As Filed With the Securities and Exchange Commission on April 11, 1996.
Registration No. 33-86736
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST EFFECTIVE AMENDMENT #2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
COLUMBIA LABORATORIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 5122 59-2758596
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
2665 SOUTH BAYSHORE DRIVE
MIAMI, FLORIDA 33133
(305) 860-1670
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Norman M. Meier, President
Columbia Laboratories, Inc.
2665 South Bayshore Drive
Miami, Florida 33133
(305) 860-1670
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Stephen M. Besen, Esq.
Weil, Gotshal & Manges
767 Fifth Avenue
New York, New York 10153
Approximate date of commencement of proposed sale to the public: As soon as
practicable 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, as amended, please check the following box [ x ].
Pursuant to Rule 416, there are also being registered such additional
shares of Common Stock as may become issuable pursuant to anti-dilution
provisions of the Warrants.
COLUMBIA LABORATORIES, INC.
Cross Reference Sheet Showing the Location In the Prospectus of
Information Required by Items of Form S-1
ITEMS AND CAPTION LOCATION IN PROSPECTUS
----------------- ----------------------
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus Inside Front and Outside Back Cover Pages
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Outside Front Cover Page
6. Dilution Dilution
7. Selling Security Holders Selling Securityholders
8. Plan of Distribution Plan of Distribution
9. Description of Securities to be Registered Description of Securities
10. Interests of Named Experts and Counsel Not Applicable
11. Information with respect to the
Registrant The Company; Business; Properties; Legal
Proceedings; Selected Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of Operations;
Price Range of Common Stock; Dividend Policy;
Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure;
Management; Security Ownership of Certain
Beneficial Owners and Management; Certain
Relationships and Related Transactions; Selling
Securityholders; Consolidated Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities Indemnification of Officers and Directors
COLUMBIA LABORATORIES, INC.
PROSPECTUS
2,475,000 Shares of Common Stock Issuable Upon Conversion of
Outstanding Debt and Accrued Interest
1,420,000 Shares of Common Stock Issued or Issuable Upon Exercise of
Certain Warrants
150,000 Shares of Common Stock Issued or Issuable in a Private
Placement
50,000 Shares of Common Stock Issued in Payment of Legal Services
308 Shares of Common Stock Issued for Consulting Services
The Prospectus relates to (i) 2,475,000 shares of Common Stock, $.01
par value per share ("Common Stock") of Columbia Laboratories, Inc. (the
"Company"), issuable upon conversion of the notes and accrued interest related
to the 1993 Debt Offering ("Conversion Shares"); (ii) 1,420,000 shares of Common
Stock ("Warrant Shares") issuable upon exercise of certain warrants
("Warrants"); (iii) 150,000 shares of Common Stock issued in connection with a
private placement offering ("1994 Private Placement Shares"); (iv) 50,000 shares
of Common Stock issued in payment of legal services and (v) 308 shares of Common
Stock issued to Thomas D. Parry and Romano Romani ("Additional Romani Shares")
in partial payment for consulting services rendered. The Warrants were issued to
purchase (i) 1,212,500 shares of Common Stock at $4.00 per share, exercisable
through June 30, 1998, issued in connection with the 1993 Debt Offering (the
exercise price of 1,050,000 of the warrants was reduced to $3.50 per share,
conditioned upon the immediate exercise of the warrants and certain other
consideration); (ii) 150,000 shares of Common Stock at $4.375 per share,
exercisable through September 28, 1999, issued to Dominion Capital in
recognition of the continued support Dominion provides the Company and (iii)
57,500 shares of Common Stock at $4.875 per share, exercisable through July 19,
1999, issued to certain individuals in recognition of the continued support
these individuals provide the Company. The exercise price of the Warrants are
subject to adjustment in certain events. The Conversion Shares, Warrant Shares,
1994 Private Placement Shares and the Additional Romani Shares are collectively
referred to as the "Shares".
The Shares offered pursuant to this Prospectus may be sold from time to
time by the selling securityholders ("Selling Securityholders"), or by their
transferees, in certain instances. No underwriting arrangements have been
entered into for the sale of the Shares. Sales may be made from time to time on
the American Stock Exchange at prices prevailing at the time of sale, or in
private transactions at negotiated prices, and any commissions paid or discounts
given will be those customary in the transactions involved.
The Selling Securityholders and brokers and dealers through whom such
securities are sold may be deemed "underwriters" within the meaning of the
Securities Act of 1933, as amended ("Securities Act"), with respect to such
securities, and any profits realized or commissions received may be deemed
underwriting compensation. The Company has agreed to indemnify the Selling
Securityholders against certain liabilities, including liabilities under the
Securities Act.
The Company's Common Stock trades on the American Stock Exchange
("AMEX") under the symbol COB. On April __, 1996, the last reported sale price
of the Company's Common Stock on the American Stock Exchange was $__.__.
See "Price Range of Common Stock."
THE SECURITIES OFFERED HEREBY INVOLVE
A HIGH DEGREE OF RISK.
SEE "RISK FACTORS ON PAGES 3-7."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS
THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is April __, 1996.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 under Section 15(d) thereof and in accordance
therewith files reports and other information with the Securities and Exchange
Commission ("Commission"). In addition, the Company has filed with the
Commission a registration statement on Form S-1 under the Securities Act
covering the securities offered by this Prospectus. Such reports and other
information can be inspected and copied at public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C.; Northwestern Atrium Center, 500 W. Madison Street, Suite
1400, Chicago, Illinois; and 7 World Trade Center, Suite 1300, New York, New
York. Copies of such material can be obtained from the Public Reference Section
of the Commission, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. In addition, the Company's Common Stock trades on
the American Stock Exchange and reports, proxy statements and other information
concerning the Company can be inspected at the offices of the American Stock
Exchange, 86 Trinity Place, New York, New York.
THE COMPANY
Columbia Laboratories, Inc. (the "Company") was incorporated as a
Delaware corporation in December 1986. The Company's principal executive offices
are located at 2665 South Bayshore Drive, Miami, Florida 33133, and its
telephone number is (305) 860-1670. The Company's subsidiaries, all of which are
wholly-owned, are Columbia Laboratories (Bermuda) Ltd. ("Columbia Bermuda"),
Columbia Laboratories (France) SARL ("Columbia France"), Columbia Laboratories
(UK) Limited ("Columbia UK"), Columbia Laboratories (Ireland) Limited ("Columbia
Ireland") and Columbia Research Laboratories, Inc. ("Columbia Research").
The Company's objective is to develop on a worldwide basis a portfolio
of women's prescription and over-the-counter products, including those which
help prevent sexually transmitted diseases. Columbia's products primarily
utilize the Company's patented bioadhesive delivery technology, the Bioadhesive
Delivery System ("See "Business-Products").
Formulated products utilizing the Bioadhesive Delivery System consist
principally of a polymer, polycarbophil, and an active ingredient. The
Bioadhesive Delivery System is based upon the principle of bioadhesion, a
process by which the polymer adheres to epithelial surfaces and to mucin, a
naturally occurring secretion of the mucous membranes. The polymer remains
attached to epithelial surfaces and/or the mucin and is discharged upon normal
cell turnover or upon the detachment of the mucin from the mucous membranes, a
physiological process which, depending upon the area of the body, occurs every
12 to 72 hours. This extended period of attachment permits the Bioadhesive
Delivery System to be utilized in products when extended duration of
effectiveness is desirable or required.
The Company's initial efforts have applied the technology to women's
health care products that can be sold as cosmetics and over-the-counter drugs,
which do not require governmental or regulatory approval. The Company has
focused on women's health care because of the significant number of
women--particularly of post-menopausal age--whose health and hygiene needs have
not been met by available products and because the Company has found vaginal
delivery to be particularly effective. The Company intends to continue to
develop products that improve the delivery of previously approved drugs.
2
RISK FACTORS
An investment in the securities offered hereby is speculative and
involves a high degree of risk. The securities should be purchased only by
persons who are sophisticated in financial and business matters and who can
afford the loss of their entire investment. In addition, prospective investors
should carefully consider, along with the other information contained herein,
the following special considerations and risk factors in analyzing the offering.
1. HISTORY OF LOSSES; SHORTAGE OF WORKING CAPITAL. The Company
sustained a net loss of $959,472 for the fiscal year ended December 31, 1995,
which was primarily the result of research and development activities. While the
Company completed a $13 million private placement in March 1996, there can be no
assurance that the proceeds of the private placement and funds generated from
operations will be sufficient to achieve the Company's research and development
plans. In the event that the Company is unable to generate sufficient funds from
sales of its current products, the Company expects to need additional funds to
continue and complete research and development, conduct pre-clinical and
clinical trials and apply for regulatory approval, if necessary. In such event,
if the Company is unable to obtain such additional funds, the Company may be
unable to continue operations. In addition, companies engaging in the
development and commercialization of prescription and over-the-counter drugs and
cosmetics frequently encounter various unanticipated problems, including
development, regulatory, manufacturing, distribution and marketing difficulties.
The failure to adequately address such difficulties would adversely affect the
Company's prospects.
2. DEPENDENCE UPON STRATEGIC ALLIANCE AGREEMENTS. The Company's
original commercialization strategy was to market Replens(R) through its own
sales force. In 1991, in order to gain mass marketing power and access to
worldwide markets quickly, the Company developed and executed an alternative
marketing strategy. The Company entered into strategic alliance agreements with
various companies for the distribution and marketing of its bioadhesive products
in certain countries. There can be no assurance that any of the companies with
whom the Company has entered into these agreements will aggressively or
successfully market the products. The Company's success to a great extent is
dependent on the marketing efforts of its strategic alliance partners, over
which the Company has limited ability to influence. The failure of these
companies to successfully market the products could have a materially adverse
effect on the Company's cash flow. The failure of the Company to satisfy its
obligations under any of these agreements may result in modifications of the
terms or termination of the relevant agreement. There can be no assurance that
the Company will have the ability to satisfy all of its obligations under the
agreements. Modification or termination of these agreements could have a
materially adverse effect on the business and financial condition of the
Company.
As part of these agreements, certain of the strategic alliance partners
have the right of first option or right of first refusal, in the applicable
countries, to license future gynecological products developed by the Company.
The Company is currently in discussions with these partners and other companies
regarding the potential licensing of other products. There can be no assurance
that the Company will be able to enter into any such agreements or that any
upfront payments or ongoing royalties will be received or whether the partners
will aggressively or successfully market these products.
3. COMPETITION. While the Company has entered into the strategic
alliance agreements for the marketing of its bioadhesive products in certain
countries with large pharmaceutical companies, there
3
can be no assurance that the Company and its partners will have the ability to
compete successfully. The Company's success to a great extent is dependent on
the marketing efforts of its strategic alliance partners, over which the Company
has limited ability to influence. The markets which the Company and its
strategic alliance partners operate in or intend to enter are characterized by
intense competition. The Company and its partners compete against established
pharmaceutical and consumer product companies which market products addressing
similar needs. In addition, numerous companies are developing, or in the future
may develop, enhanced delivery systems and products competitive with the
Company's present and proposed products. Some of the Company's and its partners'
competitors possess greater financial, research and technical resources than the
Company or its partners. Moreover, these companies may possess greater marketing
capabilities than the Company or its partners, including the resources to
implement extensive advertising campaigns.
4. GOVERNMENT REGULATION. The Company is subject to both the applicable
regulatory provisions of the Food and Drug Administration ("FDA") in the United
States and the applicable regulatory agencies in those foreign countries where
its products are manufactured and/or distributed.
As in the United States, a number of foreign countries require
pre-marketing approval by health regulatory authorities. Requirements for
approval may differ from country to country and may involve different types of
testing. There can be substantial delays in obtaining required approvals from
regulatory authorities after applications are filed. Even after approvals are
obtained, further delays may be encountered before the products become
commercially available.
5. FDA REVIEW REGARDING LEGATRIN(R) The FDA, in 1988, initiated a
review to determine whether drugs containing quinine sulfate for night leg
cramps, an ingredient in the Company's product Legatrin, should remain on the
market. The FDA issued a final monograph, which became effective on February 22,
1995, restricting manufacturers from selling over-the-counter quinine sulfate
based-products for the relief of night leg cramps. As a result, in February 1995
the Company introduced New Advanced Formula Legatrin PM, which does not contain
quinine sulfate. Legatrin PM provides relief of occasional pain and
sleeplessness associated with minor muscle aches such as leg cramps; however, it
is not known at this time whether consumers will find Legatrin PM as effective
as Legatrin. Sales of Legatrin and gross profit derived from sales of Legatrin
approximated $4 million and $3 million, respectively, for each of the two years
ended December 31, 1994. Sales and gross profit derived from sales of Legatrin
PM aggregated approximately $5 million and $3.8 million, respectively, for the
year ended December 31, 1995. There can be no assurance as to what future sales
of Legatrin PM will be.
6. TECHNOLOGICAL CHANGE; PATENT AND TRADEMARK PROTECTION AND
PROPRIETARY INFORMATION. Notwithstanding the patents underlying the Bioadhesive
Delivery System, other companies may independently develop equivalent or
superior technologies or processes and may obtain patents or similar rights with
respect thereto. Moreover, the Company may determine for financial or other
reasons not to enforce its rights under the patents. Although the Company
believes that the patented technology has been independently developed and does
not infringe on the patents of others, there can be no assurance that the
technology does not and will not infringe on the patents of others. In the event
of infringement, the Company would, under certain circumstances, be required to
modify the processes or obtain a license and/or pay a license fee. There can be
no assurance that the Company would be able to do either of the foregoing in a
timely manner or upon acceptable terms and conditions, and failure to do any of
the foregoing could have a materially adverse effect on the Company.
4
The Company has filed "Replens", "Advantage 24' and "Crinone" as
trademarks in countries throughout the world. There can be no assurance that
such trademarks will afford the Company adequate protection or that the Company
will have the financial resources to enforce its rights under such trademarks.
The Company also relies on confidentiality and nondisclosure
agreements. There can be no assurance that other companies will not acquire
information which the Company considers to be proprietary. Moreover, there can
be no assurance that other companies will not independently develop know-how
comparable or superior to that of the Company.
7. UNCERTAINTY OF DEVELOPMENT OF FORMULATED PRODUCTS UTILIZING THE
BIOADHESIVE DELIVERY SYSTEM. Several potential products utilizing the
Bioadhesive Delivery System remain in the early stages of development and remain
subject to all the risks inherent in the development of products based on
innovative technologies, including unanticipated development problems, as well
as the possible insufficiency of funds to undertake development which could
result in abandonment or substantial change in the development of a specific
formulated product. In addition, ethical products developed by the Company will
require pre-marketing regulatory approval. There can be no assurance that
additional products utilizing the Bioadhesive Delivery System can be
successfully developed, can be developed on a timely basis or will prove to be
more effective than formulated products based on existing or other newly
developed technologies.
8. DEPENDENCE UPON PRINCIPAL SUPPLIER. Medical grade, cross-linked
polycarbophil, the polymer used in the Company's products utilizing the
Bioadhesive Delivery System, is currently available from only one supplier, B.F.
Goodrich Company ("Goodrich"). The Company believes that Goodrich will supply as
much of the material as the Company may require because the Company's products
rank among the highest value-added uses of the polymer. There can be no
assurance that Goodrich will continue to supply the product. In the event that
Goodrich cannot or will not supply enough of the product to satisfy the
Company's needs, the Company will be required to seek alternative sources of
polycarbophil. There can be no assurance that an alternative source of
polycarbophil will be obtained.
9. DEPENDENCE UPON KEY PERSONNEL. The success of the Company will be
largely dependent on the personal efforts of Norman M. Meier, its President and
Chief Executive Officer; William J. Bologna, its Chairman and Nicholas A.
Buoniconti, its Vice Chairman and Chief Operating Officer. The Company has
entered into employment agreements with Messrs. Meier and Bologna which expire
on December 31, 2000 and with Mr. Buoniconti which expires on April 15, 1997.
The success of the Company is also dependent upon certain other key personnel
and the Company's ability to hire additional qualified marketing, technical and
other personnel. There can be no assurance that the Company will be able to hire
and retain such additional employees when needed.
10. POTENTIAL PRODUCT LIABILITY. The Company may be exposed to product
liability claims by consumers. Although the Company presently maintains product
liability insurance coverage in the amount of $15 million, there can be no
assurance that such insurance will be sufficient to cover all possible
liabilities. In the event of a successful suit against the Company,
insufficiency of insurance coverage could have a materially adverse effect on
the Company. In addition, certain food and drug retailers require minimum
product liability insurance coverage as a condition precedent to purchasing or
accepting products for retail distribution. Failure to satisfy such insurance
requirements could impede the ability of the Company to achieve broad retail
distribution of its proposed products, which would have a materially adverse
effect upon the business and financial condition of the Company.
5
11. NO DIVIDENDS IN FORESEEABLE FUTURE ON COMMON, SERIES A OR SERIES B
STOCK. The Company has never paid a cash dividend on its Common Stock and does
not anticipate the payment of cash dividends in the foreseeable future. The
Company intends to retain any earnings for use in the development and expansion
of its business.
The Series A Preferred Stock pays cumulative dividends at a rate of 8%
per annum payable quarterly. As of December 31, 1995, dividends of $98,079 have
been earned but have not been declared and are included in other long-term
liabilities in the accompanying consolidated balance sheet.
12. EFFECT ON MARKET PRICE OF SALES OF SUBSTANTIAL AMOUNTS OF COMMON
STOCK. As of March 31, 1996, the Company had 27,726,873 shares of Common Stock
outstanding, of which 23,545,818 shares are freely tradable. In addition, the
Company had outstanding Series A and Series B Preferred Stock and outstanding
warrants and options outstanding, that if exercised or converted would result in
the issuance of an additional 3,897,277 shares of Common Stock, all of which
have been registered under the Securities Act and; accordingly, when issued will
be freely tradable. The exercise and conversion of these securities is likely to
dilute the then book value per share of the Company's Common Stock. In addition,
the existence of these securities may adversely affect the terms on which the
Company can obtain additional equity financing. Moreover, the holders of these
securities are likely to exercise their rights at a time when the Company would
otherwise be able to obtain capital on terms more favorable than those provided
by their exercise prices. Approximately 4,175,404 shares of the Company's Common
Stock that are restricted securities may currently be sold pursuant to Rule 144.
Sales of substantial amounts of Common Stock in the open market could have a
significant adverse effect on the market price of the Company's Common Stock.
13. AUTHORITY TO ISSUE ADDITIONAL PREFERRED STOCK. The Company's
Certificate of Incorporation authorizes the issuance of preferred stock with
such designation, rights and preferences as may be determined from time to time
by the Board of Directors. The Board of Directors is empowered, without
stockholder approval, to issue preferred stock with dividend, liquidation,
conversion, voting or other rights which could adversely affect the voting power
or other rights of the holders of the Company's Common Stock or outstanding
series of preferred stock. In the event of issuance of additional shares of the
Company's preferred stock, such shares could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of the Company. There can be no assurance that the Company will not,
under certain circumstances, issue additional shares of its preferred stock. See
"Description of Securities."
14. DEPENDENCE UPON THIRD-PARTY MANUFACTURING ARRANGEMENT. The Company
currently relies on third-party arrangements for the manufacture of its
products. There can be no assurance that third-party manufacturers will be able
to satisfy the Company's needs. The Company's dependence upon third parties for
the manufacture of its products could have an adverse effect on the Company's
profit margins and its ability to deliver its products on a timely and
competitive basis.
15. NET OPERATING LOSS ABSORPTION LIMITATION. As of December 31, 1995
the Company had available net operating loss carryforwards of approximately $40
million to offset its future U.S. taxable income. Under Section 382 of the
Internal Revenue Code of 1986, as amended ("Code"), utilization of prior net
operating loss carryforwards is limited after an ownership change to the product
of (a) an annual amount equal to the value of the loss corporation's outstanding
stock at the date of the ownership change multiplied by (b) the federal
long-term tax exempt bond rate. While the Company's initial public offering of
Common Stock (when combined with prior and subsequent issuances and transfers of
the Company's capital stock
6
since January 1, 1987) probably did constitute an ownership change, the
resulting annual limitation on utilization of the Company's net operating loss
carryforwards is not expected to cause a significant portion of the Company's
present net operating loss carryforwards to become unavailable for offset
against the Company's income on a long-term basis, although depending upon the
precise method utilized to compute the value of the Company at the date of the
ownership change, the Code Section 382 limitation may significantly limit
utilization of such net operating losses in any one year.
USE OF PROCEEDS
The Company will receive no proceeds from the sale of the Shares, but
will receive additional proceeds of $1,086,563, if, and when, all of the
remaining warrants are exercised. There can be no assurance that any of the
warrants will be exercised. Expenses of this offering, estimated at $16,000, of
which $14,000 have already been expensed, are payable by the Company. The
Company anticipates that any proceeds received from the exercise of the warrants
will be used for working capital and general corporate purposes.
DILUTION
As of December 31, 1995, the net tangible book value of the Company was
$(7,384). After consideration of the $307,300 liquidation preference of the
outstanding Series A and B Preferred Stock, the tangible book value of the
Common Stock was $(314,684) or $(.01) per share of Common Stock. After giving
effect to the conversion of the Series A and B Preferred Stock and exercise of
all the outstanding options and warrants, the pro forma net tangible book value
of the Company's Common Stock would be $.55 per share, representing immediate
dilution of $2.95-$4.33 per share to the individuals exercising the warrants.
7
BUSINESS
GENERAL DESCRIPTION OF BUSINESS
The Company was incorporated as a Delaware corporation in December
1986. The Company's objective is to develop on a worldwide basis a portfolio of
women's prescription and over-the-counter products, including those which help
prevent sexually transmitted diseases. Columbia's products primarily utilize the
Company's patented bioadhesive delivery technology, the Bioadhesive Delivery
System.
Formulated products utilizing the Bioadhesive Delivery System consist
principally of a polymer, polycarbophil, and an active ingredient. The
Bioadhesive Delivery System is based upon the principle of bioadhesion, a
process by which the polymer adheres to epithelial surfaces and to mucin, a
naturally occurring secretion of the mucous membranes. The polymer remains
attached to epithelial surfaces and/or the mucin and is discharged upon normal
cell turnover or upon the detachment of the mucin from the mucous membranes, a
physiological process which, depending upon the area of the body, occurs every
12 to 72 hours. This extended period of attachment permits the Bioadhesive
Delivery System to be utilized in products when extended duration of
effectiveness is desirable or required.
The Company's initial efforts have applied the technology to women's
health care products that can be sold as cosmetics and over-the-counter drugs,
which do not require governmental or regulatory approval. The Company has
focused on women's health care because of the significant number of
women--particularly of post-menopausal age--whose health and hygiene needs have
not been met by available products and because the Company has found vaginal
delivery to be particularly effective. The Company intends to continue to
develop products that improve the delivery of previously approved drugs.
The Company is currently engaged solely in one business segment -- the
development and sale of pharmaceutical products and cosmetics. See footnote 7 to
the consolidated financial statements for information on foreign operations.
PRODUCTS
REPLENS(R). In November 1989, the Company introduced Replens, the first
product utilizing the Bioadhesive Delivery System, in the United States. Replens
replenishes vaginal moisture on a sustained basis and relieves the discomfort
associated with vaginal dryness. The Company introduced Replens in England and
Ireland in December 1990. The Company's original commercialization strategy was
to market Replens through its own sales force.
In 1991, in an attempt to gain mass marketing power and access to
worldwide markets quickly, the Company developed and executed an alternative
marketing strategy. The Company has entered into strategic alliance agreements
for the marketing and distribution of Replens with: (i) Warner-Lambert Company
under which Warner-Lambert Company markets Replens in the United States; (ii) a
subsidiary of Johnson and Johnson under which that subsidiary markets Replens in
Italy; (iii) Roussel-UCLAF under which Roussel markets Replens in France,
certain French overseas territories and Greece; (iv) Nippon Sanofi K.K.
(formerly Sterling-Winthrop Inc.) under which Sanofi markets Replens in South
America, Central America and Australia and will market Replens in Portugal; (v)
Teva Pharmaceutical under which Teva will market Replens in Israel; (vi) Logos
Pharmaceuticals (Pty) Limited under which Logos markets Replens in South Africa
and the sixteen countries of sub-Saharan Africa; (vii) LASA SA under which
8
LASA SA markets Replens in Spain; (viii) Unipath Ltd. under which Unipath
markets Replens in the United Kingdom; (ix) Roberts Pharmaceutical Corporation
under which Roberts markets Replens in Canada; (x) Vifor SA under which Vifor
will market Replens in Switzerland and Liechtenstein and (xi) Hermes H/F under
which Hermes markets Replens in Iceland.
As a result of having marketed Replens in the United States and
England, which demonstrated the market for Replens, the Company has been able to
negotiate agreements with its strategic alliance partners pursuant to which the
Company manufactures Replens and in return receives as revenue approximately 24%
to 30% of its partners' selling price of the product. These companies are
responsible for all marketing and distribution costs of Replens in their
territories. There can be no assurance that any of the companies with whom the
Company has entered into these agreements will aggressively or successfully
market the product. Prior to entering into these strategic alliance agreements,
the Company lost money on Replens as a result of the significant amounts the
Company was required to spend on product promotion. As part of these agreements,
certain of the strategic alliance partners have the right of first option or
right of first refusal, in the applicable countries, to license future
gynecological products developed by the Company.
In December 1992, the United Kingdom Medicines Control Agency ("MCA")
granted a General Sales License for Replens to be sold in the UK for the
symptomatic relief of vaginal dryness in postmenopausal women and, when used
regularly, for the reduction of pH to levels normally found in premenopausal
women. Replens had previously been sold in the UK under the cosmetic regulations
which restricted the claims that the Company could make for the product. The
Company believes that Replens is now the only non-hormonal product approved for
vaginal moisturization and reduction of pH in the UK. In the United States,
Replens is sold as a cosmetic.
In February 1994, the European Union recommended to its member
countries, based on consultation from each of the countries, that Replens be
approved as a drug. Currently, eleven of the twelve countries agree with the
European Union's recommendation and the Company believes that licenses from
these individual countries will be issued within the next several months.
While the strategic alliance agreements in the United States and abroad
have not produced desired unit sales as quickly as planned, the Company believes
it has established effective working relationships with its partners which the
Company believes form a solid foundation to build sales of Replens and the other
products in the development pipeline. However, the Company is exploring
alternatives to such strategic alliances where appropriate. In addition, upon
granting of the European multistate license, Replens should become a
reimbursable product in certain countries. The Company believes that sales of
Replens in Europe should increase once the licenses are granted. The Company's
success to a great extent is dependent on the marketing efforts of its strategic
alliance partners, over which the Company has limited ability to influence.
ADVANTAGE 24(R). During 1993, Advantage 24, the Company's 24 hour
sustained release contraceptive gel, was qualified to be sold in the United
States, under the existing FDA monograph for nonoxynol-9 spermicidal products.
In September 1994, the Company entered into a license and distribution agreement
with Lake Pharmaceutical, Inc. under which Lake markets Advantage 24 in the
United States. Roberts will market Advantage 24 in Canada.
Among Advantage 24's benefits is its slow release characteristic which
permits the spermicide to be effective for up to 24 hours, in contrast with
conventional spermicides that must be applied at most two
9
hours prior to intercourse. The slow release feature is derived from the
Company's Bioadhesive Delivery System, which enables the nonoxynol-9 to adhere
to the cervix. Broader claims relating to prevention of sexually transmitted
diseases (STD's) will be requested upon completion, if successful, of clinical
studies now underway. The Company expects that within 12 months it will have
sufficient data to apply for regulatory approval on the broader claims. In
Europe, the Company intends to register Advantage 24 as an over-the-counter
drug.
Additionally, the United Nations Global Program on AIDS (formerly known
as the World Health Organization Global Program on AIDS) has completed a 600
women safety study on Advantage 24. Analysis of the data generated indicates
that Advantage 24, as used in the study, was free of any serious side effects.
In addition, Advantage 24 was shown to be safer than any other nonoxynol-9
product studied. Studies to determine the efficacy of Advantage 24 in preventing
the heterosexual transmission of HIV and other STD's have recently begun in a
National Institutes of Health sponsored study in Kenya. Additional U.N. studies
are scheduled to begin shortly in Thailand, India and the Ivory Coast.
CRINONE(TM) TVG. The Company's first prescription drug is a sustained
release, vaginally delivered, natural progesterone product. Crinone TVG utilizes
the Company's patented Bioadhesive Delivery System which enables the
progesterone to achieve a "First Uterine Pass Effect"(C). Progesterone is
preferentially delivered to the uterus and high systemic concentrations are
avoided. This allows the therapeutic effects of progesterone to be maximized
while side effects are minimized.
Crinone TVG has been approved in the U.K. and Finland for the
prevention of hyperplasia and endometrial cancer in postmenopausal women
receiving Hormone Replacement Therapy ("HRT"), for use in IN VITRO fertilization
procedures, to help reduce the symptoms of Premenstrual Syndrome ("PMS"), for
menstrual irregularities, dysmenorrhea, dysfunctional uterine bleeding, and for
infertility due to inadequate progesterone production. In France, Crinone TVG
has been approved for use in IN VITRO fertilization procedures. Additional
indications in France are anticipated during 1996.
The Company has also submitted registration files covering Crinone TVG
to other European regulatory authorities. Additional country approvals are
expected during 1996. The Company anticipates filing a New Drug Application
("NDA") in the United States in mid 1996.
During 1993, the Logos Replens Agreement was amended such that Logos
will also be the exclusive distributor of Crinone TVG in South Africa and the
sixteen countries of sub-Saharan Africa. As part of the agreement, the Company
received upfront licensing fees and expects to receive ongoing revenue from
manufacturing and product sales.
In May 1995, the Company entered into a worldwide, except for South
Africa, license and supply agreement with American Home Product Corporation
("AHP") under which the Wyeth-Ayerst division of AHP will market Crinone. Under
the terms of the agreement, the Company has received $9.5 million in milestone
payments to date and will continue to receive additional milestone payments and
a significant percentage of sales.
OTHER PRODUCTS. The Company also markets Advanced Formula Legatrin
PM(R), for the relief of occasional pain and sleeplessness associated with minor
muscle aches such as night leg cramps; Vaporizer in a bottle(R), a portable
cough suppressant for the temporary relief of a cough due to the common cold;
and Diasorb(R), a pediatric antidiarrheal product. These products do not utilize
the Bioadhesive Delivery System.
10
RESEARCH AND DEVELOPMENT
The Company expended $7,812,488 in 1995, $8,976,047 in 1994 and
$5,290,912 in 1993, on research and development activities. The increase in
expenditures are primarily the result of costs associated with contracting for,
supervising and administering the clinical studies on the Company's Crinone TVG
and Advantage 24 products. These studies are coordinated from the Company's New
York and Paris offices.
SPC3 (SYNTHETIC POLYMERIC CONSTRUCTION #3). In December 1993, the
Company entered into an Option and License Agreement with a French research
group based in Marseille, France, pursuant to which it was granted an option to
obtain an exclusive license to the North and South American rights to a
potential AIDS treatment. The option cost $2 million, of which $1.1 million was
paid in December 1993 and the remaining $900,000 was paid in February 1994. The
potential product has been granted a Clinical Trials Exemption ("CTX") in the
United Kingdom and clinical trials in humans are now underway. In addition, an
Investigational New Drug application to start U.S. clinical trials has been
approved. The purpose of these trials is to determine the optimal dosage of SPC3
in late stage seropositive patients.
The option, which must be exercised upon the occurrence of certain
events, expires in December 1998. Upon exercise of the option, the Company will
be required to pay an additional $5 million. If the Company does not exercise
its option upon the occurrence of certain events, the Company's rights to the
option are terminated.
The synthetic molecule, which could prove to be a breakthrough in the
treatment of AIDS, is a multibranched peptide, a type of protein, which blocks
entrance of the HIV (AIDS) virus into susceptible human cells and prevents
syncytia formation. Syncytia formation fuses lymphocytes (white cells) together
with the infected cells causing the death of large numbers of uninfected
lymphocytes. SPC3 protects the human cells including CD4+ lymphocytes,
macrophages and CD4- negative cells by obstructing entry of the HIV virus.
In-vitro studies have demonstrated that SPC3 effectively blocks entrance of all
strains of the virus into human cells, unlike previously tested antiviral agents
and vaccines that are strain specific. The relative specificity of the SPC3
peptide for its receptor ensures that it is free of the significant side effects
associated with the reverse transcriptuse and protease inhibitors used in
current treatments.
Up to now, the only treatments available for AIDS patients act by
stopping the virus from multiplying rapidly. The Marseille molecule, according
to a recent paper published in the Journal of France's Academy of Sciences,
could prevent the virus from attacking healthy cells in two ways: (i) in
lymphocytes, the white blood cells that are a key part of the body's immune
system and (ii) in macrophages, a type of white blood cell that is often a
vehicle for transmitting the virus to the brain.
PATENTS, TRADEMARKS AND PROTECTION OF PROPRIETARY INFORMATION
The Company purchased the patents underlying the Bioadhesive Delivery
System from Bio-Mimetics, Inc. ("Bio-Mimetics"). The Company has the exclusive
right to the use of the Bioadhesive Delivery System subject to certain third
party licenses issued by Bio-Mimetics that have been assigned to the Company and
certain restrictions on the assignment of the patents. See "Management's
Discussion and Analysis of Financial Conditions and Results of Operations."
11
The basic patent that covers the Bioadhesive Delivery System was issued
in the United States in 1986 and by the European Patent Office in 1992.
Corresponding patents have also been issued in Canada and Australia. A
corresponding application is currently pending in Japan. The Company is
continuing to develop the core Bioadhesive Delivery System and has filed patent
applications covering tissue moisturization, vaginal moisturization,
progesterone delivery and use of nonoxynol-9 in an anti-sexually transmitted
disease formulation. These applications are currently pending in the U.S. Patent
and Trademark Office, the European Patent Office, and elsewhere, worldwide.
While patent applications do not ensure the ultimate issuance of a patent, it is
the Company's belief that patents based on these applications will issue.
In addition to the patents discussed above, the Company has two
additional patents that cover ophthalmic treatment products. These two patents
also underlie an agreement to share technology with InSite Vision Incorporated
("Insite"). Under this agreement, the Company obtained from Insite the worldwide
rights to market ophthalmic veterinary products which utilize Insite's sustained
release gel technology. In addition, the Company obtained the right to market,
in all parts of the world except North America and portions of Asia, ophthalmic
over-the-counter drugs which utilize Insite's sustained release gel technology.
In exchange, Insite obtained from the Company the worldwide rights to market
prescription ophthalmic products which utilize the Company's Bioadhesive
Delivery System. In addition, InSite obtained the right to market, in North
America and portions of Asia, ophthalmic over-the-counter drugs which utilize
the Company's Bioadhesive Delivery System.
Because the Company operates on a worldwide basis, the Company seeks
worldwide patent protection for its technology and products. While having patent
protection cannot ensure that no competitors will emerge, this is a fundamental
step in protecting the technologies of the Company.
The Company has filed "Replens", "Advantage 24" and "Crinone" as
trademarks in countries throughout the world. Applications for the registration
of trademarks do not ensure the ultimate registration of these marks. The
Company believes these marks will be registered. In addition, there can be no
assurance that such trademarks will afford the Company adequate protection or
that the Company will have the financial resources to enforce its rights under
such trademarks.
The Company also relies on confidentiality and nondisclosure
agreements. There can be no assurance that other companies will not acquire
information which the Company considers to be proprietary. Moreover, there can
be no assurance that other companies will not independently develop know-how
comparable to or superior to that of the Company.
MANUFACTURING
During 1991, the Company introduced a new, more efficient and less
expensive manufacturing and packaging process for the production of Replens and
its future women's health care products. The process, called "form, fill and
seal," is a single step process whereby the redesigned applicator is created,
filled and sealed in one process. Replens is currently being manufactured and
packaged, utilizing the process developed by the Company, by third-party
manufacturers in Europe. In 1991, the Company placed orders for approximately
$2.7 million of manufacturing equipment. As of December 31, 1995 and 1994,
$945,000 of this equipment was completed and is included in machinery and
equipment in the accompanying consolidated balance sheet. Deposits on
manufacturing equipment totaling approximately $1 million are included in other
assets in the December 31, 1995 and 1994 consolidated balance sheets. Due to
production delays, the Company does not expect to take delivery of this
equipment until 1996 or 1997.
12
Medical grade, cross-linked polycarbophil, the polymer used in the
Company's products utilizing the Bioadhesive Delivery System, is currently
available from only one supplier, B.F. Goodrich Company ("Goodrich"). The
Company believes that Goodrich will supply as much of the material as the
Company may require because the Company's products rank among the highest
value-added uses of the polymer. There can be no assurance that Goodrich will
continue to supply the product. In the event that Goodrich cannot or will not
supply enough of the product to satisfy the Company's needs, the Company will be
required to seek alternative sources of polycarbophil. There can be no assurance
that an alternative source of polycarbophil will be obtained.
All of the other raw materials used by the Company for its products
utilizing the Bioadhesive Delivery System are available from several sources.
OVER-THE-COUNTER DRUGS
GENERAL. The Company currently markets three over-the-counter drugs:
Advanced Formula Legatrin PM, for the relief of occasional pain and
sleeplessness associated with minor muscle aches such as night leg cramps;
Diasorb, a pediatric antidiarrheal product; and Vaporizer in a bottle, a
portable cough suppressant. These over-the-counter drugs are manufactured by
third-party manufacturers. All of the raw materials used by the Company for its
over-the-counter drugs are available from several sources.
The over-the-counter drugs are sold to drug wholesalers and chain drug
stores. The Company utilizes approximately 20 drug manufacturers' representative
firms to make calls on the Company's trade customers. The manufacturers'
representatives receive commissions based on sales made within their respective
territories. The Company supports the activities of the manufacturers'
representatives by advertising in medical and consumer publications, direct
mailings and convention participation.
LEGATRIN. In February 1989, the Company acquired from Scholl, Inc., a
subsidiary of Schering-Plough Corporation, the North American rights to the
product Legatrin and the related trademark, for $300,000 and the assumption of
certain liabilities approximating $41,000. The FDA, in 1988, initiated a review
to determine whether drugs containing quinine sulfate for night leg cramps, an
ingredient in Legatrin, should remain on the market. The FDA issued a final
monograph, which became effective on February 22, 1995, restricting
manufacturer's from selling over-the-counter quinine sulfate based-products for
the relief of night leg cramps. As a result, in February 1995 introduced
Advanced Formula Legatrin PM.
SALES
The following tables sets forth the percentage of the Company's
consolidated net sales by product, for each product accounting for 15% or more
of consolidated net sales in any of the three years ended December 31, 1995.
1995 1994 1993
---- ---- ----
Replens 30% 39% 42%
Legatrin PM/Legatrin 52 49 48
Other products 18 12 10
--- --- ---
100% 100% 100%
=== === ===
13
The Company anticipates the percentage of sales attributable to Legatrin PM and
the other products to decrease in future years as additional products utilizing
the Bioadhesive Delivery System are introduced. Warner-Lambert accounted for
approximately 21%, 27% and 29% of 1995, 1994 and 1993 consolidated net sales,
respectively. A retail customer accounted for approximately 16%, 14% and 11% of
1995, 1994 and 1993 consolidated net sales, respectively.
COMPETITION
While the Company has entered into the strategic alliance agreements
for the marketing of Replens with large pharmaceutical companies, there can be
no assurance that the Company and its partners will have the ability to compete
successfully. The Company's success to a great extent is dependent on the
marketing efforts of its strategic alliance partners, over which the Company has
limited ability to influence. The markets which the Company and its strategic
alliance partners operate in or intend to enter are characterized by intense
competition. The Company and its partners compete against established
pharmaceutical and consumer product companies which market products addressing
similar needs. In addition, numerous companies are developing or, in the future,
may develop enhanced delivery systems and products competitive with the
Company's present and proposed products. Some of the Company's and its partners'
competitors possess greater financial, research and technical resources than the
Company or its partners. Moreover, these companies may possess greater marketing
capabilities than the Company or its partners, including the resources to
implement extensive advertising campaigns.
Although the Company is not aware of any product incorporating
rate-controlled technology with respect to vaginal lubrication, the Company
believes that Replens competes in the same markets as K-Y Jelly(R) and
Gyne-Moisturin(R), vaginal lubricants marketed by Johnson & Johnson Products,
Inc. and Schering-Plough Corporation, respectively. The Company also believes
that Advantage 24, Legatrin PM and Diasorb compete against numerous products in
their respective categories and that Vaporizer in a bottle(R) competes against
Vicks Vaporsteam, a product distributed by Richardson-Vicks, Inc.
GOVERNMENT REGULATION
The Company is subject to both the applicable regulatory provisions of
the FDA in the United States and the applicable regulatory agencies in those
foreign countries where its products are manufactured and/or distributed.
As in the United States, a number of foreign countries require
premarketing approval by health regulatory authorities. Requirements for
approval may differ from country to country and may involve different types of
testing. There can be substantial delays in obtaining required approvals from
regulatory authorities after applications are filed. Even after approvals are
obtained, further delays may be encountered before the products become
commercially available.
In the United States, manufacturers of pharmaceutical products are
subject to extensive regulation by various Federal and state governmental
entities relating to nearly every aspect of the development, manufacture and
commercialization of such products. The FDA, which is the principal regulatory
authority in the United States for such products, has the power to seize
adulterated or misbranded products and unapproved new drugs, to require their
recall from the market, to enjoin further manufacture or sale and to publicize
certain facts concerning a product. As a result of FDA regulations, pursuant to
which new pharmaceuticals are required to undergo extensive and rigorous
testing, obtaining premarket regulatory
14
approval requires extensive time and cash expenditures. The manufacturing of the
Company's products which are either manufactured and/or sold in the United
States, is subject to current Good Manufacturing Practices prescribed by the
FDA. The labeling of over-the-counter drugs in the United States, as well as
advertising relating to such products, are subject to the review of the Federal
Trade Commission ("FTC") pursuant to the general authority of the FTC to monitor
and prevent unfair or deceptive trade practices.
PRODUCT LIABILITY
The Company may be exposed to product liability claims by consumers.
Although the Company presently maintains product liability insurance coverage in
the amount of $15 million, there can be no assurance that such insurance will be
sufficient to cover all possible liabilities. In the event of a successful suit
against the Company, insufficiency of insurance coverage could have a materially
adverse effect on the Company.
EMPLOYEES
As of March 31, 1996, the Company had 29 employees, 5 in management, 4
in marketing positions, 9 in research and development administration and 11 in
support functions. None of the Company's employees are represented by a labor
union. The Company believes that its relationship with its employees is
satisfactory.
The Company has employment agreements with certain employees, some of
whom are also stockholders of the Company. See "Executive
Compensation--Employment Agreements."
PROPERTIES
As of March 31, 1996, the Company leases the following properties:
ANNUAL
LOCATION USE SQUARE FEET EXPIRATION RENT
- -------- --- ----------- ---------- ------
Miami, FL Corporate office 3,900 September 1998 $ 88,000
Paris, France Research admin office 8,000 August 1998 280,000
Paris, France Business residence 2,000 June 2001 70,000
New York, NY Residential office 1,000 April 1998 44,000
LEGAL PROCEEDINGS
Certain law suits have been filed against the Company with respect to
product liability. In the opinion of management and counsel, none of these
lawsuits are material and they are all adequately reserved for or covered by
insurance or, if not so covered, are without any or have little merit or involve
such amounts that if disposed of unfavorably would not have a material adverse
effect on the Company.
15
SELECTED FINANCIAL DATA
The following consolidated selected financial data of the Company for
the five years ended December 31, 1995 (not covered by the auditors' report),
should be read in conjunction with the consolidated financial statements and
related notes thereto. See the financial statements of the Company annexed to
this Prospectus on pages F-1 to F-18.
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
Statement of Operations Data:
Net sales $9,905 $8,769 $8,150 $9,173 $10,675
Net income (loss) (959) (12,994) (10,453) (8,536) (14,548)
Income (loss) per common share (0.04) (0.58) (0.49) (0.51) (1.17)
Weighted average number
of common shares outstanding 25,487 22,530 21,380 16,880 12,856
Balance Sheet Data:
Working capital (deficiency) ($1,968) ($3,858) $2,888 ($4,443) $1,542
Total assets 7,687 6,808 13,870 9,833 14,488
Long-term debt - 6,218 5,474 58 1,692
Stockholders' equity (deficit) 1,556 (6,192) 1,475 (6,991) (720)
Note: In March 1996, the Company completed a private placement of 1,358,000
shares of Common Stock raising net proceeds of approximately $12 million.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased from approximately $690,000 at
December 31, 1994 to approximately $1.6 million at December 31, 1995, primarily
as a result of approximately $522,000 used for operating activities offset by
approximately $1.9 million received from the exercise of options and warrants.
In March 1996, the Company completed a private placement of 1,358,000
shares of Common Stock raising net proceeds of approximately $12 million.
In May 1995, the Company entered into a worldwide, except for South
Africa, license and supply agreement with American Home Product Corporation
("AHP") under which the Wyeth-Ayerst division of AHP will market Crinone. Under
the terms of the agreement, as of March 15, 1996, the Company has received $9.5
million in milestone payments and will continue to receive additional milestone
payments and a significant percentage of sales, which sales are expected to
commence during 1996.
During 1994, the Company repaid $1,027,985 of long-term debt and
accrued interest through the issuance of 293,710 shares of Common Stock. In
addition, during 1995, the Company repaid an additional
16
$4,787,069 of long-term debt and accrued interest through the issuance of
1,273,905 shares of Common Stock.
In December 1993, the Company entered into an Option and License
Agreement with a French research group based in Marseille, France, pursuant to
which it was granted an option to obtain an exclusive license to the North and
South American rights to a potential AIDS treatment. The option cost $2 million,
of which $1.1 million was paid in December 1993 and the remaining $900,000 was
paid in February 1994. The potential product has been granted a Clinical Trials
Exemption ("CTX") in the United Kingdom and clinical trials in humans are now
underway. In addition, an Investigational New Drug Application to start U.S.
clinical trials has been approved. The purpose of these trials is to determine
the optimal dosage in late stage seropositive patients.
The option, which must be exercised upon the occurrence of certain
events, expires in December 1998. Upon exercise of the option, the Company will
be required to pay an additional $5 million. If the Company does not exercise
its option upon the occurrence of certain events, the Company's rights to the
option are terminated.
The FDA, in 1988, initiated a review to determine whether drugs
containing quinine sulfate for night leg cramps, an ingredient in Legatrin,
should remain on the market. The FDA issued a final monograph, which became
effective on February 22, 1995, restricting manufacturer's from selling
over-the-counter quinine sulfate based-products for the relief of night leg
cramps. As a result, the Company introduced Advanced Formula Legatrin PM.
Legatrin PM provides relief of occasional pain and sleeplessness associated with
minor muscle aches such as leg cramps. Sales of Legatrin and gross profit
derived from sales of Legatrin approximated $4 million and $3 million,
respectively, for each of the two years ended December 31, 1994. Sales and gross
profit derived from sales of Legatrin PM aggregated approximately $5 million and
$3.8 million, respectively, for the year ended December 31, 1995. There can be
no assurance as to what future sales of Legatrin PM will be.
In connection with the 1989 purchase of the assets of Bio-Mimetics,
Inc., which assets consisted of the patents underlying the Company's Bioadhesive
Delivery System, other patent applications and related technology, the Company
pays Bio-Mimetics, Inc. a royalty equal to two percent of the net sales of
products based on the Bioadhesive Delivery System, to an aggregate of $7.5
million. The Company is required to prepay a portion of the remaining royalty
obligation, in cash or stock at the option of the Company, if certain conditions
are met.
As of December 31, 1995, the Company has outstanding exercisable
options and warrants that, if exercised, would result in approximately $16
million of additional capital. However, there can be no assurance that such
options or warrants will be exercised.
Significant expenditures anticipated by the Company in the near future
are concentrated on production commitments and research and development related
to new products. The Company has committed to spend an aggregate of
approximately $1.3 million on additional molding capacity at its suppliers
during 1996 and 1997.
As of December 31, 1995, the Company had available net operating loss
carryforwards of approximately $39 million to offset its future U.S. taxable
income.
17
In accordance with Statement of Financial Accounting Standards No.
109, as of December 31, 1995, other assets in the accompanying consolidated
balance sheet includes a deferred tax asset of approximately $14 million
(consisting primarily of a net operating loss carryforward) which has been fully
reserved as its ultimate realizability is not assured.
RESULTS OF OPERATIONS - YEARS ENDED DECEMBER 31, 1995 VERSUS DECEMBER 31, 1994
VERSUS DECEMBER 31, 1993
Sales and gross margin remained relatively constant during 1994 and
1993. Sales have increased in 1995 primarily as a result of Advantage 24 now
being available on drug store shelves throughout the U.S., renewed sales
activity from the Company's OTC segment, including the introduction of Advanced
Formula Legatrin PM, as well as revenue from a research agreement which began in
late 1994. While the strategic alliance agreements in the United States and
abroad have not produced desired unit sales as quickly as planned, the Company
believes it has established effective working relationships with its partners
which the Company believes form a solid foundation to build sales of Replens and
the other products in the development pipeline. However, the Company is
exploring alternatives to such strategic alliances where appropriate. In
addition, upon granting of the European multistate licenses, Replens should
become a reimbursable product in certain countries. The Company believes that
sales of Replens in Europe should increase once the licenses are granted. The
Company's success is dependent to a great extent on the marketing efforts of its
strategic alliance partners, which the Company has limited ability to influence.
Selling and distribution expenses increased in 1995 as a result of the
costs associated with the introduction of Legatrin PM. The Company's strategic
alliance partners are responsible for all marketing and distribution costs of
Replens and Advantage 24 in their territories. There can be no assurance that
any of the companies with whom the Company has entered into these agreements
will aggressively or successfully market the products.
General and administrative expenses have decreased as a result of cost
control programs implemented by the Company.
Research and development expenditures have decreased as a result of
the completion of a majority of the clinical studies related to Crinone and
Advantage 24.
Lease termination cost represents expenses incurred in relocating the
Company's corporate headquarters to a smaller premise and in closing the
Company's laboratory facility in Madison, Wisconsin. Of the total, $1.2 million
was paid through the issuance of 239,238 shares of Common Stock.
License fees, net includes $8 million received as upfront and milestone
payments in connection with the licensing agreement with AHP.
The increase in interest expense in 1994 was primarily the result of
the interest on the 1993 Notes and the Warrants. A majority of the 1993 Notes
were repaid in late 1994 and early 1995 through the issuance of Common Stock.
The purchase of an option represents the cost to obtain an exclusive
license to the North and South American rights to a potential AIDS treatment.
18
As a result, the net loss for 1995 was $959,472 or $.04 per share as
compared to net losses in 1994 of $12,993,889 or $.58 per share and $10,452,983
or $.49 per share in 1993.
IMPACT OF INFLATION
Sales revenues, manufacturing costs, selling and distribution
expenses, general and administrative expenses and research and development costs
tend to reflect the general inflationary trends.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock trades on the American Stock Exchange
("AMEX") under the symbol COB. The following table sets forth the high and low
sales prices of the Common Stock on the American Stock Exchange, as reported on
the Composite Tape.
HIGH LOW
FISCAL YEAR ENDED DECEMBER 31, 1994 ---- ---
First Quarter $6.75 $4.25
Second Quarter 6.00 4.25
Third Quarter 4.94 4.00
Fourth Quarter 5.38 4.00
FISCAL YEAR ENDED DECEMBER 31, 1995
First Quarter $5.63 $4.06
Second Quarter 8.50 4.00
Third Quarter 9.88 6.63
Fourth Quarter 9.50 6.25
FISCAL YEAR ENDED DECEMBER 31, 1996
First Quarter $13.00 $7.50
Second Quarter (through April __, 1996) _.__ _.__
At March 31, 1996, there were 575 shareholders of record of the
Company's Common Stock, although the Company estimates that there are
approximately 6,000 beneficial owners, 6 shareholders of record of the Company's
Series A Convertible Preferred Stock ("Series A Preferred Stock") and 4
shareholders of record of the Company's Series B Convertible Preferred Stock
("Series B Preferred Stock").
19
DIVIDEND POLICY
The Series A Preferred Stock pays cumulative dividends at a rate of 8%
per annum payable quarterly. As of December 31, 1995, dividends of $98,079 have
been earned but have not been declared and are included in other long-term
liabilities in the accompanying consolidated balance sheet. Upon conversion of
any shares of Series A Preferred Stock, the Company is obligated to issue
additional shares of Common Stock having a market value equal to accrued but
unpaid dividends on the Series A Preferred Stock at the time of conversion.
The Company has never paid a cash dividend on its Common Stock and does
not anticipate the payment of cash dividends in the foreseeable future. The
Company intends to retain any earnings for use in the development and expansion
of its business.
Applicable provisions of the Delaware General Corporation Law may
affect the ability of the Company to declare and pay dividends on its Common
Stock as well as on its Preferred Stock. In particular, pursuant to the Delaware
General Corporation Law, a company may pay dividends out of its surplus, as
defined, or out of its net profits, for the fiscal year in which the dividend is
declared and/or the preceding year. Surplus is defined in the Delaware General
Corporation Law to be the excess of net assets of the company over capital.
Capital is defined to be the aggregate par value of shares issued.
MANAGEMENT
The executive officers and directors of the Company as of March 31,
1996 are as follows:
NAME AGE POSITION
---- --- --------
William J. Bologna 53 Chairman of the Board
Nicholas A. Buoniconti 55 Vice Chairman of the Board and Chief Operating Officer
Norman M. Meier 57 President, Chief Executive Officer and Director
Margaret J. Roell 36 Vice President--Finance and Administration, Chief
Financial Officer, Secretary and Treasurer
Dominique de Ziegler, MD 48 Vice President--Pharmaceutical Development
Irwin L. Kellner 57 Director
John E. A. Kidd 51 Director
Lila E. Nachtigall, M.D. 62 Director
20
WILLIAM J. BOLOGNA has been a director of the Company since inception
and was elected Chairman of the Company's Board of Directors in January 1992.
From December 1988 to January 1992, Mr. Bologna served as Vice Chairman of the
Company's Board of Directors. In addition, since 1980, he has been Chairman of
Bologna & Hackett ("B&H"), an advertising agency specializing in pharmaceutical
products which has in the past performed services for various international
pharmaceutical companies. B&H ceased operations in May 1991. Prior to 1980, Mr.
Bologna was employed by William Douglas McAdams, Inc., a company engaged in the
marketing of pharmaceuticals, in a variety of positions, including Senior Vice
President. In 1965, Mr. Bologna received his B.S. in Pharmacy from Fordham
University. He received an MBA in Finance from Fordham University in 1971.
NICHOLAS A. BUONICONTI has been a director of the Company since June
1991 and was elected Vice Chairman and Chief Operating Officer of the Company in
April 1992. Mr. Buoniconti, an attorney, is a member of the Massachusetts and
Florida Bar. From January 1990 to April 1992, he was a member of the law firm of
Nicholas A. Buoniconti, P.A. He held the position of President and Chief
Operating Officer of UST, a Fortune 500 company, from May 1987 to December 1989.
From 1985 to 1987, Mr. Buoniconti served as President and Chief Operating
Officer of U.S. Tobacco (which changed its name to UST), as well as serving on
the Board of Directors from 1978 to 1989. He has served as a member of the Board
of Directors of the Miami Project to Cure Paralysis, and is heavily involved in
the fund-raising efforts for the Project through the Marc Buoniconti Fund, named
for his son. Mr. Buoniconti is a former All-Pro linebacker for the Miami
Dolphins. Since 1978, he has co-hosted "Inside the NFL" on the Home Box Office
cable network. Mr. Buoniconti is also a director of American Bankers Insurance
Co., Innkeepers USA and The Sports Authority.
NORMAN M. MEIER has been President, Chief Executive Officer and a
director of the Company since inception. From 1971 to 1977, Mr. Meier was Vice
President of Sales and Marketing for Key Pharmaceuticals, Inc., a company which
had been engaged in the marketing and sales of pharmaceuticals until its sale to
Schering-Plough Corporation in June 1986. From 1977 until June 1986, Mr. Meier
served as a consultant to Key Pharmaceuticals, Inc. In 1960, Mr. Meier received
his B.S. in Pharmacy from Columbia University. He received his M.S. in Pharmacy
Administration from Long Island University in 1964. Mr. Meier is also a director
of Universal Heights, Inc.
MARGARET J. ROELL has been Vice President--Finance and Administration,
Chief Financial Officer, Treasurer and Secretary of the Company since June 1991.
Ms. Roell was employed by Arthur Andersen & Co., independent public accountants,
from 1981 to 1991 and was an audit manager with Arthur Andersen & Co. from 1986
to 1991.
DOMINIQUE DE ZIEGLER, M.D. has been Vice President--Pharmaceutical
Development of the Company since January 1996. Dr. de Ziegler has been employed
by the Company since April 1992 as Director of Research Development. In
addition, from 1988 through 1991, Dr. de Ziegler was an Associate Professor at
the Department of Obstetrics and Gynecology, Hospital A. Beclere in Clamart,
France. In 1990, Dr. de Ziegler became a Dipolmat of the American Board of
Obstetrics and Gynecology, Reproductive Endocrinology and Infertility. Dr. de
Ziegler is a member of the American Fertility Society, the American Society for
Reproductive Endocrinogolists, The American Endocrine Society, the Society of
Gynecologic Investigation and the Association Francaise poour l'Etude de la
Menopause. Dr. de Zeigler has also been a journal editor and an `ad hoc"
reviewer for Fertility Sterility, Human Reproduction, The Journal of In Vitro
Fertilization and Embryo Transfer, Contraception Fertilite Sexualite and
Reproduction Humaine et Hormone.
21
IRWIN L. KELLNER has been a director of the Company since May 1988. Dr.
Kellner is the Chief Economist for the Chase Regional Bank, a subsidiary of the
Chase Manhattan Bank, formed by the merger of the Chase Manhattan Bank with the
Chemical Bank in April 1996. In turn, Chemical merged with Manufacturers Hanover
("MHT") in January 1992. Dr. Kellner has been employed by the Bank since 1970.
From 1991 to 1996, Dr. Kellner was the Chief Economist for the Chemical Bank,
while from 1980 to 1991, Dr. Kellner was the Chief Economist for MHT. Dr.
Kellner, a past president of the Forecasters Club of New York and the New York
Association of Business Economists, holds membership, and has held a variety of
posts, in several professional associations, including the American Economic
Association, American Statistical Association and the National Association of
Business Economists. Dr. Kellner is also a governor of the Money Marketeers. His
other board memberships include the Juvenile Diabetes Foundation, the Children's
AIDS Network, North Shore University Hospital, the Don Monti Memorial Research
Foundation and Touro College's Barry Z. Levine School of Health Sciences.
JOHN E. A. KIDD has been a director of the Company since April 1988 and
served as Chairman of the Board of Directors of the Company from December 1988
to December 1991. For approximately the past five years, Mr. Kidd has been an
Executive Director of a number of public companies located in the United
Kingdom, in which an investment company controlled by his family had been a
major investor.
LILA E. NACHTIGALL, M.D. has been a director of the Company since
November 1992. Dr. Nachtigall has been employed by the New York University
School of Medicine since 1961. Dr. Nachtigall is currently a Professor of
Obstetrics and Gynecology. In addition, Dr. Nachtigall is the Clinic Coordinator
of GYN-Endocrine Clinic at Bellevue Hospital and Co-director of the
GYN-Endocrine Program and Director of Women's Wellness Division at New York
University Medical Center.
All directors hold office until the next annual meeting of stockholders
and the election and qualification of their successors. Directors receive no
compensation for serving on the Board, except for the receipt of stock options
and the reimbursement of reasonable expenses incurred in attending meetings.
Officers are elected annually by the Board of Directors and serve at the
discretion of the Board. The Board of Directors has two standing committees, the
Audit Committee and the Compensation/Stock Option Committee.
EXECUTIVE COMPENSATION
The tables, graph and descriptive information set forth below are
intended to comply with the Securities and Exchange Commission compensation
disclosure requirements. This information is being furnished with respect to the
Company's Chief Executive officer ("CEO") and its three other executive
officers, other than the CEO, whose salary and bonus exceeded $100,000 for the
most recent fiscal year (collectively, the "Executive Officers").
22
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- ----------------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY OPTIONS (1)
- --------------------------- ---- ------ -----------
Norman M. Meier 1995 $218,000 50,000
President and Chief 1994 180,000 470,000
Executive Officer 1993 180,000 200,000
William J. Bologna 1995 218,000 50,000
Chairman of the Board 1994 180,000 470,000
1993 180,000 200,000
Nicholas A. Buoniconti 1995 167,500 50,000
Vice Chairman and 1994 135,000 910,000
Chief Operating Officer 1993 135,000 200,000
Margaret J. Roell 1995 120,000 15,000
Vice President - 1994 120,000 -
Finance & Administration 1993 120,000 20,000
Chief Financial Officer
(1) The options granted in 1993 to Messrs. Meier, Bologna and Buoniconti
were canceled in 1994.
OPTION GRANTS DURING 1995
NUMBER OF % OF TOTAL
SECURITIES OPTIONS GRANT
UNDERLYING GRANTED TO EXERCISE DATE
OPTIONS EMPLOYEES PRICE EXPIRATION PRESENT
NAME GRANTED IN 1995 ($/SH) DATE VALUE (1)
- ---- ------------ --------- -------- ---------- ---------
Norman M. Meier 50,000 16% $7.25 7/20/2005 $272,500
William J. Bologna 50,000 16% 7.25 7/20/2005 272,500
Nicholas A. Buoniconti 50,000 16% 7.25 7/20/2005 272,500
Margaret J. Roell 15,000 5% 7.25 7/20/2005 81,750
(1) The estimated grant date present value reflected in the
above table is determined using the Black-Scholes model. The material
assumptions and adjustments incorporated in the Black-Scholes model in
estimating the value of the options reflected in the above table
include the following: (i) an exercise price of $7.25, equal to the
fair market value of the underlying stock on the date of grant, (ii) an
option term of ten years, (iii) an interest rate of 6.28% that
represents the interest rate on a U.S. Treasury security with a
maturity date corresponding to that of the option term, (iv) volatility
of 59.214% calculated using daily stock prices for the one-year period
prior to the grant date and (v) no annualized dividends paid with
respect to a share of Common Stock at the date of grant. The ultimate
values of the options will depend on the future price of the Company's
Common Stock, which cannot be forecast with reasonable accuracy. The
actual value, if any, an optionee will realize upon exercise of an
option will depend on the excess of the market value of the Company's
Common Stock over the exercise price on the date the option is
exercised.
23
AGGREGATED OPTION EXERCISES DURING 1995 AND FISCAL YEAR END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES ACQUIRED VALUE DECEMBER 31, 1995 DECEMBER 31, 1995
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- -------- ----------- ------------- ----------- -------------
Norman M. Meier - $ - 470,000 50,000 $1,968,125 $65,625
William J. Bologna - - 470,000 50,000 1,968,125 65,625
Nicholas A. Buoniconti - - 910,000 50,000 3,810,625 65,625
Margaret J. Roell - - 100,000 35,000 325,000 80,938
EMPLOYMENT AGREEMENTS
In January 1996, the Company entered into five-year employment
agreements with each of William J. Bologna and Norman M. Meier, to serve as
Chairman and President of the Company, respectively. Pursuant to their
respective employment agreements, each such employee is entitled to a base
salary of $250,000. In addition, each such employee was granted options to
purchase 150,000 shares of the Company's Common Stock at an exercise price of
$7.25. Pursuant to the terms of such agreements, each employee has agreed to
dedicate his services on a substantially full-time basis and has agreed for the
term of his agreement and for two years thereafter not to compete with the
Company.
In April 1992, the Company entered into a five-year employment
agreement with Nicholas A. Buoniconti, to serve as Vice Chairman and Chief
Operating Officer of the Company. Pursuant to this agreement, Mr. Buoniconti is
paid an annual salary of $135,000. As additional compensation, Mr. Buoniconti
was granted options to purchase 250,000 and 400,000 shares of the Company's
Common Stock at exercise prices of $8.00 and $4.88 per share, respectively,
which options vest over five years. Pursuant to the terms of such agreement, Mr.
Buoniconti agreed to dedicate his services on a substantially full-time basis
and has agreed for the term of his agreement and for two years thereafter not to
compete with the Company. During 1994, in connection with Mr. Buoniconti
investing $200,000 into the Company, the exercise price of the options was
reduced to $4.375. As of July 1, 1995, Mr. Buoniconti's annual salary was
increased to $200,000.
In July 1995, the Company entered into a three-year employment
agreement with Dominique de Ziegler, to serve as director of research
development. Pursuant to this agreement, Dr. de Ziegler is paid an annual salary
of $203,500. As additional compensation, Dr. de Ziegler was granted options to
purchase 25,000 shares of the Company's Common Stock at an exercise prices of
$7.25 per share. Pursuant to the terms of such agreement, Dr. de Ziegler agreed
to dedicate his services on a substantially full-time basis and has agreed for
the term of his agreement and for two years thereafter not to compete with the
Company.
The exercise price of all of the options granted pursuant to the
aforementioned employment agreements are based on the closing price of the
Company's Common Stock on the American Stock Exchange on the day prior to grant.
24
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of March 31, 1996, directors and named executive officers,
individually and as a group, beneficially owned Common Stock as follows:
NAME OF SHARES, NATURE OF INTEREST
BENEFICIAL OWNER AND PERCENTAGE OF EQUITY SECURITIES(1)
---------------- --------------------------------------
Norman M. Meier (3) 1,295,800 4.6%
William J. Bologna (2) 2,378,632 8.4%
Nicholas A. Buoniconti (3) 990,000 3.5%
Irwin L. Kellner (3) 89,500 *
John E. A. Kidd (3) 125,936 *
Lila E. Nachtigall (3) 20,000 *
Margaret J. Roell (3) 100,200 *
Dominique de Ziegler (3) 25,000 *
Officers and directors as a group (8 people) 5,025,068 16.8%
* Represents less than 1 percent.
(1) Includes shares issuable upon exercise of both options and warrants
which are currently exercisable or which may be acquired within 60 days
and shares issuable upon conversion of the Series A and Series B
Preferred Stock (12.36 for the Series A Preferred Stock and 20.57 for
the Series B Preferred Stock).
(2) Includes 20,570 shares issuable upon conversion of 1,000 shares of
Series B Preferred Stock. Includes 470,000 shares issuable upon
exercise of options, which are currently exercisable or which may be
acquired within 60 days. Includes 98,062 shares beneficially owned by
Mr. Bologna's spouse.
(3) Includes shares issuable upon exercise of options, which are currently
exercisable or which may be acquired within 60 days, to purchase
470,000 with respect to Mr. Meier, 910,000 with respect to Mr.
Buoniconti, 50,000 shares with respect to Dr. Kellner, 75,936 shares
with respect to Mr. Kidd, 20,000 shares with respect to Dr. Nachtigall,
100,000 shares with respect to Ms. Roell and 25,000 shares with respect
to Dr. de Ziegler.
As of March 31, 1996, the following table sets forth information
regarding the number and percentage of Common Stock held by all persons who are
known by the Company to beneficially own or exercise voting or dispositive
control over 5% or more of the Company's outstanding Common Stock:
NUMBER OF SHARES
NAME AND ADDRESS BENEFICIALLY OWNED PERCENT OF CLASS
---------------- ------------------ ----------------
Strome Susskind Investment
Management, L.P. (1)
100 Wilshire Blvd.
Santa Monica, CA 2,396,400 9.1%
(1) Based on information included on Schedule 13G dated February 13, 1996.
25
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1993, the Company loaned Messrs. Meier and Bologna, $80,000 and
$110,350, respectively. The notes, which bear interest at 10% per annum and are
unsecured but with full recourse, are due on or before December 7, 1996.
During 1994, Messrs. Meier, Bologna and Buoniconti, each invested
$200,000 into the Company, through the purchase of 50,000, 38,663 and 50,000
shares, respectively.
PLAN OF DISTRIBUTION
The Shares owned by the Selling Securityholders may be sold from time
to time by the Selling Securityholders, or by pledges, donees, transferees or
other successors in interest. Such sales may be made on the American Stock
Exchange or otherwise at prices and at terms then prevailing or at prices
related to the then current market prices, or in privately negotiated
transactions. The Shares may be sold publicly by one or more of the following:
(i) ordinary brokerage transactions and transactions in which the broker
solicits purchasers; (ii) purchases by a broker or dealer as principal and
resale by such broker or dealer for its account pursuant to this Prospectus; and
(iii) a block trade in which the broker or dealer so engaged will attempt to
sell the shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction. In effecting sales, brokers or dealers
engaged by the Selling Securityholders may arrange for other brokers or dealers
to participate. Brokers or dealers will receive commissions or discounts from
the Selling Securityholders in amounts to be negotiated immediately prior to the
sale. Such brokers or dealers and any other participating brokers or dealers may
be deemed to be "underwriters" within the meaning of the Securities Act in
connection with such sales. The sale of a substantial number of the Shares by
the Selling Securityholders may have an adverse effect on the market price of
the Company's Common Stock.
The Company will pay certain expenses incident to the offering and sale
of the Shares. The Company will not pay for, among other expenses, commissions
and discounts of underwriters, dealers or agents or the fees and expenses of
counsel for the Selling Securityholders. The Company has agreed to indemnify the
Selling Securityholders against certain liabilities, including liabilities under
the Securities Act.
26
SELLING SECURITYHOLDERS
The Selling Securityholders are the holders of the Shares. The
following table sets forth as of the commencement of the offering, based on
information provided to the Company by the Selling Securityholders, the shares
of Common Stock being offered by each of the Selling Securityholders.
The percentage of voting securities to be owned after the offering assumes the
sale of the securities registered hereby, and takes into consideration the
voting rights of the Common Stock and Series A and B Preferred Stock as of March
31, 1996.
NUMBER OF SHARES OF PERCENTAGE OF VOTING
NAME OF SELLING COMMON STOCK SECURITIES OWNED
SECURITYHOLDERS INCLUDED IN THE OFFERING AFTER OFFERING
- --------------- ------------------------ --------------------
Dominion Capital 641,082 2.6%
John Hunter 343,235 *
Flagship Partners 157,147 *
Frontier Partners 245,541 *
Erica Knowlton Trust 88,395 *
Family Partnership 245,541 *
Charles Marran 122,771 *
Kane & Co., as nominee 147,325 *
Drake & Co., as nominee 834,840 *
Goldman Sachs & Co., as nominee 491,082 *
Atwell & Co., as nominee 245,541 *
Ruth Maasbach, as nominee 87,500 *
Hyprom, S.A., as nominee 150,000 *
John Bendall 50,000 *
Leroy Goldfarb 45,000 *
William J. Bologna (1) 50,000 7.5%
Nicholas A. Buoniconti (2) 50,000 *
Norman M. Meier (3) 50,000 3.1%
Shephard Lane 10,000 *
Sherman & Fischman 40,000 *
Thomas D. Perry 154 *
Romano Romani 154 *
---------
Total 4,095,308
=========
* Less than 1 percent
(1) William J. Bologna has been a director of the Company since inception
and Chairman of the Board since January 1992.
(2) Nicholas A. Buoniconti has been a director of the Company since June
1991 and was elected Vice Chairman and Chief Operating officer of the
Company in April 1992.
(3) Norman M. Meier has been president and a director of the Company since
inception.
27
DESCRIPTION OF SECURITIES
GENERAL
The Company is authorized to issue 40,000,000 shares of common stock,
par value $.01 per share, ("Common Stock") and 1,000,000 shares of preferred
stock, par value $.01 per share, of which 151,000 shares have been designated
Series A Preferred Stock and 150,000 shares have been designated Series B
Preferred Stock. As of March 31, 1996, 27,726,873 shares of Common Stock, 1,323
shares of Series A Preferred Stock and 1,750 shares of Series B Preferred Stock
were outstanding, and there were 575, 6 and 4 holders of record of Common Stock,
Series A and Series B Preferred Stock, respectively. The Company has been
informed that there are approximately 6,000 beneficial owners of its Common
Stock.
COMMON STOCK
With the exception of certain circumstances, holders of the Series A
and Series B Preferred Stock and Common Stock vote together as a single class on
all matters upon which stockholders are entitled to vote. The holders of Common
Stock are entitled to one vote for each share of such stock held of record by
them and may not accumulate votes. This means that the holders of more than 50%
of the shares voting for the election of directors can elect all of the
directors if they choose to do so; and, in such event, the holders of the
remaining shares will not be able to elect any person to the Board of Directors.
The holders of Common Stock are entitled to receive dividends when, as and if
declared by the Board of Directors out of funds legally available therefor,
subject to prior rights of preferred stockholders, and in the event of
liquidation, dissolution or winding up of the Company, to share ratably in all
assets remaining after payment of liabilities and after payment of any
preferential amounts to which holders of preferred stock are entitled. Holders
of shares of Common Stock, as such, have no conversion, preemptive or other
subscription rights, and there are no redemption or sinking fund provisions
applicable to the Common Stock.
DIVIDENDS
The Company has never paid a cash dividend on its Common Stock and does
not anticipate the payment of cash dividends in the foreseeable future. The
Company intends to retain any earnings for use in the development and expansion
of its business.
FUTURE SALES OF COMMON STOCK
Approximately 4,175,404 shares of Common Stock outstanding are
"restricted securities" as that term is defined in Rule 144 under the Securities
Act and may be sold only in compliance with such Rule, pursuant to registration
under the Act or pursuant to exemption therefrom. Generally, under Rule 144,
each person holding restricted securities for a period of two years may, every
three months after such two-year holding period, sell in ordinary brokerage
transactions or to market makers an amount of shares equal to the greater of one
percent of the Company's then outstanding Common Stock or the average weekly
trading volume during the four weeks prior to the proposed sale. This limitation
on the amount of shares which may be sold under the Rule does not apply to
restricted securities sold for the account of a person who is not and has not
been an affiliate of the Company during the three months prior to the proposed
sale and who has beneficially owned the securities for at least three years. In
addition, the shares of Common Stock underlying the shares of Series A and
Series B Preferred Stock have been registered under the Securities Act and,
accordingly, when issued, will not be restricted securities. Sales of
substantial amounts of
28
Common Stock in the public market under Rule 144, pursuant to registration
statements, or otherwise, could adversely affect prevailing market prices of
the Common Stock.
WARRANTS
The statements under this caption are summaries that do not purport to
be complete. They are qualified by reference to the Warrant Instruments, which
have been filed with the Securities and Exchange Commission.
As of March 31, 1996, the Company had warrants outstanding for the
purchase of up to 483,281 shares of Common Stock at prices ranging from $4.00 to
$10.78 per share. These warrants are exercisable through 2001. The exercise
price of the warrants and the number of shares of Common Stock issuable upon the
exercise of the warrants are subject to adjustment in certain circumstances.
Warrants may be exercised at any time during their exercise periods by
surrendering to the Company the certificate evidencing such warrants, with the
form to exercise all or a portion of such Warrants duly filled in and signed,
together with payment of the exercise price.
PREFERRED STOCK
The Board of Directors is authorized to issue shares of preferred stock
and, subject to the limitations contained in the Certificate of Incorporation
and any limitations prescribed by law, to establish and designate series and to
fix the number of shares and the relative rights, conversion rights, voting
rights, terms of redemption and liquidation preferences. If shares of preferred
stock with voting rights are issued, such issuance could affect the voting
rights of the holders of the Company's Common Stock by increasing the number of
outstanding shares having voting rights. In addition, if the Board of Directors
authorizes the issuance of shares of preferred stock with conversion rights, the
number of shares of Common Stock outstanding could potentially be increased up
to the authorized amount. The issuance of preferred stock, could, under certain
circumstances, have the effect of delaying or preventing a change in control of
the Company and may adversely affect the rights of holders of Common Stock.
Also, preferred stock could have preferences with respect to dividend and
liquidation rights.
The Company issued 151,000 shares of Series A Preferred Stock in
connection with its private placement completed in November 1989 and 150,000
shares of Series B Preferred Stock in connection with its private placement
completed in August 1991. The following description of the rights, preferences
and privileges of the Series A and Series B Preferred Stock does not purport to
be complete and is subject to and qualified in its entirety by reference to the
Certificates of Designation to the Company's Certificate of Incorporation, which
sets forth the terms and provisions of the Series A and Series B Preferred
Stock, copies of which have been previously filed with the Securities and
Exchange Commission.
DIVIDENDS
The Series A Preferred Stock pays cumulative dividends at a rate of 8%
per annum payable quarterly. As of December 31, 1995, dividends of $98,079 have
been earned but have not been declared and are included in other long-term
liabilities in the accompanying consolidated balance sheet. Upon conversion of
any shares of Series A Preferred Stock, the Company is obligated to issue
additional shares of Common Stock having a market value equal to accrued but
unpaid dividends on the Series A Preferred Stock at the time of conversion. The
issuance of any such shares of Common Stock is subject to applicable provisions
of
29
the Delaware General Corporation Law.
The Company does not presently intend to declare dividends with respect
to the Series B Preferred Stock. In the event the Board of Directors elects to
declare any cash dividends on the Common Stock, the Board must also declare a
cash dividend on the Series B Preferred Stock in an amount equal to the common
equivalent per share dividend declared on the Common Stock. Dividends will be
cumulative from the payment date of any such declaration, whether or not there
are funds of the Company legally available for the payment of such dividends.
Accumulations of dividends on shares of Series B Preferred Stock shall not bear
interest. See "Dividend Policy."
CONVERSION RIGHTS
Holders of Series A and Series B Preferred Stock are entitled to
convert their shares of Preferred Stock into shares of Common Stock at any time.
As of March 31, 1996, each share of Series A Preferred Stock is convertible into
12.36 shares of Common Stock and each share of Series B Preferred Stock is
convertible into 20.57 shares of Common Stock.
The Conversion Rates are subject to adjustment in certain
circumstances. If the Company declares a dividend on its Common Stock payable in
Common Stock or payable in securities convertible into Common Stock, or if the
Company subdivides, combines, or reclassifies its outstanding shares of Common
Stock, then the Conversion Rates will be adjusted such that each holder of
Series A or Series B Preferred Stock will be entitled to receive on conversion
of his shares that number of shares of Common Stock he would have held after the
dividend, subdivision, combination, or reclassification if he had converted his
shares of Series A and Series B Preferred Stock immediately prior to the record
date or effective date thereof, and, in the case of a dividend payable in
securities convertible into Common Stock, after he had converted all such
securities into Common Stock.
The Series B Preferred Stock will be automatically converted into
Common Stock upon the first to occur of the following events: (i) the completion
of at least a $10 million public offering with an offering price of at least $10
per share or (ii) the date on which the closing price of the Common Stock on a
national exchange is at least $10.00 per share for a minimum of 20 consecutive
trading days where the average daily volume during such period is at least
30,000 shares.
REDEMPTION RIGHT
The Company has the right to redeem all or part of the shares of Series
A Preferred Stock at redemption prices ranging from $102.40 per share of Series
A Preferred Stock in 1996 to $100 in 1999, plus accrued and unpaid dividends, if
any.
VOTING RIGHTS
Holders of Series A and Series B Preferred Stock are each entitled to
one vote for each share of Common Stock into which the shares of Series A and
Series B Preferred Stock are convertible. With the exception of certain
circumstances, holders of Series A and Series B Preferred Stock and Common Stock
vote together as a single class on all matters upon which stockholders are
entitled to vote. Holders of Series A Preferred Stock also have the right,
voting as a separate class, to approve any creation of a series of stock senior
to the Series A Preferred Stock as to dividends or liquidation. In the event the
Company fails to pay
30
dividends that have been declared on the Series A Preferred Stock for four
consecutive quarters, the holders of Series A Preferred Stock, voting as a
separate class, have the right to elect one member of the Board of Directors.
Holders of Series B Preferred Stock have the right, voting as a separate class,
to approve the creation of any series of stock senior to the Series B Preferred
Stock as to liquidation.
LIQUIDATION RIGHTS
In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Company, holders of Series A and Series B Preferred Stock
will be entitled to receive out of assets of the Company available for
distribution to its stockholders, before any distribution is made to holders of
its Common Stock, liquidating distributions in an amount equal to $100 per
share. In addition, holders of Series A Preferred Stock will be entitled to
receive all accrued but unpaid dividends. After payment of the full amount of
the liquidating distributions to the holders of the Series A and Series B
Preferred Stock, holders of the Company's Common Stock will be entitled to any
further distribution of the Company's assets. If the assets of the Company are
insufficient to pay the full amounts of the liquidating distributions on the
Series A and Series B Preferred Stock, then all available assets of the Company
will be distributed ratably to the holders of the Series A and Series B
Preferred Stock.
TRANSFER AGENT
The transfer agent for the Company's Common Stock and Series A and
Series B Preferred Stock is First Union National Bank, 230 S. Tryon Street,
Charlotte, NC 28288-1154.
REPORTS TO STOCKHOLDERS
The Company furnishes its stockholders with annual reports containing
audited financial statements and other periodic reports as the Company
determines to be appropriate or as may be required by law.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Delaware law provides, in general, that a corporation shall have power
to indemnify any person who was or is a party or 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 or officer of the corporation. Such indemnity may be against expenses
(including attorney's fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with such action, suit or
proceeding, if the indemnified party acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
corporation with respect to any criminal action or proceeding and the
indemnified party did not have reasonable cause to believe his conduct was
unlawful.
Delaware law also provides, in general, that a corporation shall have
power to indemnify any person who was or is a party or is threatened to be made
a party to any threatened, pending or completed action or suit by or in the
right of the corporation to procure a judgment in its favor by reason of the
fact that he is or was a director or officer of the corporation, against any
expenses (including attorney's fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interest of the
31
corporation.
Additionally, Delaware law provides, in general, that a corporation
shall have the power to purchase and maintain insurance on behalf of any person
who is or was a director or officer of the corporation against any liability
asserted against him or incurred by him in any such capacity, or arising out of
his status as such, whether or not the corporation would have the power to
indemnify him against such liability under the provisions of the law.
Article EIGHTH of the Registrant's Restated and Amended Certificate of
Incorporation and Section 1 of Article VI of the Registrant's By-Laws give a
director or officer the right to be indemnified by the Registrant to the fullest
extent permitted under Delaware law.
Article TENTH of the Registrant's Restated and Amended Certificate of
Incorporation provides that no director shall be personally liable to the
Registrant or any stockholder for monetary damages for breach of fiduciary duty
as a director, except for any matter in respect of which such director shall be
liable under Section 174 of Title 8 of the General Corporation Law of the State
of Delaware, or shall be liable by reason that, in addition to any and all other
requirements for such liability, he (i) shall have breached his duty of loyalty
to the Registrant or its stockholders, (ii) shall not have acted in good faith
or, in failing to act, shall not have acted in good faith, (iii) shall have
acted in a manner involving intentional misconduct or a knowing violation of law
or, in failing to act, shall have acted in a manner involving intentional
misconduct or a knowing violation of law or (iv) shall have derived an improper
personal benefit. The provisions of such article do not limit or eliminate the
liability of any director for any act or omission occurring prior to the
effective time of such article.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
LEGAL MATTERS
The legality of the securities offered hereby will be passed upon for
the Company by Weil, Gotshal & Manges, New York, New York 10153.
EXPERTS
The financial statements included in this prospectus have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
32
COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets
As of December 31, 1995 and 1994 F-3
Consolidated Statements of Operations
for the Three Years Ended December 31, 1995 F-5
Consolidated Statements of Stockholders' Equity (Deficit)
for the Three Years Ended December 31, 1995 F-6
Consolidated Statements of Cash Flows
for the Three Years Ended December 31, 1995 F-8
Notes to Consolidated Financial Statements F-11
F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Columbia Laboratories, Inc.:
We have audited the accompanying consolidated balance sheets of Columbia
Laboratories, Inc. (a Delaware corporation) and subsidiaries as of December 31,
1995 and 1994, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for each of the three years in the
period ended December 31, 1995. 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 generally accepted auditing
standards. 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 Columbia Laboratories, Inc. and
subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Miami, Florida,
February 2, 1996.
F-2
COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1994
ASSETS
1995 1994
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents $1,628,952 $ 689,749
Accounts receivable, net of allowance
for doubtful accounts of $105,437
and $98,370 in 1995 and 1994, respectively 1,266,964 904,277
Inventories 953,913 1,117,243
Prepaid expense 213,723 125,832
---------- ----------
Total current assets 4,063,552 2,837,101
---------- ----------
PROPERTY AND EQUIPMENT:
Leasehold improvements 74,303 15,162
Machinery and equipment 1,571,246 1,394,788
Furniture and fixtures 131,670 70,597
---------- ----------
1,777,219 1,480,547
Less-Accumulated depreciation
and amortization 855,126 564,924
---------- ----------
922,093 915,623
---------- ----------
INTANGIBLE ASSETS, net 1,563,817 1,786,037
OTHER ASSETS 1,137,208 1,268,803
---------- ----------
$7,686,670 $6,807,564
========== ==========
(Continued)
F-3
COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1994
(Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
1995 1994
------------ ------------
CURRENT LIABILITIES:
Current portion of long-term debt $ 156,751 $ --
Accounts payable 3,423,339 3,707,966
Accrued expenses 956,647 1,059,960
Deferred revenue 1,081,522 1,540,549
Estimated liability for returns and allowances 413,899 387,075
------------ ------------
Total current liabilities 6,032,158 6,695,550
------------ ------------
LONG-TERM DEBT, net of current portion -- 6,217,649
OTHER LONG-TERM LIABILITIES 98,079 86,743
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.01 par value; 1,000,000 shares authorized;
Series A Convertible Preferred Stock,
1,323 and 1,515 shares issued and
outstanding in 1995 and 1994, respectively
(liquidation preference of $132,300 at December 31, 1995) 13 15
Series B Convertible Preferred Stock,
1,750 and 2,000 shares issued and
outstanding in 1995 and 1994, respectively
(liquidation preference of $175,000 at December 31, 1995) 18 20
Common stock, $.01 par value; 40,000,000
shares authorized; 25,982,373 and 23,778,897
shares issued and outstanding in 1995 and 1994, respectively 259,824 237,789
Capital in excess of par value 73,067,014 64,206,507
Accumulated deficit (71,812,828) (70,853,356)
Cumulative translation adjustment 42,392 216,647
------------ ------------
Total stockholders' equity (deficit) 1,556,433 (6,192,378)
------------ ------------
$ 7,686,670 $ 6,807,564
============ ============
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-4
COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
1995 1994 1993
------------ ------------ ------------
NET SALES $ 9,904,633 $ 8,769,064 $ 8,150,227
COST OF GOODS SOLD 5,430,458 5,539,424 5,077,816
------------ ------------ ------------
Gross profit 4,474,175 3,229,640 3,072,411
------------ ------------ ------------
OPERATING EXPENSES:
Selling and distribution 2,897,312 2,036,353 2,571,164
General and administrative 2,870,416 2,799,863 3,491,201
Research and development 7,812,488 8,976,047 5,290,912
Lease termination cost -- -- 238,282
------------ ------------ ------------
Total operating expenses 13,580,216 13,812,263 11,591,559
------------ ------------ ------------
Loss from operations (9,106,041) (10,582,623) (8,519,148)
------------ ------------ ------------
OTHER INCOME (EXPENSE):
License fees 8,054,883 174,741 561,297
Interest income 135,799 61,030 89,540
Interest expense (178,592) (2,479,610) (431,983)
Purchase of option -- -- (2,000,000)
Other, net 134,479 (167,427) (152,689)
------------ ------------ ------------
8,146,569 (2,411,266) (1,933,835)
------------ ------------ ------------
Net loss $ (959,472) $(12,993,889) $(10,452,983)
============ ============ ============
NET LOSS PER COMMON SHARE $ (0.04) $ (0.58) $ (0.49)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 25,487,000 22,530,000 21,380,000
============ ============ ============
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-5
COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
SERIES A SERIES B
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
------------------------ ------------------------ -------------------------
NUMBER OF NUMBER OF NUMBER OF
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- ----------- ----------- ------------ ------------ ------------
BALANCE, January 1, 1993 2,190 $22 12,750 $127 17,305,419 $173,054
Issuance of common stock - - - - 3,992,002 39,920
Options exercised - - - - 531,568 5,316
Warrants exercised - - - - 220,668 2,207
Issuance of warrants - - - - - -
Conversion of preferred stock (275) (3) (5,000) (50) 106,249 1,062
Accumulated dividends on
preferred stock - - - - - -
Translation adjustment - - - - - -
Net loss - - - - - -
----------- ----------- ----------- ------------ ------------ ------------
BALANCE, December 31, 1993 1,915 19 7,750 77 22,155,906 221,559
Issuance of common stock - - - - 126,061 1,261
Options exercised - - - - 20,000 200
Warrants exercised - - - - 1,060,000 10,600
Conversion of debt - - - - 293,710 2,937
Conversion of preferred stock (400) (4) (5,750) (57) 123,220 1,232
Accumulated dividends on
preferred stock - - - - - -
Translation adjustment - - - - - -
Net loss - - - - - -
----------- ----------- ----------- ------------ ------------ ------------
BALANCE, December 31, 1994 1,515 15 2,000 20 23,778,897 237,789
CAPITAL IN CUMULATIVE
EXCESS OF ACCUMULATED TRANSLATION
PAR VALUE DEFICIT ADJUSTMENT TOTAL
----------- ------------ ----------- -------------
BALANCE, January 1, 1993 $39,615,396 $(47,406,484) $626,799 $ (6,991,086)
Issuance of common stock 16,644,494 - - 16,684,414
Options exercised 474,689 - - 480,005
Warrants exercised 296,727 - - 298,934
Issuance of warrants 1,912,500 - - 1,912,500
Conversion of preferred stock (1,009) - - -
Accumulated dividends on
preferred stock (16,307) - - (16,307)
Translation adjustment - - (440,589) (440,589)
Net loss - (10,452,983) - (10,452,983)
----------- ----------- ---------- -----------
BALANCE, December 31, 1993 58,926,490 (57,859,467) 186,210 1,474,888
Issuance of common stock 525,739 - - 527,000
Options exercised 28,600 - - 28,800
Warrants exercised 3,714,400 - - 3,725,000
Conversion of debt 1,025,048 - - 1,027,985
Conversion of preferred stock (1,171) - - -
Accumulated dividends on
preferred stock (12,599) - - (12,599)
Translation adjustment - - 30,437 30,437
Net loss - (12,993,889) - (12,993,889)
----------- ----------- ---------- -----------
BALANCE, December 31, 1994 64,206,507 (70,853,356) 216,647 (6,192,378)
(Continued)
F-6
COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
(Continued)
SERIES A SERIES B
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
------------------------ ------------------------ ------------------------- CAPITAL IN
NUMBER OF NUMBER OF NUMBER OF EXCESS OF
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT PAR VALUE
----------- ----------- ----------- ------------ ------------ ------------ --------------
BALANCE, January 1, 1995 1,515 $15 2,000 $20 23,778,897 $237,789 $64,206,507
Issuance of common stock - - - - 112,611 1,127 639,519
Options exercised - - - - 161,000 1,610 757,828
Warrants exercised - - - - 227,118 2,271 1,152,110
Conversion of debt - - - - 1,695,232 16,952 6,322,457
Conversion of preferred stock (192) (2) (250) (2) 7,515 75 (71)
Accumulated dividends on
preferred stock - - - - - - (11,336)
Translation adjustment - - - - - - -
Net loss - - - - - - -
----------- ----------- ----------- ------------ ------------ ------------ --------------
BALANCE, December 31, 1995 1,323 $13 1,750 $18 25,982,373 $259,824 $73,067,014
=========== =========== =========== ============ ============ ============ ==============
CUMULATIVE
ACCUMULATED TRANSLATION
DEFICIT ADJUSTMENT TOTAL
------------- -------------- ------------
BALANCE, January 1, 1995 $(70,853,356) $ 216,647 $(6,192,378)
Issuance of common stock - - 640,646
Options exercised - - 759,438
Warrants exercised - - 1,154,381
Conversion of debt - - 6,339,409
Conversion of preferred stock - - -
Accumulated dividends on
preferred stock - - (11,336)
Translation adjustment - (174,255) (174,255)
Net loss (959,472) - (959,472)
BALANCE, December 31, 1995 ------------- -------------- -----------
$(71,812,828) $42,392 $1,556,433
============= ============== ===========
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-7
COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
1995 1994 1993
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (959,472) $(12,993,889) $(10,452,983)
Adjustments to reconcile net loss to net
cash used in operating activities-
Depreciation and amortization 520,066 440,496 496,984
Provision for (recovery of) doubtful accounts 7,067 (3,030) 4,734
Provision for returns and allowances 37,445 168,215 233,969
Lease termination cost -- -- 112,007
Write-down of property and equipment -- -- 216,133
Write-down of inventories 251,043 888,277 451,460
Interest expense (19,035) 1,738,635 173,865
Changes in assets and liabilities-
(Increase) decrease in:
Accounts receivable (429,570) 43,773 (469,726)
Inventories (87,713) 868,688 (31,914)
Prepaid expenses (54,454) 78,365 (87,374)
Other assets (74,615) 20,548 (510,804)
Increase (decrease) in:
Accounts payable 239,589 1,171,080 (1,617,947)
Accrued expenses 215,748 (616,010) 1,579,201
Deferred revenue (157,410) (387,993) (144,738)
Estimated liability for returns and
allowances (10,621) (92,287) (344,203)
------------ ------------ ------------
Net cash used in operating activities (521,932) (8,675,132) (10,391,336)
------------ ------------ ------------
(Continued)
F-8
COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
(Continued)
1995 1994 1993
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment $ (309,091) $ (275,210) $ (118,023)
Proceeds from sale of investment -- -- 25,817
------------ ------------ ------------
Net cash used in investing activities (309,091) (275,210) (92,206)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt -- -- 7,250,000
Repayments of notes payable and long-term debt (91,954) (37,527) (192,024)
Repayment of amounts owed to minority
shareholders of a subsidiary -- -- (2,500,000)
Proceeds from issuance of common stock 78,146 500,000 9,448,813
Proceeds from exercise of options and warrants 1,913,819 3,753,800 778,939
------------ ------------ ------------
Net cash provided by financing activities 1,900,011 4,216,273 14,785,728
EFFECT OF EXCHANGE RATE CHANGES ON CASH (129,785) 142,989 (62,143)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 939,203 (4,591,080) 4,240,043
CASH AND CASH EQUIVALENTS,
beginning of year 689,749 5,280,829 1,040,786
------------ ------------ ------------
CASH AND CASH EQUIVALENTS,
end of year $ 1,628,952 $ 689,749 $ 5,280,829
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Interest paid $ 107,132 $ 573,338 $ 29,857
============ ============ ============
(Continued)
F-9
COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
(Continued)
SUPPLEMENTAL SCHEDULE OF NONCASH
OPERATING AND FINANCING ACTIVITIES:
During 1995 and 1994, the Company repaid $6,339,409 and $1,027,985,
respectively, of long-term debt and accrued interest through the issuance of
1,695,232 and 293,710 shares, respectively, of Common Stock.
In January 1993, the Company completed a private placement of 2.5 million
shares of Common Stock, raising net proceeds of approximately $9.5 million. In
addition, the Company repaid the amount owed to the minority shareholders of a
subsidiary through the payment of $2.5 million in cash and the issuance of
867,579 shares of Common Stock. The Company also repaid $1.6 million of
long-term debt through the payment of $100,000 in cash and the issuance of
375,000 shares of Common Stock.
During 1993, the Company issued 239,238 shares of Common Stock in payment
of lease termination costs which totaled $1.2 million. In addition, during 1994
and 1993, the Company issued 5,008 and 10,300 shares of Common Stock,
respectively, in payment of consulting fees, which totaled $27,000 and $54,000,
respectively. During 1995, the Company issued 95,000 shares of Common Stock in
payment of legal fees aggregating $562,500.
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-10
COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION-
Columbia Laboratories, Inc. (the "Company") was incorporated as a Delaware
corporation in December 1986. The Company's objective is to develop on a
worldwide basis a portfolio of women's prescription and over-the-counter
products, including those which help prevent sexually transmitted diseases. The
Company's products primarily utilize the Company's patented bioadhesive delivery
technology.
PRINCIPLES OF CONSOLIDATION-
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany balances and transactions have
been eliminated in consolidation.
ACCOUNTING ESTIMATES-
The preparation of financial statements in conformity with generally accepted
accounting principles 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 statement and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
ADJUSTMENT OF PRIOR YEARS' FINANCIAL STATEMENTS-
In December 1993, the Company entered into an Option and License Agreement
pursuant to which it was granted an option to obtain an exclusive license to the
North and South American rights to a potential AIDS treatment. The option cost
$2 million, which in accordance with Statement of Financial Accounting Standard
("SFAS") No. 2, should have been expensed when acquired in 1993. As a result,
the Company has restated its net loss for 1993 and 1994.
The effect of the restatement is to increase 1993 net loss by $2 million or
$(.09) per share and decrease 1994 net loss $400,000 or $.01 per share.
FOREIGN CURRENCY-
The assets and liabilities of the Company's foreign subsidiaries are translated
into U.S. dollars at current exchange rates and revenue and expense items are
translated at average rates of exchange prevailing during the period. Resulting
translation adjustments are accumulated as a separate component of stockholders'
equity (deficit).
INVENTORIES-
Inventories are stated at the lower of cost (first-in, first-out) or market.
Components of inventory cost include materials, labor and manufacturing
overhead. Inventories consist of the following:
DECEMBER 31,
-------------------------------
1995 1994
---------- ----------
Finished goods $ 831,794 $ 260,666
Raw materials 122,119 856,577
---------- ----------
$ 953,913 $1,117,243
========== ==========
F-11
PROPERTY AND EQUIPMENT-
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed on the straight-line method over the estimated useful
lives of the respective assets, as follows:
YEARS
------
Machinery and equipment 5 - 10
Furniture and fixtures 5
Costs of major additions and improvements are capitalized and expenditures for
maintenance and repairs which do not extend the life of the assets are expensed.
Upon sale or disposition of property and equipment, the cost and related
accumulated depreciation are eliminated from the accounts and any resultant gain
or loss is credited or charged to income.
INTANGIBLE ASSETS-
Intangible assets consist of the following:
DECEMBER 31,
------------------------------
1995 1994
----------- -----------
Patents $ 2,600,000 $ 2,600,000
Trademarks 341,000 341,000
----------- -----------
2,941,000 2,941,000
Less accumulated amortization (1,377,183) (1,154,963)
----------- -----------
$ 1,563,817 $ 1,786,037
=========== ===========
Patents are being amortized on a straight-line basis over their remaining lives
(through 2003). Trademarks are being amortized on a straight-line basis over ten
years.
Following the acquisition of any intangible assets, the Company continually
evaluates whether later events and circumstances have occurred that indicate the
remaining estimated useful life of the intangible asset may warrant revision or
that the remaining balance of the intangible asset may not be recoverable. When
factors indicate that a trademark or patent may be impaired, the Company uses an
estimate of the underlying product's undiscounted net income, including amounts
to be received over the remaining life of the intangible asset from license
fees, royalty income, and related deferred revenues, in measuring whether the
intangible asset is recoverable. Unrecoverable amounts are charged to
operations.
INCOME TAXES-
As of December 31, 1995, the Company has U.S. tax net operating loss
carryforwards of approximately $39 million which expire through 2010. The
Company also has unused tax credits of approximately $782,000 which expire at
various dates through 2005. Utilization of net operating loss carryforwards may
be limited in any year due to limitations in the Internal Revenue Code.
In February 1992, the Financial Accounting Standards Board issued a new standard
on accounting for income taxes ("SFAS No. 109"). The Company adopted the new
accounting and disclosure rules as of January 1, 1993. Implementation of SFAS
No. 109 had no effect on the Company's reported financial position and net loss.
As of December 31, 1995 and 1994, other assets in the accompanying consolidated
balance sheets include deferred tax assets of approximately $14 million
(comprised primarily of a net operating loss carryforward) which have been fully
reserved for as their ultimate realizability is not assured.
F-12
REVENUE RECOGNITION-
Sales are recorded as products are shipped and services are rendered. Royalties
and additional monies owed to the Company based on the strategic alliance
partners selling prices are recorded as revenue as sales are made by the
strategic alliance partners.
LICENSE FEES-
License fees, net of related expenses, are recognized as other income when the
Company has no further obligations with respect to the payments and thus the
earnings process is complete.
RESEARCH AND DEVELOPMENT COSTS-
Company sponsored research and development costs related to future products are
expensed as incurred. Costs related to research and development contracts are
charged to cost of sales upon recognition of the related revenue.
LEASE TERMINATION COST-
Lease termination cost represents expenses incurred in relocating the Company's
corporate headquarters to a smaller premise and in closing the Company's
laboratory facility in Madison, Wisconsin. Of this amount, $1.2 million was paid
through the issuance of 239,238 shares of the Company's $.01 par value Common
Stock ("Common Stock").
LOSS PER SHARE-
Loss per share is computed by dividing the net loss plus preferred dividends by
the weighted average number of shares of common stock outstanding during the
period. Shares to be issued upon the exercise of the outstanding options and
warrants or the conversion of the preferred stock are not included in the
computation of loss per share as their effect is antidilutive.
STATEMENTS OF CASH FLOWS-
For purposes of the statements of cash flows, the Company considers all
investments purchased with a maturity of three months or less to be cash
equivalents.
(2) STRATEGIC ALLIANCE AGREEMENTS:
The Company has entered into strategic alliance agreements for the marketing and
distribution of Replens with: (i) Warner-Lambert Company under which
Warner-Lambert Company markets Replens in the United States; (ii) a subsidiary
of Johnson and Johnson under which that subsidiary markets Replens in Italy;
(iii) Roussel-UCLAF under which Roussel markets Replens in France, certain
French overseas territories and Greece; (iv) Nippon Sanofi K.K. (formerly
Sterling-Winthrop, Inc.) under which Sanofi markets Replens in South America,
Central America and Australia and will market Replens in Portugal; (v) Teva
Pharmaceutical under which Teva will market Replens in Israel; (vi) Logos
Pharmaceuticals (Pty) Limited under which Logos markets Replens in South Africa
and the sixteen countries of sub-Saharan Africa; (vii) LASA SA under which LASA
SA markets Replens in Spain; (viii) Unipath Ltd. under which Unipath markets
Replens and Feminesse\trademark\ in the United Kingdom; (ix) Roberts
Pharmaceutical Corporation under which Roberts markets Replens in Canada; (x)
Vifor SA under which Vifor will market Replens in Switzerland and Liechtenstein
and (xi) Hermes H/F under which Hermes markets Replens in Iceland. Pursuant to
these agreements, the Company has received advance payments, of which $1,081,522
and $1,540,549, respectively, are reflected as deferred revenue in the
accompanying December 31, 1995 and 1994 consolidated balance sheets,
respectively. These advance payments will be recognized as products are shipped
to the applicable strategic alliance partners or as sales are made by the
strategic alliance partners.
F-13
During 1993, the Logos agreement was amended such that Logos will also be the
exclusive distributor of the Company's progesterone product in South Africa and
the sixteen countries of sub-Saharan Africa. As part of the agreement, the
Company received upfront licensing fees as well as ongoing revenue from
manufacturing and product sales.
In September 1994, the Company entered into a license and distribution agreement
with Lake Pharmaceutical, Inc. under which Lake markets Advantage 24 in the
United States.
In May 1995, the Company entered into a worldwide, except for South Africa,
license and supply agreement with American Home Products ("AHP") under which the
Wyeth-Ayerst division of AHP will market Crinone. Under the terms of the
agreement, during 1995, the Company received $8 million in milestone payments.
An additional $1.5 million milestone payment was received in January 1996. The
Company will continue to receive additional milestone payments and a significant
percentage of sales.
(3) LONG-TERM DEBT:
Long-term debt consists of the following:
DECEMBER 31,
--------------------------------
1995 1994
----------- -----------
10% notes payable $ 156,751 $ 6,217,649
Less - Payments
due within one year (156,751) --
----------- -----------
$ -- $ 6,217,649
=========== ===========
During 1993, the Company issued $7.25 million of unsecured 10% notes payable due
on June 30, 1996 ("1993 Notes"). Pursuant to the terms of the 1993 Notes, if the
Company or any of its subsidiaries receives upfront license fees for the
marketing and distribution of the Company's prescription progesterone product,
the Company will use one-third of the net proceeds of such upfront fees to make
"pro-rata" prepayments of the notes payable. In connection with the 1993 Notes,
the Company issued warrants to purchase 1,212,500 shares of Common Stock at an
exercise price of $4.00 per share, which was less than the market value of the
Common Stock on the date of grant. The difference, aggregating $1,912,500, was
being recorded as additional interest expense over the term of the 1993 Notes.
The warrants are exercisable through June 30, 1998.
During 1994, the exercise price of certain of the warrants was reduced from
$4.00 per share to $3.50 per share, conditioned on the immediate exercise of the
warrants. As additional consideration for the immediate exercise of the
warrants, the holders were granted the right at any time to convert the
outstanding principal amount of the 1993 debt and accrued interest thereon, into
shares of Common Stock at an exchange rate equal to a 25% discount to the then
current market price, based on the average closing price of the Common Stock for
the fifteen days prior to the conversion date, but in no event at a price less
than $3.50 per share. As consideration for the repricing of the warrants, the
note holders waived their right to receive one-third of the net proceeds of any
upfront licensing fees. As a result, warrants to purchase 1,050,000 shares of
Common Stock were exercised resulting in net proceeds of $3,675,000 to the
Company.
During 1995 and 1994, the Company repaid $6,339,409 and $1,027,985,
respectively, of long-term debt and accrued interest through the issuance of
1,695,232 and 293,710 shares, respectively, of Common Stock. As a result of the
exercise of the warrants and the repayment of the debt, during 1994, debt
discount aggregating $1,738,635 was recorded as additional interest expense.
F-14
(4) STOCKHOLDERS' EQUITY (DEFICIT):
PREFERRED STOCK-
In November 1989, the Company completed a private placement of 151,000 shares of
Series A Convertible Preferred Stock ("Series A Preferred Stock"). The Series A
Preferred Stock pays cumulative dividends at a rate of 8% per annum payable
quarterly and each share is convertible into 12.36 shares of Common Stock. As of
December 31, 1995 and 1994, dividends of $98,079 and $86,743, respectively, have
been earned but have not been declared and are included in other long-term
liabilities in the accompanying consolidated balance sheets.
In August 1991, the Company completed a private placement of 150,000 shares of
Series B Convertible Preferred Stock ("Series B Preferred Stock"). Each share of
Series B Preferred Stock is convertible into 20.57 shares of Common Stock.
Upon liquidation of the Company, the holders of the Series A and Series B
Preferred Stock are entitled to $100 per share. In addition, the holders of
Series A Preferred Stock are entitled to accumulated unpaid dividends. The
Series A Preferred Stock shares are redeemable for cash, at the option of the
Company, at specified redemption prices. The Series B Preferred Stock will be
automatically converted into Common Stock upon the occurrence of certain events.
Holders of the Series A and Series B Preferred Stock are entitled to one vote
for each share of Common Stock into which the preferred stock is convertible.
WARRANTS-
As of December 31, 1995, the Company had warrants outstanding for the purchase
of 677,881 shares of Common Stock. Information on outstanding warrants is as
follows:
EXERCISE
PRICE
- --------
$4.00 125,000
4.375 150,000
4.81 50,000
4.875 57,500
5.00 14,000
5.25 7,000
5.31 200,000
5.46 60,381
5.625 7,000
5.875 7,000
-------
677,881
=======
All of the warrants, except 30,000 of the $4.875 warrants, were exercisable on
December 31, 1995.
STOCK OPTION PLAN-
All employees, officers, directors and consultants of the Company or any
subsidiary are eligible to participate in the Columbia Laboratories, Inc. 1988
Stock Option Plan, as amended (the "Plan"). Under the Plan, a total of 5,000,000
shares of Common Stock have been authorized for issuance upon exercise of the
options. Information on options are as follows:
F-15
NUMBER
OF SHARES PRICE PER SHARE
--------- ---------------
Outstanding, January 1, 1994 3,340,572 $1.44 - 16.03
Granted 1,925,000 4.38 - 6.13
Exercised (20,000) 1.44
Canceled (1,995,252) 4.34 - 14.58
----------
Outstanding, December 31, 1994 3,250,320 1.44 - 16.03
Granted 321,500 7.25
Exercised (161,000) 4.50 - 5.38
Canceled (260,174) 4.88 - 13.63
----------
Outstanding, December 31, 1995 3,150,646 1.44 - 16.03
========== =============
Options exercisable:
December 31, 1994 1,074,320 $1.44 - 16.03
========== =============
December 31, 1995 2,618,146 $1.44 - 16.03
========== =============
(5) COMMITMENTS AND CONTINGENCIES:
LEASES-
The Company leases office space, apartments and office equipment under
noncancelable operating leases. Lease expense for each of the three years ended
December 31, 1995, 1994 and 1993 totaled $365,995, $461,489 and $308,625,
respectively. Future minimum lease payments as of December 31, 1995 are as
follows:
1996 $ 532,279
1997 491,117
1998 354,963
1999 95,579
2000 86,010
Thereafter 432,732
----------
$1,992,680
==========
ROYALTIES-
In 1989, the Company purchased the assets of Bio-Mimetics, Inc. which consisted
of the patents underlying the Company's Bioadhesive Delivery System, other
patent applications and related technology, for $2,600,000, in the form of 9%
convertible debentures which were converted into 500,000 shares of Common Stock
during 1991, and $100,000 in cash. In addition, Bio-Mimetics, Inc. receives a
royalty equal to two percent of the net sales of products based on the
Bioadhesive Delivery System to an aggregate amount of $7,500,000. In addition,
beginning in March 1995, the Company agreed to prepay a portion of the remaining
royalty obligation if certain conditions are met. The Company may not assign the
patents underlying the Bioadhesive Delivery System without the prior written
consent of Bio-Mimetics, Inc. until the aggregate royalties have been paid.
In May 1989, the Company signed an exclusive agreement to license the U.S. and
Canadian marketing rights for Diasorb\registered trademark\, a unique pediatric
antidiarrheal product formerly marketed by Schering-Plough Corporation. Under
the terms of the agreement, the Company is obligated to pay a royalty equal to
5% of the net sales of Diasorb.
EMPLOYMENT AGREEMENTS-
The Company has employment agreements with certain employees, some of whom are
also stockholders of the Company. The terms of the employment agreements range
from one to five years. Future base compensation to be paid under these
agreements as of December 31, 1995 are as follows:
F-16
1996 $ 903,500
1997 761,833
1998 601,750
1999 500,000
2000 500,000
----------
$3,267,083
==========
During 1993, the Company's shareholders approved an Incentive Compensation Plan
covering all employees pursuant to which an aggregate of 5% of pretax earnings
of the Company for any year will be awarded to designated employees of the
Company. As a result of the net losses, no amounts have been awarded to date.
MANUFACTURING EQUIPMENT-
In 1991, the Company placed orders for approximately $2,700,000 of manufacturing
equipment. As of December 31, 1995 and 1994, $945,000 of this equipment was
completed and is included in machinery and equipment in the accompanying
consolidated balance sheets. Deposits on manufacturing equipment totaling
approximately $1 million as of December 31, 1995 and 1994, are included in other
assets in the accompanying consolidated balance sheets.
LEGAL PROCEEDINGS-
Various claims and complaints have been filed or are pending against the Company
with respect to various matters. In the opinion of management and counsel, all
such matters are adequately reserved for or covered by insurance or, if not so
covered, are without any or have little merit or involve such amounts that if
disposed of unfavorably would not have a material adverse effect on the Company.
(6) OTHER RELATED-PARTY TRANSACTION:
During 1993, the Company loaned two individuals who are officers, directors and
stockholders of the Company an aggregate of $190,350. These notes, which bear
interest at 10% per annum, are due on or before December 7, 1996. The notes and
the related accrued interest, aggregating $230,354 as of December 31, 1995, are
included in accounts receivable in the accompanying 1995 consolidated balance
sheet. As of December 31, 1994, the aggregate balance of $211,219 is included in
other assets in the accompanying 1994 consolidated balance sheet.
(7) SEGMENT INFORMATION:
The Company and its subsidiaries are engaged in one line of business, the
development and sale of pharmaceutical products and cosmetics. One customer
accounted for approximately 21%, 27% and 29% of 1995, 1994 and 1993 consolidated
net sales, respectively. Another customer accounted for approximately 16%, 14%
and 11%, respectively, of 1995, 1994 and 1993 consolidated net sales. The
following table shows selected information by geographic area:
F-17
NET LOSS FROM IDENTIFIABLE
SALES OPERATIONS ASSETS
----- ---------- ------------
As of and for the year
ended December 31, 1995-
United States $ 8,321,578 $ (2,451,702) $ 2,989,278
Europe 1,583,055 (6,654,339) 4,697,392
------------ ------------ ------------
$ 9,904,633 $ (9,106,041) $ 7,686,670
============ ============ ============
As of and for the year
ended December 31, 1994-
United States $ 7,681,985 $ (2,798,773) $ 3,153,159
Europe 1,087,079 (7,783,850) 3,654,405
------------ ------------ ------------
$ 8,769,064 $(10,582,623) $ 6,807,564
============ ============ ============
As of and for the year
ended December 31, 1993-
United States $ 7,009,867 $ (5,144,088) $ 10,306,454
Europe 1,140,360 (3,375,060) 3,563,597
------------ ------------ ------------
$ 8,150,227 $ (8,519,148) $ 13,870,051
============ ============ ============
(8) EVENT SUBSEQUENT TO THE DATE OF THE AUDIT REPORT:
In March 1996, the Company completed a private placement of 1,358,000 shares of
Common Stock raising net proceeds of approximately $12 million.
F-18
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH
THIS OFFERING TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN
THOSE CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS SHALL NOT CONSTITUTE AN
OFFER TO SELL, OR THE SOLICITATION OF AN OFFER TO BUY, THE SECURITIES OFFERED
HEREBY.
TABLE OF CONTENTS
Available Information ................................................... 2
The Company ............................................................. 2
Risk Factors ............................................................ 3
Use of Proceeds ......................................................... 7
Dilution ................................................................ 7
Business ................................................................ 8
Properties ............................................................. 15
Legal Proceedings 15
Selected Financial Data .................................................16
Management's Discussion and Analysis of
Financial Condition and Results of Operations ..........................16
Price Range of Common Stock .............................................19
Dividend Policy .........................................................20
Management ..............................................................20
Security Ownership of Certain Beneficial Owners and Management ..........25
Certain Relationships and Related Transactions ..........................26
Plan of Distribution ....................................................26
Selling Securityholders .................................................27
Description of Securities ...............................................28
Indemnification of Officers 31
Legal Matters ...........................................................32
Experts .................................................................32
Index to Consolidated Financial Statements .............................F-1
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
SEC registration fees $ 5,589
Accounting fees and expenses 5,000
Legal fees and expenses 5,000
Miscellaneous 411
-------
Total $16,000
=======
The Company is responsible for paying all of these fees.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145(a) of the General Corporation Law of the State of Delaware
(the "General Corporation Law") provides, in general, that a corporation shall
have power to indemnify any person who was or is a party or 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 or officer of the corporation. Such indemnity may be against expenses
(including attorney's fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with such action, suit or
proceeding, if the indemnified party acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
corporation with respect to any criminal action or proceeding and the
indemnified party did not have reasonable cause to believe his conduct was
unlawful.
Section 145(b) of the General Corporation Law provides, in general,
that a corporation shall have power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director or
officer of the corporation, against any expenses (including attorney's fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interest of the
corporation.
Section 145(g) of the General Corporation Law provides, in general,
that a corporation shall have the power to purchase and maintain insurance on
behalf of any person who is or was a director or officer of the corporation
against any liability asserted against him or incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability under the
provisions of the law.
Article EIGHTH of the Registrant's Restated and Amended Certificate of
Incorporation and Section 1 of Article VI of the Registrant's By-Laws give a
director or officer the right to be indemnified by the Registrant to the fullest
extent permitted under Delaware law.
Article TENTH of the Registrant's Restated and Amended Certificate of
Incorporation provides that
II-1
no director shall be personally liable to the Registrant or any stockholder for
monetary damages for breach of fiduciary duty as a director, except for any
matter in respect of which such director shall be liable under Section 174 of
Title 8 of the General Corporation Law, or shall be liable by reason that, in
addition to any and all other requirements for such liability, he (i) shall have
breached his duty of loyalty to the Registrant or its stockholders, (ii) shall
not have acted in good faith or, in failing to act, shall not have acted in good
faith, (iii) shall have acted in a manner involving intentional misconduct or a
knowing violation of law or, in failing to act, shall have acted in a manner
involving intentional misconduct or a knowing violation of law or (iv) shall
have derived an improper personal benefit. The provisions of such article do not
limit or eliminate the liability of any director for any act or omission
occurring prior to the effective time of such article.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following sets forth certain information with respect to all
unregistered securities of the Company sold by the Company within the past three
years:
A. In July 1993, the Company issued 250,000 shares of Common Stock to
Hollywood Corporate Circle Associates as consideration for the termination of an
Office Lease Agreement dated January 18, 1990, of which 10,762 shares were
canceled in December 1993, pursuant to the terms of the Lease Termination
Agreement.
The issuance of the 250,000 shares was made in reliance upon the
exemption from the registration provisions of the Act, afforded by Section 4(2)
of the Act, as transactions by an issuer not involving a public offering. The
"purchaser" of the shares is an "accredited investor" within the meaning of Rule
501 of the Act and is familiar with or had access to information concerning the
operations and financial condition of the Company.
B. In August, September and October 1993, the Company issued an
aggregate of $7,250,000 of notes due June 30, 1996 ("1993 Notes") to the
following parties and in the following amounts: Dominion Capital, Inc.
("Dominion"), in which William J. Hopke, a former director of the Company, is
Vice President, Treasurer and a director, $1,000,000; Citibank, N.A.,
$1,500,000; John Hunter, $1,000,000; Flagship Partners, $320,000; Frontier
Partners, $500,000; Erica Knowlton Trust, $180,000; Family Partnership,
$500,000; Charles Marran, $250,000; Scott Paper Company, $300,000; Riverbank
Associates, $200,000; SBSF Biotechnology Fund, $1,000,000 and SBSF Convertible
Securities Fund, $500,000. The 1993 Notes bear interest at the rate of 10% per
annum. In connection with the issuance of the 1993 Notes, the Company issued
warrants ("1993 Warrants") to purchase the following number of shares of Common
Stock at an exercise price of $4.00 per share during the period from July 1,
1994 to June 30, 1998: Dominion, 150,000 shares; Citibank, N.A., 225,000;
Hyprom, S.A., 150,000; Flagship Partners, 48,000; Frontier Partners, 75,000;
Erica Knowlton Trust, 27,000; Family Partnership, 75,000; Charles Marran,
37,500; Scott Paper Company, 45,000; Riverbank Associates, 30,000; SBSF
Biotechnology Fund, 150,000 and SBSF Convertible Securities Fund, 75,000. The
exercise prices of the 1993 Warrants and the number of
II-2
shares of Common Stock issuable upon exercise of the 1991 Warrants are subject
to adjustment in certain instances.
The issuance of the 1993 Notes and the 1993 Warrants was made in
reliance upon the exemption from the registration provisions of the Act,
afforded by Section 4(2) of the Act, as transactions by an issuer not involving
a public offering. The "purchasers" of the 1993 Notes and the 1993 Warrants are
"accredited investors" within the meaning of Rule 501 of the Act and were
familiar with or had access to information concerning the operations and
financial condition of the Company.
C. In October 1993 and March 1994, the Company issued warrants
("1993-1994 Warrants") to purchase the following number of shares of Common
Stock at an exercise price of $4.00 per share during the period from July 1,
1994 to June 30, 1998: John Bendell, 37,500 shares and Ruth Maasbach, as
nominee, 87,500 shares.
The 1993-1994 Warrants were issued in connection with investment
banking services provided to the Company in connection with the 1993 Notes.
Accordingly, the exercise price of the 1993-1994 Warrants are equal to the
exercise price of the 1993 Warrants. This transaction was approved by the
Company's Board of Directors.
The issuance of the 1993-1994 Warrants was made in reliance upon the
exemption from the registration provisions of the Act, afforded by Section 4(2)
of the Act, as transactions by an issuer not involving a public offering. The
"purchasers" of the 1993-1994 Warrants are "accredited investors" within the
meaning of Rule 501 of the Act and were familiar with or had access to
information concerning the operations and financial condition of the Company.
D. In July 1994, the Company issued warrants ("1994 Warrants") to
purchase the following number of shares of Common Stock at an exercise price of
$4.875 per share during the period from July 19, 1995 to July 19, 1999: John
Bendell, 12,500 shares and Leroy Goldfarb, 45,000 shares.
The 1994 Warrants were issued in recognition of the continued support
Messrs. Goldfarb and Bendall provide the Company. The exercise price of the 1994
Warrants is equal to the closing price of the Common Stock on July 18, 1994, the
day prior to the date the transaction was approved by the Company's Board of
Directors.
The issuance of the 1994 Warrants was made in reliance upon the
exemption from the registration provisions of the Act, afforded by Section 4(2)
of the Act, as transactions by an issuer not involving a public offering. The
"purchasers" of the 1994 Warrants are "accredited investors" within the meaning
of Rule 501 of the Act and were familiar with or had access to information
concerning the operations and financial condition of the Company.
E. In September 1994, the Company issued warrants ("1994 Dominion
Warrants") to purchase 150,000 shares of Common Stock at an exercise price of
$4.375 per share until September 28, 1994, to Dominion Capital, Inc.
The 1994 Dominion Warrants were issued in recognition of the continued
financial consulting support Dominion Capital provides the Company. The exercise
price of the 1994 Dominion Warrants is equal to the closing price of the Common
Stock on September 27, 1994, the day prior to the date the
II-3
transaction was approved by the Company's Board of Directors.
The issuance of the 1994 Dominion Warrants was made in reliance upon
the exemption from the registration provisions of the Act, afforded by Section
4(2) of the Act, as transactions by an issuer not involving a public offering.
The "purchaser" of the 1994 Dominion Warrants is an "accredited investor" within
the meaning of Rule 501 of the Act and is familiar with or had access to
information concerning the operations and financial condition of the Company.
F. In October and November 1994, in connection with a private placement
("1994 Private Placement"), the Company issued an aggregate of 121,053 shares of
Common Stock to the following subscribers:
NUMBER OF SHARES AGGREGATE
NAME OF PURCHASER OF COMMON STOCK PURCHASE PRICE
- ----------------- ---------------- --------------
Nicholas A. Buoniconti 50,000 $200,000
William J. Bologna 21,053 100,000
Norman M. Meier 50,000 200,000
------- --------
121,053 $500,000
======= ========
The sales in connection with the 1994 Private Placement were made in
reliance upon the exemption from the registration provisions of the Act,
afforded by Section 4(2) of the Act, as transactions by an issuer not involving
a public offering. All of the purchasers in connection with the 1994 Private
Placement are "accredited investors" within the meaning of Rule 501 of the Act.
All of the foregoing purchasers were familiar with or had access to information
concerning the operations and financial condition of the Company.
G. In October 1994, the Company issued 900,000 shares of Common Stock
upon exercise of 900,000 of the 1993 Warrants by the following persons and in
the following amounts:
SHARES OF
COMMON STOCK
NAME OF PURCHASER ISSUED
- ----------------- ------------
Citibank, N.A. 225,000
Dominion Capital, Inc. 150,000
Scott Paper Company 45,000
Riverbank Associates 30,000
SBSF Biotechnology Fund L.P. 150,000
SBSF Convertible Securities Fund L.P. 75,000
Flagship Partners, Ltd. 48,000
Frontier Partnership, L.P. 75,000
Winthrop Knowlton and Erica Knowlton
Trustees u/w/o Hugh Knowlton
FBO Erica Knowlton 27,000
Family Partnership 75,000
-------
900,000
=======
The issuance of the 900,000 shares was made in reliance upon the
exemption from the registration provisions of the Act, afforded by Section 4(2)
of the Act, as transactions by an issuer not involving a public
II-4
offering. All of the "purchasers" of the shares are "accredited investors"
within the meaning of Rule 501 of the Act. All of the foregoing "purchasers"
were familiar with or had access to information concerning the operations
and financial condition of the Company.
H. In October 1994, the Company issued 293,710 shares to John Hunter
upon conversion of certain of the 1993 Notes and accrued interest.
The issuance of the 293,710 shares was made in reliance upon the
exemption from the registration provisions of the Act, afforded by Section 4(2)
of the Act, as transactions by an issuer not involving a public offering. The
"purchaser" of the shares is an "accredited investor" within the meaning of Rule
501 of the Act and is familiar with or had access to information concerning the
operations and financial condition of the Company.
I. In May 1995, the Company issued warrants ("Piguet Warrants") to
purchase 300,000 shares of Common Stock at an exercise price of $5.3125 per
share until May 1998, to Bank Piguet et Cie, S.A.
The Piguet warrants were issued in settlement of a lawsuit between Bank
Piguet and the Company. The exercise price of the Piguet Warrants is equal to
the exercise price of the warrant, which had expired, in dispute in the lawsuit.
The market value of the Common Stock on May 13, 1995, the date the lawsuit was
settled, was $4.9375. The transaction was approved by the Company's Board of
Directors.
The issuance of the Piguet Warrants was made in reliance upon the
exemption from the registration provisions of the Act, afforded by Section 4(2)
of the Act, as transactions by an issuer not involving a public offering. The
"purchaser" of the Piguet Warrants is an "accredited investor" within the
meaning of Rule 501 of the Act and is familiar with or had access to information
concerning the operations and financial condition of the Company.
J. In March 1996, the Company sold an aggregate of 1,358,,000 shares of
Common Stock ("1996 Private Placement") to the purchasers below in the amounts
appearing beside their respective names through Allen & Company Incorporated, as
Placement Agent.
NUMBER OF SHARES AGGREGATE
NAME OF PURCHASER OF COMMON STOCK PURCHASE PRICE
- ----------------- ---------------- --------------
Drake & Co., as nominee 300,000 $2,850,000
Delaware Group Premium Fund, Inc.--
Emerging Growth Series 8,000 76,000
Delaware Group Trend Fund, Inc. 192,000 1,824,000
Abovelevel & Co., as nominee 10,000 95,000
Shipmaster & Co., as nominee 100,000 950,000
Umbtro & Co., as nominee 25,000 237,500
John Colton, IRA account 5,500 52,250
G & O Partners, L.P. 60,000 570,000
Essex Special Growth Opportunities
Fund, L.P. 32,000 304,000
Richard W. Gray 5,500 52,250
II-5
Tudor BVI Futures Ltd. 168,000 1,596,000
Raptor Global Fund L.P. 64,700 614,650
Tudor Arbitrage Partners L.P. 25,200 239,400
Raptor Global Fund L.P. 92,100 874,950
Whittier Ventures LLC 50,000 475,000
James J. Apostolakis 40,000 380,000
Ourson Partners, L.P. 25,000 237,500
Parallax Partners, L.P. 25,000 237,500
Strome Hedgecap Limited 25,000 237,500
Strome, Suskind Hedgecap Fund, L.P. 75,000 712,500
Lancer Partners L.P. 20,000 190,000
Lancer Offshore Inc. 10,000 95,000
--------- -----------
1,358,000 $12,901,000
========= ===========
The sales in connection with the 1996 Private Placement were made in
reliance upon the exemption from the registration provisions of the Act,
afforded by Section 4(2) of the Act, as transactions by an issuer not involving
a public offering. All of the purchasers in connection with the 1996 Private
Placement are "accredited investors" within the meaning of Rule 501 of the Act.
All of the foregoing purchasers were familiar with or had access to information
concerning the operations and financial condition of the Company.
K. In March 1996, the Company issued warrants ("1996 Warrants") to
purchase the following number of shares of Common Stock at an exercise price of
$10.775 per share until March 12, 2001 to Allen & Company Incorporated, 56,900
and: John Bendell, 11,000 shares.
The 1996 Warrants were issued in connection with investment banking
services provided to the Company in connection with the 1996 Private Placement.
The exercise price of the 1996 Warrants is equal to the average price of the
Common Stock for the twenty days prior to the date of the closing of the 1996
Private Placement. This transaction was approved by the Company's Board of
Directors.
II-6
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES.
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Indexes to financial statements and financial statement schedules
appear on F-1 and S-1, respectively.
EXHIBITS
3.1 -- Restated Certificate of Incorporation of the Company, as amended2/
3.2 -- By-laws of Company1/
10.1 -- Employment Agreement dated as of January 1, 1996, between the Company and Norman M. Meier10/
10.2 -- Employment Agreement dated as of January 1, 1996, between the Company and William J. Bologna10/
10.3 -- 1988 Stock Option Plan, as amended, of the Company7/
10.4 -- Joint Venture Agreement for Replens-Sweden dated June 20, 1990, between Columbia Ireland, Sovro KB and Columbia
Linc Sweden AB3/
10.5 -- Licensing and Distribution Agreement dated January 15, 1991, between the Company and Janssen
Pharmaceutica, N.V.4/
10.6 -- License Agreement dated March 20, 1991, between the Company and Sterling Drug, Inc.3/
10.7 -- Agreement for Replens-Italy dated as of February 19, 1991, between Janssen Farmaceutica S.p.A and Columbia
Laboratories (Ireland) Limited4/
10.8 -- Distribution Agreement between Columbia Laboratories (Ireland) Limited and Roussel UCLAF4/
10.9 -- Joint Venture Agreement for Replens-Spain dated as of May 31, 1991, between the Company and LASA4/
10.10 -- License and Supply Agreement between Warner-Lambert Company and the Company dated December 5, 19915/
10.11 -- Asset Purchase, License and Option Agreement, dated November 22, 19892/
10.12 -- Employment Agreement dated as of April 15, 1992, between the Company and Nicholas A. Buoniconti6/
10.13 -- License and Supply Agreement for Crinone between Columbia Laboratories (Bermuda) Ltd. and American Home Products
dated as of May 21, 1995 9/
21 -- Subsidiaries of the Company8/
23 -- Consent of Independent Certified Public Accountants
<FN>
1/ Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (File No. 33-22062-A) declared effective on July 28, 1988.
2/ Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (File No. 33-31962) declared effective on May 14, 1990.
3/ Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1990.
4/ Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the
three months ended June 30, 1991.
II-7
5/ Incorporated by reference to the Registrant's Current Report on Form 8-K, filed on January 2, 1992.
6/ Incorporated by reference to the Registrant's Post-Effective Amendment No. 4 to the Registration Statement
on Form S-1 (File No. 33-35723) declared effective on May 28, 1992.
7/ Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993.
8/ Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994.
9/ Incorporated by reference to the Registrant's Registration Statement on Form S-1 (File #33-60123) declared
effective on August 28, 1995.
10/ Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995.
</FN>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the 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.
(4) 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 Act and is, therefore,
II-8
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 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 Act and will be governed by the final adjudication of
such issue.
II-9
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1933, the Company has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of Miami,
State of Florida on April 10, 1996.
COLUMBIA LABORATORIES, INC.
By: /S/ MARGARET J. ROELL
---------------------------------
Margaret J. Roell, Vice President
Know all persons by these presents, that each person whose signature
appears below constitutes and appoints Norman M. Meier or Margaret J. Roell his
attorney-in-fact, with power of substitution, for him in any and all capacities,
to sign amendments to this Registration Statement on Form S-1, and to file same,
with exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact, or his substitute or substitutes, may do or cause to be
done by virtue hereof.
/S/ NORMAN M. MEIER* President, Chief Executive April 10, 1996
- -------------------------------- Officer, Director
Norman M. Meier (Principal Executive Officer)
Chairman of the Board of Directors April , 1996
- --------------------------------
William J. Bologna
/S/ NICHOLAS A. BUONICONTI* Vice Chairman of the Board of Directors April 10, 1996
- --------------------------------
Nicholas A. Buoniconti
/S/ MARGARET J. ROELL Vice President-Finance and April 10, 1996
- -------------------------------- Administration, Chief Financial
Margaret J. Roell Officer, Treasurer and Secretary
(Principal Financial and Accounting
Officer)
/S/ IRWIN L. KELLNER* Director April 10, 1996
- --------------------------------
Irwin L. Kellner
Director April , 1996
- --------------------------------
John E. A. Kidd
/S/ LILA E. NACHTIGALL* Director April 9, 1996
- --------------------------------
Lila E. Nachtigall
* Signed pursuant to power of attorney