncertainty of results of
{preclinical} [animal] and {clinical} [human] testing, the risk of product
liability and liability for human {clinical} trials, our dependence on patents
and other proprietary rights, dependence on key management officials, the
availability and cost of capital, the availability of qualified personnel,
changes in, or the failure to comply with, governmental regulations, the failure
to obtain regulatory approvals for our products and other factors discussed in
this prospectus.
Use of Proceeds
Unigene will not receive any of the proceeds from the sale of the
shares of Unigene common stock offered for sale by Fusion under this prospectus.
However, we may receive up to $21,000,000 from the sale of our common stock to
Fusion under the agreement with Fusion.
10
Price Range of Common Stock
The Unigene common stock has been quoted on the OTC Bulletin Board
under the symbol UGNE since October 1999, when it was delisted from the Nasdaq
National Market. The following table presents, for the periods indicated, the
high and low sales prices per share of the Unigene common stock as reported on
the Nasdaq National Market from January 1, 1999 to October 4, 1999, and on the
OTC Bulletin Board from October 5, 1999 through the date of this prospectus.
Fiscal Year Ended December 31, 1999 High Low
---- ---
First Quarter $1.47 $0.94
Second Quarter $1.13 $0.63
Third Quarter $1.06 $0.63
Fourth Quarter $0.84 $0.23
Fiscal Year Ended December 31, 2000 High Low
---- ---
First Quarter $5.38 $0.54
Second Quarter $3.66 $1.44
Third Quarter $3.03 $2.00
Fourth Quarter $3.00 $0.97
Fiscal Year Ended December 31, 2001 High Low
---- ---
First Quarter {(through
February 5, 2001)} $1.87[5] {$1.34} [$0.375]
[Second Quarter
(through April 6, 2001) $0.65 $0.47]
On {February 5}[April 2], 2001, the last reported sale price of the Unigene
common stock on the OTC Bulletin Board was {$1.44} [$0.55]. As of {February
5}[April 2], 2001, there were {485} [483] holders of record of the Unigene
common stock.
Dividend Policy
Unigene has never paid a cash dividend on the Unigene common stock, and we
do not anticipate paying cash dividends in the foreseeable future. Instead, we
currently plan to retain all earnings, if any, for use in the operation of our
business and to fund future growth.
Selected Financial Data
The selected financial data as of December 31, [2000] {1998} and 1999,
and for the years ended December 31, [2000, 1999 and 1998] {1997, 1998 and
1999,} that is set forth below have been derived from Unigene's financial
statements included in this prospectus, which have been audited by KPMG LLP,
independent certified public accountants. The report of KPMG LLP covering these
financial statements contains an explanatory paragraph that states that the
Company's recurring losses from operations and working capital deficiency raise
substantial doubt about the entity's ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of that uncertainty. The selected financial data below as of December
31, {1995, 1996 and 1997,} [1998, 1997 and 1996] and for the years ended
December 31, [1997] {1995} and 1996 have been derived from our audited financial
statements that are not included in this prospectus. {The selected financial
data below as of and for the nine months ended September 30, 1999 and 2000, have
been derived from our unaudited financial statements,
11
included in this prospectus which, in our opinion, include all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation of
our financial position and results of operations.} Historical results are not
necessarily indicative of results to be expected for any future period. You
should read the data below together with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the financial statements
and related notes included in this prospectus.
12
STATEMENT OF OPERATIONS DATA
(In thousands, except per share data)
Year Ended December 31,
----------------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
Revenue:
Licensing & other revenue $ 3,287 $ 9,589 $ 5,050 $ 3,003 $ 308
Costs and expenses:
Research & development expenses 11,484 9,375 9,042 9,416 8,298
General and administrative 3,187 2,212 2,068 2,016 2,115
Loss before extraordinary item
and cumulative effect of
accounting change (11,469) (1,577) (6,737) (10,128) (10,597)
Extraordinary item -- -- (144) -- --
Cumulative effect of accounting change (1,000) -- -- -- --
Net loss (12,469) (1,577) (6,881) (10,128) (10,597)
Basic and diluted loss per share:
Loss before
extraordinary item and cumulative
effect of accounting change (.26) (.04) (.17) (.27) (.38)
Extraordinary item -- -- (.01) -- --
Cumulative effect of accounting change (.02) -- -- -- --
Net loss (.28) (.04) (.18) (.27) (.38)
Weighted average number of shares
outstanding 44,008 40,719 38,701 37,397 27,943
BALANCE SHEET DATA
(In thousands)
December 31,
----------------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
Cash and cash equivalents $ 17 $ 683 $ 403 $ 2,126 $ 4,491
Working capital (deficiency) (13,267) (2,759) (1,805) 310 2,954
Total assets 9,047 13,778 11,564 13,692 17,169
Long-term debt and other
long-term obligations 546 1,003 3,931 1,608 2,788
Total liabilities 14,540 9,049 7,344 4,258 5,309
Total stockholders' equity
(deficit) (5,493) 4,729 4,220 9,433 11,860
13
SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
2000 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
- ---- ----------- ----------- ----------- -----------
Revenue $ 1,201,250 $ 200,776 $ 1,559,164 $ 325,771
Operating loss $(1,396,831) $(3,748,686) $(2,146,838) $(4,092,528)
Loss before cumulative
effect of accounting change $(1,639,288) $(4,016,917) $(2,454,532) $(3,358,668)
Net loss $(2,639,288) $(4,016,917) $(2,454,532) $(3,358,668)
Loss per share, before cumulative
effect of accounting change $ (.04) $ (.09) $ (.06) $ (.07)
Net loss per share,
basic and diluted $ (.06) $ (.09) $ (.06) $ (.07)
1999 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
- ---- ----------- ----------- ----------- -----------
Revenue $ 2,500,172 $ 26,670 $ 7,000,733 $ 61,838
Operating income (loss) $ (349,707) $(2,825,543) $ 3,787,338 $(2,608,981)
Net income (loss) $ (563,755) $(2,977,610) $ 3,692,594 $(1,728,569)
Net income (loss)
per share, basic
and diluted $ (.01) $ (.07) $ .09 $ (.05)
The quarterly financial data for the first three quarters of 2000 reported above
differ from the data for those periods previously reported by us on Form 10-Q as
described below:
First Quarter Second Quarter Third Quarter
------------- -------------- -------------
Previously As Previously As Previously As
Reported Adjusted Reported Adjusted Reported Adjusted
----------- ----------- ------------ ------------ ------------ ------------
Revenue $ 1,001,250 $ 1,201,250 $ 776 $ 200,776 $ 1,359,164 $ 1,559,164
Operating loss $(1,596,831) $(1,396,831) $(3,948,686) $(3,748,686) $(2,346,838) $(2,146,838)
Net loss $(1,839,288) $(2,639,288) $(4,216,917) $(4,016,917) $(2,654,532) $(2,454,532)
Net loss per share,
basic and diluted $ (.04) $ (.06) $ (.10) $ (.09) $ (.06) $ (.06)
In December 1999, the Securities and Exchange Commission staff issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"). Prior to the implementation of SAB 101, non-refundable license fees
received upon execution of license agreements were recognized as revenue
immediately. SAB 101 summarizes certain of the staff's views in applying
generally accepted accounting principles to revenue recognition in financial
statements and specifically addresses revenue recognition in the biotechnology
industry for non-refundable technology access fees and other non-refundable
fees. We were required to adopt SAB 101, as amended, in the fourth quarter of
2000 with an effective date of January 1, 2000, and the recognition of a
cumulative effect adjustment calculated as of January 1, 2000.
We adopted SAB 101 in 2000, changing our revenue recognition policy for up-front
licensing fees that require services to be performed in the future from
immediate revenue recognition to deferral of revenue with the up-front fee
recognized over the life of the agreement. In 1997, we recognized $3,000,000 in
revenue from an up-front licensing fee from Pfizer. With the adoption of SAB
101, we are now recognizing this revenue over a 45 month period, equivalent to
the term of our oral Calcitonin agreement with Pfizer which was terminated in
March 2001. We therefore recognized a non-cash cumulative effect adjustment of
$1,000,000 as of January 1, 2000 representing a revenue deferral over the
remaining 15 months of the agreement. We recognized $800,000 in revenue in 2000
and will recognize $200,000 of revenue in 2001 as a result of this deferral.
The quarterly financial data above has been adjusted to reflect retroactive
application of SAB 101, Therefore, in each of the first three quarters of 2000
we recognized $200,000 in additional revenue related to the cumulative effect
adjustment.
14
Management's Discussion and Analysis of
Financial Condition and Results of Operations
{The following discussion should be read} [You should read the following
discussion] {in conjunction} [together] with our financial statements and the
notes appearing elsewhere in this prospectus. The following discussion contains
forward-looking statements. Our actual results may differ materially from those
projected in the forward-looking statements. Factors that might cause future
results to differ materially from those projected in the forward-looking
statements include those discussed in "Risk Factors" and elsewhere in this
prospectus.
Years ended December 31, 2000, 1999 and 1998
Revenue. Revenue decreased 66% to $3,287,000 for the year ended December
31, 2000 as compared to $9,589,000 for the year ended December 31, 1999. Revenue
increased 90% to $9,589,000 for the year ended December 31, 1999 as compared to
$5,050,000 for the year ended December 31, 1998. In all three years, revenue
consists primarily of milestone revenue from Pfizer resulting from the
achievement of milestones in the development of an oral Calcitonin product for
treating osteoporosis. Yearly revenue is affected by the timing of the
completion of the various milestones. In addition, revenue for the year ended
December 31, 2000 included $800,000 from the amortization of deferred revenue
related to the initial licensing fee paid by Pfizer in 1997 and $345,000 for
analytical testing services provided to Pfizer.
Research and Development Expenses. Research and development, the Company's
largest expense, increased 22% in 2000 to $11,484,000 from $9,375,000 in 1999
and increased 4% in 1999 from $9,042,000 in 1998. The 2000 increase was
primarily attributable to the Company's clinical trials for its nasal Calcitonin
product and an increase in expenditures related to an increase in Calcitonin
production and the write-off of inventory in the fourth quarter as a result of
Pfizer's termination of our agreement , partially offset by a reduction in
consulting fees related to the Pfizer collaboration. The 1999 increase was
primarily attributable to development expenses related to the Company's nasal
Calcitonin product, consulting and analytical testing expenses related to the
Company's Type II variation for its injectable Calcitonin product, and
consulting fees related to the Company's collaboration with Pfizer partially
offset by a reduction in production supplies. Expenditures for the sponsorship
of collaborative research programs were $411,000, $250,000 and $280,000 in 2000,
1999 and 1998, respectively, which are included as research and development
expenses. A portion of these expenditures was reimbursed by Pfizer in 1999 and
1998.
General and Administrative Expenses. General and administrative expenses
increased 44% in 2000 to $3,187,000 from $2,212,000 in 1999 and increased 7% in
1999 from $2,068,000 in 1998. The 2000 increase was primarily due to the
recognition of non-cash expenses of $220,000 due to the issuance of warrants to
a consultant and stock option compensation of $399,000, in addition to the
recognition of a $350,000 expense to terminate the Company's former joint
venture in China. The 1999 increase was primarily due to increased personnel
costs and professional fees partially offset by reductions in public relations
and travel expenses.
Interest Income. Interest income increased $12,000 or 31% in 2000 from 1999,
after decreasing $70,000 or 65% in 1999 from 1998. The 2000 increase was due to
higher interest rates on investments. The 1999 decrease was due to lower
interest income resulting from reduced funds available for investment.
Interest Expense. Interest expense increased $27,000 or 2% in 2000 to
$1,199,000 from $1,171,000 in 1999 after increasing $386,000 or 49% in 1999 from
$785,000 in 1998. Interest expense increased in 2000 due to increased notes
payable to stockholders and to higher interest rates in 2000 on the 5%
convertible debentures, offset by a reduction in the amortization of the
beneficial conversion feature and related warrants on the 5% convertible
debentures as compared to 1999. The annual interest rate on the $2,000,000 in
outstanding principal amount of the 5% Debentures increased in 2000 to 20%
resulting from the failure of the Company to make a semi-annual interest payment
that was due in January 2000. In addition, since October 1999, the Company has
been accruing additional interest expense
15
monthly in an amount equal to 2% of the outstanding principal amount of the 5%
Debentures as a result of the removal of the Company's Common Stock from trading
on the Nasdaq Stock Market in October 1999. The expenses incurred in connection
with the 5% Debentures in 2000 were partially offset by a 50% decrease in the
principal balance outstanding as a result of conversions to Common Stock during
1999. Included in 1999 interest expense is $197,000 of the amortization of the
value of the beneficial conversion feature and related warrants of the Company's
5% convertible debentures. Excluding the change in the amortization charged to
interest, interest expense increased in 1999 as compared to 1998 as a result of
an increase in notes payable to stockholders, redemption premium resulting from
the Company exceeding the Share Limit on the 5% Debentures, and the 2% delisting
penalty on the 5% Debentures, partially offset by a decrease in the balance
outstanding under the Company's 5% Debentures as a result of partial conversions
to Common Stock.
Income Tax Benefit. Income tax benefit in 2000 of $1,065,000 and in 1999 of
$1,553,000 consisted of proceeds received for the sale of a portion of the
Company's state tax net operating loss carryforwards under a New Jersey Economic
Development Authority ("NJEDA") program, which allows certain New Jersey
taxpayers to sell their state tax benefits to third parties. The purpose of the
New Jersey program is to provide financial assistance to high-tech and
biotechnology companies in order to facilitate future growth and job creation.
Extraordinary Item. Extraordinary item, loss on early extinguishment of
debt, was $144,000 for 1998. The loss was due to redemption at a premium of a
portion of our 10% convertible debentures in September 1998.
Cumulative Effect of Accounting Change. In December 1999, the Securities
and Exchange Commission staff issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" ("SAB 101"). SAB 101 summarizes certain of
the staff's views in applying generally accepted accounting principles to
revenue recognition in financial statements and specifically addresses revenue
recognition in the biotechnology industry for non-refundable technology access
fees and other non-refundable fees. The Company was required to adopt SAB 101,
as amended, in the fourth quarter of 2000 with an effective date of January 1,
2000, and the recognition of a cumulative effect adjustment calculated as of
January 1, 2000. The Company adopted SAB 101 in 2000, changing its revenue
recognition policy for up-front licensing fees that require services to be
performed in the future from immediate revenue recognition to deferral of
revenue with the up-front fee recognized over the life of the agreement. In
1997, the Company recognized $3,000,000 in revenue from an up-front licensing
fee from Pfizer. With the adoption of SAB 101, the Company is now recognizing
this revenue over a 45 month period, equivalent to the life of its oral
Calcitonin license with Pfizer which was terminated in March 2001. The Company
therefore recognized a non-cash cumulative effect adjustment of $1,000,000 in
2000 representing a revenue deferral over 15 months as of January 1, 2000. The
Company recognized $800,000 in revenue in 2000 and will recognize $200,000 of
revenue in 2001 as a result of this deferral.
Net Loss. During 2000, revenue decreased approximately $6,300,000
principally due to the timing of the achievement of various milestones in the
Pfizer agreement. In addition, operating expenses were higher as the Company
increased its product commercialization efforts including its nasal Calcitonin
clinical trials. Also, the Company recognized a cumulative charge from an
accounting change offset by a realized income tax benefit. Therefore, net loss
increased $10,892,000 for the year ended December 31, 2000 from the prior year.
During 1999, revenue increased $4,540,000 from 1998 due to the achievement of
various milestones in the Pfizer agreement. In addition, the Company received
$1,553,000 in 1999 from the partial sale of its state tax benefits. These were
partially offset by an increase in operating and interest expenses. As a result,
the Company's net loss decreased $5,304,000 or 77% for the year ended December
31, 1999, from the prior year.
Liquidity and Capital Resources
Unigene maintains its peptide production facility on leased premises in
Boonton, New Jersey. We began production under current Good Manufacturing
Practice guidelines at this facility in 1996. The current lease expires in 2004.
16
Unigene has two consecutive ten-year renewal options under the lease, as well as
an option to purchase the facility. During 2000, Unigene invested approximately
$519,000 in fixed assets and leasehold improvements. The majority of these
expenditures were to increase Unigene's analytical testing capabilities.
Currently, we have no material commitments outstanding for capital expenditures
relating to either the Boonton facility or our office and laboratory facility in
Fairfield, New Jersey.
At December 31, 2000, Unigene had cash and cash equivalents of $17,000, a
decrease of $666,000 from December 31, 1999.
We do not have sufficient financial resources to continue to fund our
operations at the current level. Unigene has incurred annual operating losses
since its inception and, as a result, at December 31, 2000, had an accumulated
deficit of approximately $75,378,000 and a working capital deficiency of
approximately $13,267,000. The independent auditors' report covering Unigene's
2000 financial statements includes an explanatory paragraph stating that these
factors raise substantial doubt about our ability to continue as a going
concern. However, the financial statements have been prepared on a going concern
basis and as such do not include any adjustments that might result from the
outcome of this uncertainty. In October 1999, the Nasdaq Stock Market delisted
the Unigene common stock. The delisting of the common stock may have an adverse
effect on our ability to raise capital.
We had an operating cash flow deficit of $4,864,000 in 1998, an operating
cash flow deficit of $1,400,000 in 1999 and for the year ended December 31,
2000, an operating cash flow deficit of $3,382,000. Unigene's future ability to
generate cash from operations will depend primarily upon signing research or
licensing agreements, achieving defined benchmarks in such agreements that
entitle Unigene to receive milestone payments, receiving regulatory approval for
its licensed products, and the sale of these products.
In July 1997, Unigene entered into an agreement under which it granted to
Warner-Lambert Company a worldwide license to use our oral Calcitonin
technology. In June 2000, Pfizer Inc acquired Warner-Lambert. Through December
31, 2000, Unigene had received $3 million for an equity investment, $3 million
for a licensing fee and recognized an aggregate of $16.5 million in milestone
revenue under the agreement. Pfizer conducted a Phase I/II human study which was
completed in December 2000. Pfizer analyzed the results of the study and
informed us in March 2001 that the study did not achieve Pfizer's desired
results. Pfizer terminated the license agreement citing this conclusion. We
believe that this study, in which an FDA approved product also did not work and
which produced results contrary to many published studies, was not capable of
determining the performance of our oral Calcitonin product. We believe that if
patients in the study had also received calcium supplements, in addition to the
Calcitonin, the results would have been more favorable. Therefore, we intend to
continue the development of our oral Calcitonin product as a treatment of
osteoporosis, and have begun discussions with potential licensees in the U.S.
and other countries. In addition, due to the termination of the Pfizer
agreement, we no longer have restrictions on selling bulk Calcitonin. Unigene
also has the right to license the use of its technologies for injectable and
nasal formulations of Calcitonin on a worldwide basis. Unigene has licensed
distributors in the United Kingdom, Ireland and in Israel for its injectable
product. However, these distribution agreements have not produced significant
revenues. In June 2000, Unigene entered into a joint venture agreement in China
with Shijiazhuang Pharmaceutical Group ("SPG") to manufacture and market our
injectable and nasal products. See "Business -- Strategy -- China Joint
Venture." We are actively seeking other licensing and/or supply agreements with
pharmaceutical companies for our injectable and nasal Calcitonin products and
for other pharmaceutical products that can be manufactured and/or delivered
using our patented technologies. However, we may not be successful in our
efforts to enter into any additional revenue-generating agreements.
17
Under the terms of the joint venture with SPG, Unigene is obligated to
contribute up to $405,000 in cash during 2001 and up to an additional $495,000
in cash within two years thereafter. However, these amounts may be reduced or
offset by our share of joint venture profits. However, as of December 31, 2000,
we had not made any contributions to the joint venture. In addition, Unigene is
obligated to pay to the Qingdao General Pharmaceutical Company an aggregate of
$350,000 in 14 monthly installment payments of $25,000 in order to terminate its
former joint venture in China, of which $75,000 had been paid as of December 31,
2000. We recognized the entire $350,000 obligation as an expense in 2000.
In June 1998, Unigene completed a private placement of $4,000,000 in
principal amount of 5% convertible debentures from which we realized net
proceeds of approximately $3,750,000. The 5% debentures were convertible into
shares of Unigene common stock. The interest on the debentures, at Unigene's
option, was payable in shares of Unigene common stock. Upon conversion, the
holder of a 5% debenture was entitled to receive warrants to purchase a number
of shares of Unigene common stock equal to 4% of the number of shares issued as
a result of the conversion. However, the number of shares of Unigene common
stock that we are obligated to issue, in the aggregate, upon conversion, when
combined with the shares issued in payment of interest and upon the exercise of
the warrants, is limited to 3,852,500 shares. After this share limit is reached,
Unigene is obligated to redeem all 5% debentures tendered for conversion at a
redemption price equal to 120% of the principal amount, plus accrued interest.
In December 1999, Unigene was unable to convert $200,000 in principal of the 5%
debentures tendered for conversion because the conversion would have exceeded
the share limit. As a result, we accrued, as of December 31, 1999, an amount
equal to $400,000 representing the 20% premium on the outstanding $2,000,000 in
principal amount of 5% debentures that had not been converted. As of December
31, 2000, all of the $2,000,000 in principal amount of 5% debentures were
tendered for conversion and therefore are classified as a current liability in
the amount of $2,400,000.
Through December 31, 2000, we issued a total of 3,703,362 shares of Unigene
common stock upon conversion of $2,000,000 in principal amount of the 5%
debentures and in payment of interest on the 5% debentures. Also, we issued an
additional 103,032 shares of Unigene common stock upon the cashless exercise of
all of the 141,123 warrants issued upon conversion of the 5% debentures.
On January 5, 2000, Unigene failed to make the required semi-annual
interest payment on the outstanding 5% debentures. As a result, the interest
rate on the outstanding 5% debentures has increased to 20% per year. The
semi-annual interest payments due July 5, 2000 and January 5, 2001, also have
not been made. As of December 31, 2000, the accrued and unpaid interest on the
5% debentures totaled approximately $467,000. In addition, due to the delisting
of the Unigene common stock from the Nasdaq National Market in October 1999,
Unigene became obligated under a separate agreement to pay the holder of the 5%
debentures an amount equal to 2% of the outstanding principal amount of the
debentures per month. Unigene has not made any of these payments to date, but
has accrued the amounts as additional interest expense. As of December 31, 2000,
the accrued and unpaid amount of this penalty totaled approximately $617,000.
The holder of the 5% debentures has commenced an arbitration proceeding in
which the holder claims that it is entitled, as of June 30, 2000, to payments in
respect of the 5% debentures in the amount of approximately $3,400,000. See
"Business -- Litigation."
To satisfy Unigene's short-term liquidity needs, Jay Levy, the Chairman of
the Board and an officer of Unigene, and Warren Levy and Ronald Levy, directors
and officers of Unigene, and another Levy family member from time to time have
made loans to Unigene. During February 2000, Jay Levy loaned us $300,000. This
loan was repaid in April 2000. During the third and fourth quarters of 2000, Jay
Levy and another family member loaned Unigene an aggregate of $1,655,000 in
demand loans and Warren Levy and Ronald Levy loaned Unigene an aggregate of
$78,323 in demand loans.
18
As of December 31, 2000, total accrued interest on these loans was $922,000 and
the outstanding loans by these individuals to Unigene, classifed as short-term
debt, totaled $4,743,323 and consisted of:
o loans from the Levys in the aggregate principal amount of $2,873,323, which
are evidenced by demand notes bearing a floating interest rate equal to the
Merrill Lynch Margin Loan Rate plus .25% (9.875% at December 31, 2000) that are
classified as short-term debt. These loans are secured by a security interest in
Unigene's equipment and/or real property.
o
o loans from Jay Levy in the aggregate principal amount of $1,870,000 evidenced
by term notes maturing January 2002, and bearing interest at the fixed rate of
6% per year. These loans are secured by a security interest in all of Unigene's
equipment and a mortgage on Unigene's real property. The terms of the notes
require Unigene to make installment payments of principal and interest beginning
in October 1999 and ending in January 2002 in an aggregate amount of $72,426 per
month. No installment payments have been made to date.
Interest and principal payments required under these loans have not been
made by Unigene, but the Levys have waived all default provisions including
additional interest penalties due under these loans through December 31, 2000.
From January 1, 2001 through March 30, 2001, Jay Levy, Warren Levy and
Ronald Levy loaned to us an additional $1,610,000 at the Merrill Lynch Margin
Loan Rate plus .25%, of which $500,000 is secured by a security interest in
certain of our patents. No interest on these loans has been paid.
Unigene's cash requirements to operate its research and peptide
manufacturing facilities and develop its products are approximately $10 to 11
million per year. In addition to its obligations with respect to the 5%
Debentures, Unigene has principal and interest obligations over the next several
years under its outstanding notes payable to stockholders as well as obligations
relating to its current and former joint ventures in China.
We are actively seeking licensing and/or supply agreements with
pharmaceutical companies for oral, nasal and injectable forms of Calcitonin as
well as for other oral peptides. However, we may not be successful in licensing
any of our products.
Under the agreement with Fusion, after a registration statement is declared
effective by the SEC for the resale of the shares of Unigene common stock to be
sold to Fusion, Fusion will be required to purchase, at the then current market
price, shares of Unigene common stock at the rate of $875,000 per month over a
period of 24 months, provided that Unigene continues to satisfy the requirements
that are a condition to Fusion's obligation. The Board of Directors has
authorized the sale to Fusion of up to 6,000,000 shares of Unigene common stock.
Assuming that all sales were to occur at the closing price on April 2, 2001, of
$.55, we would be able to raise approximately $3,300,000 through the sale of the
6,000,000 shares to Fusion. We anticipate that, in order to sell significantly
in excess of 6,000,000 shares to Fusion, it may be necessary to obtain
stockholder approval of an amendment to our Certificate of Incorporation to
increase the number of shares of Unigene common stock that we are authorized to
issue. Assuming we have an adequate number of shares of common stock to sell, we
stay in compliance with the agreement, and depending on the price at which
shares are sold, Fusion could provide Unigene with sufficient funding to sustain
its operations for up to two years, beginning in the first half of 2001. See
"The Financing Transaction." However, we cannot predict when or if the SEC will
declare the registration statement effective.
19
If we do not receive any financing from Fusion, we will need to secure
another source of financing in order to satisfy our working capital needs, which
may be unavailable or the cost of which may be prohibitively expensive. Should
such financing be unavailable or prohibitively expensive, it will be necessary
for Unigene to curtail significantly its operations. Assuming we are able to
raise additional capital through our agreement with Fusion, we still anticipate
that we may need additional capital to implement fully our business plans. We
believe that satisfying our capital requirements over the long term will require
the successful commercialization of our Calcitonin product or another peptide
product in the United States and abroad. However, it is uncertain whether or not
any of our products will be approved or will be commercially successful. In
addition, the commercialization of our oral Calcitonin product may require us to
incur additional capital expenditures to expand or upgrade our manufacturing
operations. However, we cannot determine either the cost or the timing of such
capital expenditures at this time.
As of December 31, 2000, the Company had available for federal income tax
reporting purposes net operating loss carryforwards in the approximate amount of
$68,000,000, expiring from 2001 through 2020, which are available to reduce
future earnings which would otherwise be subject to federal income taxes. In
addition, the Company has research and development credits in the approximate
amount of $2,500,000, which are available to reduce the amount of future federal
income taxes. These credits expire from 2001 through 2020. The Company has New
Jersey operating loss carryforwards in the approximate amount of $23,300,000,
expiring from 2003 through 2007, which are available to reduce future earnings,
which would otherwise be subject to state income tax. As of December 31, 2000,
approximately $11,400,000 of these New Jersey loss carryforwards have been
approved for future sale under a program of the New Jersey Economic Development
Authority (the "NJEDA"). In order to realize these benefits, the Company must
apply to the NJEDA each year and must meet various requirements for continuing
eligibility. In addition, the program must continue to be funded by the State of
New Jersey, and there are limitations based on the level of participation by
other companies. As a result, future tax benefits will be recognized in the
financial statements as specific sales are approved. In the fourth quarters of
2000 and 1999, the Company realized $1,065,000 and $1,553,000, respectively, of
tax benefits arising from the sale of a portion of the Company's New Jersey net
operating loss carryforwards that had previously been subject to a full
valuation allowance.
Unigene follows Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes." Given our past history of incurring operating
losses, any deferred tax assets that are recognizable under SFAS No. 109 were
fully reserved. As of December 31, 2000 and 1999, under SFAS No. 109, we had
deferred tax assets of approximately $29,000,000 and $26,000,000, respectively,
subject to valuation allowances of $29,000,000 and $26,000,000, respectively.
The deferred tax assets are primarily a result of our net operating losses and
tax credits.
Other
The Unigene common stock has been delisted from the Nasdaq National Market
System effective October 5, 1999, and is now trading on the OTC Bulletin Board.
In order to be relisted on the Nasdaq National Market or the Nasdaq SmallCap
Market, we must meet the initial listing requirements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. SFAS No. 133, as amended, will be effective for our fiscal
year beginning January 1, 2001. We do not expect that the adoption of SFAS No.
133 will have a material effect on our financial position or results of
operations.
Market Risk
In the normal course of business, Unigene is exposed to fluctuations in
interest rates due to the use of debt as a component of the funding of its
operations. We do not employ specific strategies, such as the use of derivative
instruments or hedging, to manage our interest rate exposure. Unigene's interest
rate exposure on the 5% convertible debentures has been affected by Unigene's
delisting from the Nasdaq National Market and failure to make the semi-annual
interest payment in January 2000.
20
Our exposure to interest rate fluctuations over the near-term will continue to
be affected by these events.
The information below summarizes Unigene's market risks associated with
debt obligations as of December 31, 2000. The table below presents principal
cash flows and related interest rates by year of maturity based on the terms of
the debt.
Under the terms of the 5% convertible debentures, no additional shares may
be issued to convert the remaining principal balance. Therefore, the information
presented as to the debentures is without consideration as to conversion
features. Variable interest rates disclosed represent the rates at December 31`,
2000. Given our financial condition described in "Liquidity and Capital
Resources" it is not practicable to estimate the fair value of our debt
instruments at December 31, 2000.
Year of Maturity
Carrying ------------------------------------------------
Amount 2001 2002 2003 2004 2005
------ ---- ---- ---- ---- ----
Notes payable - stockholders $2,873,323 2,873,323 -- -- -- --
Variable interest rate 9.875% -- -- -- --
Notes payable - stockholders $1,870,000 1,870,000 -- -- -- --
Fixed interest rate 6% -- -- -- --
5% convertible debentures $2,400,000 2,400,000 -- -- -- --
Fixed interest rate (1) 20%
(1) As a result of Unigene's failure to make the semi-annual interest
payment that was due January 5, 2000, the interest rate on the 5%
convertible debentures has increased from 7% at December 31, 1999, to
20% beginning January 5, 2000. In addition, due to the delisting of
Unigene common stock from NASDAQ in 1999, Unigene became obligated to
pay the holder of the 5% debentures an amount equal to 2% of the
outstanding principal amount of the debentures per month.
Business
Overview
Unigene is a biopharmaceutical company engaged in the research, production
and delivery of {valuable therapeutic peptide hormones} [small proteins,
referred to as peptides, that have demonstrated or may have potential medical
use.] We have a patented manufacturing technology for producing many peptides
cost-effectively. We also have {a} patented {drug delivery} technology that has
been shown to deliver orally {therapeutic levels of} [medically useful amounts
of] {Calcitonin, an amidated} [ various] peptide[s], into the bloodstream. Our
primary focus has been on the development of Calcitonin products for the
treatment of osteoporosis and other indications. We have the facilities and the
technology for manufacturing {pharmaceutical grade} Calcitonin in accordance
with cGMP and have an injectable Calcitonin product that is approved for sale in
the European Union [for two minor indications]. We are {continuing, directly and
through a licensee,} [also engaged in] the {clinical testing} of oral and nasal
Calcitonin {formulations} [products.]
22
Our Accomplishments
Among our major accomplishments are:
o Development of a Proprietary Peptide {hormone} Production Process. One of
our principal scientific accomplishments is our success in {combining our
proprietary amidation process with our proprietary bacterial recombinant DNA
technology to develop a} [developing a highly efficient biotechnology-based]
peptide {hormone} production process. Several patents relating to this process
have issued. We believe that these proprietary processes are key steps in the
more efficient and economical commercial production of {various} peptides
{hormones} with {diverse therapeutic} [various medical] applications. Many of
these {hormones} [peptides] cannot be produced at a reasonable cost in
sufficient quantities for {clinical} [human] testing or commercial use by
currently available production processes. Using our proprietary process, we have
produced laboratory-scale quantities of various peptide[s] {hormones}. We have
constructed and are operating a manufacturing facility employing this process to
produce Calcitonin.
o Development of {a} Proprietary {Oral Delivery} Technology [for Oral
Delivery]. We have also developed and patented {an oral delivery technology} [a
formulation] that has successfully delivered [orally] Calcitonin into the
bloodstream of human subjects. {The formulation has been} [We and our
collaborators have] shown in repeated {clinical} [human] studies [that this
formulation] regularly {to deliver} [delivers] measurable quantities of the
{hormone} [peptide] into the human bloodstream. We believe that this formulation
may {expedite} [accelerate] the regulatory approval process for an oral
Calcitonin product because it should be easier to establish its performance
{efficacy} as compared to a formulation that does not produce measurable
Calcitonin blood levels. We believe that the components of {the proprietary}
[our patented] oral {formulation} [product] also can enable the delivery of
other peptides and we have initiated studies to investigate this possibility
internally and in collaboration with others.
Strategy
Our business strategy is to develop proprietary products and processes with
applications in human health care to generate revenues from license fees,
royalties on third-party sales and direct sales of bulk or finished products.
Generally, we fund our internal research activities and rely on licensees, which
are likely to be established pharmaceutical companies, to provide development
funding. We also generally expect to rely on these licensees to take
responsibility for obtaining appropriate regulatory approvals, {clinical}
[human] testing, and marketing of products derived from our research activities.
However, we may, in some cases, retain the responsibility for {clinical} [human]
testing and for obtaining the required regulatory approvals for a particular
product.
o Pfizer License Agreement. In July 1997, we entered into an agreement
under which we granted to the Parke-Davis division of Warner-Lambert Company
(which merged with Pfizer in June 2000), a worldwide license to use our oral
Calcitonin technology. Upon signing the agreement, we received $6.0 million in
payments from Warner-Lambert, consisting of a $3.0 million licensing fee and a
$3.0 million equity investment by Warner-Lambert. {Under the terms of the
license agreement, we are eligible to receive up to $48.5 million in milestone
payments during the course of the development program if milestones are
achieved.} Through December 31, 2000, we {have} recognized an aggregate of $16.5
million in revenue due to the achievement of specified milestones, including
$2.0 million in 2000. {If a product is successfully commercialized, we will also
receive revenue from the sale of raw material to Pfizer and royalties on product
sales by Pfizer and its affiliates.} [Pfizer began a Phase I/II human study in
April 2000 and patient dosing was completed in December 2000. Pfizer analyzed
the results of the study and informed us in March 2001 that the study did not
achieve Pfizer's desired results. Pfizer terminated the license agreement citing
this conclusion. We believe that this study, in which an FDA approved product
also did not work and which produced results contrary to many published studies,
was not capable of determining the performance of our oral Calcitonin product.
We believe that if patients in the study had also received calcium supplements,
in addition to the Calcitonin, the results would have been more favorable.
Therefore, we intend to continue the development of our oral Calcitonin product
as a treatment of osteoporosis, and have begun discussions with potential
licensees in the U.S. and other countries. In addition, due to the termination
of the Pfizer agreement, we no longer have restrictions on selling bulk
Calcitonin. ]
o China Joint Venture. In June 2000, we entered into a joint venture with
Shijiazhuang Pharmaceutical Group ("SPG"), a pharmaceutical company in the
People's Republic of China. The joint venture will manufacture and distribute
injectable and nasal Calcitonin products in China (and possibly other selected
23
Asian markets) for the treatment of osteoporosis. We own 45% of the joint
venture and will receive 45% of the joint venture profits. In the first phase of
the collaboration, SPG will contribute its existing injectable Calcitonin
license to the joint venture, which will allow the joint venture to sell our
product in China. The joint venture will need to file a New Drug Application in
China for its injectable and nasal products. In addition, [the joint venture may
be required to conduct] brief local {clinical} [human] trials. {may be required}
If the product is successful, the joint venture may establish a facility in
China to fill injectable and nasal Calcitonin products using bulk Calcitonin
produced at our Boonton, New Jersey plant. Eventually the joint venture may
manufacture the bulk Calcitonin in China at a new facility that would be
constructed by the joint venture. This would require local financing by the
joint venture. The joint venture has not yet begun operations as of December 31,
2000.
o Other License or Distribution Arrangements. In addition to the joint
venture with SPG, we have entered into distribution agreements for {the} [our]
injectable {formulation of} Calcitonin [product] in the United Kingdom, Ireland
and Israel. We continue to seek other licensing or distribution agreements with
pharmaceutical companies for both the injectable and nasal {forms of }Calcitonin
[products]. However, {there is no assurance that} [we may not be successful in
our efforts to sign] any additional revenue generating agreements. {will be
signed}
Competition
Our primary business activity has been biotechnology research and
development. Biotechnology research is highly competitive, particularly in the
field of human health care. We compete with specialized biotechnology companies,
major pharmaceutical and chemical companies, universities and other non-profit
research organizations, many of which can devote considerably greater financial
resources to research activities.
In 1999, we began manufacturing cGMP Calcitonin for use in {finished}
pharmaceutical products. In the development, manufacture and sale of {amidated}
peptide {hormones} products, we {and our licensees} compete with contract
laboratories and major pharmaceutical companies. Many of our competitors can
devote considerably greater financial resources to these activities. Major
competitors in the field of osteoporosis include Novartis, American Home
Products, Merck, Eli Lilly, and Procter and Gamble. We believe that the unique
safety and {efficacy characteristics } [effectiveness] of Calcitonin, combined
with our patented {hormone} [peptide] manufacturing process and our patented
oral {delivery technology} [formulation], will enable it to compete with
products marketed by these and other companies.
We believe that success in competing with others in the biotechnology
industry will be based primarily upon scientific expertise and technological
superiority. We also believe that success will be based on the ability to
identify and to pursue scientifically feasible and commercially viable
opportunities and to obtain proprietary protection for research achievements.
{Success} [Our success] will further depend on {the} [our] {avail}ability {of}
[to obtain] adequate funding and {the success in} [on] developing, testing,
protecting, producing and marketing products and obtaining their timely
regulatory approval. {There is no assurance} [We are always at risk] that others
{will not} [may] develop superior processes or products that would render our
processes or products noncompetitive or obsolete.
Product Manufacture
We have been producing salmon Calcitonin since 1992. We constructed a cGMP
facility for the production of {pharmaceutical grade} Calcitonin at leased
premises located in Boonton, New Jersey. The facility began producing salmon
Calcitonin under cGMP guidelines in 1996. The facility also produces our
proprietary amidating enzyme for use in producing Calcitonin. The current
production level of the facility is between one and two kilograms of bulk
Calcitonin per year.
24
The facility can be {reconfigured} [modified] to increase Calcitonin
production capacity. However, if [we are successful in our efforts to
commercialize] an oral Calcitonin product {is successfully commercialized}, we
expect that we {will} [may] incur additional expenditures to expand or upgrade
our manufacturing operations {to satisfy all of our supply obligations under our
license agreement with Pfizer}. Although the facility initially is devoted
exclusively to Calcitonin production, it also is suitable for producing other
peptide {hormone} products.
We are following conventional procedures to secure the approval of the
facility by regulatory agencies to allow us to manufacture Calcitonin for human
use. {The facility was inspected by} European health authorities [inspected the
facility] in connection with the filing of our injectable Calcitonin dossier and
found [it] to be in compliance with cGMP guidelines. However, there is {no
assurance} [the risk] that our operations {will} [might not] remain in
compliance or that approval by other agencies will [not] be obtained. The [FDA
must approve the] facility {will require approval by the FDA} in order to
manufacture Calcitonin or other peptides for {commercial} sale in the United
States.
Government Regulation
Our laboratory research, development and production activities and those
of our {licensees and} collaborators are subject to significant regulation by
numerous federal, state, local and foreign governmental authorities. {The
commercial sale of a pharmaceutical product in the United States requires} [FDA
approval, following] the successful completion of various animal and human
studies {and approval of the product by the FDA}[, is required for the sale of a
pharmaceutical product in the United States]. Foreign sales require similar
studies and approval by regulatory agencies.
The regulatory approval process for a pharmaceutical product requires
substantial resources and can take many years. There is {no assurance} [a risk]
that [any] additional regulatory approvals {will be obtained} [required] for
{the} [our] production facility or for any of our products {or that these
approvals will }[will not] be obtained in a timely manner. {The} [Our] inability
to obtain, or delays in obtaining, these approvals would adversely affect our
ability to continue to fund our programs, to produce marketable products, or to
receive revenue from milestone payments, product sales or royalties. We also
cannot predict the extent of any adverse governmental regulation that may arise
from future legislative and administrative action.
{Our production facility may be audited by the} [The] FDA or other
regulatory agencies [may audit our production facility] to ensure that it is
operating in compliance with [current Good Manufacturing Practice guidelines,
referred to as] cGMP {guidelines}. These guidelines require that production
operations be conducted in strict compliance with our {own written protocols for
reagent qualification, process execution, data recording, instrument calibration
and quality monitoring} [established rules for manufacturing and quality
controls]. These agencies are empowered to suspend production operations and/or
product sales if, in their opinion, significant or repeated {deviations}
[changes] from these {protocols} [guidelines] have occurred. A suspension [by
any of these agencies] could have a material adverse impact on our {future}
operations.
Regulatory Approval of Our Injectable Calcitonin Product
In January 1999, we received approval from the European Committee for
Proprietary Medicinal Products, [referred to as the CPMP,] to market our
injectable Calcitonin product in all 15 member states of the European Union as a
treatment for Paget's disease and for hypercalcemia {associated with
malignancy}. We began to market this product in Europe for these indications in
1999. We have filed a supplementary submission [with the CPMP], called a Type II
Variation, to expand the approved indications to include the treatment of
osteoporosis. However, {there is no
25
assurance that} [it is uncertain whether or when] the Type II Variation will be
approved [by the CPMP].
{The approved European dossier can be readily cited by regulatory}
[Regulatory] authorities in many non-European Union countries [can cite the
approved European dossier], which we believe could significantly reduce the
registration requirements for injectable Calcitonin in {such} [those]
non-European Union countries, and thereby could speed up product launch. We have
been notified by Switzerland that it intends to approve our injectable
Calcitonin product for the treatment of osteoporosis, Paget's disease and
hypercalcemia; however, the timing of that approval is uncertain. In addition,
we believe that the {clinical} [human] trials conducted to support the European
filing of the injectable Calcitonin product can be used to support the filing of
a New Drug Application with the FDA for use of our injectable Calcitonin product
to treat osteoporosis and other indications. We believe that our abbreviated
clinical program, which has been accepted by the FDA, will be sufficient to
satisfy approval requirements in the United States and other countries.
Accordingly, we expect that the review process for our injectable Calcitonin
product in the United States and other countries may be shorter than that
typically associated with a new drug submission for numerous reasons:
o The active ingredient is structurally identical to and
{biologically} indistinguishable from the active ingredient in
products already approved by many regulatory agencies.
o The formulation is essentially similar to the formulations used in
already approved products.
o The {clinical} [human] trial program that was accepted by the FDA
is relatively brief and involved small numbers of subjects. As a
result, the amount of information that must be reviewed is far less
than would have been compiled for the lengthier trials required for
a typical new drug submission.
Development of our Oral Calcitonin Product
In December 1995 and January 1996, we successfully tested a proprietary
Calcitonin oral formulation in two separate {pilot} human studies in the United
Kingdom. These studies indicated that the majority of those who received oral
Calcitonin showed levels of the {hormone} [peptide] in blood samples taken
during the trial that were greater than the minimum levels generally regarded as
being required for maximum {therapeutic} [medical] benefit. We believe that
these were the first studies to demonstrate that significant blood levels of
Calcitonin could be observed in humans following oral administration of the
{hormone} [peptide]. In April 1996, we successfully conducted a third pilot
human study in the United Kingdom which used lower Calcitonin dosages than in
the prior two {clinical} [human] trials. The results of this trial indicated
that every test subject showed levels of the {hormone} [peptide] in their blood
samples that exceeded the minimum levels generally regarded as required for
maximum {therapeutic} [medical] benefit. During 1999, with Warner-Lambert[(now
Pfizer)], we successfully concluded two pilot human studies using an oral
Calcitonin formulation manufactured by Warner-Lambert. Both studies showed
significant measurable blood levels of Calcitonin. In December 1999,
Warner-Lambert filed an Investigational New Drug application with the FDA, {and}
a Phase I/II study began in April 2000 [and] patient dosing [for this study]
{has been} [was] completed [in December 2000] {and results are being analyzed.
However, there is no assurance that the results of the prior human studies will
be repeated in this clinical trial.} [Pfizer analyzed the results of the study
and informed us in March 2001 that the study did not achieve Pfizer's desired
results. Pfizer terminated the license agreement citing this conclusion. We
believe that this study, in which an FDA approved product also did not work and
which produced results contrary to many published studies, was not capable of
determining the performance of our oral Calcitonin product. We believe that if
patients in the study had also received calcium supplements, in addition to the
Calcitonin, the results would have been more favorable. Therefore, we intend to
continue the development of our oral Calcitonin product as a treatment of
osteoporosis, and have begun discussions with potential licensees in the U.S.
and other countries. In addition, due to the termination of the Pfizer
agreement, we no longer have restrictions on selling bulk Calcitonin.]
We have filed patent applications for our oral formulation in the United
States and in numerous foreign countries. In 1999, we received a U.S. patent for
our {fundamental} [basic] technology covering the oral delivery of Calcitonin
for the treatment of osteoporosis. In 2000, we received a U.S. patent extending
this protection to the oral delivery of other peptides.
26
{Under the terms of the license agreement with Pfizer, Pfizer has
responsibility for conducting the clinical trials and for obtaining regulatory
approval of our oral Calcitonin product from the FDA and other regulatory
agencies.} There {is no assurance} [are risks] that [we will not be successful
in licensing this product, that] a safe and effective oral {delivery system}
[product] will [not] be developed, that {Pfizer} [we] will [not] be successful
in obtaining regulatory approval of an oral Calcitonin product, {or} [and] that
we {and Pfizer} will [not] succeed in developing, producing or marketing an oral
Calcitonin product.
Development of {a}[our] Nasal Calcitonin Product
A major pharmaceutical company received FDA approval in 1995 for the
marketing of a nasal spray {delivery system for} Calcitonin [product], which has
substantially enlarged the U.S. market for Calcitonin. During 1999, we completed
preliminary human studies for our proprietary nasal Calcitonin {formulation}
[product]. A patent application for the product was filed in February 2000. In
January 2000 we filed an Investigational New Drug Application with the FDA to
begin {clinical} [human] testing [of] our nasal {formulation} [product] as a
treatment for osteoporosis. In February 2000, we began U.S. {clinical} [human]
studies. {A} [In December 2000, we successfully completed a] {clinical} [human]
study demonstrating {equivalent bioavailability} [similar blood levels] between
our {formulation} [product] and that of an existing nasal Calcitonin product.
{was successfully completed in December 2000} [We have initiated a] {A} second
{clinical} [human] study {is under way and} [with final results] expected {to}
{concluded in early} [in mid-] 2001. We are {negotiating} [seeking] to license
our nasal Calcitonin {formulation} [product] in the U.S. [and other countries]
for the treatment of osteoporosis. However, {there is no assurance that} [we may
not be successful in our efforts to conclude] a license agreement {will be
completed, that}[, to obtain] governmental approval of {such product will be
obtained, or that} [our nasal Calcitonin product, or to manufacture and sell]
the product. {will be successfully commercialized}
Collaborative Research Programs
We are currently engaged in two collaborative research programs:
o Rutgers University College of Pharmacy continues to study oral
{drug} delivery {technology for} [of] Calcitonin and other
peptides.
o {In} [We are in] collaboration with Yale University {we are} [to]
{investigating} [investigate] {novel} [new] applications for
various {amidated} peptide[s], {hormones} including Calcitonin
gene-related peptide. In 1996, we reported that {the} [this]
peptide accelerated bone growth and prevented bone loss in an
animal model system. However, {there is no assurance that the}
[this] peptide {will} [may not] have the same effect in humans[. {,
or that we would be able to develop, manufacture or market this} We
may not be successful in developing, manufacturing or marketing any
resulting] product.
Patents and Proprietary Technology
We have filed a number of applications for U.S. patents relating to our
proprietary peptide manufacturing [process] and [our technology for oral] {drug}
delivery {technologies}. To date, the following six U.S. patents have issued:
o Immunization By Immunogenic Implant, a method for producing
antibodies for developing diagnostic medical {tasks} [tests]
o two patents related to the Alpha-Amidation Enzyme and its use in
manufacturing peptides
o a patent covering an improvement in our manufacturing technology
27
o two patents covering {our} oral delivery {technology} [of peptides]
Other applications are pending. We also have made filings in selected
foreign countries, and numerous foreign patents have issued. However, {there is
no assurance that any of} our pending applications {will} [may not] issue as
patents {or that} [and] our issued patents {will} [may not] provide us with
significant competitive advantages. Furthermore, {there is no assurance that}
[our] competitors {will not} [may] independently develop or obtain similar or
superior technologies.
Although we believe our patents and patent applications are valid, the
{invalidation} [repeal] of one or more of our key patents could have a
significant adverse effect upon our business. {There generally are greater
difficulties in detecting} [Detecting] and proving infringement [generally is
more difficult] with process patents than with product patents. In addition, a
process patent's value is diminished if [others have patented] the product that
can be produced using the process. {has been patented by others} Under these
circumstances, we would require the cooperation of, and likely be required to
share royalties with, the patent holder or its sublicensees in order to
{commercialize} [make and sell] the product.
In some cases, we rely on trade secrets to protect our inventions. Our
policy is to include confidentiality provisions in all research contracts, joint
development agreements and consulting relationships that provide access to our
trade secrets and other know-how. However, there is {no assurance} [a risk] that
these secrecy obligations {will not} [could] be breached {to our detriment}
[causing us harm]. To the extent licensees, consultants or other third parties
apply technological information independently developed by them or by others to
our projects, disputes may arise as to the ownership rights to information[,]
which may not be resolved in our favor.
Employees
As of {February 5}[April 2], 2001 we had 67 full-time employees. Twenty
[one] were engaged in research, development and regulatory activities, {36} [35]
were engaged in production activities and 11 were engaged in general and
administrative functions. Ten of our employees hold Ph.D. degrees. Our employees
are experts in molecular biology, including DNA cloning, synthesis, sequencing
and expression; protein chemistry, including purification, amino acid analysis,
synthesis and sequencing of proteins; immunology, including tissue culture,
monoclonal and polyclonal antibody production and immunoassay development;
chemical engineering; pharmaceutical production; quality assurance; and quality
control. None of our employees is covered by a collective bargaining agreement.
Warren P. Levy, President and Ronald S. Levy, Executive Vice President, both
executive officers and directors, have signed employment agreements with us.
Research and Development
We have established a multi-disciplinary research team to adapt
proprietary amidation, biological production and oral delivery technologies to
the development of proprietary products and processes. Approximately 83% of our
employees are directly engaged in activities relating to production of,
regulatory compliance for, and the research and development of pharmaceutical
products. We spent {$9.4} [$11.5] million on research activities in {1997, $9.0}
[2000, $9.4] million in [1999,] {1998,} and {$9.4} [$9.0] million in {1999.}
[1998].
Properties
We own a one-story office and laboratory facility consisting of
approximately 12,500 square feet. The facility is located on a 2.2 acre site in
Fairfield, New Jersey.
28
Our 32,000 square foot cGMP production facility, of which 18,000 square
feet are currently being used for the production of {pharmaceutical grade}
Calcitonin and can be used for the production of other peptide[s] {hormones],
was constructed in a building located in Boonton, New Jersey. We lease the
facility under a ten-year agreement[,] which began in February 1994. We have two
10-year renewal options and an option to purchase the facility.
Litigation
In July 2000, the Tail Wind Fund, Ltd., the holder of $2,000,000 in
principal amount of 5% convertible debentures issued by Unigene to Tail Wind in
a private placement completed in June 1998, filed with the American Arbitration
Association a demand for arbitration against Unigene. In its demand, Tail Wind
claimed that it was owed, as of June 30, 2000, approximately $3,400,000,
consisting of principal, interest and penalties, resulting from Unigene's
default under various provisions of the debentures and related agreements. These
alleged defaults included Unigene's failure to redeem the debentures after
becoming obligated to do so, the failure to pay interest when due, and the
failure to pay liquidated damages arising from the delisting of the Unigene
common stock from the Nasdaq National Market. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Capital Resources
and Liquidity." In July 2000, Unigene submitted to the American Arbitration
Association a statement in which it denies the amount of Tail Wind's claim and
makes certain counterclaims. A hearing on the matter before an arbitrator
appointed by the American Arbitration Association is expected to occur in June
2001. The outcome of the proceeding is uncertain. An extremely unfavorable
ruling could have a material adverse effect on Unigene.
In July 2000, Reseau de Voyage Sterling, Inc. filed suit against Unigene
in the Supreme Court of the State of New York. The plaintiff, which purchased
from a third party a warrant to purchase one million shares of Unigene common
stock, alleges that Unigene breached a verbal agreement with the plaintiff to
extend the term of the warrant beyond its expiration date. Unigene has moved to
have the case transferred to federal court. The plaintiff is seeking damages of
$2 million. [Following the deposition of the plaintiff, counsel for the
plaintiff withdrew and the court has stayed the case until May 2001, to give the
plaintiff an opportunity to seek new counsel. ] We believe that this suit is
completely without merit, and we {intend} [will continue] to vigorously contest
the claim.
Management
Executive Officers and Directors
The following table sets forth information regarding Unigene's executive
officers and directors:
Name Age Position
- -------------------- --- -------------------------------------------------
Warren P. Levy (1) {48}[49] President, Chief Executive Officer, and Director
Ronald S. Levy (1) 52 Executive Vice President, Secretary, and Director
Jay Levy (1) 77 Chairman of the Board and Treasurer
James P. Gilligan {48}[49] Vice President of Product Development
Robert F. Hendrickson 68 Director
Allen Bloom 57 Director
- -------------
(1) Dr. Warren P. Levy and Dr. Ronald S. Levy are brothers and are the sons
of Mr. Jay Levy.
Each executive officer's term of office continues until the first meeting
of the Board of Directors following the annual meeting of stockholders and until
the election and qualification of his successor. All officers serve at the
discretion of the Board of Directors.
29
Warren P. Levy. Dr. Warren P. Levy, a founder of Unigene, has served as
President and Chief Executive Officer, and as a director, since our formation in
November 1980. Dr. Levy holds a Ph.D. in biochemistry and molecular biology from
Northwestern University and a bachelor's degree in chemistry from the
Massachusetts Institute of Technology.
Ronald S. Levy. Dr. Ronald S. Levy, a founder of Unigene, has served as a
director since our formation in November 1980, as Executive Vice President since
April 1999, and as Secretary since May 1986. Dr. Levy served as Vice President
from November 1980 through March 1999. Dr. Levy holds a Ph.D. in bioinorganic
chemistry from Pennsylvania State University and a bachelor's degree in
chemistry from Rutgers University.
Jay Levy. Mr. Jay Levy, a founder of Unigene, has served as the Chairman of
the Board of Directors and as Treasurer since our formation in November 1980. He
served as Secretary from 1980 to May 1986. Mr. Levy is a part-time employee of
Unigene and devotes approximately 15% of his time to Unigene. From 1985 through
February 1991, he served as the principal financial advisor to the Estate of
Nathan Cummings and its principal beneficiary, The Nathan Cummings Foundation,
Inc., a large charitable foundation. From 1968 through 1985, he performed
similar services for the late Nathan Cummings, a noted industrialist and
philanthropist.
James P. Gilligan. Dr. James P. Gilligan has been employed by Unigene since
1981 and has served as Vice President of Product Development since April 1999.
From February 1995 to March 1999, he served as Director of Product Development.
Dr. Gilligan holds a Ph.D. in pharmacology from the University of Connecticut
and a Masters of International Business from Seton Hall University.
Robert F. Hendrickson. Mr. Robert F. Hendrickson was Senior Vice President,
Manufacturing and Technology, for Merck & Co., Inc., an international
pharmaceutical company, from 1985 to 1990. Since 1990, Mr. Hendrickson has been
a management consultant with a number of biotechnology and pharmaceutical
companies among his clients. He is currently a director of Envirogen, Inc. an
environmental biotechnology company, and of Cytogen, Inc. and The Liposome Co,
Inc., each of which is a biotechnology company.
Dr. Allen Bloom. Dr. Allen Bloom, a patent attorney, has been a partner in
Dechert Price & Rhoads, a law firm, for the past six years where he established
and heads the patent practice group[,] which focuses on biotechnology,
pharmaceuticals and medical devices. Prior to that time, he was Vice President,
General Counsel and Secretary of The Liposome Company, Inc., a biotechnology
company, for nine years. His responsibilities there included patent, regulatory
and licensing activities. Dr. Bloom holds a Ph.D. in organic chemistry from Iowa
State University.
Committees of the Board of Directors
{Several important functions of the}
[The] Board of Directors {may be performed by} [performs several important
functions through] committees. These committees are made up of members of the
Board of Directors. Unigene's by-laws authorize the formation of these
committees and grant the Board the authority to prescribe the functions of each
committee and the standards for membership of each committee. The Board has the
following four standing committees. The Board does not have a standing
nominating committee.
Audit Committee. The responsibilities of the Audit Committee include
annually recommending a firm of independent public accountants to the Board to
act as our auditors, reviewing the scope of the annual audit with the auditors
in advance, and reviewing the results of the audit and the adequacy of our
accounting, financial and operating controls. The Audit Committee also reviews
our accounting and reporting principles, policies and practices; and approves
30
fees paid to the auditors for audit and non-audit services. The current members
of the Audit Committee are Messrs. Jay Levy, Bloom and Hendrickson.
Compensation Committee. The responsibilities of the Compensation Committee
include reviewing and approving the compensation, including salaries and
bonuses, of our officers. The Compensation Committee also oversees the
administration of our 401(k) plan and reviews and approves general benefits and
compensation strategies. The current members of the Compensation Committee are
Messrs. Jay Levy, Bloom and Hendrickson.
Stock Option Committee (2000 Stock Option Plan). The Stock Option Committee
for the 2000 Stock Option Plan, subject to the limitations of the plan, selects
the employees to be granted options, fixes the number of shares to be covered by
each option grant, and determines the exercise price and other terms and
conditions of each option. The current members of this Stock Option Committee
are Messrs. Bloom and Hendrickson.
Stock Option Committee (Directors Stock Option Plan). The Stock Option
Committee for the Directors Stock Option Plan, subject to the limitations of the
plan, interprets the plan and makes all determinations necessary for the plan's
administration. The current members of this Stock Option Committee are Messrs.
Jay Levy, Warren Levy and Ronald Levy.
Director Compensation
Directors who are not employees receive an annual retainer of $8,000 as
well as a fee of $1,000 for each Board meeting attended. Mr. Hendrickson and Dr.
Bloom were the only directors who received such fees in 2000. Board members do
not earn additional compensation for service on a committee.
Under the Director Stock Option Plan, each person elected to the Board who
is not an employee receives, on the date of his initial election, an initial
option to purchase 21,000 shares of Unigene common stock. On May 1st of each
year, each non-employee director receives an additional option to purchase
10,000 shares of Unigene common stock if he has served as a non-employee
director for at least six months prior to the grant date. Each option has a
ten-year term and the exercise price is equal to the market price of Unigene
common stock on the date of the grant. Each initial option vests in equal
installments of 1/3 over a period of three years, commencing on the date of the
grant, and each additional option vests in its entirety on the first anniversary
of the grant. If the director's service as a non-employee director terminates
prior to the expiration of the option term, the options will remain exercisable
for a 90-day period following termination of service, except if a non-employee
director resigns due to disability, the options will remain exercisable for 180
days following termination, and if a non-employee director dies while serving as
a director, or within 90 days following termination of service (180 days in the
case of disability), the options will remain exercisable for 180 days following
the person's death. After such period, the options will terminate and cease to
be exercisable.
Employment Agreements
Unigene entered into an employment agreement, effective January 1, 2000,
with Dr. Warren P. Levy for an initial term of two years. Under the agreement,
Dr. Levy will serve as President and Chief Executive Officer at an annual salary
of $160,000 for the first year of the agreement. {Salary} [The Compensation
Committee has discretion to approve salary] increases beyond this first year.
{are at the discretion of the Compensation Committee}
Unigene entered into an employment agreement, effective January 1, 2000,
with Dr. Ronald S. Levy for an initial term of two years. Under the agreement,
Dr. Levy will serve as Executive Vice President at an annual salary of $155,000
31
for the first year of the agreement. Salary increases beyond this first year are
at the discretion of the Compensation Committee.
Each agreement provides that, after the first two-year term, the agreement
will be renewed on a year-to-year basis unless either party notifies the other
of the desire not to renew the agreement. {This} [Either party must give this]
notice {must be given} no later than three months prior to the scheduled
termination date. Each agreement also provides that, if {we terminate} [Unigene
terminates] the employment of the executive without cause or the executive
resigns for good reason, which the executive has a right to do upon a change of
control of Unigene or a significant reduction of the executive's
responsibilities without his consent, Unigene will make a lump-sum severance
payment to the executive equal to the salary that he would have earned for the
remaining term of this agreement, if the remaining term (either the initial term
or as extended) is more than one year; or if the remaining term of the agreement
(either the initial term or as extended) is one year or less, a lump-sum payment
equal to the executive's then-current annual salary.
Compensation Committee Interlocks and Insider Participation
{Executive}
[The Board of Directors determined executive] compensation for 2000.
{was determined by the Board of Directors} Three of the five Board members,
Warren P. Levy, Ronald S. Levy and Jay Levy, are executive officers. Jay Levy is
the father of Warren and Ronald Levy.
{During 1995, Warren P. Levy, Ronald S. Levy, Jay Levy, and another
family member loaned a total of $1,905,000 to Unigene. $1,850,000 of this total
was secured by secondary liens on the Fairfield plant and equipment and the
Boonton manufacturing equipment. The notes bear interest at the Merrill Lynch
Margin Loan Rate plus .25% (9.875% at December 31, 2000). A total of $440,000 in
principal repayments as made during 1996. In 1997, an aggregate of $200,000 in
principal amount was converted into 57,200 shares of Unigene common stock. In
1998, an aggregate of $225,000 in principal amount of these loans was converted
into 163,635 shares of Unigene common stock. In each case, the conversion price
was slightly higher than the then market price of the Unigene common stock at
the time of conversion. Warren Levy and Ronald Levy each loaned to Unigene an
additional $50,000 during 1999. During 2000, Jay Levy, Warren Levy, Ronald Levy
and another family member loaned Unigene an additional $1,733,323, leaving an
outstanding balance of $2,873,323 at December 31, 2000.}
{During 1999, Jay Levy loaned Unigene $1,500,000 evidenced by demand
notes bearing interest at 6% per year. During the third quarter of 1999, Jay
Levy loaned Unigene an additional $370,000 evidenced by term notes maturing
January 2002 and bearing interest at 6% per year, and the $1,500,000 of demand
notes were converted into 6% term notes maturing January 2002. Unigene has
granted Jay Levy a security interest in all of its equipment and a mortgage on
its real property to secure payment of the term notes, which are senior to all
notes payable to Warren Levy and Ronald Levy. The terms of the notes require
Unigene to make installment payments beginning in October 1999, and ending in
January 2002, in an aggregate amount of $72,426 per month. No installment
payments have been made to date. Jay Levy has agreed temporarily to postpone
current payments. No interest has been paid to date on any of the loans. As of
December 31, 2000, accrued interest totaled approximately $922,000.}
To satisfy Unigene's short-term liquidity needs, Jay Levy, the Chairman
of the Board and an officer of Unigene, and Warren Levy and Ronald Levy,
directors and officers of Unigene, and another Levy family member from time to
time have made loans to Unigene. During February 2000, Jay Levy loaned us
$300,000. This loan was repaid in April 2000. During the third and fourth
quarters of 2000, Jay Levy and another family member loaned Unigene an aggregate
of $1,655,000 in demand loans and Warren Levy and Ronald Levy loaned Unigene an
aggregate of $78,323 in demand loans. As of December 31, 2000, total accrued
interest on these loans was $922,000 and the outstanding loans by these
individuals to Unigene totaled $4,743,323 and consisted of:
o loans from the Levys in the aggregate principal amount of $2,873,323, which
are evidenced by demand notes bearing a floating interest rate equal to the
Merrill Lynch Margin Loan Rate plus .25% (9.875% at December 31, 2000) that are
classified as short-term debt. These loans are secured by a security interest in
Unigene's equipment and/or real property.
o loans from Jay Levy in the aggregate principal amount of $1,870,000 evidenced
by term notes maturing January 2002, and bearing interest at the fixed rate of
6% per year. These loans are secured by a security interest in all of Unigene's
equipment and a mortgage on Unigene's real property. The terms of the notes
require Unigene to make installment payments of principal and interest beginning
in October 1999 and ending in January 2002 in an aggregate amount of $72,426 per
month. No installment payments have been made to date.
Interest and principle payments required under these loans have not
been made by Unigene, but the Levys have waived all default provisions including
additional interest penalties due under these loans through December 31, 2000.
From January 1, 2001 through March 30, 2001, Jay Levy, Warren Levy and
Ronald Levy loaned to us an additional $1,610,000 at the Merrill Lynch Margin
Loan Rate plus .25%, of which $500,000 is secured by a security interest in
certain of our patents. No interest has been paid on these loans.
Executive Compensation
The following table shows, for the years {1997,} 1998, {and} 1999 [and
2000], the compensation paid to the Chief Executive Officer and to each other
executive officer whose salary and bonus, for their services in all capacities
in {1999} [2000] exceeded $100,000:
32
Summary Compensation Table
Long-Term
Compensation
------------
Annual Compensation Awards Payouts
------------------- ------ -------
Restricted
Other
Annual Stock Options/ LTIP All Other
Name and Position Year Salary($) Bonus($) Compensation($)(2) Awards($) SARs(#) Payouts($) Compensation($)(1)
- ------------------------------------------------------------------------------------------------------------------------------------
Warren P. Levy [2000 $160,175 $ 0 $ 0 $ 0 $ 0 $ 0 $13,902]
President, Chief 1999 146,211 0 0 0 0 0 13,866
Executive Officer 1998 146,231 0 0 0 0 0 13,830
{1997 145,549 0 0 0 0 0 13,810}
Dr. Ronald S. Levy [2000 155,260 0 0 0 0 0 16,864]
Executive Vice 1999 141,563 0 0 0 0 0 16,862
President 1998 141,618 0 0 0 0 0 16,792
1997 140,895 0 0 0 0 0 16,756
Dr. James P. Gilligan [2000 148,034 0 7,615 0 0 0 0]
Vice President 1999 139,216 0 7,235 0 135,000 0 0
1 Represents premium we paid on executive split-dollar life insurance.
2 Represents reimbursement for unused vacation days.
{Stock Option Grants During the Year Ended December 31, 1999
The following table shows information about stock option grants to each of
the executive officers named in the Summary Compensation Table during the year
ended December 31, 1999:
Number of Shares Percent of Total Grant Date
Underlying Option Shares Exercise Expiration Present
Name Options Granted Granted to Employees (1) Price per Share (2) Date Value (3)
- ---- ---------------- ------------------------ ------------------- ----------- --------
Dr. Warren P. Levy 0 0 -- -- --
Dr. Ronald S. Levy 0 0 -- -- --
Dr. James P. Gilligan 20,000 2.2% $0.9375 3/31/09 $15,530
115,000(4) 12.8% $0.63 11/5/09 $60,007
1 Options exercisable for an aggregate of 900,000 shares of Unigene
common stock were granted in 1999, consisting of options to purchase
418,000 shares granted under the 1994 Employee Stock Option Plan and
options to purchase 482,000 shares granted under the 2000 Stock Option
Plan.
2 Equal to the fair market value of Unigene common stock on the date of
grant.
3 The fair value of the stock options granted in 1999 is estimated at
grant date using the Black-Scholes option-pricing model with the
following weighted average assumptions: dividend yield of 0%; expected
volatility of 74%; a risk-free interest rate of 6.4%; and expected life
of six years.
4 Includes 76,000 options granted under the 2000 Stock Option Plan.}
33
Aggregated Option Exercises and Year-End Option Values
The following table shows information about any option exercises during
the year ended December 31, {1999,} [2000] and the number and value of
unexercised options held as of December 31, {1999,} [2000] by each of the
executive officers named in the Summary Compensation Table:
Shares Underlying Value of Unexercised
Exercises during Unexercised Options {at} In-the-Money Options {}
the Fiscal Year ----------------------- ----------------------------
---------------- {December 31, 1999} {December 31, 1999(1)}
Number of
Name Shares Acquired Value Realized Exercisable Unexercisable Exercisable Unexercisable
---- --------------- -------------- ----------- ------------- ----------- -------------
Dr. Warren P. Levy 0 0 0 0 0 0
Dr. Ronald S. Levy 0 0 0 0 0 0
Dr. James P. Gilligan 0 0 {265,750}[346,000]{124,250} [44,000] {0} [$77,595] {0} [$37,755]
1 Based upon a closing price of {$0.57} [$1.53] on December 31,
{1999.}[2000]
Principal Stockholders
The following table shows information as of {December 31, 2000} [March 31,
2001,] concerning the beneficial ownership of Unigene common stock by each of
Unigene's directors, each executive officer of Unigene listed in the Summary
Compensation Table, and all directors and executive officers of Unigene as a
group.
The ownership percentages listed on the table are based on {44,425,929}
[46,436,940] shares of Unigene common stock outstanding as of {December 31,
2000.} [March 31, 2001.] Beneficial ownership is determined in accordance with
the rules of the Securities and Exchange Commission. A person generally is
deemed to be the beneficial owner of shares over which he has either voting or
investment power. Shares underlying options that are currently exercisable, or
that will become exercisable within 60 days, are deemed to be beneficially owned
by the person holding the options, and are deemed to be outstanding for the
purpose of computing the beneficial ownership percentage of that person, but are
not considered to be outstanding for the purpose of computing the ownership
percentage of any other person.
Except as otherwise noted, the persons and the group identified in the
table have sole voting and sole investment power with respect to all the shares
of Unigene common stock shown as beneficially owned by them. Except as otherwise
indicated, the address of each beneficial owner listed below is c/o Unigene
Laboratories, Inc., 110 Little Falls Road, Fairfield, New Jersey 07004.
Amount and Nature of
Name of Beneficial Owner Beneficial Ownership Percent of Class
- ------------------------ -------------------- ----------------
[Fusion Capital
Fund II, LLC 3,000,000 (1) 6.3%]
Warren P. Levy 1,980,545 {(1)} [(2)] {4.5%} [4.3%]
Ronald S. Levy 1,995,545 {(1)} [(2)] {4.5%} [4.3%]
Jay Levy 578,095 {(2)} [(3)] {1.3%} [1.2%]
James P. Gilligan 345,660 {(3)} [(4)] 0.8%
Robert F. Hendrickson 55,000 {(4)} [(5)] 0.1%
Allen Bloom 31,000 {(5)} [(6)] 0.1%
Officers and Directors
as a Group (6 persons) 4,785,845 {(1,6)}[(2,7)] {10.7%} [10.3%]
34
[1 Includes 1,000,000 shares that Fusion has the right to acquire upon the
exerciae of a warrant.]
[2] {1} Includes 200,000 shares of Unigene common stock held in a family trust
over which Warren P. Levy and Ronald S. Levy, in their capacity as
trustees, share voting and dispositive power.
[3] {2} Includes 55,000 shares of Unigene common stock that Mr. Levy has the
right to acquire upon the exercise of stock options that are
exercisable either immediately or within 60 days.
[4] {3} Includes 326,000 shares of Unigene common stock that Dr. Gilligan has
the right to acquire upon the exercise of stock options that are
exercisable either immediately or within 60 days.
[5] {4} Includes 40,000 shares of Unigene common stock that Mr. Hendrickson has
the right to acquire upon the exercise of stock options that are
exercisable either immediately or within 60 days.
[6] {5} Includes 30,000 shares of Unigene common stock that Dr. Bloom has the
right to acquire upon the exercise of stock options that are
exercisable either immediately or within 60 days.
[7] {6} Includes an aggregate of 451,000 shares of Unigene common stock that
such persons have the right to acquire upon the exercise of stock
options that are exercisable either immediately or within 60 days.
The Financing Transaction
General
On December 18, 2000, Unigene entered into a common stock purchase
agreement with Fusion Capital Fund II, LLC,[which we amended as of March 30,
2001. Under the common stock purchase agreement, as amended,] {under which}
Fusion has agreed to purchase up to $21,000,000 in shares of Unigene common
stock at the rate of $875,000 per month. {The common stock is to be purchased}
[Fusion is committed to purchase the shares] over a twenty[-]four month period,
subject to a {6} [six-]month extension or earlier termination at our discretion.
The selling price of the shares will be equal to the lesser of (1) $15.00 or (2)
a price based upon the future market price of the common stock without any fixed
discount to the market price.
In addition to the shares [and the warrant that] we have {agreed to} issue
[d] to Fusion as compensation for its commitment, the Board of Directors has
authorized the issuance and sale to Fusion of up to 6,000,000 shares of Unigene
common stock in connection with the financing transaction. {The issuance and
sale to Fusion of any additional shares may require that Unigene first} [We may
be required to] obtain the approval of {its} [Unigene] stockholders {of} [to] an
amendment to Unigene's Certificate of Incorporation increasing the number of
shares of Unigene common stock that the Company is authorized [to issue] [in
order] to issue [and sell additional shares to Fusion].
Purchase of shares under the common stock purchase agreement
Under the common stock purchase agreement, Fusion will purchase shares of
our common stock by purchasing from time to time a specified dollar amount of
our common stock. Subject to our mandatory purchases and the termination rights
described below, during each 30-day period during the term of the agreement,
Fusion will purchase $875,000 of our common stock. {This} [We may decrease this]
amount {may be decreased by us} at any time that the price of our common stock
is less than $15 per share. If our stock price equals or exceeds $4.00 per
share, we have the right to require Fusion to purchase, over a period of 60
days, up to the full remaining portion of the $21 million commitment.
The selling price per share is equal to the lesser of:
35
- the lowest sale price of our common stock on the day of submission of a
purchase notice by Fusion; or
- the average of any five closing sale prices of our common stock,
selected by Fusion, during the 15 trading days prior to the date of
submission of a purchase notice by Fusion; or
- $15.00
The {selling price will be adjusted for} [common stock purchase agreement
provides for an adjustment of the selling price if] any reorganization,
recapitalization, non-cash dividend, stock split or other similar transaction
{occurring} [occurs] during the fifteen (15) trading days in which the closing
sale price is used to compute the selling price. {Notwithstanding the foregoing}
[However], Fusion may not purchase shares of common stock under the common stock
purchase agreement if Fusion or its affiliates would beneficially own more than
9.99% of our then aggregate outstanding common stock immediately after the
proposed purchase. If the 9.99% limitation is ever reached this shall not effect
or limit Fusion's obligation to fund the required monthly purchase amount of
$875,000 or Fusion's mandatory purchase obligation under the common stock
purchase agreement.
We have authorized the issuance and sale of up to 6,000,000 shares of our
common stock to Fusion under the common stock purchase agreement. Based upon the
number of shares we have authorized, our selling price will need to average at
least $3.50 per share for us to receive the maximum proceeds of $21 million
under the common stock purchase agreement. Assuming a selling price of {$1.44}
[$0.55] per share (the closing sale price of the common stock on {February 5}
[April 2,] 2001) and the purchase by Fusion of the full amount of shares
purchasable under the common stock purchase agreement, proceeds to us would only
be {$8,640,000} [$3,300,000] unless we choose to issue more than 6,000,000
shares.
The following table sets forth the number of shares of Unigene common stock
that could be sold to Fusion under the terms of the common stock purchase
agreement at varying purchase prices, assuming Unigene does not exercise its
right under the common stock purchase agreement to suspend purchases by Fusion:
Percentage of
Outstanding
Assumed Purchase Price Number Of Shares Shares (1)
- ------------------------------------------------------------------------------
[ $0.55, the closing sale price on
April 2, 2001 38,181,818 45.1% ]
- -------------------------------------------------------------------------------
$1.00 21,000,000 {31.4} [31.1]
- -------------------------------------------------------------------------------
{$1.44, the closing market price on
February 5, 2001. 14,583,333 24.2}
- -------------------------------------------------------------------------------
$2.00 10,500,000 {18.7} [18.4]
- -------------------------------------------------------------------------------
$3.00 7,000,000 {13.3} [13.1]
- -------------------------------------------------------------------------------
$4.00 5,250,000 {10.3} [10.2]
- -------------------------------------------------------------------------------
$5.00 4,200,000 {8.4} [8.3]
- -------------------------------------------------------------------------------
$10.00 2,100,000 {4.4} [4.3]
- -------------------------------------------------------------------------------
$15.00, the maximum purchase price 1,400,000 [3.0} [2.9]
- -------------------------------------------------------------------------------
(1) Based on {45,756,938} [46,436,940] shares of Unigene common stock
outstanding as of the date of this prospectus, {and assuming}[which includes]
the {issuance of the} [2,000,000] commitment shares [but does not include the
1,000,000 shares issuable upon the exercise of the warrant.]
Our right to prevent purchases
At any time or from time to time, so long as the closing sale price of our
common stock has been below $15.00 for the most recent three trading days, we
shall have the unconditional right to prevent any purchases effective upon three
trading days prior notice. To the extent we need to use the cash proceeds of the
36
sales of common stock under the common stock purchase agreement for working
capital or other business purposes, we do not intend to restrict purchases under
the common stock purchase agreement.
Our mandatory purchase rights
If the closing sale price of our common stock on each of the five trading
days immediately prior to the first trading day of any 30-day period is at least
$4.00, we have the right to require purchase by Fusion of part or all of the
remaining balance of the $21 million (in such amounts as determined by us),
during such time or times as Fusion shall determine during the next two 30-day
periods, provided the closing sale price of our common stock during the two
30-day periods remains at least $4.00.
Our termination rights
If at any time the closing sale price of our common stock for each of any
ten consecutive trading days is below $15.00, we may, at any time within the
next three trading days, give notice to Fusion exercising our right to terminate
the common stock purchase agreement. Such notice shall be effective three
trading days after Fusion receives such notice. We may not exercise our
termination rights in anticipation of, or in connection with, a change of
control or other major transaction unless the change of control or other major
transaction has been publicly disclosed for at least 60 trading days.
Consequences of a major transaction within 60 trading days after a Unigene
termination
If within 60 trading days after Unigene terminates the common stock
purchase agreement, Unigene publicly discloses that a major transaction has been
consummated, or may be consummated, Fusion will be entitled to a payment in an
amount equal to the number of shares of Unigene common stock that Fusion was
entitled to purchase under the common stock purchase agreement on the date of
termination (calculated as of the date of termination), multiplied by the
amount, if any, by which (1) the average of the closing sale prices for the
Unigene common stock for the ten trading days immediately following either: (A)
the public disclosure of the major transaction or (B) the consummation of the
major transaction, as selected by Fusion, exceeds (2) the selling price of the
Unigene common stock (calculated in accordance with the common stock purchase
agreement) as of the date of termination. Fusion may elect to receive this
payment either in cash or in shares of Unigene common stock.
Indemnification of Fusion
Unigene has agreed to indemnify and hold harmless Fusion and its
affiliates, shareholders, officers, directors, employees and direct or indirect
investors and their agents or other representatives from and against any and all
liabilities and related expenses, including reasonable attorneys' fees and
disbursements incurred by any of them as a result of, or arising out of, or
relating to, any breach of a Unigene representation or warranty made in the
transaction documents or related instruments; any breach of any covenant,
agreement or obligation of Unigene in the transaction documents or related
instruments; or any cause of action, suit or claim brought or made against any
of them arising out of or resulting from the execution, delivery, performance or
enforcement of the transaction documents or any related instruments.
Unigene's indemnification obligations do not extend to any liability or
expenses that directly and primarily result from the gross negligence or willful
misconduct of the person indemnified. To the extent that Unigene's
indemnification obligations are unenforceable for any reason, Unigene has agreed
to make the maximum contribution to the payment and satisfaction of any
liability and expense that is permissible under applicable law.
37
Effect of performance of the common stock purchase agreement on Unigene and our
stockholders
All shares registered in this offering will be freely tradable, however,
Fusion has agreed not to sell the shares issued as a commitment fee until the
earlier of termination or maturity of, or default under, the agreement. {It is
anticipated} [Fusion has advised Unigene that it anticipates] that shares
registered in this offering will be sold over a period of up to 24 months from
the date of this prospectus. The sale of a significant amount of shares
registered in this offering at any given time could cause the trading price of
our common stock to decline and to be highly volatile. Fusion may ultimately
purchase all of the shares of common stock issuable under the common stock
purchase agreement, and it may sell all of the shares of common stock it
acquires upon purchase. Therefore, the purchases under the common stock purchase
agreement may result in substantial dilution to the interests of other holders
of our common stock. However, we have the right to block purchases of the common
stock purchase agreement and to require termination of the common stock purchase
agreement if the closing sale price of our common stock is below $15.00 per
share for a period of ten consecutive trading days.
No short-selling or hedging by Fusion
Fusion has agreed that neither it nor any of its affiliates will engage in
any direct or indirect short-selling or hedging of our common stock during any
time prior to the termination of the common stock purchase agreement.
Events of default
Fusion may terminate the common stock purchase agreement without any
liability or payment to Unigene, and would not be required to purchase any
additional shares of common stock, upon the occurrence of any of the following
events of default:
- if for any reason the shares offered by this prospectus cannot be sold
{pursuant to} [under] this prospectus for a period of 10 consecutive
trading days or for more than an aggregate of 30 trading days in any
365-day period;
- the suspension from trading or failure of our common stock to be listed
on the OTC Bulletin Board for a period of 10 consecutive trading days
or for more than an aggregate of 30 trading days in any 365-day period;
- the failure of Unigene or the Unigene common stock to meet the
maintenance requirements for listing on the Nasdaq SmallCap Market for
a period of 10 consecutive trading days or for more than an aggregate
of 30 trading days in any 365-day period;
- notice from us or our transfer agent that either of us intends not to
comply with a proper request for purchase under the common stock
purchase agreement; our failure to confirm Fusion's purchase notice; or
the failure of the transfer agent to issue shares of our common stock
upon delivery of a purchase notice;
- any breach of the representations or warranties or covenants contained
in the common stock purchase agreement or any related agreements which
has or which reasonably could be expected to have a material adverse
affect on Unigene;
- a default of any payment obligation of Unigene or any acceleration
prior to maturity in excess of $1.0 million; or
38
- commencement of insolvency or bankruptcy proceedings by or against
Unigene.
Commitment shares issued to Fusion
Under the terms of the common stock purchase agreement, [as amended,]
Fusion {will}[has] receive[d] {1,331,009} [2,000,000] shares of our common stock
as a commitment fee. [In addition, Fusion also received five-year warrants for
1,000,000 shares of our common stock, exercisable at $.50 per share as part of
its commitment fee.] Unless an event of default occurs, these shares [and
warrent shares] must be held by Fusion until the earlier of the maturity of the
common stock [purchase] agreement or the date the common stock purchase
agreement has been terminated.
No variable priced financings
Until the termination of the common stock purchase agreement, we have
agreed not to issue, or enter into any agreement with respect to the issuance
of, any variable priced equity or variable priced equity-like securities unless
associated with a pharmaceutical licensing transaction or we have obtained
Fusion's prior written consent.
Holdings of Fusion upon termination of the offering
Because Fusion may sell all, some or none of the common stock offered by
this prospectus, no estimate can be given as to the amount of common stock that
will be held by Fusion upon early termination of the offering.
SELLING STOCKHOLDER
The selling stockholder is Fusion Fund II, LLC. Under the common stock
purchase agreement, Fusion agreed to purchase up to $21 million of our common
stock. The purchase price of our common stock is based upon the future market
price of our common stock.
We have authorized the issuance and sale of 6,000,000 shares of our common
stock to Fusion under the common stock purchase agreement. We have the right
under certain conditions to suspend and/or terminate the common stock purchase
agreement without any payment or liability to Fusion. We have {also agreed to}
issue[d] {1,331,009} [2,000,000] shares of common stock to Fusion as a
commitment fee under the common stock purchase agreement. [In addition, Fusion
also received warrants for 1,000,000 shares of our common stock, exercisable at
$.50 per share as part of its commitment fee.] Unless an event of default
occurs, these shares [and warrent shares] must be held by Fusion until the
earlier of the maturity date or the date the common stock purchase agreement has
been terminated. This prospectus relates to the offer and sale from time to time
by Fusion of these shares. The common stock purchase agreement is described in
detail under the heading "The Financing Transaction."
Because the number of shares of Unigene common stock that will be purchased
by Fusion under the common stock purchase agreement will depend on the purchase
price of the purchase shares, which will be determined at the time of the
purchase, and because the number of shares purchased may be reduced to the
extent that Unigene elects to suspend Fusion purchases, the aggregate number of
purchase shares that will be offered for sale by Fusion is not determinable at
this time. If the number of purchased shares offered for sale by this prospectus
is insufficient to cover all of the purchased shares and the commitment shares,
Unigene has agreed with Fusion to file a registration statement with the SEC
registering the additional shares. {All of these shares are deemed to be
beneficially owned by} Steven G. Martin and Joshua B. Scheinfeld, the principals
of Fusion[, are deemed to be beneficial owners of all of the shares owned by
Fusion]. Messrs. Martin and Scheinfeld have shared voting and dispositive power
of the shares being offered {pursuant to} [under] this prospectus.
39
Except for the financing transaction, Fusion has had no position, office or
other material relationship with Unigene or affiliates within the past three
years. Under the terms of the common stock purchase agreement, Fusion has agreed
that it will not purchase shares of Unigene common stock under the common stock
purchase agreement if, after giving effect to the purchase, Fusion, together
with its affiliates, would beneficially own in excess of 4.99% of the
outstanding shares of Unigene common stock. If the 4.99% limitation is reached,
Unigene, at its option, has the right to increase the limitation to 9.99%. If
the 9.99% limitation is reached, Fusion will remain obligated to comply with its
purchase obligations under the common stock purchase agreement, but otherwise
would be prohibited from increasing its percentage ownership.
PLAN OF DISTRIBUTION
{The} [Fusion Capital Fund II, LLC, is offering the shares of Unigene]
common stock offered by this prospectus. {is being offered by the selling
stockholder, Fusion Capital Fund II, LLC} The common stock may be sold or
distributed from time to time by the selling stockholder, or by donees or
transferees of, or other successors in interests to, the selling stockholder,
directly to one or more purchasers or through brokers, dealers or underwriters
who may act solely as agents or may acquire such common stock as principals, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices, at negotiated prices, or at fixed prices, which may be
changed. {The} [Fusion and its successors may effect the] sale of the common
stock offered by this prospectus {may be effected} in one or more of the
following methods:
- ordinary brokers' transactions;
- transactions involving cross or block trades;
- purchases by brokers, dealers or underwriters as principal and resale
by such purchasers for their own accounts {pursuant to} [under] this
prospectus;
- "at the market" to or through market makers or into an existing market
for the common stock;
- in other ways not involving market makers or established trading
markets, including direct sales to purchasers or sales effected through
agents;
- in privately negotiated transactions; or
- any combination of the foregoing.
In order to comply with the securities laws of certain states, if
applicable, the shares may be sold only through registered or licensed brokers
or dealers. Under state securities laws, the shares may not be sold unless they
have been registered or qualified for sale in such state or an exemption from
such registration or qualification requirement is available and complied with.
Brokers, dealers, underwriters or agents participating in the distribution
of the shares as agents may receive compensation in the form of commissions,
discounts or concessions from the selling stockholder and/or purchasers of the
common stock for whom such broker-dealers may act as agent, or to whom they may
sell as principal, or both. The compensation paid to a particular broker-dealer
may be less than or in excess of customary commissions.
40
The selling stockholder is an "underwriter" within the meaning of the
Securities Act of 1933 with respect to this transaction. Any broker-dealers who
act in connection with the sale of the shares hereunder may be deemed to be
"underwriters" within the meaning of the Securities Act, and any commissions
they receive and proceeds of any sale of the shares may be deemed to be
underwriting discounts and commissions under the Securities Act.
Neither we nor the selling stockholder can presently estimate the amount of
compensation that any broker, dealer, underwriter or agent will receive. We know
of no existing arrangements between the selling stockholder, any other
stockholder, broker, dealer, underwriter or agent relating to the sale or
distribution of the shares. At a time a particular offer of shares is made, a
prospectus supplement, if required, will be distributed that will set forth the
names of any agents, underwriters or dealers and any compensation from the
selling stockholder and any other required information.
We will pay all of the expenses incident to the registration, offering and
sale of the shares to the public other than commissions or discounts of
underwriters, broker-dealers or agents. Unigene has also agreed to indemnify the
selling stockholder and related persons against specified liabilities, including
liabilities under the Securities Act [of 1933].
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of Unigene, we
have been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is therefore,
unenforceable.
Fusion and its affiliates have agreed not to engage in any direct or indirect
short selling or hedging of our common stock during the term of the common stock
purchase agreement.
The selling stockholder and any other person participating in such
distribution will be subject to applicable provisions of the exchange act and
the rules and regulations thereunder, including, without limitation, Regulation
M {of the exchange act} [under the Securities Exchange Act of 1934], which may
limit the timing of purchases and sales of any of the shares of common stock by
the selling stockholder and any other participating person. Regulation M may
also restrict the ability of any person engaged in the distribution of the
common stock to engage in market-making activities with respect to the shares of
common stock. All of the foregoing may affect the marketability of the shares of
common stock and the ability of any person or entity to engage in market-making
activities with respect to the shares of common stock.
Unigene has entered into a registration rights agreement with Fusion under
which it has agreed to maintain the effectiveness under the Securities Act of
1933 of the registration statement to which this prospectus relates. This
offering will terminate on the earlier of (1) the date on which the shares are
eligible for resale without restrictions {pursuant to} [under] Rule 144(k) under
the Securities Act or (2) the date on which all shares offered by this
prospectus have been sold by the selling stockholder.
Legal Matters
The validity of the Unigene common stock offered by this prospectus will be
passed upon for Unigene by Covington & Burling, Washington, D.C.
Experts
Unigene's audited financial statements as of December 31, [2000] {1999}
and [1999] {1998}, and for each of the years in the three-year period ended
December 31, [2000] {1999}, are included herein and in the registration
statement in reliance upon the report of KPMG LLP, independent certified public
accountants, appearing elsewhere herein,
41
and upon the authority of KPMG LLP as experts in accounting and auditing. The
report of KPMG LLP covering these financial statements contains an explanatory
paragraph that states that the Company's recurring losses from operations and
working capital deficiency raise substantial doubt about the entity's ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of that uncertainty. Also, the
report of KPMG LLP covering the December 31, 2000 financial statements refers to
a change in the method of revenue recognition for up-front non-refundable
license fees in 2000.
Additional Information
Unigene has filed a Registration Statement on Form S-1 with the Securities
and Exchange Commission. This prospectus, which forms a part of the Registration
Statement, does not contain all of the information included in the Registration
Statement. Some information is omitted from this prospectus in accordance with
the rules of the Securities and Exchange Commission and you should refer to the
Registration Statement and its exhibits for additional information. Unigene also
files annual and quarterly reports, proxy statements and other information with
the SEC. You may review a copy of the Registration Statement and any other
documents filed with the Securities and Exchange Commission at its public
reference room located at 450 Fifth Street, Washington, D.C. 20549, and at the
SEC's regional offices in Chicago, Illinois and New York, New York. Please call
the Securities and Exchange Commission at 1-800-SEC-0330 for further information
on the operation of the public reference rooms. Unigene's SEC filings and the
Registration Statement can also be reviewed by accessing the SEC's Internet site
at http://www.sec.gov.
You should rely only on the information contained in this prospectus.
Unigene has not authorized anyone to provide you with any information that is
different from that contained in this prospectus. The information contained in
this prospectus is accurate as of the date of this prospectus. You should not
assume that there has been no changes in the affairs of Unigene since the date
of this prospectus or that the information in this prospectus is correct as of
any time after the date of this prospectus, regardless of the time that this
prospectus is delivered or any sale of the common stock offered by this
prospectus is made. This prospectus is not an offer to sell or a solicitation of
an offer to buy the shares covered by this prospectus in any jurisdiction where
the offer or solicitation is unlawful. In this prospectus, "Unigene," "we," "us"
and "our" refer to Unigene Laboratories, Inc.
42
Unigene Laboratories, Inc.
INDEX TO FINANCIAL STATEMENTS
Page
----
Fiscal Years Ended December 31, 2000, 1999 and 1998
Independent Auditors' Report................................................................F-2
Balance Sheets-- December 31, 2000 and December 31, 1999....................................F-3
Statements of Operations--Years Ended December 31, 2000, 1999 and 1998......................F-4
Statements of Stockholders' Equity [Deficit]--Years Ended December 31, 2000, 1999 and 1998..F-5
Statements of Cash Flows--Years Ended December 31, 2000, 1999 and 1998......................F-7
Notes to Financial Statements--Years Ended December 31, 2000, 1999 and 1998.................F-8
F-1
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Unigene Laboratories, Inc.:
We have audited the financial statements of Unigene Laboratories, Inc. as listed
in the accompanying index. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Unigene Laboratories, Inc. as
of December 31, 2000 and 1999, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 17 to the
financial statements, the Company has suffered recurring losses from operations
and has a working capital deficiency which raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 17. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
As discussed in Note 2 to the financial statements, the Company changed its
method of accounting for revenue recognition for up-front non-refundable license
fees in 2000.
/S/ KPMG LLP
Short Hills, New Jersey
March 30, 2001
F-2
UNIGENE LABORATORIES, INC.
BALANCE SHEETS
DECEMBER 31, 2000 and 1999
ASSETS 2000 1999
------------ ------------
Current assets:
Cash and cash equivalents $ 17,108 $ 682,629
Contract receivables 165,671 3,526,229
Prepaid expenses 129,493 210,195
Inventory (Note 8) 415,420 867,566
------------ ------------
Total current assets 727,692 5,286,619
Property, plant and equipment - net (Note 4) 5,684,127 6,740,354
Patents and other intangibles, net 1,288,686 1,264,268
Investment in joint venture (Note 5) 900,000 --
Other assets 446,894 486,612
------------ ------------
$ 9,047,399 $ 13,777,853
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 2,834,556 $ 1,258,334
Accrued expenses (Note 9) 3,761,277 2,217,413
Notes payable - stockholders (Note 3) 2,873,323 1,140,000
Current portion - long-term notes payable -
stockholders 1,870,000 960,606
5% convertible debentures (Note 6) 2,400,000 2,400,000
Current portion - capital lease obligations (Note 10) 55,398 69,708
Deferred revenue 200,000 --
------------ ------------
Total current liabilities 13,994,554 8,046,061
Notes payable - stockholders, excluding
current portion (Note 3) -- 909,394
Joint venture obligation, excluding current portion 495,000 --
Capital lease obligations, excluding
current portion (Note 10) 50,572 93,415
Commitments and contingencies (Notes 5, 6, 7, 11 and 18)
Stockholders' equity (deficit) (Notes 7, 12 and 13):
Common Stock - par value $.01 per share,
authorized 60,000,000 shares,
issued 44,441,855 shares in 2000 and
43,088,184 shares in 1999 444,419 430,882
Additional paid-in capital 70,053,710 67,207,604
Deferred stock option compensation (284,948) --
Deferred stock offering costs (327,000) --
Accumulated deficit (75,377,877) (62,908,472)
Less: Treasury stock, at cost,
7,290 shares (1,031) (1,031)
------------ ------------
Total stockholders' equity (deficit) (5,492,727) 4,728,983
------------ ------------
$ 9,047,399 $ 13,777,853
============ ============
See accompanying notes to financial statements
F-3
UNIGENE LABORATORIES, INC.
STATEMENTS OF OPERATIONS
Years Ended December 31, 2000, 1999 and 1998
2000 1999 1998
------------ ------------ ------------
Licensing and other revenue $ 3,286,961 $ 9,589,413 $ 5,049,844
------------ ------------ ------------
Operating expenses:
Research and development 11,484,379 9,374,528 9,041,618
General and administrative 3,187,465 2,211,778 2,067,958
------------ ------------ ------------
14,671,844 11,586,306 11,109,576
------------ ------------ ------------
Operating loss (11,384,883) (1,996,893) (6,059,732)
Other income (expense):
Interest income 49,130 37,545 107,502
Interest expense (1,198,508) (1,171,260) (784,972)
------------ ------------ ------------
Loss before income taxes,
extraordinary item and cumulative
effect of accounting change (12,534,261) (3,130,608) (6,737,202)
Income tax benefit (Note 14) 1,064,856 1,553,268 --
------------ ------------ ------------
Loss before extraordinary item and cumulative
effect of accounting change (11,469,405) (1,577,340) (6,737,202)
Extraordinary item-loss
on early extinguishment of debt (Note 6) -- -- (143,810)
Cumulative effect of revenue recognition
accounting change (Note 2) (1,000,000) -- --
------------ ------------ ------------
Net loss $(12,469,405) $ (1,577,340) $ (6,881,012)
============ ============ ============
Loss per share - basic and diluted:
Loss before extraordinary item
and cumulative effect of accounting change$ (.26) $ (.04) $ (.17)
Extraordinary item -- -- (.01)
Cumulative effect of accounting change (.02) -- --
------------ ------------ ------------
Net loss per share $ (.28) $ (.04) $ (.18)
============ ============ ============
Weighted average number of shares
outstanding - basic and diluted 44,008,154 40,718,519 38,701,253
============ ============ ============
Pro forma amounts assuming the new revenue
recognition principle is applied retroactively,
exclusive of cumulative effect adjustment:
Loss before extraordinary item $(11,469,405) $ (777,340) $ (5,937,202)
============ ============ ============
Net loss $(11,469,405) $ (777,340) $ (6,081,012)
============ ============ ============
Earnings per share - basic and diluted:
Loss before extraordinary item $ (.26) $ (.02) $ (.15)
============ ============ ============
Net loss $ (.26) $ (.02) $ (.16)
============ ============ ============
See accompanying notes to financial statements
F-4
UNIGENE LABORATORIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Years Ended December 31, 2000, 1999 and 1998
Common Stock Deferred
----------------------- Additional Stock Deferred
Number of Par Paid-in Option Stock Accumulated Treasury
Shares Value Capital Compensation Option Costs Deficit Stock Total
------ ----- ------- ------------ ------------ ------- ----- -----
Balance,
January 1, 1998 38,517,722 $ 385,177 $ 63,499,439 $ -- $ -- $(54,450,120) $ (1,031) $ 9,433,465
Conversion of 9.5%
Debentures 448,834 4,489 495,705 -- -- -- -- 500,194
Conversion of
notes payable -
stockholders 163,635 1,636 220,091 -- -- -- -- 221,727
Conversion of
10% Debentures and
accrued interest 214,131 2,141 202,234 -- -- -- -- 204,375
Value of 5%
Debentures allocated
to beneficial
conversion feature
and related warrants -- -- 686,796 -- -- -- -- 686,796
Exercise of
stock options 40,500 405 47,564 -- -- -- -- 47,969
Issuance of warrants
as compensation -- -- 6,574 -- -- -- -- 6,574
Net loss -- -- -- -- -- (6,881,012) -- (6,881,012)
---------- --------- ------------ ----------- ----------- ------------ ---------- ------------
Balance,
December 31, 1998 39,384,822 393,848 65,158,403 -- -- (61,331,132) (1,031) 4,220,088
Conversion of 5%
Debentures into
Common Stock
and Warrants 3,528,125 35,281 1,859,994 -- -- -- -- 1,895,275
Issuance of Common
Stock as payment of
interest on 5%
Debentures 175,237 1,753 189,207 -- -- -- -- 190,960
Net loss -- -- -- -- -- (1,577,340) -- (1,577,340)
---------- --------- ------------ ----------- ----------- ------------ ---------- ------------
(Continued)
F-5
UNIGENE LABORATORIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (Continued)
Years Ended December 31, 2000, 1999 and 1998
Common Stock Deferred Deferred
----------------------- Additional Stock Stock
Number of Par Paid-in Option Offering Accumulated Treasury
Shares Value Capital Compensation Costs Deficit Stock Total
------ ----- ------- ------------ ----- ------- ----- -----
Balance,
December 31,
1999 43,088,184 $ 430,882 $ 67,207,604 -- -- $(62,908,472) $ (1,031) $ 4,728,983
Exercise of
warrants 1,118,071 11,181 1,317,087 -- -- -- -- 1,328,268
Exercise of
stock options 235,600 2,356 298,177 -- -- -- -- 300,533
Deferred stock
option compensation -- -- 683,733 (284,948) -- -- -- 398,785
Deferred stock
offering costs -- -- 327,000 -- (327,000) -- -- --
Issuance of warrants
as compensation -- -- 220,109 -- -- -- -- 220,109
Net loss -- -- -- -- -- (12,469,405) -- (12,469,405)
---------- ------------ ------------ ------------ ---------- ------------ ---------- ------------
Balance,
December 31,
2000 44,441,855 $ 444,419 $ 70,053,710 $ (284,948) $ (327,000) $(75,377,877) $ (1,031) $ (5,492,727)
========== ============ ============ ============ ========== ============ ========== ============
See accompanying notes to financial statements.
F-6
UNIGENE LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
Years Ended December 31,
------------------------------------------
2000 1999 1998
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(12,469,405) $ (1,577,340) $ (6,881,012)
Adjustments to reconcile net loss to net
cash used by operating activities:
Non-cash cumulative effect adjustment 1,000,000 -- --
Amortization of deferred revenue (800,000) -- --
Non-cash compensation 618,894 -- 6,574
Depreciation and amortization 1,617,957 1,558,663 1,552,734
Amortization of beneficial conversion feature on 5%
Debentures -- 197,193 489,603
20% premium on 5% Debentures -- 400,000 --
Payment of interest through the issuance of Common Stock -- 190,960 44,060
Decrease in other assets 42,312 64,528 48,500
(Increase) decrease in contract receivables 3,360,558 (3,210,171) (316,058)
(Increase) decrease in prepaid expenses and
inventory 532,848 (188,092) (55,424)
Increase in accounts payable and accrued
expenses 2,715,086 1,163,795 247,237
------------ ------------ ------------
Net cash used for operating activities (3,381,750) (1,400,464) (4,863,786)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction of leasehold and building improvements (235,764) (4,010) (8,384)
Purchase of furniture and equipment (283,589) (134,127) (76,486)
Increase in patents and other assets (69,389) (88,695) (264,959)
------------ ------------ ------------
Net cash used in investing activities (588,742) (226,832) (349,829)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt -- 1,870,000 4,000,000
Proceeds from issuance of short-term debt, net 1,733,323 100,000 --
Repayment of long-term debt and capital lease
obligations (57,153) (62,739) (304,138)
Exercise of stock options and warrants 1,628,801 -- 47,969
Debt issuance and other costs -- -- (253,879)
------------ ------------ ------------
Net cash provided by financing activities 3,304,971 1,907,261 3,489,952
------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents (665,521) 279,965 (1,723,663)
Cash and cash equivalents at
beginning of period 682,629 402,664 2,126,327
------------ ------------ ------------
Cash and cash equivalents at end of period $ 17,108 $ 682,629 $ 402,664
============ ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Non-cash investing and financing activities:
Investment in joint venture and related obligations $ 900,000 -- --
Acquisition of equipment through capital leases -- $ 36,617 $ 221,900
Conversion of convertible debentures and accrued
interest into Common Stock -- $ 2,190,960 $ 707,069
Conversion of notes payable - stockholders
into Common Stock -- -- $ 225,000
Value of beneficial conversion feature and related
warrants on issuance of 5% Debentures -- -- $ 686,796
============ ============ ============
Cash paid for interest $ 39,800 $ 24,700 $ 119,000
============ ============ ============
See accompanying notes to financial statements
F-7
UNIGENE LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
1. Description of Business
Unigene Laboratories, Inc. (the "Company"), a biopharmaceutical company, was
incorporated in the State of Delaware in 1980. The Company's single business
segment focuses on research, production and delivery of peptides for medical
use. The Company has concentrated most of its efforts to date on one product -
Calcitonin, for the treatment of osteoporosis and other indications. The
Company's initial products will be injectable, nasal and oral formulations of
Calcitonin. The Company's Calcitonin products require clinical trials and
approvals from regulatory agencies as well as acceptance in the marketplace. The
Company's injectable Calcitonin product has been approved for marketing in all
15-member states of the European Union for the treatment of Paget's disease and
hypercalcemia associated with malignancy. Through December 31, 2000, sales of
injectable Calcitonin have not been significant. Although the Company believes
its patents and patent applications are valid, the invalidation of its patents
or the failure of certain of its pending patent applications to issue as patents
could have a material adverse effect upon its business. The Company competes
with specialized biotechnology companies, major pharmaceutical and chemical
companies and universities and research institutions. Many of these competitors
have substantially greater resources than does the Company. During 2000, 1999
and 1998, almost all of the Company's revenue was generated from one customer,
Pfizer (see Note 16). The Pfizer agreement was terminated in March 2001.
2. Summary of Significant Accounting Policies & Practices
Segment Information -The Company is managed and operated as one business. The
entire business is managed by a single management team that reports to the chief
executive officer. The Company does not operate separate lines of business or
separate business entities with respect to any of its product candidates.
Accordingly, the Company does not prepare discrete financial information with
respect to separate product areas or by location and does not have separately
reportable segments as defined by Statement of Financial Accounting Standards
(SFAS) No. 131, "Disclosures about Segments of an Enterprise and Related
Information."
Property, Plant and Equipment - Property, plant and equipment are carried at
cost. Equipment under capital leases are stated at the present value of the
minimum lease payments. Depreciation is computed using the straight-line method.
Amortization of equipment under capital leases and leasehold improvements is
computed over the shorter of the lease term or estimated useful life of the
asset. Additions and improvements are capitalized, while repairs and maintenance
are charged to expense as incurred.
Research and Development - Research and development expenses include the costs
associated with internal research and development by the Company and research
and development conducted for the Company by outside advisors, sponsored
university-based research partners, and clinical study partners. All research
and development costs discussed above are expensed as incurred. Expenses
reimbursed under research and development contracts, which are not refundable,
are recorded as a reduction to research and development expense in the statement
of operations.
F-8
Revenue Recognition - Research and development contract revenues are recognized
based upon the successful completion of various benchmarks as set forth in the
individual agreements. Commencing in 2000, non-refundable license fees received
upon execution of license agreements where the Company has continuing
involvement are deferred and recognized as revenue over the life of the
agreement. Prior to the implementation of SAB 1O1, non-refundable license fees
received upon execution of license agreements were recognized as revenue
immediately. Revenue from the sale of product is recognized upon shipment to the
customer.
In December 1999, the Securities and Exchange Commission staff issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"). SAB 101 summarizes certain of the staff's views in applying generally
accepted accounting principles to revenue recognition in financial statements
and specifically addresses revenue recognition in the biotechnology industry for
non-refundable technology access fees and other non-refundable fees. The Company
was required to adopt SAB 101, as amended, in the fourth quarter of 2000 with an
effective date of January 1, 2000, and the recognition of a cumulative effect
adjustment calculated as of January 1, 2000. The Company adopted SAB 101 in
2000, changing its revenue recognition policy for up-front licensing fees that
require services to be performed in the future from immediate revenue
recognition to deferral of revenue with the up-front fee recognized over the
life of the agreement. In 1997, the Company recognized $3,000,000 in revenue
from an up-front licensing fee from Pfizer. With the adoption of SAB 101, the
Company is now recognizing this revenue over a 45 month period, equivalent to
the term of its oral Calcitonin agreement with Pfizer which was terminated in
March 2001. The Company therefore recognized a non-cash cumulative effect
adjustment of $1,000,000 as of January 1, 2000 representing a revenue deferral
over the remaining 15 months of the agreement. The Company recognized $800,000
of revenue in 2000 and $200,000 in revenue will be recognized in 2001 as a
result of this deferral. The pro forma effects of retroactive application of
this new revenue recognition principle on net loss and related per share
amounts, for the years ended December 31, 2000, 1999 and 1998 are presented in
the accompanying statements of operations.
Patents and Other Intangibles - Patent costs are deferred pending the outcome of
patent applications. Successful patent costs are amortized using the
straight-line method over the lives of the patents. Unsuccessful patent costs
are expensed when determined worthless. As of December 31, 2000, six of the
Company's patents had issued in the U.S. and numerous have issued in various
foreign countries. Various other applications are still pending. Other
intangibles are recorded at cost and are amortized over their estimated useful
lives. Accumulated amortization on patents and other intangibles is $186,000 and
$143,600 at December 31, 2000 and 1999, respectively.
Stock Option Plan - The Company accounts for stock options issued to employees
and directors in accordance with the provisions of Accounting Principles Board
(APB) Opinion No. 25, "Accounting for Stock Issued to Employees", and related
interpretations. As such, compensation expense is recorded on fixed stock option
grants only if the current market price of the underlying stock exceeded the
exercise price; compensation expense on variable stock option grants is
estimated until the measurement date. As permitted by SFAS No. 123, "Accounting
for Stock-Based Compensation", the Company provides pro forma net income and pro
forma earnings per share disclosures for employee and director stock option
grants as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company accounts for stock options and warrants issued to
consultants on a fair value basis in accordance with SFAS No. 123 and Emerging
Issues Task Force Issue No. 96-18, "Accounting for Equity Instruments That Are
Issued to Other Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services."
F-9
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of - The
Company accounts for the impairment of long-lived assets in accordance with the
provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." This Statement requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to the future undiscounted net cash flows expected to be generated by the asset.
If such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
Net Loss per Share - The Company computes and presents both basic and diluted
earnings per share ("EPS") on the face of the statement of operations. Basic EPS
is computed using the weighted average number of common shares outstanding
during the period being reported on. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue Common Stock were
exercised or converted into Common Stock at the beginning of the period being
reported on and the effect was dilutive. The Company's net loss and weighted
average shares outstanding used for computing diluted loss per share were the
same as that used for computing basic loss per share for each of the years ended
December 31, 2000, 1999 and 1998 because the Company's convertible debentures,
stock options and warrants were not included in the calculation since the
inclusion of such potential shares (approximately 3,200,000 potential shares of
Common Stock at December 31, 2000) would be antidilutive.
Cash Equivalents - The Company considers all highly liquid securities purchased
with an original maturity of three months or less to be cash equivalents.
Inventory - Inventories are stated at the lower of cost (using the first-in,
first-out method) or market.
Fair Value of Financial Instruments - The fair value of a financial instrument
represents the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced sale or liquidation.
Significant differences can arise between the fair value and carrying amounts of
financial instruments that are recognized at historical cost amounts. Given our
financial condition described in Note 17, it is not practicable to estimate the
fair value of our financial instruments at December 31, 2000.
Use of Estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
F-10
3. Related Party Transactions
Notes payable - stockholders. Since 1995, Warren P. Levy, Ronald S. Levy and Jay
Levy, each an officer and director of the Company, and another member of their
family (collectively, the "Levys") have extended loans to the Company for
working capital needs. Each of the loans is evidenced by a promissory note that
sets the terms of the loan. The variable interest rate on these notes is
equivalent to the Merrill Lynch Margin Loan Rate plus .25%. The principal amount
is collateralized by security interests in the Company's Fairfield, New Jersey
plant and equipment and Boonton, New Jersey equipment.
During 1999, Jay Levy loaned the Company $1,500,000 evidenced by demand notes
bearing interest at 6% per year. During the third quarter of 1999, Jay Levy
loaned the Company an additional $370,000 evidenced by term notes maturing
January 2002 and bearing interest at 6% per year, and the $1,500,000 of demand
notes were converted into 6% term notes maturing January 2002. The Company has
granted Jay Levy a security interest in all of its equipment and a mortgage on
its real property to secure payment of the term notes, which are senior to all
notes payable to Warren Levy and Ronald Levy. The Company is required to make
installment payments on the term notes commencing in October 1999 and ending in
January 2002 in an aggregate amount of $72,426 per month. No installment
payments were made during 1999 or 2000. During 2000, the Levys loaned to the
Company an additional $1,733,323 in short-term notes. As of December 31, 2000,
the outstanding loans by the Levys to Unigene, all classified as short-term
debt, consisted of: joint loans in the aggregate principal amount of $2,873,323,
which are evidenced by demand notes bearing a floating interest rate equal to
the Merrill Lynch Margin Loan Rate plus .25% (9.875% at December 31, 2000) and
loans from Jay Levy in the aggregate principal amount of $1,870,000 evidenced by
term notes maturing January 2002, and bearing interest at the fixed rate of 6%
per year. During 2000, $4,600 in interest was paid on these loans. As of
December 31, 2000, accrued interest on all Levy loans totaled approximately
$922,000.
Interest and principal payments required under these loans have not been made by
Unigene, but the Levys have waived all default provisions including additional
interest penalties due under these loans through December 31, 2000.
From January 1, 2001 through March 30, 2001, the Levys loaned to the Company an
additional $1,610,000 of demand notes at the Merrill Lynch Margin Loan Rate plus
.25%, of which $500,000 is secured by a security interest in certain of our
patents.
F-11
4. Property, Plant and Equipment
Property, plant and equipment consisted of the following at December 31, 2000
and 1999:
Estimated
Depreciable
2000 1999 Lives
---------- ----------- -----------
Building and
improvements $1,397,210 $1,377,075 25 years
Leasehold improvements 8,695,851 8,480,222 Lease Term
Manufacturing equipment 4,000,940 3,842,038 10 years
Laboratory equipment 2,815,870 2,704,820 5 years
Other equipment 466,523 466,523 10 years
Office equipment and
furniture 340,843 327,206 5 years
Equipment under capital
leases 258,517 258,517 Lease Term
---------- -----------
17,975,754 17,456,401
Less accumulated
depreciation and
amortization 12,412,794 10,837,214
---------- -----------
5,562,960 6,619,187
Land 121,167 121,167
---------- -----------
$ 5,684,127 $ 6,740,354
=========== ===========
Depreciation and amortization expense on property, plant and equipment was
$1,576,000, $1,520,000, and $1,520,000 in 2000, 1999 and 1998, respectively.
5. China Joint Venture
In June 2000, we entered into a joint venture with Shijiazhuang Pharmaceutical
Group ("SPG"), a pharmaceutical company in the People's Republic of China. The
joint venture will manufacture and distribute injectable and nasal Calcitonin
products in China (and possibly other selected Asian markets) for the treatment
of osteoporosis. We own 45% of the joint venture and will have a 45% interest in
the joint venture profits and losses. In the first phase of the collaboration,
SPG will contribute its existing injectable Calcitonin license to the joint
venture, which will allow the joint venture to sell our product in China. The
joint venture will need to file a New Drug Application in China for its
injectable and nasal products. In addition, the joint venture may be required to
conduct brief local human trials. If the product is successful, the joint
venture may establish a facility in China to fill injectable and nasal
Calcitonin products using bulk Calcitonin produced at our Boonton, New Jersey
plant. Eventually the joint venture may manufacture the bulk Calcitonin in China
at a new facility that would be constructed by the joint venture. This would
require local financing by the joint venture. The joint venture has not yet
begun operations as of December 31, 2000.
Under the terms of the joint venture with SPG, Unigene is obligated to
contribute up to $405,000 in cash during 2001 and up to an additional $495,000
in cash within two years thereafter. However, these amounts may be reduced or
offset by our share of joint venture profits. As of December 31, 2000, we have
not made any investments in the joint venture. In addition, Unigene is obligated
to pay to the Qingdao General Pharmaceutical Company an aggregate of $350,000 in
14 monthly installment payments of $25,000 in order to terminate its former
joint venture in China, of which $75,000 had been paid as of December 31, 2000.
We recognized the entire $350,000 obligation as an expense in 2000.
6. Convertible Debentures
In March 1996, the Company issued $3,300,000 of 9.5% Senior Secured Convertible
Debentures in exchange for a secured loan of an equal amount. All of these
debentures had been converted into approximately 2,924,000 shares of Common
F-12
Stock as of November 15, 1998, the due date of the debentures.
In March 1996, the Company completed a private placement of $9,080,000 aggregate
principal amount of 10% Convertible Debentures. The Company received net
proceeds of approximately $8.1 million as a result of this placement. These
debentures were to mature March 4, 1999, but as of December 31, 1998, all
outstanding 10% Debentures have been converted or redeemed in full. Through
December 31, 1998, $8,808,515 of principal amount of these debentures, plus
approximately $355,000 of accrued interest, had been converted into
approximately 4,838,000 shares of Common Stock. Due to restrictions on the total
number of shares which could be issued upon conversion of the 10% Debentures, in
October 1998 the Company redeemed in cash an additional $271,485 of principal,
and in connection therewith paid to the holder $68,899 of accrued interest and
$143,810 in redemption premiums, for an aggregate payment of $484,194. The cost
of the redemption premium of $143,810 was recorded as an extraordinary loss in
1998.
In June 1998, Unigene completed a private placement of $4,000,000 in principal
amount of 5% convertible debentures from which we realized net proceeds of
approximately $3,750,000. The 5% debentures were convertible into shares of
Unigene common stock. The interest on the debentures, at Unigene's option, was
payable in shares of Unigene common stock. Upon conversion, the holder of a 5%
debenture was entitled to receive warrants to purchase a number of shares of
Unigene common stock equal to 4% of the number of shares issued as a result of
the conversion. However, the number of shares of Unigene common stock that we
are obligated to issue, in the aggregate, upon conversion, when combined with
the shares issued in payment of interest and upon the exercise of the warrants,
is limited to 3,852,500 shares. After this share limit is reached, Unigene is
obligated to redeem all 5% debentures tendered for conversion at a redemption
price equal to 120% of the principal amount, plus accrued interest. In December
1999, Unigene was unable to convert $200,000 in principal of the 5% debentures
tendered for conversion because the conversion would have exceeded the share
limit. As a result, we accrued, as of December 31, 1999, an amount equal to
$400,000 representing the 20% premium on the outstanding $2,000,000 in principal
amount of 5% debentures that had not been converted. During 1999, all of the
$2,000,000 in principal amount of 5% debentures were tendered for conversion and
therefore are classified as a current liability in the amount of $2,400,000 as
of December 31, 2000.
Through December 31, 2000, we issued a total of 3,703,362 shares of Unigene
common stock upon conversion of $2,000,000 in principal amount of the 5%
debentures and in payment of interest on the 5% debentures. Also, we issued an
additional 103,032 shares of Unigene common stock upon the cashless exercise of
all of the 141,123 warrants issued upon conversion of the 5% debentures.
On January 5, 2000, Unigene failed to make the required semi-annual interest
payment on the outstanding 5% debentures. As a result, the interest rate on the
outstanding 5% debentures has increased to 20% per year. The semi-annual
interest payments due July 5, 2000 and January 5, 2001, also have not been made.
As of December 31, 2000, the accrued and unpaid interest on the 5% debentures
totaled approximately $467,000. In addition, due to the delisting of the Unigene
F-13
common stock from the Nasdaq National Market in October 1999, Unigene became
obligated under a separate agreement to pay the holder of the 5% debentures an
amount equal to 2% of the outstanding principal amount of the debentures per
month. Unigene has not made any of these payments to date, but has accrued the
amounts as an expense. As of December 31, 2000, the accrued and unpaid amount of
this penalty totaled approximately $617,000.
The holder of the 5% debentures has commenced an arbitration proceeding in which
the holder claims that it is entitled, as of June 30, 2000, to payments in
respect of the 5% debentures in the amount of approximately $3,400,000,
consisting of principal, interest and penalties, resulting from Unigene's
default under various provisions of the debentures and related agreements. These
alleged defaults included Unigene's failure to redeem the debentures after
becoming obligated to do so, the failure to pay interest when due, and the
failure to pay liquidated damages arising from the delisting of the Unigene
common stock from the Nasdaq National Market. In July 2000, Unigene submitted to
the American Arbitration Association a statement in which it denies the amount
of Tail Wind's claim and makes certain counterclaims. A hearing on the matter
before an arbitrator appointed by the American Arbitration Association is
expected to occur in June 2001. The outcome of the proceeding is uncertain. An
extremely unfavorable ruling could have a material adverse effect on Unigene.
The Company in 1998 estimated the value of the beneficial conversion feature and
related warrants at the issuance of the 5% Debentures to be approximately
$687,000. Such amount was credited to additional paid-in capital and was
amortized to interest expense over the earliest conversion periods using the
effective interest method (approximately $197,000 and $490,000 for the years
ended December 31, 1999 and 1998, respectively).
7. Fusion Capital Financing
On December 18, 2000, and as amended March 30, 2001, Unigene entered into a
common stock purchase agreement with Fusion Capital Fund II, LLC, under which
Fusion has agreed to purchase up to $21,000,000 in shares of Unigene common
stock at the rate of $875,000 per month. Fusion is committed to purchase the
shares over a twenty-four month period, subject to a six-month extension or
earlier termination at our discretion. We may decrease this amount at any time
that the price of our common stock is less than $15 per share. If our stock
price equals or exceeds $4 per share, we have the right to require Fusion to
purchase, over a period of 60 days, up to the full remaining portion of the $21
million commitment. However, Fusion's commitment does not begin until a
registration statement covering the resale of the shares purchased by Fusion is
declared effective by the Securities and Exchange Commission. We cannot predict
when or if the SEC will declare our registration statement effective. In
addition, Unigene must continue to satisfy its requirements that are a condition
to Fusion's obligation including: the continued effectiveness of the related
registration statement, no default or acceleration of any obligations in excess
of $1,000,000, no insolvency or bankruptcy proceedings, continued listing of
Unigene common stock on the OTC Bulletin Board, and we must avoid the failure to
meet the maintenance requirements for listing on the Nasdaq SmallCap Market for
a period of 10 consecutive trading days or for more than an aggregate of 30
trading days in any 365-day period. The selling price per share is equal to the
lesser of: the lowest sale price of our common stock on the day of submission of
a purchase notice by Fusion; the average of any five closing sale prices of our
common stock, selected by Fusion, during the 15 trading days prior to the date
of submission of a purchase notice by Fusion; or $15. In addition to the
2,000,000 shares and five-year warrants to purchase 1,000,000 shares of common
stock at an exercise price of $.50 per share that we issued to Fusion as of
March 30, 2001 as compensation for its commitment, the Board of Directors has
authorized the issuance and sale to Fusion of up to 6,000,000 shares of Unigene
common stock in connection with the financing transaction. We may be required to
obtain the approval of Unigene
F-14
stockholders to an amendment to Unigene's certificate of incorporation
increasing the number of shares of Unigene common stock that the Company is
authorized to issue in order to issue and sell additional shares to Fusion.
In December 2000, the Company issued a five-year warrant to purchase 373,002
shares of Unigene common stock to its investment banker as a fee for the Fusion
financing agreement. The warrant has an exercise price of $1.126 and a fair
value of $327,000 using the Black-Scholes pricing model. The fair value of the
warrant has been deferred pending the closing of the Fusion financing. When the
registration statement for the financing is declared effective, these deferred
offering costs will be charged to additional paid in capital. If the
registration statement is not declared effective, or the offering is terminated,
these deferred offering costs will be charged to operations.
8. Inventory - Inventory consists of the following:
Dec. 31, 2000 Dec. 31, 1999
------------- -------------
Finished goods $ 89,104 $ 596,359
Raw material 326,316 271,207
---------- -----------
Total $ 415,420 $ 867,566
=========== ===========
The Company wrote-off $515,000 of finished goods inventory in the fourth quarter
of 2000 as a result of Pfizer's termination of its license agreement with the
Company.
9. Accrued expenses - Accrued expenses consist of the following:
Dec. 31, 2000 Dec. 31, 1999
------------- -------------
Interest $3,314,238 $ 888,486
China joint ventures 680,000 --
Clinical trials/contract research 665,568 763,352
Vacation pay 204,948 187,710
Consultants 47,000 164,500
Other 158,845 213,365
---------- -----------
Total $ 5,070,599 $2,217,413
=========== ==========
10. Obligations Under Capital Leases
The Company entered into various lease arrangements during 1999 and 1998 which
qualify as capital leases.
The future years' minimum lease payments under the capital leases, together with
the present value of the net minimum lease payments, as of December 31, 2000 are
as follows:
2001 $ 71,860
2002 48,347
2003 10,656
----------
Total minimum lease payments 130,863
Less amount representing interest 24,893
-----------
Present value of net minimum
lease payments 105,970
Less current portion 55,398
-----------
Obligations under capital leases,
excluding current portion $ 50,572
===========
The discount rates on these leases vary from 12% to 18%.
11. Obligations Under Operating Leases
The Company is obligated under a 10-year net-lease, which began in February
1994, for its manufacturing facility located in Boonton, New Jersey. The Company
has two 10-year renewal options as well as an option to purchase the facility.
F-15
In addition, the Company leases laboratory and office equipment under various
operating leases expiring in 2001 through 2003. Total future minimum rentals
under these noncancelable operating leases as of December 31, 2000 are as
follows:
2001 $222,584
2002 207,936
2003 189,764
2004 15,444
--------
$635,728
Total rent expense was approximately $259,000, $243,000 and $209,000 for 2000,
1999 and 1998, respectively.
12. Stockholders' Equity
In 1996, the placement agent, in connection with the issuance of the 10%
Debentures, received a five-year warrant to purchase 454,000 shares of Common
Stock at an exercise price of $2.10 per share as partial compensation for
services rendered. Through December 31, 2000, an aggregate of 322,000 of these
warrants has been exercised and 132,000 remain unexercised.
In October 1996, the Company completed a private placement of 4,218,804 Units at
a price of $1.75 per Unit. Each Unit consisted of (i) one share of Common Stock,
(ii) one quarter of a Class C Warrant, (each whole Class C Warrant was
exercisable to purchase one share of Common Stock) and (iii) one quarter of a
Class D Warrant (each whole Class D Warrant was exercisable to purchase one
share of Common Stock). The Class C Warrants and the Class D Warrants each had
an exercise price of $3.00 and expired unexercised on October 11, 1999. The fee
paid to the placement agent in the transaction consisted of an additional
296,935 Units in lieu of cash compensation. The net proceeds to the Company were
approximately $7 million.
In October 1994, the Company entered into an agreement with a consultant whose
compensation for its services included the issuance of warrants, exercisable at
$3.00 per share, for the purchase of 1,000,000 shares of Common Stock. These
warrants expired unexercised in October 1998. During 1996, another consultant's
compensation included warrants to purchase a total of 400,000 shares of Common
Stock at exercise prices ranging from $1.63 to $3.50 per share. These warrants
expire in April 2001.
In connection with the services rendered by various consultants during 1997, the
Company issued an aggregate of 75,000 stock purchase warrants, expiring from
1999 to 2002, exercisable at prices ranging from $2.25 to $3.41 per share, and
10,000 shares of Common Stock. Compensation expense recognized in 1997 as a
result of these transactions was approximately $131,000. During 1998, the
Company issued warrants to purchase 5,000 shares of Common Stock, expiring in
2003, to a consultant. These warrants are exercisable at $2.38, resulting in
1998 compensation expense of approximately $7,000. During 2000, the Company
issued warrants to purchase 150,000 shares of Common Stock, expiring in 2005, to
its investment banker. These warrants are exercisable at $2.66 and resulted in
2000 compensation expense of $220,000. The Company's investment bankers received
an additional warrant to purchase 373,002 shares of Common Stock at an exercise
price of $1.126 per share, expiring in 2005, for arranging the Fusion financing.
During 2000, the Company issued to various consultants 850,536 shares of Common
Stock upon the exercise of warrants at exercise prices ranging from $1.38 to
$2.43 per share. In addition, the Company issued to various consultants 263,360
shares of Common Stock upon the cashless exercise of an aggregate of 475,623
warrants at exercise prices ranging from $.46 to $2 per share.
During 1998, an aggregate of $681,000 in principal amount of convertible
debentures, plus $44,000 of accrued interest, was converted into approximately
663,000 shares of Common Stock. During 1999, an aggregate of $2,000,000 in
principal amount of convertible debentures, plus $191,000 of accrued interest,
was converted into approximately 3,703,000 shares of Common Stock. See Note 6.
In August 1998, an aggregate of $225,000 in principal amount of notes payable
from stockholders was converted into 163,635 shares of Common Stock at a
conversion price of $1.375 per share; such conversion was at a price slightly
higher than the then market price of the Common Stock.
F-16
As of December 31, 2000, there are warrants outstanding, all of which are
currently exercisable, to purchase an aggregate of 989,000 shares of Common
Stock at exercise prices ranging from $1.13 to $3.50 per share, with a weighted
average exercise price of $2.11.
13. Stock Option Plans
During 1994, the Company's stockholders approved the adoption of the 1994
Employee Stock Option Plan (the "1994 Plan"). All employees of the Company were
eligible to participate in the 1994 Plan, including executive officers and
directors who are employees of the Company. The 1994 Plan terminated on June 6,
2000; however, 1,729,965 options previously granted continue to be outstanding
and exercisable under that plan as of December 31, 2000.
At the Company's 1999 Annual Meeting, the stockholders approved the adoption of
a 1999 Directors Stock Option Plan (the "1999 Plan") under which each person
elected to the Board after June 23, 1999 who is not an employee will receive, on
the date of his initial election, an option to purchase 21,000 shares of Common
Stock. In addition, on May 1st of each year, commencing May 1, 1999, each
non-employee director will receive an option to purchase 10,000 shares of Common
Stock if he or she has served as a non-employee director for at least six months
prior to the May 1st grant. Each option granted under the 1999 Plan will have a
ten-year term and the exercise price of each option will be equal to the market
price of the Company's Common Stock on the date of the grant. A total of 350,000
shares of Common Stock are reserved for issuance under the 1999 Plan.
In November 1999, the Board of Directors approved, subject to stockholder
approval, the adoption of a new Stock Option Plan (the "2000 Plan") to replace
the 1994 Plan. All employees (including directors who are employees), as well as
certain consultants, are eligible to receive option grants under the 2000 Plan.
Options granted under the 2000 Plan have a ten-year term and an exercise price
equal to the market price of the Common Stock on the date of the grant. A total
of 4,000,000 shares of Common Stock are reserved for issuance under the 2000
Plan.
In November 1999, the Board granted under the 2000 Plan, to employees of the
Company, stock options to purchase an aggregate of 482,000 shares (of which
14,650 shares were subsequently cancelled) of Common Stock at an exercise price
of $0.63 per share, the market price on the date of grant. Each of the grants
was made subject to stockholder approval of the 2000 Plan. At the Company's June
6, 2000 Annual Meeting, the stockholders approved the 2000 Plan. In accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", the measurement date for valuing the stock options for the purpose
of determining compensation expense was June 6, 2000, the date of stockholder
approval. The market price of the Common Stock on this date was $2.093 per
share. Therefore, an aggregate of $683,733 will be charged to compensation
expense over the vesting periods of the options, which vest in approximately 50%
increments on November 5, 2000 and November 5, 2001. The Company recognized
$398,785 as compensation expense in 2000, leaving a balance of $284,948 as
deferred stock option compensation at December 31, 2000.
F-17
The following summarizes activity for options granted to directors and employees
under the 1994, 1999 and 2000 Plans:
Options Weighted Weighted
Exercisable Average Average
At End of Grant-date Exercise
Options Year Fair Value Price
------- ---- ---------- -----
Outstanding January 1, 1998 1,316,465 1,023,090
=========
Granted 610,750 $ 1.50 $ 1.99
Cancelled (91,600) -- 2.85
Exercised (40,500) -- 1.18
---------
Outstanding December 31,1998 1,795,115 1,382,615
=========
Granted 438,000 $ 0.55 $ 0.70
Cancelled (187,250) -- 2.17
Exercised -- -- --
---------
Outstanding December 31, 1999 2,045,865 1,639,615
=========
Granted 571,500 $ 1.96 $ 0.87
Cancelled (64,650) -- 1.78
Exercised (245,600) -- 1.28
--------- ====== ======
Outstanding December 31, 2000 2,307,115 1,968,540
========= =========
A summary of options outstanding and exercisable as of December 31, 2000,
follows:
Options Outstanding Options Exercisable
------------------------------------------------- -------------------------------
Range of
Weighted Ave. Number Remaining Weighted Ave. Number Weighted Ave.
Exercise Price Outstanding Life (years) Exercise Price Exercisable Exercise Price
- -------------- ----------- ------------ -------------- ----------- --------------
$ .50-.98 773,250 9.0 $ .65 514,925 $ .65
1.00-1.97 858,365 6.6 1.81 812,115 1.83
2.16-4.69 675,500 5.8 2.81 641,500 2.80
--------- -------
2,307,115 1.71 1,968,540 1.84
========= ==== ========= ====
As of December 31, 2000, options to purchase 310,000 shares and 3,463,850 shares
of Common Stock were available for grant under the 1999 and 2000 Plans.
The Company accounts for options granted to employees and directors under APB
Opinion No. 25. Had compensation cost for options granted to employees and
directors been determined consistent with SFAS No. 123, the Company's pro forma
net loss and pro forma net loss per share would have been as follows as of
December 31:
2000 1999 1998
-------------- ------------ ------------
Net loss:
As reported $ (13,778,727) (1,577,340) (6,881,012)
Pro forma (13,953,727) (2,182,340) (7,796,012)
============== ============ ============
Basic and diluted net loss per share:
As reported $ (0.31) (0.04) (0.18)
Pro forma (0.32) (0.05) (0.20)
============== ============ ============
F-18
The fair value of the stock options granted in 2000, 1999 and 1998 is estimated
at grant date using the Black-Scholes option-pricing model with the following
weighted average assumptions: dividend yields of 0%; expected volatility of 103%
in 2000, 74% in 1999 and 63% in 1998; a risk-free interest rate of 4.7% in 2000,
6.4% in 1999 and 4.8% in 1998; and expected lives of 5 years in 2000 and 6 years
in 1999 and 1998.
During 1995, the Company granted to a consultant options to purchase 10,000
shares of the Company's Common Stock, expiring in 2000, immediately exercisable
at $1.44 per share. These options were exercised in a cashless exercise during
2000, resulting in the issuance of 4,175 shares of Common Stock.
14. Income Taxes
As of December 31, 2000, the Company had available for federal income tax
reporting purposes net operating loss carryforwards in the approximate amount of
$68,000,000, expiring from 2001 through 2020, which are available to reduce
future earnings which would otherwise be subject to federal income taxes. In
addition, the Company has research and development credits in the approximate
amount of $2,500,000, which are available to reduce the amount of future federal
income taxes. These credits expire from 2001 through 2020. The Company has New
Jersey operating loss carryforwards in the approximate amount of $23,300,000,
expiring from 2003 through 2007, which are available to reduce future earnings,
which would otherwise be subject to state income tax. As of December 31, 2000,
approximately $11,400,000 of these New Jersey loss carryforwards have been
approved for future sale under a program of the New Jersey Economic Development
Authority (the "NJEDA"). In order to realize these benefits, the Company must
apply to the NJEDA each year and must meet various requirements for continuing
eligibility. In addition, the program must continue to be funded by the State of
New Jersey, and there are limitations based on the level of participation by
other companies. As a result, future tax benefits will be recognized in the
financial statements as specific sales are approved. In the fourth quarters of
2000 and 1999, the Company realized $1,065,000 and $1,553,000, respectively, of
tax benefits arising from the sale of a portion of the Company's New Jersey net
operating loss carryforwards that had previously been subject to a full
valuation allowance.
Given the Company's past history of incurring operating losses, any gross
deferred tax assets that are recognizable under SFAS No. 109 have been fully
reserved. As of December 31, 2000 and 1999, the Company had gross deferred tax
assets of approximately $29,000,000 and $26,000,000, respectively, subject to
valuation allowances of $29,000,000 and $26,000,000, respectively. The gross
deferred tax assets were generated primarily as a result of the Company's net
operating losses and tax credits. The Company's ability to use such net
operating losses may be limited by change in control provisions under Internal
Revenue Code Section 382.
15. Employee Benefit Plan
The Company maintains a deferred compensation plan covering all full-time
employees. The plan allows participants to defer a portion of their compensation
on a pre-tax basis pursuant to Section 401(k) of the Internal Revenue Code of
1986, as amended, up to an annual maximum for each employee set by the Internal
Revenue Service. The Company's discretionary matching contribution expense for
2000, 1999 and 1998 was approximately $48,000, $44,000 and $43,000,
respectively.
F-19
16. Research and Licensing Revenue
In July 1997, the Company entered into an agreement under which it granted to
the Parke-Davis division of Warner-Lambert Company a worldwide license to use
the Company's oral Calcitonin technology. In June 2000, Pfizer Inc. acquired
Warner-Lambert. During 1997, the Company received $3 million for an equity
investment and $3 million for a licensing fee (see Note 2). Several milestones
were achieved during 1998, resulting in milestone revenue of $5 million. In
1999, two pilot human studies for the Company's oral calcitonin formulation were
successfully concluded, resulting in milestone revenue totaling $5 million. Also
in 1999, the Company and Pfizer identified an oral calcitonin formulation to be
used in the Phase I/II clinical study entitling the Company to milestone revenue
of an additional $4.5 million. During 2000, two milestones were achieved
resulting in milestone revenue of $2 million. Patient dosing for this study was
completed in December 2000. Pfizer analyzed the results of this study and
terminated the agreement in March 2001 citing scientific and technical reasons.
17. Liquidity
The Company has incurred annual operating losses since its inception and, as a
result, at December 31, 2000 has an accumulated deficit of approximately
$75,378,000 and has a working capital deficiency of approximately $13,267,000.
These factors raise substantial doubt about the Company's ability to continue as
a going concern. However, the financial statements have been prepared on a going
concern basis and as such do not include any adjustments that might result from
the outcome of this uncertainty. The Company's cash requirements are
approximately $10 to 11 million per year to operate its research and peptide
manufacturing facilities and develop its three Calcitonin products. In addition,
the Company has principal and interest obligations under its outstanding notes
payable to stockholders and 5% Convertible Debentures and its obligations
relating to its current and former joint ventures in China. The Company's cash
requirements related to the 5% Debentures include the redemption premium,
delisting penalties and the increased interest rate described in Note 6.
Management is actively seeking licensing and/or supply agreements with
pharmaceutical companies for oral, nasal and injectable forms of Calcitonin as
well as for other oral peptides. With the recent termination of our Pfizer
collaboration, we currently have no licenses for any of our products in the U.S.
We do not have sufficient financial resources to continue to fund our operations
at the current level. We had an operating cash flow deficit of $4,864,000 in
1998, an operating cash flow deficit of $1,400,000 in 1999 and for the year
ended December 31, 2000, an operating cash flow deficit of $3,382,000. The
agreement that we have entered into with Fusion could provide Unigene with
funding beginning in the first half of 2001. See Note 7.
Under the agreement with Fusion, after a registration statement is declared
effective by the SEC for the resale of the shares of Unigene common stock to be
sold to Fusion, Fusion will be required to purchase, at the then current market
price, shares of Unigene common stock at the rate of $875,000 per month over a
period of 24 months, provided that Unigene continues to satisfy the requirements
that are a condition to Fusion's obligation. The Board of Directors has
F-20
authorized the sale to Fusion of up to 6,000,000 shares of Unigene common stock.
We anticipate that, in order to sell significantly in excess of 6,000,000 shares
to Fusion, it may be necessary to obtain stockholder approval of an amendment to
our Certificate of Incorporation to increase the number of shares of Unigene
common stock that we are authorized to issue. However, we cannot predict when or
if the SEC will declare the registration statement effective, if the
stockholders will approve an amendment to our certificate of incorporation or if
we will be able to meet the continuing requirements of the Fusion agreement.
If we do not receive any financing from Fusion, we will need to secure another
source of financing in order to satisfy our working capital needs, which may be
unavailable or the cost of which may be prohibitively expensive. Should such
financing be unavailable or prohibitively expensive, it will be necessary for
Unigene to curtail significantly its operations or consider alternative uses of
its technology and manufacturing capability including the supply of Calcitonin
to other companies. Assuming we are able to raise additional capital through our
agreement with Fusion, we still anticipate that we may need additional capital
to implement fully our business plans. We believe that satisfying our capital
requirements over the long term will require the successful commercialization of
our Calcitonin product or another peptide product in the United States and
abroad. However, it is uncertain whether or not any of our products will be
approved or will be commercially successful. The commercialization of our oral
Calcitonin product may require us to incur additional capital expenditures to
expand or upgrade our manufacturing operations to satisfy future supply
obligations. However, we cannot determine either the cost or the timing of such
capital expenditures at this time.
18. Legal Matters
In addition to the arbitration proceedings discussed in Note 6, Reseau de Voyage
Sterling, Inc. (Reseau) filed suit against the Company in July 2000. Reseau,
which purchased from a third party a warrant to purchase one million shares of
Unigene common stock, alleges that the Company breached a verbal agreement to
extend the term of the warrant beyond its expiration date. Reseau is seeking
damages of $2 million. We believe that the suit is completely without merit and
we intend to vigorously contest the claim.
F-21
Part II
Information Not Required in Prospectus
Item 13. Other Expenses of Issuance and Distribution*
The expenses payable by the Registrant in connection with the issuance and
distribution of the securities being registered (other than underwriting
discounts and commissions, if any) are set forth below. Each item listed is
estimated, except for the Securities and Exchange Commission registration fee.
Securities and Exchange Commission registration fee....... $ {2,529} [2,759]
Blue Sky fees and expenses................................ 5,485
Accounting fees and expenses.............................. {15,000} [25,000]
Legal fees and expenses................................... 45,000
Registrar and transfer agent's fees and expenses.......... 1,000
Printing and engraving expenses........................... 0
Miscellaneous............................................. 0
---------
Total expenses............................................ $ {69,014} [79,244]
========== =======
Item 14. Indemnification of Directors and Officers
Article VI of the Registrant's By-laws requires the Registrant to indemnify
each of its directors and officers to the extent permitted by the Delaware
General Corporation Law ("DGCL"). Section 145 of the DGCL provides that a
corporation may indemnify any person, including any officer or director, who was
or is a party, or who is threatened to be made a party, to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
corporation), by reason of the fact that he is or was a director, officer,
employee or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement,
actually and reasonably incurred by such person, if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the corporation and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful. Section 145 also
provides that a corporation may indemnify any person, including any officer or
director, who was or is a party, or who is threatened to be made a party, to any
threatened, pending or completed action by or in the right of the corporation,
by reason of the fact that he is or was a director, officer, employee or agent
of the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of the action, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification may be made with respect to any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation, unless and only to the extent that a court of
competent jurisdiction shall determine that such indemnity is proper. To the
extent that a director or officer is successful on the merits or otherwise in
II-1
the defense of any action referred to above, the corporation is required under
Delaware law to indemnify that person against expenses (including attorneys'
fees) actually and reasonably incurred in connection therewith.
The Registrant's Certificate of Incorporation provides that no director
shall be liable to the Registrant or its stockholders for monetary damages for
breach of his fiduciary duty as a director. However, a director will be liable
for any breach of his duty of loyalty to the Registrant or its stockholders, for
acts or omissions not in good faith or involving intentional misconduct or
knowing violation of law, any transaction from which the director derived an
improper personal benefit, or payment of dividends or approval of stock
repurchases or redemptions that are unlawful under Delaware law.
Item 15. Recent Sales of Unregistered Securities
Since September 30, 1997, Unigene has made the following sales of
securities that were not registered under the Securities Act of 1933, as amended
(the "Securities Act"):
(1) During the quarter ended December 31, 1997, Unigene sold for cash 7,500
shares of Unigene common stock to a financial consultant upon the exercise of an
equal number of warrants, each exercisable to purchase one share of Unigene
common stock at an exercise price of $2.00 per share. The sale of such shares
was effected without registration in reliance on an exemption under Section 4
(2) of the Securities Act.
(2) On June 29, 1998, Unigene sold for cash $4,000,000 in aggregate
principal amount of its 5% convertible debentures due December 31, 2001 (the "5%
Debentures") to The Tail Wind Fund, Ltd. The sale of the 5% Debentures was
effected without registration in reliance on an exemption under Section 4(2) of
the Securities Act. Interest on the 5% Debentures is payable in cash or, at the
option of Unigene, in Unigene common stock. Beginning January 1, 1999, the 5%
Debentures became convertible into (i) Unigene common stock at a conversion
price (the "Conversion Price") equal to the lower of (a) $ 1.59 (the "Cap
Price") and (b) the average of the four lowest closing bid prices of the Unigene
common stock during the 18 trading days prior to the date of conversion (the
"Market Price") and (ii) warrants, expiring five years from the date of
issuance, to purchase a number of shares of Unigene common stock equal to 4% of
the number of shares issuable upon conversion at an exercise price equal to 125%
of the Conversion Price.
(3) On August 6, 1998, Unigene issued 163,635 shares of Unigene common
stock upon the conversion of $225,000 in principal amount of loans made by
officers of Unigene. All of such shares were issued by Unigene without
registration in reliance on an exemption under Section 4 (2) of the Securities
Act.
(4) In the quarter ended September 30, 1998, Unigene issued 214,131 shares
of Unigene common stock upon the conversion of $222,575 in principal amount of
and accrued interest on Unigene's 10% Convertible Debentures due March 4, 1999.
All of such shares were issued by Unigene without registration in reliance on an
exemption under Section 3(a) (9) of the Securities Act.
(5) In the quarter ended December 31, 1998, Unigene issued 448,834 shares
of Unigene common stock upon the conversion of $502,694 in principal amount of
Unigene's 9.5% Convertible Debentures. All of such shares were issued by Unigene
without registration in reliance on an exemption under Section 3(a) (9) of the
Securities Act.
II-2
(6) In January 1999, Unigene issued 79,384 shares of Unigene common stock
as payment of approximately $101,000 in accrued interest on the 5% Debentures.
All of such shares were issued by Unigene without registration in reliance on an
exemption under Section 4 (2) of the Securities Act.
(7) In January 1999, Unigene issued 164,102 shares of Unigene common stock
upon the conversion of $200,000 in principal amount of the 5% Debentures. All of
the shares were issued by Unigene without registration in reliance on an
exemption under Section 3(a)(9) of the Securities Act.
(8) During the quarter ended June 30, 1999, $1,000,000 in principal amount
of the 5% Debentures were converted into (a) 1,457,458 shares of Unigene common
stock and (b) warrants, expiring April through June 2004, to purchase an
aggregate of 58,298 shares of Unigene common stock at exercise prices ranging
from $.78 to $1.15 per share. All of such shares and warrants were issued by
Unigene without registration in reliance on an exemption under Section 3(a)(9)
of the Securities Act.
(9) In July 1999, Unigene issued 95,853 shares of Unigene common stock as
payment of approximately $90,000 in accrued interest on the 5% Debentures. All
of such shares were issued by Unigene without registration in reliance on an
exemption under Section 4 (2) of the Securities Act.
(10) During the quarter ended December 31, 1999, $800,000 of principal
amount of the 5% Debentures were converted into (a) 1,906,565 shares of Unigene
common stock and (b) warrants, expiring in 2004, to purchase an aggregate of
76,261 shares of Unigene common stock at exercise prices ranging from $.46 to
$.60 per share. All of such shares and warrants were issued by Unigene without
registration in reliance on an exemption under Section 3(a) (9) of the
Securities Act.
(11) In the quarter ended March 31, 2000, Unigene issued for cash 626,036
shares of Unigene common stock upon the exercise of an equal number of warrants
exercisable to purchase one share of Unigene common stock at exercise prices
ranging from $1.38 to $2.43 per share. An additional 103,032 shares of Unigene
common stock were issued upon the cashless exercise of a total of 141,123
warrants at exercise prices ranging from $.46 to $1.52 per share. All of such
shares were issued by Unigene without registration in reliance on an exemption
under Section 4 (2) of the Securities Act.
(12) In the quarter ended June 30, 2000, Unigene issued 56,007 shares of
Unigene common stock upon the cashless exercise of a total of 116,666 warrants
at exercise prices ranging from $1.38 to $1.44 per share. All of such shares
were issued by Unigene without registration in reliance on an exemption under
Section 4 (2) of the Securities Act.
(13) In the quarter ended September 30, 2000, Unigene issued 95,685 shares
of Unigene common stock upon the cashless exercise of a total of 195,834
warrants and options at exercise prices ranging from $1.38 to $1.44 per share.
In addition, Unigene issued for cash 224,500 shares of Unigene common stock upon
the exercise of warrants at exercise prices ranging from $1.38 to $1.50 per
share. All of the shares were issued by Unigene without registration in reliance
on an exemption under Section 4 (2) of the Securities Act.
(14) In the quarter ended December 31, 2000, Unigene issued 8,636 shares of
Unigene common stock upon the cashless exercise of a total of 22,000 warrants at
an exercise price of $2.00 per share. All of the shares were issued by Unigene
without registration in reliance on an exemption under Section 4(2) of the
Secruities Act.
(15) In the quarter ended March 31, 2001, Unigene issued to Fusion
2,000,000 shares of Unigene common stock and a warrant to purchase 1,000,000
shares of Unigene common stock. These securities were issued by Unigene without
registration in reliance on an exemption under Section 4 (2) of the Securities
Act.
II-3
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits:
Exhibit
Number Description
-------
3.1 Certificate of Incorporation of the Registrant and Amendments thereto
to July 1, 1986 (incorporated by reference to Exhibit 3.1 to the
Registrant's Registration Statement No. 33-6877 on Form S-1, filed July
1, 1986).
3.1.1 Amendments to Certificate of Incorporation filed July 29, 1986 and May
22, 1987 (incorporated by reference to Exhibit 3.1.1 to the
Registrant's Registration Statement No. 33-6877 on Form S-1, filed July
1, 1986).
3.1.2 Amendment to Certificate of Incorporation filed August 22, 1997
(incorporated by reference to Exhibit 3.1.2 of the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1997).
3.2 By-Laws of the Registrant (incorporated by reference to Exhibit 3.2 of
the Registrant's Annual Report on Form 10-K for the year ended December
31, 1993).
4.2 Specimen Certificate for Common Stock, par value $.01 per share
incorporated by reference to Exhibit 3.1.1 to the Registrant's
Registration Statement No. 33-6877 on Form S-1, filed July 1, 1986).
5.1 Opinion of Covington & Burling, [dated February 8, 2001] as to the
legality of {certain} [7,331,009] of the shares [of Unigene common
stock] being registered. *
[5.2 Opinion of Covington & Burling, dated April 2, 2001, as to the
legality of 1,668,991 of the shares of Unigene common stock being
registered **]
10.1 Lease agreement between the Registrant and Fulton Street Associates,
dated May 20, 1993 (incorporated by reference to Exhibit 10.1 of the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1992 (File No. 0-16005)).
10.2 1994 Employee Stock Option Plan (incorporated by reference to the
Registrant's Definitive Proxy Statement dated April 28, 1994, which is
set forth as Appendix A to Exhibit 28 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1993(File No. 0-16005)).
10.3 Directors Stock Option Plan (incorporated by reference to Exhibit 10.4
to the Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1999 (File No. 0-16005)).
10.4 Mortgage and Security Agreement between the Registrant and Jean Levy
dated February 10, 1995 (incorporated by reference to Exhibit 10.4 of
the Registrant's Annual Report on Form 10-K for the year ended December
31, 1994).
II-4
10.5 Loan and Security Agreement between the Registrant and Jay Levy, Warren
P. Levy and Ronald S. Levy dated March 2, 1995 (incorporated by
reference to Exhibit 10.5 of the Registrant's Annual Report on Form
10-K for the year ended December 31, 1994).
10.6 Employment Agreement between the Registrant and Warren P. Levy, dated
January 1, 2000 (incorporated by reference to Exhibit 10.6 of the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1999).
10.7 Employment Agreement between the Registrant and Ronald S. Levy, dated
January 1, 2000 (incorporated by reference to Exhibit 10.7 of the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1999).
10.8 Employment Agreement between the Registrant and Jay Levy, dated January
1, 2000 (incorporated by reference to Exhibit 10.8 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1999).
10.9 Split Dollar Agreement dated September 30, 1992 between the Registrant
and Warren P. Levy (incorporated by reference to Exhibit 10.9 of the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1992).
10.10 Split Dollar Agreement dated September 30, 1992 between the Registrant
and Ronald S. Levy (incorporated by reference to Exhibit 10.10 of the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1992).
10.12 Amendment to Loan Agreement and Security Agreement between the
Registrant and Jay Levy, Warren P. Levy and Ronald S. Levy dated March
20, 1995 (incorporated by reference to Exhibit 10.12 of the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1994).
10.14 Amendment to Loan and Security Agreement between the Registrant and Jay
Levy, Warren P. Levy and Ronald S. Levy dated June 29, 1995
(incorporated by reference to Exhibit 10.14 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1995).
10.15 Promissory Note between the Registrant and Jay Levy, Warren P. Levy and
Ronald S. Levy dated June 29, 1995 (incorporated by reference to
Exhibit 10.15 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995).
10.17 License Agreement, dated as of July 15, 1997, between the Registrant
and Warner-Lambert Company (incorporated by reference to Exhibit 10.1
to the Registrant's Current Report on Form 8-K, dated July 15, 1997).
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10.19 Purchase Agreement, dated June 29, 1998, between the Registrant and The
Tail Wind Fund, Ltd. (incorporated by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June
30, 1998).
10.20 Registration Rights Agreement, dated June 29, 1998, between the
Registrant and The Tail Wind Fund, Ltd. (incorporated by reference to
Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998).
10.21 Form of Promissory Note between the Registrant and Jay Levy
(incorporated by reference to Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1999).
10.22 Form of Promissory Note between the Registrant and Warren Levy and
Ronald Levy (incorporated by reference to Exhibit 10.2 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June
30, 1999).
10.23 Amendment to Loan Agreement and Security Agreement between the
Registrant and Jay Levy, Warren Levy and Ronald Levy dated June 25,
1999 (incorporated by reference to Exhibit 10.3 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1999).
10.24 Amended and Restated Secured Note between the Registrant and Jay Levy
dated July 13, 1999 (incorporated by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999).
10.25 Amended and Restated Security Agreement between the Registrant and Jay
Levy, Warren P. Levy and Ronald S. Levy dated July 13, 1999
(incorporated by reference to Exhibit 10.2 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1999).
10.26 Subordination Agreement between the Registrant and Jay Levy, Warren P.
Levy and Ronald S. Levy dated July 13, 1999 (incorporated by reference
to Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1999).
10.27 Mortgage and Security Agreement dated July 13, 1999, between the
Registrant and Jay Levy (incorporated by reference to Exhibit 10.4 to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999).
10.28 $70,000 Secured Note between the Registrant and Jay Levy dated July 30,
1999 (incorporated by reference to Exhibit 10.5 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1999).
10.29 $200,000 Secured Note between the Registrant and Jay Levy dated August
5, 1999 (incorporated by reference to Exhibit 10.6 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1999).
10.30 Modification of Mortgage and Security Agreement between the Registrant
and Jay Levy dated August 5, 1999 (incorporated by reference to Exhibit
10.7 to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999).
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10.31 Amendment to Security Agreement and Subordination Agreement between the
Registrant and Jay Levy, Warren Levy and Ronald Levy dated August 5,
1999 (incorporated by reference to Exhibit 10.8 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1999).
10.32 Joint Venture Contract between Shijiazhuang Pharmaceutical Group
Company, Ltd., and Unigene Laboratories, Inc., dated June 15, 2000
(incorporated by reference to Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, with
certain confidential information omitted and filed separately with the
Secretary of the Commission).
10.33 Articles of Association of Shijiazhuang-Unigene Pharmaceutical
Corporation Limited, dated June 15, 2000 (incorporated by reference to
Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2000, with certain confidential information
omitted and filed separately with the Secretary of the Commission).
10.34 2000 Stock Option Plan (incorporated by reference to Attachment A to
the Registrant's Schedule 14A, dated April 28, 2000, containing the
Registrant's Definitive Proxy Statement for its 2000 Annual Meeting of
Stockholders (File No. 0-16005)).
10.35 Common Stock Purchase Agreement, dated December 18, 2000, between the
Registrant and Fusion Capital Fund II, LLC.*
10.36 Registration Rights Agreement, dated December 18, 2000, between the
Registrant and Fusion Capital Fund II, LLC.*
[10.37 First Amendment to Common Stock Purchase Agreement, dated March 30,
2001, between the Registrant and Fusion Capital Fund II, LLC.**
10.38 Registration Rights Agreement, dated March 30, 2001, between the
Registrant and Fusion Capital Fund II, LLC.**
10.39 Warrant, dated March 30, 2001, between the Registrant and Fusion
Capital Fund II, LLC.** ]
23.1 Consent of KPMG LLP.**
23.2 Consent of Covington & Burling (included in opinion filed as Exhibit
5.1)*{*}
[23.3 Consent of Covington & Burling (included in opinion filed as Exhibit
5.2)**].
24.1 Powers of Attorney of Directors of Unigene Laboratories, Inc. (included
on signature page)
{27 Financial Data Schedules**}
- -------------------
* Previously filed
** Filed herewith
(b) Financial Statement Schedules
No financial statement schedules are required.
Item 17. Undertakings
(a) 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:
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(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 the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b),
if, in the aggregate, the changes in volume and price represent
no more than 20% change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in the
effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
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 therein, 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.
(b) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the 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-8
Signatures
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Fairfield, New Jersey,
on this 10th day of April 2001.
UNIGENE LABORATORIES, INC.
By: /s/ Warren P. Levy
-------------------------
Warren P. Levy
President
Each person whose signature appears below hereby constitutes and appoints
Warren P. Levy and Ronald S. Levy, his true and lawful attorneys-in-fact and
agents, 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
(including, without limitation, post-effective amendments) to this Registration
Statement and any subsequent registration statement filed by the Registrant
pursuant to Rule 462(b) of the Securities Act of 1933, which relates to this
Registration Statement, and to file the same, with all exhibits thereto, and all
documents in connection herewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or his or their substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed on this 10th day of April 2001 by
the persons and in the capacities indicated below.
Signature Title
- ----------------------------- ----------------------------------------
/s/ Warren P. Levy President and Chief Executive
- ----------------------------- Officer (principal executive
Warren P. Levy officer) and Director
/s/ Jay Levy Treasurer (principal financial
- ----------------------------- and accounting officer)
Jay Levy
/s/ Ronald S. Levy Director
- -----------------------------
Ronald S. Levy
* Director
- -----------------------------
Allen Bloom
* Director
- -----------------------------
Robert F. Hendrickson
* By Power of Attorney
/s/ Warren P. Levy
- -----------------------------
Warren P. Levy
II-9
EXHIBIT INDEX
Exhibit
Number Description
- ------ ----------------------------------------------------------------
{5.1} [5.2] Opinion of Covington & Burling.
[10.37 First Amendment to Common Stock Purchase Agreement, dated
March 30, 2001, between the Registrant and Fusion Capital Fund
II, LLC.
10.38 Registration Rights Agreement, dated March 30, 2001, between the
Registrant and Fusion Capital Fund II, LLC.
10.39 Warrant, dated March 30, 2001, between the Registrant and Fusion
Capital Fund II, LLC. ]
23.1 Consent of KPMG LLP.
{23.2} [23.3] Consent of Covington & Burling (included in opinion filed as
Exhibit {5.1)} [5.2).]
{27 Financial Data Schedules.}
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