FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934
For the Fiscal Year Ended December 31, 1999 Commission file number 0-16005
Unigene Laboratories, Inc.
(Exact name of registrant as specified in its charter)
Delaware 22-2328609
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
110 Little Falls Road, Fairfield, New Jersey 07004
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (973) 882-0860
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Common Stock, $.01 Par Value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates of the registrant. The aggregate market value shall be
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within 60 days prior
to the date of filing. Aggregate market value as of March 1, 2000: $124,451,824.
APPLICABLE ONLY TO CORPORATE REGISTRANTS:
Indicate the number of shares outstanding of each of the registrant's classes of
Common Stock, as of the latest practicable date. Common Stock, $.01 Par
Value--43,384,680 shares as of March 1, 2000.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the Part
of the Form 10-K into which the document is incorporated: (1) any annual report
to security holders; (2) any proxy or information statement; and (3) any
prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of
1933. The listed documents should be clearly described for identification
purposes.
PART III: Definitive Proxy Statement of Unigene
Laboratories, Inc., to be filed in connection with
the Annual Meeting of Stockholders to be held on June
6, 2000.
<PAGE>
PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in the items captioned "Business" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
this Form 10-K constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Art of 1995 (the "Reform Act"). Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or activities of
the Company, or industry results, to be materially different from any future
results, performance or activities expressed or implied by such forward-looking
statements. Such factors include: general economic and business conditions, the
financial condition of the Company, competition, the Company's dependence on
other companies to commercialize, manufacture and sell products using the
Company's technologies, the uncertainty of results of preclinical and clinical
testing, the risk of product liability and liability for human clinical trials,
the Company's dependence on patents and other proprietary rights, dependence on
key management officials, the availability and cost of capital, the availability
of qualified personnel, changes in, or the failure to comply with, governmental
regulations, the failure to obtain regulatory approvals of the Company's
products and other factors discussed in this Form 10-K.
Item 1. Business.
Background
Unigene Laboratories, Inc. ("Unigene" or "Company"), was incorporated under the
laws of the State of Delaware in 1980. The Company is a biopharmaceutical
company that is focusing on the development of Calcitonin products for the
treatment of osteoporosis and other indications. The Company is currently
producing pharmaceutical grade Calcitonin in accordance with current Good
Manufacturing Practice ("cGMP") guidelines, developing production technology
improvements, and testing novel Calcitonin formulations. In January 1999, the
Company received marketing approval for its injectable Calcitonin product
(having the tradename FORCALTONIN(TM)) for the treatment of Paget's disease and
hypercalcemia. This approval covers the 15 member states of the European Union.
The Company has licensing and distribution agreements in place for this product
covering the United Kingdom, Ireland and Israel, and is seeking additional
agreements to market and distribute this product in selected territories.
One of the principal scientific accomplishments of the Company has been its
success in combining its proprietary amidation process with bacterial
recombinant DNA technology to develop a peptide hormone production process.
Several patents relating to this process have issued. The Company believes that
this proprietary amidation process will be a key step in the more efficient and
economical commercial production of certain peptide hormones with diverse
therapeutic applications. Many of these hormones cannot be produced at a
reasonable cost in sufficient quantities for clinical testing or commercial use
by currently available production processes. Using its proprietary process, the
Company has produced laboratory-scale quantities of seven such peptide hormones:
human Calcitonin, salmon Calcitonin, human Growth Hormone Releasing Factor,
human Calcitonin Gene-Related Peptide, human Corticotropin Releasing Factor,
human Amylin and a human Magainin. During 1991, a study commissioned by the
Company was prepared by a professor of chemical engineering at the Massachusetts
Institute of Technology. The study evaluated the economics for producing
Calcitonin and indicated that the Company's process for producing Calcitonin
should significantly reduce the cost and time required for commercial production
of multi-kilogram quantities as compared to current methods of production. The
Company has constructed and is operating a manufacturing facility employing this
process to produce Calcitonin.
<PAGE>
The Company also has developed and patented an oral delivery technology which
has successfully delivered Calcitonin into the bloodstream of human subjects.
The formulation has been shown in repeated clinical studies to regularly deliver
measurable quantities of the hormone into the bloodstream. The Company believes
that this formulation may expedite the regulatory approval process for an oral
Calcitonin product because it should be easier to establish its performance
efficacy as compared to a formulation that does not produce measurable
Calcitonin blood levels. The Company believes that the components of the
proprietary oral formulation also can enable the delivery of other peptides and
it has initiated studies to investigate such possibilities.
Business Strategy
The Company's business strategy is to develop proprietary products and processes
with applications in human health care in order to generate revenues from
license fees, royalties on third party sales and/or direct sales of bulk or
finished products. Generally, the Company seeks sponsors and licensees to
provide research funding and assume responsibility for obtaining appropriate
regulatory approvals, clinical testing, and marketing of products derived from
the Company's research activities, and in this regard the Company is dependent
on large pharmaceutical companies having much greater resources than the
Company. However, in certain cases, the Company may retain responsibility for
clinical testing and for obtaining the required regulatory approvals. To date,
the Company has focused its efforts primarily on the manufacture of, and the
development of novel delivery systems for, salmon Calcitonin.
Warner-Lambert License Agreement
In July 1997, the Company entered into an agreement under which it granted to
the Parke-Davis division of Warner-Lambert Company a worldwide license to use
the Company's oral Calcitonin technology. Upon execution of the agreement, the
Company received $6 million in payments from Warner-Lambert, consisting of a $3
million licensing fee and a $3 million equity investment by Warner-Lambert
(695,066 shares of the Company's Common Stock were purchased at a price of
approximately $4.32 per share). Under the terms of the license agreement, the
Company is eligible to receive up to $48.5 million in milestone payments during
the course of the development program if specified milestones are achieved.
Several of these milestones were achieved during 1999, resulting in payments to
the Company totaling $6 million on revenue recognized of $9.5 million. Through
December 31, 1999, the Company has recognized an aggregate of $14.5 million in
revenue due to the achievement of specified milestones. In February 2000, the
Company received a $1 million milestone payment. If the product is successfully
commercialized, the Company also would receive revenue from the sale of raw
material to Warner-Lambert and royalties on product sales by Warner-Lambert and
its affiliates.
<PAGE>
The Company has retained the right to license the use of its technologies for
injectable and nasal formulations of Calcitonin on a worldwide basis and has
licensed distributors in the United Kingdom and Ireland and in Israel for its
injectable formulation. The Company is actively seeking other licensing and/or
supply agreements with pharmaceutical companies for injectable and nasal forms
of Calcitonin. However, there is no assurance that any additional
revenue-generating agreements will be signed.
Production Facility
The Company has been producing salmon Calcitonin since 1992. The Company has
constructed a cGMP facility for the production of pharmaceutical-grade
Calcitonin at leased premises located in Boonton, New Jersey. The facility began
producing salmon Calcitonin under cGMP guidelines in 1996. The facility also
produces Unigene's proprietary amidating enzyme for use in producing Calcitonin.
The current production level of the facility is between 1 and 2 kilograms of
bulk Calcitonin per year.
The facility can be reconfigured to increase Calcitonin production capacity.
However, if an oral Calcitonin product is successfully commercialized, the
Company expects that it will be required to incur additional expenditures to
expand or upgrade its manufacturing operations to satisfy all of its supply
obligations under the Warner-Lambert license agreement. Although the facility
initially will be devoted exclusively to Calcitonin production, it also is
suitable for producing other peptide hormone products.
The Company is following conventional procedures to secure the approval of the
facility by regulatory agencies that will allow the Company to manufacture its
Calcitonin for human use. Although the facility was inspected by European health
authorities in connection with the filing of its injectable Calcitonin dossier
and found to be in compliance with cGMP guidelines, there can be no assurance
that its operations will remain in compliance or that approval by other agencies
will be obtained. In addition, there is no assurance that the facility
production goals will be achieved, that there will be a market for the Company's
products, or that such production will be profitable to the Company.
Government Regulation
The laboratory research, development and production activities of the Company
and its sponsors, collaborators and licensees, and the processes and products
that may be developed by them as well as the Company's production facility, are
subject to significant regulation by numerous federal, state, local and foreign
governmental authorities. The commercial sale of a pharmaceutical product in the
United States entails the performance of various animal and human studies and
approval of the U.S. Food and Drug Administration ("FDA") and international
approval by similar regulatory agencies. . The Company or its licensees then
must prepare the necessary documentation and apply to the appropriate regulatory
agencies for approval of the product for human use.
The regulatory approval process for a pharmaceutical product requires
substantial resources and can take many years. There can be no assurance that
additional regulatory approvals will be obtained for the production facility or
for any of the Company's products or that such approvals will be obtained in a
timely manner. The inability to obtain, or delays in obtaining, such approvals
<PAGE>
would adversely affect the Company's ability to continue to fund its programs,
produce marketable products, or receive revenue from milestone payments, product
sales or royalties. Furthermore, the extent of any adverse governmental
regulation that may arise from future legislative and administrative action
cannot be predicted.
The Company's production facility may, from time to time, be audited by the FDA
or other regulatory agencies to ensure that it is operating in compliance with
cGMP guidelines. These guidelines require that production operations be
conducted in strict compliance with, among other things, the Company's written
protocols for reagent qualification, process execution, data recording,
instrument calibration and quality monitoring. Such agencies are empowered to
suspend production operations and/or product sales if, in their opinion,
significant and/or repeated deviations from these protocols have occurred. Such
a suspension could have a material adverse impact on the Company's future
operations.
European Approval of FORCALTONIN(TM)
During 1996, the Company received authorization to proceed with pivotal clinical
trials in the United States and the United Kingdom for its injectable form of
Calcitonin (having the tradename FORCALTONIN(TM)). Both the U.S. and U.K.
authorities authorized an abbreviated clinical program consisting of
bioequivalence and safety studies. These trials were completed in early 1997 and
demonstrated that the injectable product was bioequivalent to an injectable
salmon Calcitonin product currently on the market.
In August 1997, the Company's registration dossier for injectable FORCALTONIN
was formally submitted to the European Union health authorities for approval
under a procedure by which product approval can be obtained simultaneously in
all 15-member nations of the European Union. This was the Company's first
product registration filing. In September 1998, the European Committee for
Proprietary Medicinal Products ("CPMP") adopted a unanimous Positive Opinion on
the Company's injectable Calcitonin product, stating that it was approvable for
the indications of Paget's disease and hypercalcemia associated with malignancy.
In January 1999, the Company received approval from the CPMP to market its
injectable Calcitonin product in all 15 member states of the European Union for
these two indications. The Company began to market this product in Europe in
1999. The Company has filed a supplementary submission, called a Type II
Variation, in order to expand the approved indications to include the treatment
of osteoporosis. However, there can be no assurance that the Type II Variation
will be approved.
The approved European dossier can be readily cited by regulatory authorities in
many non-European countries, which could significantly reduce the registration
requirements for injectable Calcitonin in such non-European countries, and
thereby accelerate product launch. In addition, the clinical trials conducted to
support the European filing of the injectable Calcitonin product can be used to
support the filing of a New Drug Application ("NDA") with the FDA for use of the
Company's injectable Calcitonin product to treat osteoporosis and other
indications. The Company may file this application in 2000. The Company believes
that its abbreviated clinical program will be sufficient to satisfy approval
requirements in the United States and other countries. Accordingly, the Company
believes that the review process for its injectable Calcitonin product in the
U.S. and other countries may be shorter than that typically associated with a
new drug submission because (i) the active ingredient is structually identical
to and biologically indistinguishable from the active ingredient in products
already approved by many regulatory agencies, (ii) the formulation is
<PAGE>
essentially similar to the formulations used in already approved products and
(iii) the clinical trial program that was authorized was relatively brief and
involved small numbers of subjects, so the amount of information that must be
reviewed is far less than would have been compiled for the lengthier trials
required for a typical new drug submission. However, there can be no assurance
that other necessary governmental approvals will be obtained, or that they will
be obtained on an expedited basis.
Oral Calcitonin
The Company, in collaboration with Warner-Lambert, is conducting research on
oral delivery systems for Calcitonin.
In December 1995 and January 1996, the Company successfully tested a proprietary
Calcitonin oral formulation in two separate pilot human studies in the United
Kingdom. These studies indicated that the majority of those who received oral
Calcitonin showed levels of the hormone in blood samples taken during the trial
which were greater than the minimum levels generally regarded as being required
for maximum therapeutic benefit. The Company believes that these were the first
studies to demonstrate that significant blood levels of Calcitonin could be
observed in humans following oral administration of the hormone. In April 1996,
the Company successfully conducted a third pilot human study in the United
Kingdom which utilized lower Calcitonin dosages than in the prior two clinical
trials. The results of this trial indicated that every test subject showed
levels of the hormone in their blood samples that exceeded the minimum levels
generally regarded as required for maximum therapeutic benefit. During 1999, the
Company and Warner-Lambert successfully concluded two pilot human studies using
an oral Calcitonin formulation manufactured by Warner-Lambert. Both studies
showed significant measurable blood levels of Calcitonin. An Investigational New
Drug Application ("IND") was filed in December 1999, and a Phase I/II study is
expected to occur in the first half of 2000. However, there can be no assurance
that the results of the prior human studies will be replicated in upcoming
clinical trials.
The Company has filed patent applications for its oral formulation in the U.S.
and in many foreign countries. In 1999, the Company received a U.S. patent for
its fundamental technology covering the oral delivery of salmon Calcitonin for
the treatment of osteoporosis.
Under the terms of the Warner-Lambert license agreement, Warner-Lambert has
assumed responsibility for conducting the clinical trials and for obtaining
regulatory approval of the Company's oral Calcitonin product from the FDA and
other regulatory agencies. There can be no assurance that any of the additional
pending patent applications will be approved, that a safe and effective oral
delivery system will be developed, that Warner-Lambert will be successful in
obtaining regulatory approval of an oral Calcitonin product or that
Warner-Lambert and the Company will be successful in developing, producing or
marketing an oral Calcitonin product. There also can be no assurance that others
have not or will not develop oral or other delivery systems that have advantages
over the Company's technologies.
<PAGE>
Nasal Calcitonin
A major pharmaceutical company received FDA approval in 1995 for the marketing
of a nasal spray delivery system for Calcitonin, which has substantially
enlarged the U.S. market for Calcitonin. During 1999, the Company completed
development of its proprietary nasal Calcitonin formulation. A patent
application for the product was filed in February 2000. In January 2000 the
Company filed an IND with the FDA to begin clinical testing. In February 2000
the Company began its U.S. clinical studies. The Company is engaged in
negotiations to license its nasal Calcitonin formulation in the U.S. for the
treatment of osteoporosis. However, there can be no assurance that a license
agreement will be completed, that governmental approval of such product will be
obtained, or that the product will be successfully commercialized.
Collaborative Research Programs
The Company is currently engaged in two collaborative research programs. One,
with Rutgers University College of Pharmacy, continues to study oral drug
delivery technology for Calcitonin and other peptides. The second collaboration,
performed in conjunction with Yale University, is investigating novel
applications for certain amidated peptide hormones, including Calcitonin
gene-related peptide ("CGRP"). In 1996, the Company reported that CGRP
accelerated bone growth and prevented bone loss in an animal model system.
However, there can be no assurance that CGRP will have the same effect in
humans, or that the Company would be able to develop, manufacture or market such
a product.
Risks of International Operations
The Company's current and prospective partners and licensees, as well as
potential customers, include foreign companies or companies with significant
international business. The business operations of such companies and their
ability to pay license fees, royalties and other amounts due and otherwise
perform their obligations under any agreements they may enter into with the
Company may be subject to regulation or approval by foreign governments. There
can be no assurance that required approvals will be received. The failure to
receive required approvals, governmental regulation and other risks, including
political and foreign currency risks, could affect the ability of the Company to
earn or receive payments pursuant to such agreements and, in such event, may
have a material adverse effect on the Company's future operations.
Competition
The Company's primary business activity to date has been biotechnology research
and development. Biotechnology research is highly competitive, particularly in
the field of human health care. The Company competes with specialized
biotechnology companies, major pharmaceutical and chemical companies,
universities and other non-profit research organizations, many of which can
devote considerably greater financial resources to research activities than can
the Company.
<PAGE>
In 1999, the Company began manufacturing cGMP Calcitonin for use in finished
pharmaceutical products. In the development, manufacture and sale of amidated
peptide hormone products, the Company and its licensees are competing with
contract laboratories and major pharmaceutical companies, many of which can
devote considerably greater financial resources to these activities. Major
competitors in the field of osteoporosis include Novartis, American Home
Products, Merck and Eli Lilly. However, the Company believes that the unique
safety and efficacy characteristics of Calcitonin combined with the Company's
patented hormone manufacturing process, and its patented oral delivery
technology, will enable it to compete with products marketed by these and other
companies.
The Company believes that success in competing with others in the biotechnology
industry will be based primarily upon scientific expertise and technological
superiority, the ability to identify and pursue scientifically feasible and
commercially viable opportunities and to obtain proprietary protection for
research achievements, the availability of adequate funding and success in
developing, testing, protecting, producing and marketing products and obtaining
their timely regulatory approval. There can be no assurance that others will not
develop processes or products which are superior to, or otherwise preclude the
commercial utilization of, processes or products developed by the Company.
Human Resources
On March 1, 2000, the Company had 65 full-time employees, of whom 23 were
engaged in research, development and regulatory activities, 32 were engaged in
production activities and 10 were engaged in general and administrative
functions. Ten of the Company's employees hold Ph.D. degrees. The Company's
employees have expertise in molecular biology, including DNA cloning, synthesis,
sequencing and expression; protein chemistry, including purification, amino acid
analysis, synthesis and sequencing of proteins; immunology, including tissue
culture, monoclonal and polyclonal antibody production and immunoassay
development; chemical engineering; pharmaceutical production; quality assurance;
and quality control. None of the Company's employees is covered by a collective
bargaining agreement. Warren P. Levy, President, Ronald S. Levy, Executive Vice
President and Jay Levy, Treasurer, all executive officers and directors have
signed employment agreements with the Company.
Research and Development
The Company has established a multi-disciplinary research team to adapt
proprietary amidation, biological production and oral delivery technologies to
the development of proprietary products and processes. Approximately 85% of the
Company's employees are directly engaged in activities relating to production
of, regulatory compliance for, and the research and development of
pharmaceutical products. During the years ended December 31, 1999, 1998 and
1997, approximately $9.4 million, $9.0 million and $9.4 million, respectively,
were expensed on research and development activities.
Patents and Proprietary Technology
The Company has filed applications for U.S. patents relating to proprietary
amidation, bacterial expression and immunization processes and to oral
<PAGE>
formulations for Calcitonin and other peptide hormones invented in the course of
its research. To date, the following four U.S. patents have issued: Immunization
By Immunogenic Implant, a process patent; two patents related to the
Alpha-Amidation Enzyme, both process and product patents; and a patent covering
the oral delivery of salmon Calcitonin. A Notice of Allowance has been received
for a second oral delivery patent application which covers the use of the
technology with any peptide pharmaceutical and an additional Notice of Allowance
has been received for an enhancement to its manufacturing technology. Other
applications are pending. Filings relating to the amidation process and to the
oral delivery of salmon Calcitonin and other peptides have also been made in
selected foreign countries and numerous amidation patents have issued in other
countries. There can be no assurance that any of the Company's pending
applications will issue as patents or that the Company's issued patents will
provide the Company with significant competitive advantages. Furthermore, there
can be no assurance that competitors will not independently develop or obtain
similar or superior technologies.
Although the Company believes its patents and patent applications are valid, the
invalidation of one or more of its U.S. Alpha-Amidation Enzyme patents or its
patents for the oral delivery of peptides could have a material adverse effect
upon the Company's business. Although one patent application continues to be the
subject of an interference proceeding, the Company does not believe that an
adverse ruling would have a material adverse effect on the business of the
Company or its prospects. Difficulties in detecting and proving infringement are
generally greater with process patents than with product patents. In addition,
the value of a process patent may be reduced if the products that can be
produced using such process have been patented by others. Under such
circumstances, the cooperation of product patent holders or their sublicensees
would be needed for the commercialization of products manufactured by the
Company in countries where these companies hold valid patents.
In some cases, the Company relies on trade secrets to protect its inventions. It
is the policy of the Company to include confidentiality provisions in all
research contracts, joint development agreements and consulting relationships
that provide access to the Company's trade secrets and other know-how. However,
there can be no assurance that these secrecy obligations will not be breached to
the detriment of the Company. To the extent licensees, consultants or other
third parties apply technological information independently developed by them or
by others to Company projects, disputes may arise as to the proprietary rights
to such information which may not be resolved in favor of the Company.
Product Liability
Product liability claims relating to the Company's technology or products may be
asserted against the Company. There can be no assurance that the Company would
have sufficient resources to defend against or satisfy any such claims. Although
the Company has obtained product liability insurance coverage in the amount of
$2 million, product liability or other judgments against the Company, as well as
the cost of defending such claims, in excess of insurance limits could have a
material adverse effect upon the Company's business and financial condition.
<PAGE>
Executive Officers of the Registrant
<TABLE>
<CAPTION>
Served in Such
Position or Office
Name Age Continually Since Position (1)
---- --- ----------------- ------------
<S> <C> <C> <C>
Dr. Warren P. Levy (2)(3) 48 1980 President (Chief
Executive Officer)
Dr. Ronald S. Levy (2)(4) 51 1980 Executive
Vice President
and Secretary
Jay Levy (2)(5) 76 1980 Treasurer
Dr. James P. Gilligan (6) 48 1999 Vice President of
Product Development
</TABLE>
NOTES:
(1) Each executive officer's term of office continues until the first
meeting of the Board of Directors following the annual meeting of
stockholders and until the election and qualification of his
successor. Officers serve at the discretion of the Board of
Directors.
(2) Dr. Warren P. Levy and Dr. Ronald S. Levy are brothers and are the
sons of Mr. Jay Levy.
(3) Dr. Warren P. Levy, a founder of the Company, has served as
President, Chief Executive Officer and Director of the Company since
its formation in November 1980. Dr. Levy holds a Ph.D.in biochemistry
and molecular biology from Northwestern University and a bachelor's
degree in chemistry from the Massachusetts Institute of Technology.
(4) Dr. Ronald S. Levy, a founder of the Company, has served as Executive
Vice President since April 1999, as Vice President from November 1980
through March 1999, as Director of the Company since its formation in
November 1980, and as Secretary since May 1986. Dr. Levy holds a
Ph.D. in bioinorganic chemistry from Pennsylvania State University
and a bachelor's degree in chemistry from Rutgers University.
(5) Mr. Jay Levy, a founder of the Company, has served as Chairman of the
Board of Directors and Treasurer of the Company on a part-time basis
since its formation in November 1980. He also served as Secretary
from 1980 to May 1986. Mr. Levy devotes approximately 15% of his time
to the Company. From 1985 through February 1991, he served as the
principal financial advisor to The Nathan Cummings Foundation, Inc.,
a large charitable foundation. From 1968 through 1985, he performed
similar services for the late Nathan Cummings, a noted industrialist
and philanthropist.
(6) Dr. James P. Gilligan has been employed at the Company in various
capacities since 1981. Dr. Gilligan has served as Vice President of
Product Development since April 1999, and as Director of Product
Development from February 1995 to March 1999. Dr. Gilligan holds a
Ph.D. in pharmacology from the University of Connecticut and a
Masters of International Business from Seton Hall University.
<PAGE>
Item 2. Properties
The Company owns a one-story office and laboratory facility consisting of
approximately 12,500 square feet. The facility is located on a 2.2 acre site in
Fairfield, New Jersey.
The Company's 32,000 square foot cGMP production facility, of which 18,000
square feet are currently being used for the production of pharmaceutical-grade
Calcitonin and can be used for the production of other peptide hormones, was
constructed in a building located in Boonton, New Jersey. The Company leases the
facility under a ten-year agreement which began in February 1994. The Company
has two ten-year renewal options as well as an option to purchase the facility.
The Company believes these facilities are adequate for current purposes.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during
the fourth quarter of the year ended December 31, 1999.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
The Company has not declared or paid any cash dividends since inception, and
does not anticipate paying any in the near future.
The Company became a public company in 1987. As of March 3, 2000, there were 528
holders of record of the Common Stock. The Common Stock has traded on the OTC
Bulletin Board under the symbol UGNE since October 5, 1999. Prior to October 5,
1999, the Common Stock traded on the Nasdaq Stock Market. The prices below
represent high and low sale prices.
1999 1998
---- ----
High-Low High-Low
---------- ----------
1st Quarter: $1.47-0.94 $3.59-2.47
2nd Quarter: 1.13-0.63 3.06-1.81
3rd Quarter: 1.06-0.63 2.13-0.94
4th Quarter: 0.84-0.23 1.88-1.13
<PAGE>
Recent Sales of Unregistered Securities
- - - ---------------------------------------
During the fourth quarter of 1999, $800,000 of principal amount of the Company's
5% Convertible Debentures, due December 31, 2001, were converted into (a)
1,906,565 shares of Common Stock and (b) warrants, expiring in 2004, to purchase
an aggregate of 76,261 shares of Common Stock at exercise prices ranging from
$.46 to $.60 per share. All of such shares and warrants were issued by the
Company without registration in reliance on an exemption under Section 3(a) (9)
of the Securities Act.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
(In thousands, except per share data)
Years Ended December 31 1999 1998 1997 1996 1995
- - - ----------------------- ------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Licensing & other revenue $9,589 $5,050 $3,003 $ 308 $8
Research & development
expenses 9,375 9,042 9,416 8,298 6,876
Loss before extraordinary
item (1,577) (6,737) (10,128) (10,597) (9,435)
Extraordinary item -- (144) -- -- --
Net loss (1,577) (6,881) (10,128) (10,597) (9,435)
Basic and diluted loss per share:
Loss before extraordinary item (.04) (.17) (.27) (.38) (.44)
Extraordinary item -- (.01) -- -- --
------ ------ ------ ------ ------
Net loss (.04) (.18) (.27) (.38) (.44)
At December 31
- - - --------------
<S> <C> <C> <C> <C> <C>
Working capital (deficiency) (2,759) (1,805) 310 2,954 (4,061)
Total assets 13,778 11,564 13,692 17,169 13,332
Long-term debt 1,003 3,931 1,608 2,788 3,955
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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RESULTS OF OPERATIONS
Revenue increased 90% to $9,589,000 for the year ended December 31, 1999 as
compared to $5,050,000 for the year ended December 31, 1998. Revenue increased
68% to $5,050,000 for the year ended December 31, 1998 as compared to $3,003,000
for the year ended December 31, 1997. Revenue consists primarily of milestone
revenue from Warner-Lambert Company as the result of the achievement of
milestones in the development of an oral Calcitonin product for treating
osteoporosis. Revenue in each year is effected by the timing of the completion
of the various milestones.
Research and development, the Company's largest expense, increased 4% in 1999 to
$9,375,000 from $9,042,000 in 1998, after decreasing 4% in 1998 from $9,416,000
in 1997. The 1999 increase was primarily attributable to development expenses
related to the Company's nasal Calcitonin product, consulting and analytical
testing expenses related to the Company's Type II variation for its injectable
Calcitonin product, and consulting fees related to the Company's collaboration
with Warner-Lambert partially offset by a reduction in production supplies. The
1998 decrease was primarily due to reduced regulatory filing fees and regulatory
consultant expenses as compared to 1997, as well as to the reimbursement in 1998
of certain research expenses by Warner-Lambert Company. In addition, 1998
expenditures were reduced for both production and laboratory supplies, partially
offset by increased personnel expenditures. Expenditures for the sponsorship of
collaborative research programs were $250,000, $280,000 and $465,000 in 1999,
1998 and 1997, respectively, which are included as research and development
expenses.
Settlement of contractual right expense was $1,669,000 in 1997. In February
1997, the Company issued an aggregate of 490,000 shares of its Common Stock to
the holders of the Company's 9.5% Senior Secured Convertible Debentures. This
issuance was in consideration for the cancellation of an obligation of the
Company to pay to the holders a fee equal to 2% of the sum of the market value
as of December 31, 1998 of all of the Company's outstanding shares of Common
Stock plus the principal amount of all outstanding debt of the Company, less its
cash on deposit, up to a maximum fee of $3,000,000. The expense associated with
this transaction was valued at $1,669,000, based on a closing price of the
Common Stock of $3.40625 on February 7, 1997.
General and administrative expenses increased 7% in 1999 to $2,212,000 from
$2,068,000 in 1998, after increasing 3% in 1998 from $2,016,000 in 1997. The
1999 increase was primarily due to increased personnel costs and professional
fees partially offset by reductions in public relations and travel expenses. The
1998 increase was primarily due to increased expenditures in 1998 for employee
health insurance and public relations, partially offset by reduced legal fees
due to the non-recurrence of legal fees incurred in 1997 related to the
Warner-Lambert license agreement.
Interest income decreased $70,000 or 65% in 1999 from 1998, after decreasing
$96,000 or 47% in 1998 from 1997. The decreases were due to lower interest
income resulting from reduced funds available for investment.
<PAGE>
Interest expense increased $386,000 or 49% in 1999 to $1,171,000 from $785,000
in 1998. Interest expense increased $551,000 or 235% in 1998 from $234,000 in
1997. Included in 1999 and 1998 interest expense are $197,000 and $490,000,
respectively, of the amortization of the value of the beneficial conversion
feature and related warrants of the Company's 5% convertible debentures.
Excluding the change in the amortization charged to interest, interest expense
increased in 1999 as compared to 1998 as a result of an increase in notes
payable to stockholders, redemption premium resulting from the Company exceeding
the Share Limit on the 5% Debentures, and the 2% delisting penalty on the 5%
Debentures, partially offset by a decrease in the balance outstanding under the
Company's 5% Debentures as a result of partial conversions to Common Stock.
Income tax benefit in 1999 of $1,553,000 consisted of proceeds received for the
sale of a portion of the Company's state tax net operating loss carryforwards
under a New Jersey Economic Development Authority ("NJEDA") program, which
allows certain New Jersey taxpayers to sell their state tax benefits to third
parties. The purpose of the New Jersey program is to provide financial
assistance to high-tech and biotechnology companies in order to facilitate
future growth and job creation.
Extraordinary item, loss on early extinguishment of debt, was $144,000 for 1998.
The loss was due to redemption at a premium of a portion of the Company's 10%
Convertible Debentures in September 1998.
During 1999, revenue increased $4,540,000 from 1998 due to the achievement of
various milestones in the Warner-Lambert agreement. In addition, the Company
received $1,553,000 from the partial sale of its state tax benefits. These were
partially offset by an increase in operating and interest expenses. As a result,
the Company's net loss decreased $5,304,000 or 77% for the year ended December
31, 1999, from the prior year.
During 1998, revenue increased more than $2,000,000 from 1997 due to the
achievement of various milestones in the Warner-Lambert agreement. In addition,
in 1998 total operating expenses decreased almost $2,000,000 from 1997,
primarily due to the one-time settlement of a contractual right expense in 1997.
These were partially offset by a decline in interest income, an increase in
interest expense and loss on early extinguishment of debt. As a result, the
Company's net loss decreased $3,247,000 or 32% for the year ended December 31,
1998 from the prior year.
As of December 31, 1999, the Company had available for federal income tax
reporting purposes net operating loss carryforwards in the approximate amount of
$58,200,000, expiring from 2000 through 2019, which are available to reduce
future earnings which would otherwise be subject to federal income taxes. In
addition, the Company has investment tax credits and research and development
credits in the amounts of $19,000 and $2,300,000, respectively, which are
available to reduce the amount of future federal income taxes. These credits
expire from 2000 through 2019. The Company has New Jersey operating loss
carryforwards in the approximate amount of $24,950,000, expiring from 2003
through 2005, which are available to reduce future earnings, which would
otherwise be subject to State income tax. However, these loss carryforwards have
been approved for sale by the NJEDA.
<PAGE>
The Company follows Statement of Financial Accounting Standards (SFAS) No. 109
"Accounting for Income Taxes". Given the Company's past history of incurring
operating losses, any deferred tax assets that are recognizable under SFAS 109
have been fully reserved. As of December 31, 1999 and 1998, under SFAS 109, the
Company had deferred tax assets of approximately $26,000,000 and $26,300,000,
respectively, subject to valuation allowances of $26,000,000 and $26,300,000,
respectively. The deferred tax assets were generated primarily as a result of
the Company's net operating losses and tax credits generated.
LIQUIDITY AND CAPITAL RESOURCES
During 1994, the Company constructed its peptide production facility at leased
premises in Boonton, New Jersey. The facility began production under cGMP
guidelines in 1996. The Company's current lease expires in 2004 and it has two
ten-year renewal options on the lease as well as an option to purchase the
facility. There currently are no material commitments outstanding for capital
expenditures relating to either the Boonton facility or the Company's office and
laboratory facility in Fairfield, New Jersey.
The Company, at December 31, 1999, had cash and cash equivalents of $683,000, an
increase of $280,000 from December 31, 1998.
The Company has incurred annual operating losses since its inception and, as a
result, at December 31, 1999 had an accumulated deficit of approximately
$62,908,000 and a working capital deficiency of approximately $2,759,000. The
independent auditors' report covering the Company's 1999 financial statements
includes an explanatory paragraph that states the above factors raise
substantial doubt about the Company's ability to continue as a going concern.
However, the financial statements have been prepared on a going concern basis
and as such do not include any adjustments that might result from the outcome of
this uncertainty. In October 1999, the Company was delisted by the Nasdaq Stock
Market. The delisting of the Company's common stock may have an adverse effect
on the Company's ability to raise capital.
The Company's future ability to generate cash from operations will depend
primarily upon signing research or licensing agreements, achieving defined
benchmarks in such agreements, receiving regulatory approval for its licensed
products, and the commercial sale of these products.
In July 1997, the Company entered into an agreement under which it granted to
the Parke-Davis division of Warner-Lambert Company a worldwide license to use
the Company's oral Calcitonin technology. Through December 31, 1999, the Company
had received $3 million for an equity investment, $3 million for a licensing fee
and recognized an aggregate of $14.5 million in milestone revenue from
Warner-Lambert. Under the terms of the license agreement, the Company is
eligible to receive up to an additional $34 million in milestone revenue during
the course of the development program. Early-stage milestones primarily relate
to the product's performance characteristics, while the latter-stage milestones
are primarily related to regulatory activities and approvals. If the product is
successfully commercialized, the Company also would receive revenue from
royalties on product sales by Warner-Lambert and its affiliates and from the
sale of raw material to Warner-Lambert. The Company has retained the right to
license the use of its technologies for injectable and nasal formulations of
Calcitonin on a worldwide basis. The Company has licensed distributors in the
United Kingdom and Ireland and in Israel for its injectable formulation. The
Company is actively seeking other licensing and/or supply agreements with
pharmaceutical companies for injectable and nasal forms of Calcitonin. However,
there is no assurance that any additional revenue-generating agreements will be
signed.
<PAGE>
In June 1998, the Company completed a private placement of $4 million of 5%
convertible debentures (the "5% Debentures"). The Company received net proceeds
of approximately $3.75 million as a result of this placement. The 5% Debentures
mature December 31, 2001, however, due to the events described below this debt
is classified as a current liability on the Company's December 31, 1999 balance
sheet. Interest on the 5% Debentures is payable in cash or, at the option of the
Company, in Common Stock.
Beginning January 1, 1999, the 5% Debentures became convertible into (i) Common
Stock at a conversion price (the "Conversion Price") equal to the lower of (a)
$1.59 (the "Cap Price") and (b) the average of the four lowest closing bid
prices of the Common Stock during the 18 trading days prior to the date of
conversion (the "Market Price") and (ii) warrants, expiring five years from the
date of issuance, to purchase a number of shares of Common Stock equal to 4% of
the number of shares issuable upon conversion at an exercise price equal to 125%
of the Conversion Price (the "Warrants"). Under the terms of the 5% Debentures,
the Company is not permitted to issue more than an aggregate of 3,852,500 shares
of Common Stock upon, collectively, the conversion of the 5% Debentures, upon
the exercise of the Warrants issued upon conversion or redemption of the 5%
Debentures and as payment of interest on the 5% Debentures (the "Share Limit").
After the Share Limit is reached, the Company is obligated (i) to redeem all 5%
Debentures tendered for conversion at a price equal to 120% of the principal
amount, plus accrued interest, and (ii) as to any Warrants exercised, to pay to
the holder, in lieu of the issuance of shares, an amount in cash equal to the
difference between the market price of the Common Stock and the exercise price
of the Warrant multiplied by the number of shares issuable upon the exercise of
the Warrant. The Company's cash obligation with respect to the Warrants will
depend on the number of Warrants issued and the market price of the Common Stock
at the time the Warrants are exercised. If the Company fails to redeem the 5%
Debentures tendered for conversion after the Share Limit is exceeded (including
payment of the accrued interest thereon) within three business days after
receipt of the conversion notice, the interest rate on the 5% Debentures will
permanently increase (i) to 7% per annum commencing on the first day of the
30-day period following the conversion notice, (ii) to 9% per annum commencing
on the first day of each of the second and third such 30-day periods and (iii)
an additional 1% per annum on the first day of each consecutive 30-day period
thereafter until the 5% Debentures have been redeemed, provided that in no event
can the rate of interest exceed the lesser of 20% per annum and the highest rate
permitted by applicable law. In addition, if the Company's Common Stock is
delisted from the Nasdaq National Market, the Company is required to pay 2% per
month of the aggregate principal amount of the 5% Debentures for any month or
portion thereof and if such delisting period lasts for four months, then, at the
option of the holder, the Company is obligated to redeem the 5% Debentures at a
redemption price equal to 120% of the outstanding principal balance.
During 1999, $2,000,000 of the 5% Debentures were converted into 3,528,125
shares of Common Stock and warrants exercisable at prices ranging from $.46 to
$1.52 to purchase 141,123 shares of Common Stock (all of which were exercised in
March, 2000 in a cashless exercise). In addition, 175,237 shares of Common Stock
were issued as payment of interest on the 5% Debentures. Accordingly, as of
December 31, 1999, an aggregate of 3,703,362 shares of Common Stock has been
issued in connection with the 5% Debentures. During December 1999, the Company
was unable to convert $200,000 of the 5% Debentures tendered for conversion as
such conversion would have exceeded the Share Limit. As a result, the Company is
obligated to redeem the remaining $2,000,000 of outstanding 5% Debentures in
cash at a price equal to 120% of the principal amount, plus accrued and unpaid
interest. During the fourth quarter of 1999, the Company accrued the
aforementioned 20% premium and charged interest expense for $400,000. In
addition, because the $200,000 of 5% Debentures were not redeemed within three
business days, the interest rate on all outstanding debentures as of December
31, 1999 has increased to 7%. The Company has also failed to make the
semi-annual interest payment that was due on January 5, 2000. Under the terms of
the 5% Debentures, the interest rate as a consequence has increased to 20% per
annum beginning in January 2000.
<PAGE>
From time to time, Jay Levy, the chairman of the board and an officer of the
Company, and Warren Levy and Ronald Levy, directors and officers of the Company,
have made loans to the Company. As of December 31, 1999, the outstanding loans
by these individuals to the Company consisted of: (i) loans from the three
individuals in the aggregate principal amount of $1,140,000 evidenced by demand
notes bearing a floating interest rate equal to the Merrill Lynch Margin Loan
Rate plus .25% (8.875% at December 31, 1999), which are classified as short-term
debt, and (ii) loans from Jay Levy in the aggregate principal amount of
$1,870,000 evidenced by term notes maturing January 2002 and bearing interest at
the fixed rate of 6% per year and which are secured by a security interest in
all of the Company's equipment and a mortgage on the Company's real property.
The Company was required to make installment payments on the term notes
commencing in October 1999 and ending in January 2002 in an aggregate amount of
$72,426 per month. No installment payments were made during 1999 as Jay Levy has
agreed not to demand such 1999 payments and has agreed that he will not, prior
to January 1, 2001, declare all or any portion of the principal or the accrued
interest on the notes immediately due and payable by reason of the failure of
the Company to make, when due, any scheduled payment of principal or interest on
any of the notes as permitted by the loan agreements.
The Company's cash requirements are approximately $10 to 11 million per year to
operate its research and peptide manufacturing facilities and develop its three
Calcitonin products. In addition, the Company has principal and interest
obligations over the next several years under its outstanding notes payable to
stockholders and 5% Debentures. Due to the delisting of its Common Stock from
the Nasdaq National Market in October 1999, the Company became obligated to pay
the holders of the 5% Debentures an amount equal to 2% of the principal amount
per month. This amount has been charged to interest expense. However, no such
payments have been made.
After receipt of $1.5 million from Warner-Lambert in February and March 2000,
management believes that the Company has sufficient financial resources to
sustain its operations at the current level into the second quarter of 2000. The
Company will require additional funds to ensure continued operations beyond that
time. The Company expects to receive additional amounts receivable from
Warner-Lambert during 2000 as a result of the milestone completed in September
1999. The Company also expects to achieve additional milestones under the
Warner-Lambert agreement during 2000, which will result in further payments.
However, there can be no assurance as to when or if the Company will achieve
such milestones.
The proprietary rights licensed to Warner-Lambert involve only the oral
formulation of Calcitonin. The Company has retained the right to license the use
of its technologies for injectable and nasal formulations of Calcitonin on a
worldwide basis. The Company currently is seeking to enter into licensing and/or
supply agreements with other pharmaceutical companies for these forms of
Calcitonin. These agreements could provide short-term funds to the Company in
upfront payments as well as milestone payments. The Company is eligible to sell
state tax benefits, to yield approximately $2.5 million, under a NJEDA program,
which allows certain New Jersey taxpayers to sell their state tax benefits to
third parties. However, the proceeds will be received over the next few years
and the size and timing of such proceeds are subject to the continued funding of
the program by the State of New Jersey as well as limitations based on the level
of participation by other companies. The Company must apply to the NJEDA each
year to be eligible to receive approval for the sale of its benefits. However,
there can be no assurance that any of these transactions will be completed or,
if completed, that the terms and timing of such transactions would provide
sufficient funds to sustain operations at the current level.
<PAGE>
In the absence of, or the delay in, achieving the Warner-Lambert milestones or
in signing other agreements, obtaining adequate funds from other sources, which
might include a debt or equity financing, would be necessary to sustain the
Company's operations. However, there is no assurance as to the terms on which
such additional funds would be available or that in such circumstances
sufficient funds could be obtained. Equity financing of the Company also may be
adversely affected by the delisting of the Company's Common Stock by the Nasdaq
Stock Market.
While the Company believes that the Warner-Lamber licensing transaction will
satisfy the Company's liquidity requirements over the near-term, satisfying the
Company's long-term liquidity requirements will require the successful
commercialization of the product licensed to Warner-Lambert and/or one of its
other Calcitonin products. In addition, the commercialization of its Calcitonin
products will require the Company to incur additional capital expenditures,
including expenditures to expand or upgrade the Company's manufacturing
operations to satisfy all of its Calcitonin supply obligations under the
Warner-Lambert license agreement. However, neither the cost or timing of such
capital expenditures are determinable at this time.
OTHER
- - - -----
The Company's Common Stock has been delisted from the Nasdaq National Market
System effective October 5, 1999 and is now trading on the OTC Bulletin Board.
The Company has filed an appeal with Nasdaq to review the delisting decision.
The outcome of the appeal is pending.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting For Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. SFAS No. 133, as amended, will be effective for the
Company's fiscal year beginning January 1, 2001. The adoption of SFAS No. 133 is
not expected to have a material effect on the Company's financial position or
results of operations.
In December 1999, the Securities and Exchange Commission staff issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"). SAB 101 summarizes certain of the staff's views in applying generally
accepted accounting principles to revenue recognition in financial statements
and specifically addresses revenue recognition in the biotechnology industry for
non-refundable technology access fees and other non-refundable fees. SAB 101 is
effective for fiscal years beginning after December 15, 1999. The Company is
evaluating SAB 101 and the effect it may have on the financial statements and
its current revenue recognition policy.
Item 7A Quantitative and Qualitative Disclosures About Market Risk
MARKET RISK
In the normal course of business, the Company is exposed to fluctuations in
interest rates due to the use of debt financing to fund part of its operations.
The Company does not employ specific strategies, such as the use of derivative
instruments or hedging, to manage its interest rate exposure. Since December 31,
1998, the Company's interest rate exposure on the 5% Debentures has been
affected by the Company's delisting from the Nasdaq National Market and failure
to make the semi-annual interest payment in January 2000. The Company's exposure
to interest rate fluctuations over the near-term will continue to be affected by
these events.
<PAGE>
The information below summarizes the Company's market risks associated with debt
obligations as of December 31, 1999. Fair values included herein have been
estimated taking into consideration the nature and terms of each instrument and
the prevailing economic and market conditions at December 31, 1999. The table
below presents principal cash flows and related interest rates by year of
maturity based on the terms of the debt. Under the terms of the 5%
Debentures, no additional shares may be issued to convert the remaining
principal balance. Therefore, the information presented as to these debentures
is without consideration as to conversion features. Variable interest rates
disclosed represent the rates at December 31, 1999. Further information specific
to the Company's debt is presented in Notes 2, 3 and 5 to the financial
statements.
<TABLE>
<CAPTION>
Estimated Year of Maturity
Fair Carrying -------------------------------------------------------------
Value Amount 2000 2001 2002 2003 2004
------ ------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Notes payable - stockholders $1,140,000 1,140,000 1,140,000 -- -- -- --
Variable interest rate 8.875% -- -- -- --
Notes payable - stockholders $1,516,000 1,870,000 960,606 837,328 72,066 -- --
Fixed interest rate 6% 6% 6% -- --
5% convertible debentures $2,087,000 2,400,000 2,400,000 -- -- --
Fixed interest rate (1) 20%
</TABLE>
(1) As a result of the Company's failure to make the semi-annual interest
payment that was due January 5, 2000, the interest rate on the 5%
Debentures increased from 7% at December 31, 1999 to 20% beginning January
2000.
Item 8. Financial Statements and Supplementary Data.
<PAGE>
Index to Financial Statements and Related Information
(1) Financial Statements:
Independent Auditors' Report
Balance Sheets at December 31, 1999 and 1998
Statements of Operations for each of the years in the three-year
period ended December 31, 1999
Statements of Stockholders' Equity for each of the years in the
three-year period ended December 31, 1999
Statements of Cash Flows for each of the years in the three-
year period ended December 31, 1999
Notes to Financial Statements
(2) Financial Statement Schedules:
All schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
<PAGE>
Independent Auditors' Report
The Stockholders and Board of Directors
Unigene Laboratories, Inc.:
We have audited the financial statements of Unigene Laboratories, Inc. as listed
in the accompanying index. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with 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 Unigene Laboratories, Inc. as
of December 31, 1999 and 1998, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1999, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 16 to the
financial statements, the Company has suffered recurring losses from operations
and has a working capital deficiency which raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 16. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/S/ KPMG LLP
Short Hills, New Jersey
March 17, 2000
<PAGE>
<TABLE>
<CAPTION>
UNIGENE LABORATORIES, INC.
BALANCE SHEETS
DECEMBER 31, 1999 and 1998
ASSETS 1999 1998
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 682,629 $ 402,664
Contract receivables 3,526,229 316,058
Prepaid expenses 210,195 319,322
Inventory (Note 6) 867,566 570,347
------------ ------------
Total current assets 5,286,619 1,608,391
Property, plant and equipment - net of
accumulated depreciation and
amortization (Note 4) 6,740,354 8,085,250
Patents and other intangibles, net 1,264,268 1,206,018
Other assets 486,612 664,434
------------ ------------
$ 13,777,853 $ 11,564,093
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- - - ------------------------------------
Current liabilities:
Accounts payable $ 1,258,334 $ 982,752
Accrued expenses (Note 7) 2,217,413 1,329,199
Notes payable - stockholders (Note 3) 1,140,000 1,040,000
Current portion - long-term notes payable -
stockholders 960,606 --
5% convertible debentures (Note 5) 2,400,000 --
Current portion - capital lease obligations (Note 8) 69,708 61,464
------------ ------------
Total current liabilities 8,046,061 3,413,415
Notes payable - stockholders, excluding
current portion (Note 3) 909,394 --
5% convertible debentures (Note 5) -- 3,802,807
Capital lease obligations, excluding
current portion (Note 8) 93,415 127,783
Commitments and contingencies
Stockholders' equity (Note 10):
Common Stock - par value $.01 per share,
authorized 60,000,000 shares,
issued 43,088,184 shares in 1999 and
39,384,822 shares in 1998 430,882 393,848
Additional paid-in capital 67,207,604 65,158,403
Accumulated deficit (62,908,472) (61,331,132)
Less: Treasury stock, at cost,
7,290 shares (1,031) (1,031)
------------ ------------
Total stockholders' equity 4,728,983 4,220,088
------------ ------------
$ 13,777,853 $ 11,564,093
============ ============
</TABLE>
See accompanying notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
UNIGENE LABORATORIES, INC.
STATEMENTS OF OPERATIONS
Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Licensing and other revenue $ 9,589,413 $ 5,049,844 $ 3,003,299
------------ ------------ ------------
Operating expenses:
Research and development 9,374,528 9,041,618 9,416,315
Settlement of contractual right
(Note 15) -- -- 1,669,063
General and administrative 2,211,778 2,067,958 2,015,730
------------ ------------ ------------
11,586,306 11,109,576 13,101,108
------------ ------------ ------------
Operating loss (1,996,893) (6,059,732) (10,097,809)
Other income (expense):
Interest income 37,545 107,502 203,999
Interest expense (1,171,260) (784,972) (234,304)
------------ ------------ ------------
Loss before income taxes and
extraordinary item (3,130,608) (6,737,202) (10,128,114)
Income tax benefit (Note 12) 1,553,268 -- --
------------ ------------ ------------
Loss before
extraordinary item (1,577,340) (6,737,202) (10,128,114)
Extraordinary item-loss
on early extinguishment of debt (Note 5) -- (143,810) --
------------ ------------ ------------
Net loss $ (1,577,340) $ (6,881,012) $(10,128,114)
============ ============ ============
Earnings per share:
Basic:
Loss before extraordinary item $ (.04) $ (.17) $ (.27)
Extraordinary item -- (.01) --
------------ ------------ ------------
Net loss $ (.04) $ (.18) $ (.27)
============ ============ ============
Diluted:
Loss before
extraordinary item $ (.04) $ (.17) $ (.27)
Extraordinary item -- (.01) --
------------ ------------ ------------
Net loss $ (.04) $ (.18) $ (.27)
============ ============ ============
Weighted average number of shares
outstanding 40,718,519 38,701,253 37,397,150
============ ============ ============
</TABLE>
See accompanying notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
UNIGENE LABORATORIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (Continued)
Years Ended December 31, 1999, 1998 and 1997
Common Stock
-------------------------- Additional
Number of Par Paid-in Accumulated Treasury
Shares Value Capital Deficit Stock Total
---------- -------- ----------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance,
January 1,
1997 35,352,824 $353,528 $55,829,641 $ (44,322,006) $ (1,031) $11,860,132
Sale of stock 695,066 6,951 2,941,648 -- -- 2,948,599
Settlement of
contractual right 490,000 4,900 1,664,163 -- -- 1,669,063
Exercise of
warrants 712,759 7,127 1,133,020 -- -- 1,140,147
Conversion of 9.5%
Debentures and
accrued interest 697,058 6,971 769,235 -- -- 776,206
Exercise of
stock options 282,350 2,823 433,229 -- -- 436,052
Conversion of
10% Debentures and
accrued interest 220,465 2,205 398,225 -- -- 400,430
Conversion of
notes payable -
stockholders 57,200 572 199,428 -- -- 200,000
Issuance of warrants
and stock as
compensation 10,000 100 130,850 -- -- 130,950
Net loss -- -- -- (10,128,114) -- (10,128,114)
---------- -------- ----------- ------------- --------- -----------
</TABLE>
(Continued)
<PAGE>
<TABLE>
<CAPTION>
UNIGENE LABORATORIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (Continued)
Years Ended December 31, 1999, 1998 and 1997
Common Stock
-------------------------- Additional
Number of Par Paid-in Accumulated Treasury
Shares Value Capital Deficit Stock Total
---------- -------- ----------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance,
December 31,
1997 38,517,722 385,177 63,499,439 (54,450,120) (1,031) 9,433,465
Conversion of 9.5%
Debentures 448,834 4,489 495,705 -- -- 500,194
Conversion of
notes payable -
stockholders 163,635 1,636 220,091 -- -- 221,727
Conversion of
10% Debentures and
accrued interest 214,131 2,141 202,234 -- -- 204,375
Value of 5% Debentures allocated
to beneficial conversion feature
and related warrants -- -- 686,796 -- -- 686,796
Exercise of
stock options 40,500 405 47,564 -- -- 47,969
Issuance of warrants
as compensation -- -- 6,574 -- -- 6,574
Net loss -- -- -- (6,881,012) -- (6,881,012)
-------- -------- --------- ----------- -------- ---------
Balance,
December 31,
1998 39,384,822 393,848 65,158,403 (61,331,132) (1,031) 4,220,088
Conversion of 5%
Debentures into
Common Stock
and Warrants 3,528,125 35,281 1,859,994 -- -- 1,895,275
Issuance of Common
Stock as payment of
interest on 5%
Debentures 175,237 1,753 189,207 -- -- 190,960
Net loss -- -- -- (1,577,340) -- (1,577,340)
--------- -------- ---------- ------------ -------- ---------
Balance,
December 31,
1999 43,088,184 $430,882 $67,207,604 $(62,908,472) $(1,031) $4,728,983
========= ======== ========== ============ ======= ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
UNIGENE LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
Years Ended December 31,
------------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,577,340) $ (6,881,012) $(10,128,114)
Adjustments to reconcile net loss to net
cash used by operating activities:
Non-cash settlement of contractual right -- -- 1,669,063
Non-cash compensation -- 6,574 130,950
Depreciation and amortization 1,558,663 1,552,734 1,530,469
Amortization of beneficial conversion feature on 5%
Debentures 197,193 489,603 --
20% premium on 5% Debentures 400,000 -- --
Payment of interest through the issuance of
Common Stock 190,960 44,060 40,931
Write-off of other assets 64,528 48,500 --
Increase in contract receivable (3,210,171) (316,058) --
(Increase) decrease in prepaid expenses and other
current assets (188,092) (55,424) 148,844
Increase (decrease) in accounts payable and accrued
expenses 1,163,795 247,237 330,036
------------ ------------ ------------
Net cash used for operating activities (1,400,464) (4,863,786) (6,277,821)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction of leasehold and building improvements (4,010) (8,384) (18,298)
Purchase of furniture and equipment (134,127) (76,486) (430,068)
Increase in patents and other assets (88,695) (264,959) (163,670)
------------ ------------ ------------
Net cash used in investing activities (226,832) (349,829) (612,036)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sales of stock -- -- 2,948,599
Proceeds from issuance of debt 1,970,000 4,000,000 --
Repayment of debt and capital lease
obligations (62,739) (304,138) --
Exercise of stock options and warrants -- 47,969 1,576,199
Debt issuance and other costs -- (253,879) --
------------ ------------ ------------
Net cash provided by financing activities 1,907,261 3,489,952 4,524,798
------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents 279,965 (1,723,663) (2,365,059)
Cash and cash equivalents at
beginning of period 402,664 2,126,327 4,491,386
------------ ------------ ------------
Cash and cash equivalents at
end of period $ 682,629 $ 402,664 $ 2,126,327
============ ============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION:
Non-cash investing and financing activities:
Acquisition of equipment through capital leases $ 36,617 $ 221,900 --
Conversion of convertible debentures and accrued
interest into Common Stock $ 2,190,960 $ 707,069 $ 1,176,636
Conversion of notes payable - stockholders
into Common Stock -- $ 225,000 $ 200,000
Value of beneficial conversion feature and related
warrants on issuance of 5% Debentures -- $ 686,796 --
============ ============ ============
Cash paid for interest $ 24,700 $ 119,000 $ 74,000
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
UNIGENE LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1. Description of Business
Unigene Laboratories, Inc. (the "Company"), a biopharmaceutical company, was
incorporated in the State of Delaware in 1980. The Company's single
business segment focuses on research, production and delivery of
therapeutic peptide hormones. The Company has concentrated most of its
efforts to date on one product - Calcitonin, for the treatment of
osteoporosis and other indications. The Company's initial products will be
injectable, nasal and oral formulations of Calcitonin. The Company's
Calcitonin products require clinical trials and approvals from regulatory
agencies as well as acceptance in the marketplace. The Company's injectable
Calcitonin product has been approved for marketing in all 15-member states
of the European Union for the treatment of Paget's disease and
hypercalcemia associated with malignancy. Through December 31, 1999, sales
of injectable Calcitonin have not been significant. Although the Company
believes its patents and patent applications are valid, the invalidation of
its patents or the failure of certain of its pending patent applications to
issue as patents could have a material adverse effect upon its business.
The Company competes with specialized biotechnology companies, major
pharmaceutical and chemical companies and universities and research
institutions. Many of these competitors have substantially greater
resources than does the Company. During 1999, 1998 amd 1997, almost all of
the Company's revenue was generated from one customer, Warner-Lambert
Company (see Note 14).
2. Summary of Significant Accounting Policies & Practices
Segment Information -The Company is managed and operated as one business. The
entire business is managed by a single management team that reports to the chief
executive officer. The Company does not operate separate lines of business or
separate business entities with respect to any of its product candidates.
Accordingly, the Company does not prepare discrete financial information with
respect to separate product areas or by location and does not have separately
reportable segments as defined by Statement of Financial Accounting Standards
(SFAS) No. 131, "Disclosures about Segments of an Enterprise and Related
Information."
Property, Plant and Equipment - Property, plant and equipment are carried at
cost. Equipment under capital leases are stated at the present value of the
minimum lease payments. Depreciation is computed using the straight-line method.
Amortization of equipment under capital leases and leasehold improvements is
computed over the shorter of the lease term or estimated useful life of the
asset. Additions and improvements are capitalized, while repairs and maintenance
are charged to expense as incurred.
Research and Development - Research and development expenses include the costs
associated with internal research and development by the Company and research
and development conducted for the Company by outside advisors, sponsored
university-based research partners and clinical study partners. All research and
development costs discussed above are expensed as incurred. Expenses reimbursed
under research and development contracts, which are not refundable, are recorded
as a reduction to research and development expense in the statement of
operations.
<PAGE>
Revenue Recognition - Research and development contract revenues are recognized
based upon the successful completion of various benchmarks as set forth in the
individual agreements. Non-refundable license fees received upon execution of
license agreements are recognized as revenue. Revenue from the sale of product
is recognized upon shipment to the customer.
In December 1999, the Securities and Exchange Commission staff issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"). SAB 101 summarizes certain of the staff's views in applying generally
accepted accounting principles to revenue recognition in financial statements
and specifically addresses revenue recognition in the biotechnology industry for
non-refundable technology access fees and other non-refundable fees. SAB 101 is
effective for fiscal years beginning after December 15, 1999. The Company is
evaluating SAB 101 and the effect it may have on the financial statements and
its current revenue recognition policy.
Patents and Other Intangibles - Patent costs are deferred pending the outcome of
patent applications. Successful patent costs are amortized using the
straight-line method over the lives of the patents. Unsuccessful patent costs
are expensed when determined worthless. As of December 31, 1999, four of the
Company's patents had issued in the U.S. and numerous have issued in various
foreign countries. Various other applications are still pending. Other
intangibles are recorded at cost and are amortized over their estimated useful
lives. Accumulated amortization on patents and other intangibles is $143,638 and
$104,625 at December 31, 1999 and 1998, respectively.
Stock Option Plan - The Company accounts for stock options issued to employees
and directors in accordance with the provisions of Accounting Principles Board
(APB) Opinion No. 25, "Accounting for Stock Issued to Employees", and related
interpretations. As such, compensation expense is recorded on fixed stock option
grants only if the current market price of the underlying stock exceeded the
exercise price; compensation expense on variable stock option grants is
estimated until the measurement date. As permitted by SFAS No. 123, "Accounting
for Stock-Based Compensation", the Company provides pro forma net income and pro
forma earnings per share disclosures for employee and director stock option
grants as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company accounts for stock options and warrants issued to
consultants on a fair value basis in accordance with SFAS No. 123.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of - The
Company accounts for the impairment of long-lived assets in accordance with the
provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." This Statement requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to the future undiscounted net cash flows expected to be generated by the asset.
If such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
Net Loss per Share - The Company computes and presents earnings per share
("EPS") in accordance with the provisions of SFAS No. 128, "Earnings Per Share".
It requires presentation of both basic and diluted EPS for net income on the
face of the statement of operations. Basic EPS is computed using the weighted
average number of common shares outstanding during the period being reported on.
Diluted EPS reflects the potential dilution that could occur if securities or
other contracts to issue Common Stock were exercised or converted into Common
Stock at the beginning of the period being reported on and the effect was
<PAGE>
dilutive. The Company's net loss and weighted average shares outstanding used
for computing diluted loss per share were the same as that used for computing
basic loss per share for each of the years ended December 31, 1999, 1998 and
1997 because the Company's convertible debentures, stock options and warrants
were not included in the calculation since the inclusion of such shares
(approximately 4,330,000 potential shares of Common Stock at December 31, 1999)
would be antidilutive.
Cash Equivalents - The Company considers all highly liquid securities purchased
with an original maturity of three months or less to be cash equivalents.
Inventory - Inventories are stated at the lower of cost (using the first-in,
first-out method) or market.
Fair Value of Financial Instruments - The fair value of a financial instrument
represents the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced sale or liquidation.
Significant differences can arise between the fair value and carrying amounts of
financial instruments that are recognized at historical cost amounts. The
estimated fair values of all of the Company's financial instruments approximate
their carrying amounts in the balance sheet with the exception of debt. The fair
value of the Company's various debt instruments were derived by evaluating the
nature and terms of each instrument and considering the prevailing economic and
market conditions at the balance sheet date. The carrying amount of debt,
including current portions and capital lease obligations, is $5,573,000 and
$5,032,000 at December 31, 1999 and 1998, respectively; and the fair value is
estimated to be $4,906,000 and $5,229,000 at December 31, 1999 and 1998,
respectively.
Use of 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
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications - Certain prior years' amounts have been reclassified to
conform to their 1999 presentation.
3. Related Party Transactions
Notes payable - stockholders. During 1995, members of the Levy family loaned to
the Company $1,905,000. The notes evidencing these loans were issued to Warren
P. Levy, Ronald S. Levy and Jay Levy, (collectively, the "Levys") each an
officer and director of the Company, who at the time owned an aggregate of 10%
of the Company's outstanding Common Stock, and to another member of their
family. These notes bear interest at the Merrill Lynch Margin Loan Rate plus
.25% (8.875% at December 31, 1999) and $1,850,000 of the aggregate principal
amount is collateralized by security interests in the Company's Fairfield, New
Jersey plant and equipment and Boonton, New Jersey equipment. Notes for
$1,255,000 were originally payable on demand, but in any event not later than
February 10, 1997. Another note for $650,000 was originally due on February 10,
1997. During 1996, a total of $440,000 in principal amount of the notes payable
- - - - stockholders were repaid. On May 2, 1997, an aggregate of $200,000 in
principal amount of these loans was converted into 57,200 shares of Common Stock
at a conversion price of $3.4965 per share. The closing price of the Common
Stock on May 1, 1997, as reported by the Nasdaq Stock Market, was $3.21875 per
share. On August 6, 1998, an aggregate of $225,000 in principal amount of these
loans was converted into 163,635 shares of Common Stock at a conversion price of
$1.375 per share. The closing price of the Common Stock on August 5, 1998, as
reported by the Nasdaq Stock Market, was $1.31 per share. Warren Levy and Ronald
Levy each loaned to the Company an additional $50,000 during 1999. The balance
of these loans, $1,140,000, has been classified as short-term as of December 31,
1999 as they are payable on demand.
<PAGE>
During 1999, Jay Levy loaned the Company $1,500,000 evidenced by demand notes
bearing interest at 6% per year. During the third quarter of 1999, Jay Levy
loaned the Company an additional $370,000 evidenced by term notes maturing
January 2002 and bearing interest at 6% per year, and the $1,500,000 of demand
notes were converted into 6% term notes maturing January 2002. The Company has
granted Jay Levy a security interest in all of its equipment and a mortgage on
its real property to secure payment of the term notes, which are senior to all
notes payable to Warren Levy and Ronald Levy. The Company is required to make
installment payments on the term notes commencing in October 1999 and ending in
January 2002 in an aggregate amount of $72,426 per month. No installment
payments were made during 1999 as Jay Levy has agreed not to demand such 1999
payments and has agreed that he will not, prior to January 1, 2001, declare all
or any portion of the principal or the accrued interest on the notes immediately
due and payable by reason of the failure of the Company to make, when due, any
scheduled payment of principal or interest on any of the notes as permitted by
the loan agreements.
From time to time, the Levys also provide working capital loans to the Company.
At December 31, 1999 and 1998, no working capital loans were outstanding.
4. Property, Plant and Equipment
Property, plant and equipment consisted of the following at December 31, 1999
and 1998:
<TABLE>
<CAPTION>
Estimated
Depreciable
1999 1998 Lives
---------- ----------- ------------
<S> <C> <C> <C>
Building and
improvements $1,377,075 $1,373,975 25 years
Leasehold improvements 8,480,222 8,479,312 Lease Term
Manufacturing equipment 3,842,038 3,766,934 10 years
Laboratory equipment 2,704,820 2,657,817 5 years
Other equipment 466,523 466,523 10 years
Office equipment and
furniture 327,206 315,186 5 years
Equipment under capital
leases 258,517 221,900 Lease Term
------------ -----------
17,456,401 17,281,647
Less accumulated
depreciation and
amortization 10,837,214 9,317,564
------------ -----------
6,619,187 7,964,083
Land 121,167 121,167
------------ -----------
$ 6,740,354 $ 8,085,250
============ ===========
</TABLE>
Depreciation and amortization expense on property, plant and equipment was
$1,520,000, $1,520,000, and $1,506,000 in 1999, 1998 and 1997, respectively.
5. Convertible Debentures
In March 1996, the Company issued $3,300,000 of 9.5% Senior Secured Convertible
Debentures in exchange for a secured loan of an equal amount. All of these
debentures had been converted into approximately 2,924,000 shares of Common
Stock as of November 15, 1998, the due date of the debentures.
<PAGE>
In March 1996, the Company completed a private placement of $9.08 million
aggregate principal amount of 10% Convertible Debentures. The Company received
net proceeds of approximately $8.1 million as a result of this placement. These
debentures were to mature March 4, 1999, but as of December 31, 1998, all
outstanding 10% Debentures have been converted or redeemed in full. Through
December 31, 1998, $8,808,515 of principal amount of these debentures, plus
approximately $355,000 of accrued interest, had been converted into
approximately 4,838,000 shares of Common Stock. Due to restrictions on the total
number of shares which could be issued upon conversion of the 10% Debentures, in
October 1998 the Company redeemed in cash an additional $271,485 of principal,
and in connection therewith paid to the holder $68,899 of accrued interest and
$143,810 in redemption premiums, for an aggregate payment of $484,194. The cost
of the redemption premium of $143,810 was recorded as an extraordinary loss in
1998.
In 1996, the placement agent, in connection with the issuance of the 10%
Debentures, received a five-year warrant to purchase 454,000 shares of Common
Stock at an exercise price of $2.10 per share as partial compensation for
services rendered. Through December 31, 1999, an aggregate of 322,000 of these
warrants have been exercised and 132,000 remain unexercised.
In June 1998, the Company completed a private placement of $4 million of 5%
Convertible Debentures (the "5% Debentures"). The Company received net proceeds
of approximately $3.75 million as a result of this placement. The 5% Debentures
mature December 31, 2001, however, due to the events described below this debt
is classified as a current liability on the Company's December 31, 1999 balance
sheet. Interest on the 5% Debentures is payable in cash or, at the option of the
Company, in Common Stock subject to the limitations described below. Beginning
January 1, 1999, the 5% Debentures are convertible into (i) Common Stock at a
conversion price (the "Conversion Price") equal to the lower of (a) $1.59 (the
"Cap Price") and (b) the average of the four lowest closing bid prices of the
Common Stock during the 18 trading days prior to the date of conversion (the
"Market Price") and (ii) warrants, expiring five years from the date of
issuance, to purchase a number of shares of Common Stock equal to 4% of the
number of shares issuable upon conversion at an exercise price equal to 125% of
the Conversion Price. Up to 15% of the original principal amount of the 5%
Debentures may be converted per month on a non-cumulative basis; provided,
however, that if the Market Price is greater than or equal to 120% of the Cap
Price on the last conversion date in any month, then up to 20% of the original
principal amount may be converted in such month. If a Debenture holder submits a
Debenture for conversion and the Market Price is less than or equal to $1.1156,
the Company may redeem the Debenture for (i) an amount equal to the principal
amount thereof plus a premium of 12% per year from the date of issuance and (ii)
warrants, expiring five years from the date of issuance, to purchase a number of
shares of Common Stock equal to 25% of the number of shares that would have been
issuable upon conversion of the Debenture at an exercise price equal to 135% of
the Conversion Price at the time of redemption. Under the terms of the 5%
Debentures, the Company is not permitted to issue more than an aggregate of
3,852,500 shares of Common Stock upon collectively the conversion of 5%
Debentures, upon the exercise of the Warrants issued upon conversion or
redemption of the 5% Debentures and as payment of interest on the 5% Debentures
(the "Share Limit"). After the Share Limit is reached, the Company is obligated
(i) to redeem all 5% Debentues tendered for conversion at a price equal to 120%
of the principal amount, plus accrued interest, and (ii) as to any Warrants
exercised, to pay to the holder, in lieu of the issuance of shares, an amount in
cash equal to the difference between the market price of the Common Stock and
the exercise
<PAGE>
price of the Warrant multiplied by the number of shares issuable upon the
exercise of the Warrant. The Companys' cash obligation with respect to the
Warrants will depend on the number of Warrants issued and the market price of
the Common Stock at time the Warrants are exercised. If the Company fails to
redeem the 5% Debentures tendered for conversion after the Share Limit is
exceeded (including payment of the accrued interest thereon) within three
business days after receipt of the conversion notice, the interest rate on the
5% Debentures will permanently increase (i) to 7% per annum commencing on the
first day of the 30-day period following the conversion notice, (ii) to 9% per
annum commencing on the first day of each of the second and third such 30-day
periods and (iii) an additional 1% per annum on the first day of each
consecutive 30-day period therafter until the 5% Debentures have been redeemed,
provided that in no event can the rate of interest exceed the lesser of 20% per
annum and the highest rate permitted by applicable law. In addition, if the
Company's common stock is delisted from the Nasdaq National Market the Company
is required to pay 2% per month of the aggregate outstanding principal amount of
the 5% Debentures for any month or portion thereof and if such delisting period
lasts for four months, then, at the option of the holder, the Company is
obligated to redeem the 5% Debentures at a redemption price equal to 120% of the
outstanding principal balance.
During 1999, $2,000,000 in principal amount of the 5% Debentures was converted
into 3,528,125 shares of Common Stock. Warrants exercisable at prices ranging
from $.46 to $1.52 for 141,123 shares of Common Stock were issued upon these
conversions. As of December 31, 1999, all of these warrants are exercisable, but
none had been exercised. In addition, 175,237 shares of Common Stock were issued
as payment of interest on the 5% Debentures.
Accordingly, as of December 31, 1999, an aggregate of 3,703,362 shares of Common
Stock has been issued in connection with the 5% Debentures. During December
1999, the Company was unable to convert $200,000 of the 5% Debentures tendered
for conversion as such conversion would have exceeded the Share Limit. As a
result, the Company is obligated to redeem the remaining $2,000,000 of
outstanding 5% Debentures in cash at a price equal to 120% of the principal
amount, plus accrued and unpaid interest. During the fourth quarter of 1999, the
Company accrued the aforementioned 20% premium and charged interest expense for
$400,000. In addition, because the $200,000 of 5% Debentures tendered for
conversion were not redeemed within three business days, the interest rate on
all outstanding debentures as of December 31, 1999 has increased to 7%. The
Company has also failed to make the semi-annual interest payment that was due on
January 5, 2000. Under the terms of the 5% Debentures, the interest rate as a
consequence has increased to 20% per annum beginning in January 2000.
Due to the delisting of its Common Stock from the Nasdaq National Market in
October 1999, the Company is required to make payments to the holder of the 5%
Convertible Debentures, in an amount equal to 2% per month of the aggregate
principal amount of these debentures for any month or portion thereof. However,
no such payments have been made as of December 31, 1999. The Company has accrued
$137,000 as of December 31, 1999 due to this penalty as part of accrued
interest.
The Company in 1998 estimated the value of the beneficial conversion feature and
related warrants at the issuance of the 5% Debentures to be approximately
$687,000. Such amount was credited to additional paid-in capital and was
amortized to interest expense over the earliest conversion periods using the
effective interest method (approximately $197,000 and $490,000 for the years
ended December 31, 1999 and 1998, respectively).
6. Inventory - Inventory consists of the following:
Dec. 31, 1999 Dec. 31, 1998
------------- -------------
Finished goods $596,359 $319,775
Raw material 271,207 250,572
-------- --------
Total $867,566 $570,347
-------- --------
<PAGE>
7. Accrued expenses - Accrued expenses consist of the following:
Dec. 31, 1999 Dec. 31, 1998
------------- -------------
Interest $ 888,486 $ 594,611
Clinical trials/contract research 763,352 278,745
Vacation pay 187,710 180,292
Consultants 164,500 48,000
Other 213,365 227,551
---------- ---------
Total $2,217,413 $1,329,199
--------- ---------
8. Obligations Under Capital Leases
The Company entered into various lease arrangements during 1999 and 1998 which
qualify as capital leases.
The future years' minimum lease payments under the capital leases, together with
the present value of the net minimum lease payments, as of December 31, 1999 are
as follows:
2000 $ 89,700
2001 73,644
2002 32,031
2003 12,639
--------
Total minimum lease payments 208,014
Less amount representing interest 44,891
--------
Present value of net minimum
lease payments 163,123
Less current portion 69,708
--------
Obligations under capital leases,
excluding current portion $ 93,415
========
The discount rates on these leases vary from 12% to 18%.
<PAGE>
9. Obligations Under Operating Leases
The Company is obligated under a 10-year net-lease, which began in February
1994, for its manufacturing facility located in Boonton, New Jersey. The Company
has two 10-year renewal options as well as an option to purchase the facility.
In addition, the Company leases laboratory equipment under various operating
leases expiring in 2001 through 2002. Total future minimum rentals under these
noncancelable operating leases as of December 31, 1999 are as follows:
2000 $218,110
2001 207,819
2002 197,529
2003 185,322
2004 15,444
--------
$824,224
========
Total rent expense was approximately $243,000, $209,000 and $185,000 for 1999,
1998 and 1997, respectively.
10. Stockholders' Equity
In October 1996, the Company completed a private placement of 4,218,804 Units at
a price of $1.75 per Unit. Each Unit consisted of (i) one share of Common Stock,
(ii) one quarter of a Class C Warrant, (each whole Class C Warrant was
exercisable to purchase one share of Common Stock) and (iii) one quarter of a
Class D Warrant (each whole Class D Warrant was exercisable to purchase one
share of Common Stock). The Class C Warrants and the Class D Warrants each had
an exercise price of $3.00 and expired unexercised on October 11, 1999. The fee
paid to the placement agent in the transaction consisted of an additional
296,935 Units in lieu of cash compensation. The net proceeds to the Company were
approximately $7 million.
In October 1994, the Company entered into an agreement with a consultant whose
compensation for its services included the issuance of warrants, exercisable at
$3.00 per share, for the purchase of 1,000,000 shares of Common Stock. These
warrants expired unexercised in October 1998. During 1996, another consultant's
compensation included warrants to purchase a total of 400,000 shares of Common
Stock at exercise prices ranging from $1.63 to $3.50 per share. These warrants
expire in April 2001.
In connection with the services rendered by various consultants during 1997, the
Company issued an aggregate of 75,000 stock purchase warrants, expiring from
1999 to 2002, exercisable at prices ranging from $2.25 to $3.41 per share, and
10,000 shares of Common Stock. Compensation expense recognized in 1997 as a
result of these transactions was approximately $131,000. During 1998, the
Company issued warrants to purchase 5,000 shares of Common Stock, expiring in
2003, to a consultant. These warrants are exercisable at $2.38, resulting in
1998 compensation expense of approximately $7,000.
During 1997, an aggregate of 713,000 shares of Common Stock were issued due to
the exercise of warrants with net proceeds to the Company of approximately
$1,140,000. The exercise prices of these warrants ranged from $1.38 to $3.00 per
share. During 1997, an aggregate of $1,181,000 in principal amount of
convertible debentures, plus $41,000 of accrued interest, was converted into
<PAGE>
approximately 918,000 shares of Common Stock. During 1998, an aggregate of
$681,000 in principal amount of convertible debentures, plus $44,000 of accrued
interest, was converted into approximately 663,000 shares of Common Stock.
During 1999, an aggregate of $2,000,000 in principal amount of convertible
debentures, plus $191,000 of accrued interest, was converted into approximately
3,703,000 shares of Common Stock. See Note 5.
As of December 31, 1999, there are warrants outstanding, all of which are
currently exercisable, to purchase an aggregate of 1,802,000 shares of Common
Stock at exercise prices ranging from $.46 to $3.50 per share, with a weighted
average exercise price of $1.77.
11. Stock Option Plans
Under the Unigene Laboratories, Inc. 1984 Non-Qualified Stock Option Plan for
Selected Employees (the "1984 Plan"), each option granted expires no later than
the tenth anniversary of the date of its grant. The 1984 Plan terminated in
November 1994; however, 30,000 options previously granted continue to be
outstanding and exercisable under that plan as of December 31, 1999.
During 1994, the Company's stockholders approved the adoption of the 1994
Employee Stock Option Plan (the "1994 Plan"). All employees of the Company are
eligible to participate in the 1994 Plan, including executive officers and
directors who are employees of the Company. The 1994 Plan is administered by the
employee Stock Option Committee of the Board of Directors, which selects the
employees to be granted options, fixes the number of shares to be covered by the
options granted and determines the exercise price and other terms and conditions
of each option. Originally, a maximum of 1,500,000 shares of Common Stock was
reserved for issuance under the 1994 Plan. In June 1997, the stockholders of the
Company approved an amendment to the 1994 Plan increasing the total number of
shares authorized for issuance by 750,000 shares to 2,250,000 shares. Options
granted under the 1994 Plan have a maximum term of ten years. The purchase price
of the shares issuable upon the exercise of each option cannot be less than the
fair market value of the Common Stock on the date that the option is granted.
The 1994 Plan will terminate on June 16, 2004, unless earlier terminated.
At the Company's 1999 Annual Meeting, the stockholders approved the adoption of
a 1999 Directors Stock Option Plan (the "1999 Plan") to replace the 1994 Plan.
Under the 1999 Plan, each person elected to the Board after June 23, 1999 who is
not an employee will receive, on the date of his initial election, an option to
purchase 21,000 shares of Common Stock. In addition, on May 1st of each year,
commencing May 1, 1999, each non-employee director will receive an option to
purchase 10,000 shares of Common Stock if he or she has served as a non-employee
director for at least six months prior to the May 1st grant. Each option granted
under the 1999 Plan will have a ten-year term and the exercise price of each
option will be equal to the fair value of the Company's Common Stock on the date
of the grant. A total of 350,000 shares of Common Stock are reserved for
issuance under the 1999 Plan.
<PAGE>
The following summarizes activity for options granted to directors and employees
under the 1984, 1994 and 1999 Plans:
<TABLE>
<CAPTION>
Options Weighted Weighted
Exercisable Average Average
At End of Grant-date Exercise
Options Year Fair Value Price
------- ---- ---------- -----
<S> <C> <C> <C> <C>
Outstanding January 1, 1997 1,574,315
Granted 64,000 $ 2.31 $ 3.15
Cancelled (39,500) -- 2.28
Exercised (282,350) -- 1.61
----------
Outstanding December 31, 1997 1,316,465 1,023,090
=========
Granted 610,750 $ 1.50 $ 1.99
Cancelled (91,600) -- 2.85
Exercised (40,500) -- 1.18
----------
Outstanding December 31,1999 1,795,115 1,382,615
=========
Granted 438,000 $ 0.55 $ 0.70
Cancelled (187,250) -- 2.17
Exercised -- -- --
---------- ======= ======
Outstanding December 31, 1999 2,045,865 1,639,615
========== ==========
</TABLE>
The table above excludes options to purchase 482,000 shares of Common Stock with
a weighted average exercise price of $0.63 per share which have been allocated
to employees during 1999 in anticipation of the adoption of a new employee stock
option plan to replace the 1994 Plan. Such excess options will be granted if and
when the stockholders approve the new employee stock option plan at the next
annual stockholders' meeting. At the date the new plan is approved, the Company
will recognize compensation expense for the excess of the fair value of the
Company's Common Stock at the date the plan is approved over the exercise price
of the options granted.
A summary of options outstanding and exercisable, excluding the 1999 excess
options described above, as of December 31, 1999, follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------- ----------------------------------
Weighted Ave.
Range of Number Remaining Weighted Ave. Number Weighted Ave.
Exercise Price Outstanding Life (years) Exercise Price Exercisable Exercise Price
- - - -------------- ----------- ------------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
.50- .98 407,500 9.9 $ .68 215,000 $ .65
1.00-1.97 948,365 7.0 1.78 781,865 1.77
2.16-3.31 690,000 6.6 2.80 642,750 2.81
--------- ---------
2,045,865 1.90 1,639,615 2.03
========= ====== ========= ======
</TABLE>
<PAGE>
As of December 31, 1999, options to purchase 107,925 shares and 330,000 shares
of Common Stock were available for grant under the 1994 and 1999 Plans.
The Company accounts for options granted to employees and directors under APB
Opinion No. 25. Had compensation cost for options granted to employees and
directors been determined consistent with SFAS No. 123, the Company's pro forma
net loss and pro forma net loss per share would have been as follows as of
December 31:
<TABLE>
<CAPTION>
1999 1998 1997
-------------- ------------ -------------
<S> <C> <C> <C>
Net loss:
As reported $ (1,577,340) (6,881,012) (10,128,114)
Pro forma (2,182,340) (7,796,012) (10,214,114)
============== ============ =============
Basic and diluted net loss per share:
As reported $ (0.04) (0.18) (0.27)
Pro forma (0.05) (0.20) (0.27)
============== ============ =============
</TABLE>
The fair value of the stock options granted in 1999, 1998 and 1997 is estimated
at grant date using the Black-Scholes option-pricing model with the following
weighted average assumptions: dividend yields of 0%; expected volatility of 74%
in 1999, 63% in 1998 and 59% in 1997; a risk-free interest rate of 6.4% in 1999,
4.8% in 1998 and 5.25% in 1997; and expected lives of 6 years.
During 1995, the Company granted to a consultant options to purchase 10,000
shares of the Company's Common Stock, expiring in October 2000, immediately
exercisable at $1.44 per share, none of which have been exercised.
12. Income Taxes
As of December 31, 1999, the Company had available for federal income tax
reporting purposes net operating loss carryforwards in the amount of
approximately $58,200,000, expiring from 2000 through 2019, which are available
to reduce future earnings which would otherwise be subject to federal income
taxes. In addition, the Company has investment tax credits and research and
development credits in the amounts of $19,000 and $2,300,000, respectively,
which are available to reduce the amount of future federal income taxes. These
credits expire from 2000 through 2019. The Company has New Jersey operating loss
carryforwards in the approximately amount of $24,950,000, expiring from 2003
through 2005, which are available to reduce future earnings which would
otherwise be subject to State income tax.
The Company follows SFAS No. 109, "Accounting for Income Taxes." Given the
Company's past history of incurring operating losses, management believes that
it is more likely than not that any deferred tax assets that are recognizable
under SFAS No. 109 will not be recoverable. As of December 31, 1999 and 1998,
<PAGE>
under SFAS No. 109, the Company had deferred tax assets of approximately
$26,000,000 and $26,300,000, respectively, subject to valuation allowances of
$26,000,000 and $26,300,000, respectively. The deferred tax assets are generated
primarily as a result of the Company's net operating losses and tax credits. The
Company's ability to use such net operating losses may be limited by change in
control provisions under Internal Revenue Code Section 382.
In the fourth quarter of 1999, the Company realized a $1,553,000 tax benefit
arising from the Company's state net operating loss carryforwards (NOLs) that
had previously been subject to a full valuation allowance. The Company realized
these deferred tax assets through the sale of a portion of its state tax NOLs
under a New Jersey Economic Development Authority (the "NJEDA") program, which
allows certain New Jersey taxpayers to sell their benefits to third parties. The
Company has an additional $24,950,000 in NOLs that have been approved for sale
although annual applications must be made to the NJEDA. In addition, the
proceeds are subject to the continued funding of the program by the State of New
Jersey as well as limitations based on the level of participation by other
companies. As a result, future tax benefits will be recognized in the financial
statements as specific sales are approved.
13. Employee Benefit Plan
The Company maintains a deferred compensation plan covering all full-time
employees. The plan allows participants to defer a portion of their compensation
on a pre-tax basis pursuant to Section 401(k) of the Internal Revenue Code of
1986, as amended, up to an annual maximum for each employee set by the Internal
Revenue Service. The Company's discretionary matching contribution expense for
1999, 1998 and 1997 was approximately $44,000, $43,000 and $42,000,
respectively.
14. Research and Licensing Revenue
In July 1997, the Company entered into an agreement under which it granted to
the Parke-Davis division of Warner-Lambert Company a worldwide license to use
the Company's oral calcitonin technology. During 1997 the Company received $3
million for an equity investment and $3 million for a licensing fee. Several
milestones were achieved during 1998, resulting in milestone revenue of $5
million. In February and August 1999, two pilot human studies for the Company's
oral Calcitonin formulation were successfully concluded, resulting in milestone
revenue totaling $5 million. In September 1999, the Company and Warner-Lambert
identified an oral Calcitonin formulation to be used in the upcoming Phase I/II
clinical study entitling the Company to milestone revenue of $4.5 million. The
September 1999 milestone revenue is payable in installments of $500,000 due
every 90 days beginning in September 1999, with the unpaid balance payable upon
initiation of the Phase I/II study, which the Company expects to occur in the
first half of 2000. At December 31, 1999, contract receivables on the balance
sheet include $3.5 million due under this milestone. Under the terms of the
license agreement, the Company is eligible to receive up to an additional $34
million in milestone revenue during the course of the development program.
Early-stage milestones primarily relate to the product's performance
characteristics, while the latter-stage milestones are primarily related to
regulatory activities and approvals. If the product is successfully
commercialized, the Company also would receive revenue from royalties on product
sales by Warner-Lambert and its affiliate and from the sale of raw material to
Warner-Lambert. An additional milestone was achieved in February 2000, resulting
in a payment to the Company of $1 million.
<PAGE>
15. Settlement of Contractual Right
In February 1997, the Company issued an aggregate of 490,000 shares of Common
Stock to the holders of the Company's 9.5% Senior Secured Convertible Debentures
in consideration for the cancellation of an obligation of the Company to pay to
the holders a fee equal to 2% of the sum of the market value as of December 31,
1998 of all of the Company's outstanding shares of Common Stock plus the
principal amount of all outstanding debt of the Company, less its cash on
deposit, up to a maximum fee of $3,000,000. The expense associated with this
transaction was valued at $1,669,000, based on a closing price of the Common
Stock of $3.40625 on February 7, 1997.
16. Liquidity
The Company has incurred annual operating losses since its inception and, as a
result, at December 31, 1999 has an accumulated deficit of approximately
$62,908,000 and has a working capital deficiency of approximately $2,759,000.
These factors raise substantial doubt about the Company's ability to continue as
a going concern. However, the financial statements have been prepared on a going
concern basis and as such do not include any adjustments that might result from
the outcome of this uncertainty. The Company's cash requirements are
approximately $10 to 11 million per year to operate its research and peptide
manufacturing facilities and develop its three Calcitonin products. In addition,
the Company has principal and interest obligations over the next several years
under its outstanding notes payable to stockholders and 5% Debentures. The
Company's cash requirements related to the 5% Debentures include the redemption
premium, delisting penalties and the increased interest rate described in Note
5.
After receipt of $1.5 million from Warner-Lambert in February and March 2000,
management believes that the Company has sufficient financial resources to
sustain its operations at the current level into the second quarter of 2000. The
Company will require additional funds to ensure continued operations beyond that
time. The Company expects to receive additional amounts receivable from
Warner-Lambert during 2000 as a result of the milestone completed in September
1999. The Company also expects to achieve additional milestones under the
Warner-Lambert agreement during 2000, which will result in further payments.
However, there can be no assurance as to when or if the Company will achieve
such milestones.
In addition to the Warner-Lambert agreement, management is actively seeking
other licensing and/or supply agreements with pharmaceutical companies for
injectable and nasal forms of Calcitonin. These agreements could provide
short-term funds to the Company in upfront payments as well as milestone
payments. The Company is eligible to sell state tax benefits, to yield
approximately $2.5 million, under a New Jersey Economic Development Authority
(the "NJEDA") program, which allows certain New Jersey taxpayers to sell their
state tax benefits to third-parties. However, the proceeds will be received over
the next few years and the size and timing of such proceeds are subject to the
continued funding of the program by the State of New Jersey as well as
limitations based on the level of participation by other companies. The Company
must apply to the NJEDA each year to be eligible to receive approval for the
sale of its benefits. There can be no assurance that any of these transactions
will be completed or, if completed, that the terms and timing of such
transactions would provide sufficient funds to sustain operations at the current
level. In the absence of or the delay in achieving the Warner-Lambert milestones
<PAGE>
or in signing other agreements, obtaining adequate funds from other sources,
which might include a debt or equity financing, would be necessary to sustain
the Company's operations. However, there is no assurance as to the terms on
which such additional funds would be available or that in such circumstances
sufficient funds could be obtained. In addition, the delisting of the Company's
Common Stock by the Nasdaq National Market also may have an adverse affect on
the Company's ability to raise equity-based capital.
While the Company believes that the Warner-Lambert licensing transaction will
satisfy the Company's liquidity requirements over the near-term, satisfying the
Company's long-term liquidity requirements will require the successful
commercialization of the product licensed to Warner-Lambert and/or one of its
other Calcitonin products. In addition, the commercialization of its Calcitonin
products will require the Company to incur additional capital expenditures,
including expenditures to expand or upgrade the Company's manufacturing
operations to satisfy all of its Calcitonin supply obligations under the
Warner-Lambert license agreement. However, neither the cost or timing of such
capital expenditures are determinable at this time.
PART III
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
Item 10. Directors and Executive Officers of the Registrant.
The information required by this item with respect to Directors is
included in the section entitled "Election of Directors" of the Registrant's
definitive proxy statement for its Annual Meeting of Stockholders to be held on
June 6, 2000 and is hereby incorporated by reference. Information concerning the
Executive Officers of the Registrant is included in Item I of Part I above, in
the section entitled "Executive Officers of the Registrant".
Item 11. Executive Compensation.
-----------------------
The information required by this item is included in the sections
entitled "Compensation Committee Interlocks and Insider Participation" and
"Executive Compensation" of the Registrant's definitive proxy statement for its
Annual Meeting of Stockholders to be held on June 6, 2000 and is hereby
incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
---------------------------------------------------------------
The information required by this item is included in the section
entitled "Security Ownership of Management" of the Registrant's definitive proxy
statement for its Annual Meeting of Stockholders to be held on June 6, 2000 and
is hereby incorporated by reference.
<PAGE>
Item 13. Certain Relationships and Related Transactions.
----------------------------------------------
The information required by this item is included in the section
entitled "Compensation Committee Interlocks and Insider Participation" of the
Registrant's definitive proxy statement for its Annual Meeting of Stockholders
to be held on June 6, 2000 and is hereby incorporated by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.
(a) (1). Financial Statements
See Item 8.
(a) (2). Financial Statement Schedules.
None.
(b) Exhibits.
See Index to Exhibits which appears on Pages 38-40.
(c) Reports on Form 8-K:
The Company did not file any reports on Form 8-K during the
quarter ended December 31, 1999.
<PAGE>
SIGNATURES
--------------------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
UNIGENE LABORATORIES, INC.
March 30, 2000 /s/ Warren P. Levy
-------------------------
Warren P. Levy, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
March 30, 2000 /s/ Warren P. Levy
---------------------------
Warren P. Levy, President,
Chief Executive Officer and
Director
March 30, 2000 /s/ Jay Levy
---------------------------
Jay Levy, Treasurer,
Chief Financial Officer, Chief
Accounting Officer and Director
March 30, 2000 /s/ Ronald S. Levy
---------------------------
Ronald S. Levy, Secretary,
Vice President and Director
March 30, 2000 /s/ Robert F. Hendrickson,
---------------------------
Robert F. Hendrickson,
Director
March 30, 2000 /s/ Allen Bloom
---------------------------
Allen Bloom, Director
<PAGE>
INDEX TO EXHIBITS
-----------------------------
3.1 Certificate of Incorporation and Amendments to July 1, 1986. (1)
3.1.1 Amendments to Certificate of Incorporation filed July 29, 1986
and May 22, 1987. (1)
3.1.2 Amendment to Certificate of Incorporation filed August 22, 1997
(Incorporated by reference to Exhibit 3.1.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1997).
3.2 By-Laws. Incorporated by reference to Exhibit 4.2 to the
Company's Registration Statement No. 333-04557 on Form S-3 filed
June 28, 1996.
4.2 Specimen Certificate for Common Stock, par value $.01 per share.
(1)
10.1 Lease agreement between the Company and Fulton Street Associates,
dated May 20, 1993. (3)
10.2* 1994 Employee Stock Option Plan (incorporated by reference to the
Company's Definitive Proxy Statement dated April 28, 1994, which
is set forth as Appendix A to Exhibit 28 to the Company's Form
10-K for the year ended December 31, 1993).
10.3* Directors Stock Option Plan (incorporated by reference to Exhibit
10.4 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1999).
10.4 Mortgage and Security Agreement between the Company and Jean Levy
dated February 10, 1995. (4)
10.5 Loan and Security Agreement between the Company and Jay Levy,
Warren P. Levy and Ronald S. Levy dated March 2, 1995. (4)
10.6* Employment Agreement with Warren P. Levy, dated January 1, 2000.
10.7* Employment Agreement with Ronald S. Levy, dated January 1, 2000.
10.8* Employment Agreement with Jay Levy, dated January 1, 2000.
10.9* Split Dollar Agreement dated September 30, 1992 between Unigene
Laboratories, Inc. and Warren P. Levy. (2)
10.10* Split Dollar Agreement dated September 30, 1992 between Unigene
Laboratories, Inc. and Ronald S. Levy. (2)
10.11 Loan and Security Agreement between the Company and Dejufra, Inc.
dated March 15, 1995. (4)
10.12 Amendment to Loan Agreement and Security Agreement between the
Company and Jay Levy, Warren P. Levy and Ronald S. Levy dated
March 20, 1995. (4)
<PAGE>
10.13 Registration Rights Agreement between the Company and Swartz
Investments, LLC dated March 12, 1996. (5)
10.14 Amendment to Loan and Security Agreement between the Company and
Jay Levy, Warren P. Levy and Ronald S. Levy dated June 29, 1995.
(5)
10.15 Promissory Note between the Company and Jay Levy, Warren P. Levy
and Ronald S. Levy dated June 29, 1995. (5)
10.16 Letter Agreement dated as of February 7, 1997 among Unigene
Laboratories, Inc., Olympus Securities, Ltd. and Nelson Partners
(incorporated by reference to exhibit to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1997).
10.17 License Agreement, dated as of July 15, 1997, between the Company
and Warner-Lambert Company (incorporated by reference to Exhibit
10.1 to the Company's Current Report on Form 8-K, dated July 15,
1997).
10.18 Stock Purchase Agreement, dated as of July 15, 1997, between the
Company and Warner-Lambert Company (the "Warner-Lambert
Agreement") (incorporated by reference to Exhibit 10.2 to the
Company's Current Report on Form 8-K, dated July 15, 1997).
10.19 Purchase Agreement, dated June 29, 1998, between the Company and
The Tail Wind Fund, Ltd. (incorporated by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10Q for the
quarter ended June 30, 1998).
10.20 Registration Rights Agreement, dated June 29, 1998, between the
Company and The Tail Wind Fund, Ltd. (incorporated by reference
to Exhibit 10.2 to the Company's Quarterly Report on Form 10Q for
the quarter ended June 30, 1998).
10.21 Form of Promissory Note between the Company and Jay Levy
(incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10Q for the quarter ended June 30,
1999).
10.22 Form of Promissory Note between the Company and Warren Levy and
Ronald Levy (incorporated by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10Q for the quarter ended June
30, 1999).
10.23 Amendment to Loan Agreement and Security Agreement between the
Company and Jay Levy, Warren Levy and Ronald Levy dated June 25,
1999 (incorporated by reference to Exhibit 10.3 to the Company's
Quarterly Report on Form 10Q for the quarter ended June 30,
1999).
10.24 Amended and Restated Secured Note dated July 13, 1999
(incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10Q for the quarter ended September 30,
1999).
<PAGE>
10.25 Amended and Restated Security Agreement dated July 13, 1999
(incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10Q for the quarter ended September 30,
1999).
10.26 Subordination Agreement dated July 13, 1999 (incorporated by
reference to Exhibit 10.3 to the Company's Quarterly Report on
Form 10Q for the quarter ended September 30, 1999).
10.27 Mortgage and Security Agreement dated July 13, 1999 (incorporated
by reference to Exhibit 10.4 to the Company's Quarterly Report on
Form 10Q for the quarter ended September 30, 1999).
10.28 $70,000 Secured Note dated July 30, 1999 (incorporated by
reference to Exhibit 10.5 to the Company's Quarterly Report on
Form 10Q for the quarter ended September 30, 1999).
10.29 $200,000 Secured Note dated August 5, 1999 (incorporated by
reference to Exhibit 10.6 to the Company's Quarterly Report on
Form 10Q for the quarter ended September 30, 1999).
10.30 Modification of Mortgage and Security Agreement dated August 5,
1999 (incorporated by reference to Exhibit 10.7 to the Company's
Quarterly Report on Form 10Q for the quarter ended September 30,
1999).
10.31 Amendment to Security Agreement and Subordination Agreement
between the Company and Jay Levy, Warren Levy and Ronald Levy
dated August 5, 1999 (incorporated by reference to Exhibit 10.8
to the Company's Quarterly Report on Form 10Q for the quarter
ended September 30, 1999).
23 Consent of KPMG LLP.
27 Financial Data Schedules
- - - ----------
(1) Incorporated by reference to the exhibit of same number to the
Company's Registration Statement No. 33-6877 on Form S-1.
(2) Incorporated by reference to the exhibit of same number to the
Company's Form 10-K for the year ended December 31, 1992.
(3) Incorporated by reference to the exhibit of same number to the
Company's Form 10-K for the year ended December 31, 1993.
(4) Incorporated by reference to the exhibit of same number to the
Company's Form 10-K for the year ended December 31, 1994.
(5) Incorporated by reference to the exhibit of same number to the
Company's Form 10-K for the year ended December 31, 1995.
* Management contracts or compensatory plan or arrangement.
Exhibit 10.6
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT, dated as of January 1, 2000 (the
"Effective Date"), is entered into by and between Unigene Laboratories, Inc., a
Delaware corporation having offices at 110 Little Falls Road, Fairfield, N.J.
07004 (the "Company"), and Warren Levy, whose address is 110 Little Falls Road,
Fairfield, NJ 07004 (the "Executive").
WITNESSETH:
----------
WHEREAS, the Company desires to employ the Executive and to
enter into this Agreement embodying the terms of such employment; and
WHEREAS, the Executive desires to enter into this Agreement
and to accept such employment, subject to the terms and provisions of this
Agreement;
NOW, THEREFORE, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. Engagement. The Company hereby employs the Executive as its
President and Chief Executive Officer, and the Executive hereby accepts such
employment, on the terms and conditions hereinafter set forth.
2. Term. This Agreement is for an initial term of two years
commencing on the date hereof, subject to earlier termination as provided for
herein. This Agreement will be automatically renewed annually after its initial
term for an additional one-year term, and on a year-to-year basis thereafter,
unless either party notifies the other of the desire not to so renew the
Agreement no later than three months prior to scheduled termination date.
3. Duties. During the term of this Agreement, the Executive
shall serve as the Company's President and Chief Executive Officer and shall
have such duties and responsibilities as are set forth in the Company's Bylaws
and such other executive responsibilities as may be assigned to him from time to
time by the Board of Directors. The Executive shall use his best efforts to
perform, and shall act in good faith in performing, all duties required to be
performed by him under this Agreement.
4. Availability. During the term of this Agreement the
Executive shall not be engaged in any other business activity that would
interfere with the performance of his duties to the Company without the express
written approval of the Board of Directors, except that, without such written
approval, the Executive may engage in a reasonable level of professional
activities such as are typical for individuals of a comparable professional
stature.
5. Business Expenses. The Company shall reimburse the
Executive, promptly upon presentation of itemized vouchers, for all ordinary and
necessary business expenses incurred by the Executive in the performance of his
duties hereunder.
6. Compensation. As compensation for the services to be
rendered hereunder, the Company agrees as follows:
(a) to pay the Executive an annual salary of $160,000 during
the initial year of this Agreement;
<PAGE>
(b) for the second year of this Agreement, and if the
Agreement is renewed automatically for subsequent years thereafter in accordance
with Section (2) above, to provide the Executive with an annual salary approved
by the Compensation Committee, and which shall not be less than the Executive's
annual salary for the preceding year;
(c) to participate in such employee benefit plans as are made
available by the Company to its employees generally. The Executive acknowledges
that salary and all other compensation payable under this Agreement shall be
subject to withholding for income and other applicable taxes to the extent
required by law.
7. Ownership of Intellectual Property. All rights, title and
interest of every kind and nature whatsoever in and to discoveries, inventions,
improvements, patents (and applications therefor), copyrights, ideas, know-how,
notes, creations, properties and all other proprietary rights arising from, or
in any way related to, the Executive's employment hereunder shall become and
remain the exclusive property of the Company, and the Executive shall have no
interest therein.
8. Trade Secrets. The Executive covenants and agrees with the
Company that he will not, during the term of this Agreement or thereafter,
disclose to anyone (except to the extent reasonably necessary for the Executive
to perform his duties hereunder or as may be required by law) any confidential
information concerning the business or affairs of the Company (or of any
affiliate or subsidiary of the Company), including but not limited to lists of
customers, business plans, financial or cost information, and confidential
scientific and clinical information (whether of the Company or entrusted to the
Company by a third party under a confidentiality agreement or understanding),
which the Executive shall have acquired in the course of, or incident to, the
performance of his duties pursuant to the terms of this Agreement or pursuant to
his prior employment by the Company (or any affiliate or subsidiary of the
Company). In the event of a breach or threatened breach by the Executive of the
provisions of this Section 8, the Company shall be entitled to an injunction
restraining the Executive from disclosing, in whole or in part, such information
or from rendering any services to any person, firm, corporation, association or
other entity to whom such information has been disclosed or is threatened to be
disclosed. Nothing herein shall be construed as prohibiting the Company from
pursuing any other remedies available to the Company for such breach or
threatened breach, including the recovery of damages from the Executive. Nothing
herein shall be construed as prohibiting the Executive from disclosing to anyone
any information which is, or which becomes, available to the public (other than
by reason of a violation of this Section 8) or which is a matter of general
business knowledge or experience.
9. Termination For Cause. The Company may terminate the
employment of the Executive for cause in the event that the Board of Directors
determines that the Executive has engaged in (a) any willful or unlawful act
that causes material injury to the Company; or (b) any criminal act that
adversely affects the ability of the executive to perform effectively his duties
under this Agreement. If the employment of the Executive under this Agreement is
terminated under this Section 9, the Company shall be relieved of all further
obligations under this Agreement, except for the payment of accrued salary and
reimbursement under Section 5 for reimbursable expenses incurred prior to
termination. Notwithstanding such termination of employment, the Executive shall
continue to be bound by the provisions in Sections 7, 8, and 13. If the
Executive's employment is terminated pursuant to this Section 9, the Company
shall provide to the Executive a statement in reasonable detail of the Company's
reasons for such termination.
<PAGE>
10. Termination Without Cause. The Company may terminate the
employment of the Executive without cause, subject to compliance with this
Section 10.
(a) In the event the Executive's employment is terminated
without cause, the Executive shall be entitled to:
(1) a severance payment consisting of:
(a) a lump-sum payment equal to the salary that the
executive would have earned for the remaining term of this Agreement, if the
remaining term (either the initial term or as extended) is more than one year;
or (b) a lump-sum payment equal to the executive's then-current annual salary,
if the remaining term of the employment agreement (either the initial term or as
extended) is one year or less.
(2) a payment in cash equal to the cash value of all accrued
vacation days.
(b) Termination of employment under this Section 10 shall
not terminate the Executive's obligations under Sections 7, 8 or 13.
11. Resignation by the Executive for Good Reason.
(a) The Executive may resign for good reason if one or
both of the following occur:
(1) a Change of Control at Unigene (as defined in
paragraph (d) below); or
(2) a material diminution in the Executive's responsibilities
without the Executive's consent.
(b) In the event that the Executive resigns for good
reason, the Executive shall be entitled to:
(1) a severance payment consisting of:
(a) a lump-sum payment equal to the salary that the
executive would have earned for the remaining term of this Agreement, if the
remaining term (either the initial term or as extended) is more than one year;
or (b) a lump-sum payment equal to the executive's then-current annual salary,
if the remaining term of the employment agreement (either the initial term or as
extended) is one year or less.
(2) a payment in cash equal to the cash value of all accrued
vacation days.
(c) Termination of employment under this Section 10 shall
not terminate the Executive's obligations under Sections 7, 8 or 13.
(d) For the purpose of this Agreement, a "Change of
Control" shall have occurred if:
<PAGE>
(i) any individual, entity or group (within the meaning of
Section 13(d)(3) or Section 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) acquires beneficial ownership (within the meaning
of Rule l3d-3 promulgated under the Exchange Act) of more than 50% of either (A)
the then outstanding shares of Common Stock or (B) the combined voting power of
the then outstanding voting securities of the Company entitled to vote generally
in the election of directors (the "Voting Securities"); provided, however, that
any acquisition by the Company, by any employee benefit plan (or related trust)
of the Company, or by any corporation with respect to which, following such
acquisition, more than 50% of, respectively, the then outstanding shares of
common stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned, directly or indirectly, by
all or substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Common Stock and Voting Securities immediately
prior to such acquisition in substantially the same proportion as their
ownership, immediately prior to such acquisition, of the Common Stock and Voting
Securities, as the case may be, shall not constitute a Change of Control;
(ii) individuals who, as of the Effective Date, constitute
the Board of Directors (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board of Directors, provided that any
individual becoming a director subsequent to the Effective Date whose election
was approved by a vote of at least a majority of the directors then comprising
the Incumbent Board shall be deemed a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office is in settlement of an actual or threatened election contest relating to
the election of the directors of the Company; or
(iii) the stockholders of the Company approve (A) a
reorganization, merger or consolidation, in each case, with respect to which all
or substantially all of the persons who were the respective beneficial owners of
the Common Stock and the Voting Securities immediately prior to such
reorganization, merger or consolidation do not, following such reorganization,
merger or consolidation, beneficially own, directly or indirectly, more than 50%
of, respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such reorganization, merger or consolidation or (B) a complete
liquidation or dissolution of the Company or of the sale or other disposition of
all or substantially all of the assets of the Company.
12. Disability of the Executive. In the event that the
Executive during the period while employed under this Agreement shall at any
time become unable, due to ill-health, accident, injury or other disability, to
carry out his duties under this Agreement with reasonable accommodation provided
by the Company, the Company, upon a lump-sum payment to the Executive equal to
the Executives then-current annual salary may terminate this Agreement and be
relieved of all further obligations hereunder. Termination of employment under
this Section 12 shall not terminate the Executive's obligations under Sections
7, 8 or 13.
13. Non-Competition. The Executive hereby agrees that for a
period of one year following the termination for any reason of his employment
under this Agreement, he will not, directly or indirectly, engage in any
business involving (a) the development, production or sale of Calcitonin
products or (b) the development, production or sale of amidated peptides
<PAGE>
anywhere in the world. The Executive agrees that the provisions of this Section
13 are necessary and reasonable to protect the Company in the conduct of its
business. If any restriction contained in this Section 13 shall be deemed to be
invalid or unenforceable by reason of the extent, duration of geographic scope
thereof, then the Company shall have the right to reduce such extent, duration,
geographic scope or other provisions thereof, and in their reduced form such
restrictions shall then be enforceable in the manner contemplated hereby.
14. Capacity. The Executive represents and warrants to the
Company that he is not now under any obligation, of a contractual nature or
otherwise, to any person, firm, corporation, association or other entity that is
inconsistent or in conflict with this Agreement or which would prevent, limit or
impair in any way the performance by him of his obligations hereunder.
15. Waiver. No act, delay, omission or course of dealing on
the part of any party hereto in exercising any right, power or remedy hereunder
shall operate as, or be construed as, a waiver thereof or otherwise prejudice
such party's rights, powers and remedies under this Agreement.
16. Arbitration. The Executive agrees to submit to binding
arbitration all claims arising out of his employment with the Company and/or
this Agreement, including all claims under federal law (including but not
limited to Title VII of the Civil Rights Act of 1967) as well as all claims
under state law (including but not limited to claims under the New Jersey Law
Against Discrimination). This arbitration shall take place in New Jersey, under
the then prevailing rules of the American Arbitration Association.
17. Assignability. The rights and obligations contained herein
shall be binding on and inure to the benefit of the successors and assigns of
the Company. The Executive may not assign his rights or obligations hereunder
without the express written consent of the Company.
18. Completeness. This Agreement sets forth all, and is
intended by each party to be an integration of all, of the promises, agreements
and understandings between the parties hereto with respect to the subject matter
hereof.
19. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original, and all of which
together shall constitute one agreement binding on the parties hereto.
20. Severability. Each provision of this Agreement shall be
considered severable and if for any reason any provision that is not essential
to the effectuation of the basic purpose of the Agreement is determined to be
invalid or contrary to any existing or future law, such provision shall be
deemed to be omitted from this Agreement and such invalidity shall not impair
the operation of or affect those provisions of this Agreement that are valid.
21. Headings. Headings contained in this Agreement are
inserted for reference and convenience only and in no way define, limit, extend
or describe the scope of this Agreement or the meaning or construction of any of
the provisions hereof.
22. Survival of Terms. If this Agreement is terminated for any
reason, the provisions of Sections 7, 8 and 13 shall survive, and the Executive
and the Company, as the case may be, shall continue to be bound by the terms
thereof to the extent provided therein.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement to day and year first above written.
UNIGENE LABORATORIES, INC.
/s/Warren Levy By: /s/Jay Levy
- - - -------------- ------------
Warren Levy Jay Levy
Chairman
Exhibit 10.7
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT, dated as of January 1, 2000 (the
"Effective Date"), is entered into by and between Unigene Laboratories, Inc., a
Delaware corporation having offices at 110 Little Falls Road, Fairfield, N.J.
07004 (the "Company"), and Ronald Levy, whose address is 110 Little Falls Road,
Fairfield, NJ 0004 (the "Executive").
WITNESSETH:
----------
WHEREAS, the Company desires to employ the Executive and to
enter into this Agreement embodying the terms of such employment; and
WHEREAS, the Executive desires to enter into this Agreement
and to accept such employment, subject to the terms and provisions of this
Agreement;
NOW, THEREFORE, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. Engagement. The Company hereby employs the Executive as its
Executive Vice President, and the Executive hereby accepts such employment, on
the terms and conditions hereinafter set forth.
2. Term. This Agreement is for an initial term of two years
commencing on the date hereof, subject to earlier termination as provided for
herein. This Agreement will be automatically renewed annually after its initial
term for an additional one-year term, and on a year-to-year basis thereafter,
unless either party notifies the other of the desire not to so renew the
Agreement no later than three months prior to scheduled termination date.
3. Duties. During the term of this Agreement, the Executive
shall serve as the Company's Executive Vice President and shall have such duties
and responsibilities as are set forth in the Company's Bylaws and such other
executive responsibilities as may be assigned to him from time to time by the
Board of Directors or the Chief Executive Officer. The Executive shall use his
best efforts to perform, and shall act in good faith in performing, all duties
required to be performed by him under this Agreement.
4. Availability. During the term of this Agreement the
Executive shall not be engaged in any other business activity that would
interfere with the performance of his duties to the Company without the express
written approval of the Board of Directors, except that, with such written
approval, the Executive may engage in a reasonable level of professional
activities such as are typical for individuals of a comparable professional
stature.
5. Business Expenses. The Company shall reimburse the
Executive, promptly upon presentation of itemized vouchers, for all ordinary and
necessary business expenses incurred by the Executive in the performance of his
duties hereunder.
6. Compensation. As compensation for the services to be
rendered hereunder, the Company agrees as follows:
<PAGE>
(a) to pay the Executive an annual salary of $155,000 during
the initial year of this Agreement;
(b) for the second year of this Agreement, and if the
Agreement is renewed automatically for subsequent years thereafter in accordance
with Section (2) above, to provide the Executive with an annual salary approved
by the Compensation Committee, and which shall not be less than the Executive's
annual salary for the preceding year;
(c) to participate in such employee benefit plans as are made
available by the Company to its employees generally. The Executive acknowledges
that salary and all other compensation payable under this Agreement shall be
subject to withholding for income and other applicable taxes to the extent
required by law.
7. Ownership of Intellectual Property. All rights, title and
interest of every kind and nature whatsoever in and to discoveries, inventions,
improvements, patents (and applications therefor), copyrights, ideas, know-how,
notes, creations, properties and all other proprietary rights arising from, or
in any way related to, the Executive's employment hereunder shall become and
remain the exclusive property of the Company, and the Executive shall have no
interest therein.
8. Trade Secrets. The Executive covenants and agrees with the
Company that he will not, during the term of this Agreement or thereafter,
disclose to anyone (except to the extent reasonably necessary for the Executive
to perform his duties hereunder or as may be required by law) any confidential
information concerning the business or affairs of the Company (or of any
affiliate or subsidiary of the Company), including but not limited to lists of
customers, business plans, financial or cost information, and confidential
scientific and clinical information (whether of the Company or entrusted to the
Company by a third party under a confidentiality agreement or understanding),
which the Executive shall have acquired in the course of, or incident to, the
performance of his duties pursuant to the terms of this Agreement or pursuant to
his prior employment by the Company (or any affiliate or subsidiary of the
Company). In the event of a breach or threatened breach by the Executive of the
provisions of this Section 8, the Company shall be entitled to an injunction
restraining the Executive from disclosing, in whole or in part, such information
or from rendering any services to any person, firm, corporation, association or
other entity to whom such information has been disclosed or is threatened to be
disclosed. Nothing herein shall be construed as prohibiting the Company from
pursuing any other remedies available to the Company for such breach or
threatened breach, including the recovery of damages from the Executive. Nothing
herein shall be construed as prohibiting the Executive from disclosing to anyone
any information which is, or which becomes, available to the public (other than
by reason of a violation of this Section 8) or which is a matter of general
business knowledge or experience.
9. Termination For Cause. The Company may terminate the
employment of the Executive for cause in the event that the Board of Directors
determines that the Executive has engaged in (a) any willful or unlawful act
that causes material injury to the Company; or (b) any criminal act that
adversely affects the ability of the executive to perform effectively his duties
under this Agreement. If the employment of the Executive under this Agreement is
terminated under this Section 9, the Company shall be relieved of all further
obligations under this Agreement, except for the payment of accrued salary and
<PAGE>
reimbursement under Section 5 for reimbursable expenses incurred prior to
termination. Notwithstanding such termination of employment, the Executive shall
continue to be bound by the provisions in Sections 7, 8, and 13. If the
Executive's employment is terminated pursuant to this Section 9, the Company
shall provide to the Executive a statement in reasonable detail of the Company's
reasons for such termination.
10. Termination Without Cause. The Company may terminate the
employment of the Executive without cause, subject to compliance with this
Section 10.
(a) In the event the Executive's employment is terminated
without cause, the Executive shall be entitled to:
(1) a severance payment consisting of:
(a) a lump-sum payment equal to the salary that the executive
would have earned for the remaining term of this Agreement, if the remaining
term (either the initial term or as extended) is more than one year; or (b) a
lump-sum payment equal to the executive's then-current annual salary, if the
remaining term of the employment agreement (either the initial term or as
extended) is one year or less.
(2) a payment in cash equal to the cash value of all accrued
vacation days.
(b) Termination of employment under this Section 10 shall not
terminate the Executive's obligations under Sections 7, 8 or 13.
11. Resignation by the Executive for Good Reason.
(a) The Executive may resign for good reason if one or both of
the following occur:
(1) a Change of Control at Unigene (as defined in
paragraph (d) below); or
(2) a material diminution in the Executive's
responsibilities without the Executive's consent.
(b) In the event that the Executive resigns for good reason,
the Executive shall be entitled to:
(1) a severance payment consisting of:
(a) a lump-sum payment equal to the salary that the
executive would have earned for the remaining term of this Agreement, if the
remaining term (either the initial term or as extended) is more than one year;
or (b) a lump-sum payment equal to the executive's then-current annual salary,
if the remaining term of this Agreement (either the initial term or as extended)
is one year or less.
(2) a payment in cash equal to the cash value of all
accrued vacation days.
<PAGE>
(c) Termination of employment under this Section 10 shall not
terminate the Executive's obligations under
Sections 7, 8 or 13.
(d) For the purpose of this Agreement, a "Change of Control"
shall have occurred if:
(i) any individual, entity or group (within the meaning
of Section 13(d)(3) or Section 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) acquires beneficial ownership (within the
meaning of Rule l3d-3 promulgated under the Exchange Act) of more than 50% of
either (A) the then outstanding shares of Common Stock or (B) the combined
voting power of the then outstanding voting securities of the Company entitled
to vote generally in the election of directors (the "Voting Securities");
provided, however, that any acquisition by the Company, by any employee benefit
plan (or related trust) of the Company, or by any corporation with respect to
which, following such acquisition, more than 50% of, respectively, the then
outstanding shares of common stock of such corporation and the combined voting
power of the then outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then beneficially owned, directly
or indirectly, by all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Common Stock and Voting
Securities immediately prior to such acquisition in substantially the same
proportion as their ownership, immediately prior to such acquisition, of the
Common Stock and Voting Securities, as the case may be, shall not constitute a
Change of Control;
(ii) individuals who, as of the Effective Date,
constitute the Board of Directors (the "Incumbent Board") cease for any reason
to constitute at least a majority of the Board of Directors, provided that any
individual becoming a director subsequent to the Effective Date whose election
was approved by a vote of at least a majority of the directors then comprising
the Incumbent Board shall be deemed a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office is in settlement of an actual or threatened election contest relating to
the election of the directors of the Company; or
(iii) the stockholders of the Company approve (A) a
reorganization, merger or consolidation, in each case, with respect to which all
or substantially all of the persons who were the respective beneficial owners of
the Common Stock and the Voting Securities immediately prior to such
reorganization, merger or consolidation do not, following such reorganization,
merger or consolidation, beneficially own, directly or indirectly, more than 50%
of, respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such reorganization, merger or consolidation or (B) a complete
liquidation or dissolution of the Company or of the sale or other disposition of
all or substantially all of the assets of the Company.
12. Disability of the Executive. In the event that the
Executive during the period while employed under this Agreement shall at any
time become unable, due to ill-health, accident, injury or other disability, to
carry out his duties under this Agreement with reasonable accommodation provided
by the Company, the Company, upon a lump-sum payment to the Executive equal to
the Executive's then-current annual salary, may terminate this Agreement and be
relieved of all further obligations hereunder. Termination of employment under
this Section 12 shall not terminate the Executive's obligations under Sections
7, 8 or 13.
<PAGE>
13. Non-Competition. The Executive hereby agrees that for a
period of one year following the termination for any reason of his employment
under this Agreement, he will not, directly or indirectly, engage in any
business involving (a) the development, production or sale of Calcitonin
products or (b) the development, production or sale of amidated peptides
anywhere in the world. The Executive agrees that the provisions of this Section
13 are necessary and reasonable to protect the Company in the conduct of its
business. If any restriction contained in this Section 13 shall be deemed to be
invalid or unenforceable by reason of the extent, duration of geographic scope
thereof, then the Company shall have the right to reduce such extent, duration,
geographic scope or other provisions thereof, and in their reduced form such
restrictions shall then be enforceable in the manner contemplated hereby.
14. Capacity. The Executive represents and warrants to the
Company that he is not now under any obligation, of a contractual nature or
otherwise, to any person, firm, corporation, association or other entity that is
inconsistent or in conflict with this Agreement or which would prevent, limit or
impair in any way the performance by him of his obligations hereunder.
15. Waiver. No act, delay, omission or course of dealing on
the part of any party hereto in exercising any right, power or remedy hereunder
shall operate as, or be construed as, a waiver thereof or otherwise prejudice
such party's rights, powers and remedies under this Agreement.
16. Arbitration. The Executive agrees to submit to binding
arbitration all claims arising out of his employment with the Company and/or
this Agreement, including all claims under federal law (including but not
limited to Title VII of the Civil Rights Act of 1967) as well as all claims
under state law (including but not limited to claims under the New Jersey Law
Against Discrimination). This arbitration shall take place in New Jersey, under
the then prevailing rules of the American Arbitration Association.
17. Assignability. The rights and obligations contained herein
shall be binding on and inure to the benefit of the successors and assigns of
the Company. The Executive may not assign his rights or obligations hereunder
without the express written consent of the Company.
18. Completeness. This Agreement sets forth all, and is
intended by each party to be an integration of all, of the promises, agreements
and understandings between the parties hereto with respect to the subject matter
hereof.
19. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original, and all of which
together shall constitute one agreement binding on the parties hereto.
20. Severability. Each provision of this Agreement shall be
considered severable and if for any reason any provision that is not essential
to the effectuation of the basic purpose of the Agreement is determined to be
invalid or contrary to any existing or future law, such provision shall be
deemed to be omitted from this Agreement and such invalidity shall not impair
the operation of or affect those provisions of this Agreement that are valid.
21. Headings. Headings contained in this Agreement are
inserted for reference and convenience only and in no way define, limit, extend
or describe the scope of this Agreement or the meaning or construction of any of
the provisions hereof.
<PAGE>
22. Survival of Terms. If this Agreement is terminated for any
reason, the provisions of Sections 7, 8 and 13 shall survive, and the Executive
and the Company, as the case may be, shall continue to be bound by the terms
thereof to the extent provided therein.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement to day and year first above written.
UNIGENE LABORATORIES, INC.
/s/Ronald Levy By: /s/Warren P. Levy
- - - --------------- ------------------
Ronald Levy Warren P. Levy
President and Chief
Executive Officer
Exhibit 10.8
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT, dated as of January 1, 2000 (the
"Effective Date"), is entered into by and between Unigene Laboratories, Inc., a
Delaware corporation having offices at 110 Little Falls Road, Fairfield, N.J.
07004 (the "Company"), and Jay Levy, whose address is 110 Little Falls Road,
Fairfield, NJ 0004 (the "Executive").
WITNESSETH:
----------
WHEREAS, the Company desires to employ the Executive and to
enter into this Agreement embodying the terms of such employment; and
WHEREAS, the Executive desires to enter into this Agreement
and to accept such employment, subject to the terms and provisions of this
Agreement;
NOW, THEREFORE, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. Engagement. The Company hereby employs the Executive as its
Treasurer, and the Executive hereby accepts such employment, on the terms and
conditions hereinafter set forth.
2. Term. This Agreement is for an initial term of one year
commencing on the date hereof, subject to earlier termination as provided for
herein. This Agreement will be automatically renewed annually after its initial
term for an additional one-year term, and on a year-to-year basis thereafter,
unless either party notifies the other of the desire not to so renew the
Agreement no later than three months prior to scheduled termination date.
3. Duties. During the term of this Agreement, the Executive
shall serve as the Company's Treasurer and shall have such duties and
responsibilities as are set forth in the Company's Bylaws and such other
executive responsibilities as may be assigned to him from time to time by the
Board of Directors or the Chief Executive Officer. The Executive shall use his
best efforts to perform, and shall act in good faith in performing, all duties
required to be performed by him under this Agreement.
4. Availability. The Executive shall devote approximately 15%
of his entire working time, attention and energies to the Company's business
and, during the term of this Agreement, shall not be engaged in any other
business activity that would interfere with the performance of his duties to the
Company without the express written approval of the Board of Directors.
5. Business Expenses. The Company shall reimburse the
Executive, promptly upon presentation of itemized vouchers, for all ordinary and
necessary business expenses incurred by the Executive in the performance of his
duties hereunder.
6. Compensation. As compensation for the services to be
rendered hereunder, the Company agrees as follows:
(a) to pay the Executive an annual salary of $20,000 during
the initial year of this Agreement;
<PAGE>
(b) if the Agreement is renewed automatically for subsequent
years in accordance with Section (2) above, to provide the Executive with an
annual salary approved by the Compensation Committee, and which shall not be
less than the Executive's annual salary for the preceding year;
(c) to participate in such employee benefit plans as are made
available by the Company to its employees generally.
The Executive acknowledges that salary and all other
compensation payable under this Agreement shall be subject to withholding for
income and other applicable taxes to the extent required by law.
7. Ownership of Intellectual Property. All rights, title and
interest of every kind and nature whatsoever in and to discoveries, inventions,
improvements, patents (and applications therefor), copyrights, ideas, know-how,
notes, creations, properties and all other proprietary rights arising from, or
in any way related to, the Executive's employment hereunder shall become and
remain the exclusive property of the Company, and the Executive shall have no
interest therein.
8. Trade Secrets. The Executive covenants and agrees with the
Company that he will not, during the term of this Agreement or thereafter,
disclose to anyone (except to the extent reasonably necessary for the Executive
to perform his duties hereunder or as may be required by law) any confidential
information concerning the business or affairs of the Company (or of any
affiliate or subsidiary of the Company), including but not limited to lists of
customers, business plans, financial or cost information, and confidential
scientific and clinical information (whether of the Company or entrusted to the
Company by a third party under a confidentiality agreement or understanding),
which the Executive shall have acquired in the course of, or incident to, the
performance of his duties pursuant to the terms of this Agreement or pursuant to
his prior employment by the Company (or any affiliate or subsidiary of the
Company). In the event of a breach or threatened breach by the Executive of the
provisions of this Section 8, the Company shall be entitled to an injunction
restraining the Executive from disclosing, in whole or in part, such information
or from rendering any services to any person, firm, corporation, association or
other entity to whom such information has been disclosed or is threatened to be
disclosed. Nothing herein shall be construed as prohibiting the Company from
pursuing any other remedies available to the Company for such breach or
threatened breach, including the recovery of damages from the Executive. Nothing
herein shall be construed as prohibiting the Executive from disclosing to anyone
any information which is, or which becomes, available to the public (other than
by reason of a violation of this Section 8) or which is a matter of general
business knowledge or experience.
9. Termination For Cause. The Company may terminate the
employment of the Executive for cause in the event that the Board of Directors
determines that the Executive has engaged in (a) any willful or unlawful act
that causes material injury to the Company; or (b) any criminal act that
adversely affects the ability of the executive to perform effectively his duties
under this Agreement. If the employment of the Executive under this Agreement is
terminated under this Section 9, the Company shall be relieved of all further
obligations under this Agreement, except for the payment of accrued salary and
reimbursement under Section 5 for reimbursable expenses incurred prior to
termination. Notwithstanding such termination of employment, the Executive shall
continue to be bound by the provisions in Sections 7, 8, and 13. If the
Executive's employment is terminated pursuant to this Section 9, the Company
shall provide to the Executive a statement in reasonable detail of the Company's
reasons for such termination.
<PAGE>
10. Termination Without Cause. The Company may terminate the
employment of the Executive without cause, subject to compliance with this
Section 10.
(a) In the event the Executive's employment is terminated
without cause, the Executive shall be entitled to:
(1) a severance payment consisting of a lump-sum payment equal
to the executive's then-current annual salary;
(2) a payment in cash equivalent to the cash value of all
accrued vacation days; and
(b) Termination of employment under this Section 10 shall not
terminate the Executive's obligations under Sections 7, 8 or 13.
11. Resignation by the Executive for Good Reason.
(a) The Executive may resign for good reason if one or both of
the following occur:
(1) a Change of Control at Unigene (as defined in paragraph
(d) below); or
(2) a material diminution in the Executive's responsibilities
without the Executive's consent.
(b) In the event that the Executive resigns for good reason,
the Executive shall be entitled to:
(1) a severance payment consisting of a lump-sum payment equal
to the executive's then-current annual salary;
(2) a payment in cash equal to the cash value of all accrued
vacation days; and
(c) Termination of employment under this Section 10 shall not
terminate the Executive's obligations under Sections 7, 8 or 13.
(d) For the purpose of this Agreement, a "Change of Control"
shall have occurred if:
(i) any individual, entity or group (within the meaning of
Section 13(d)(3) or Section 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) acquires beneficial ownership (within the meaning
of Rule l3d-3 promulgated under the Exchange Act) of more than 50% of either (A)
the then outstanding shares of Common Stock or (B) the combined voting power of
the then outstanding voting securities of the Company entitled to vote generally
in the election of directors (the "Voting Securities"); provided, however, that
any acquisition by the Company, by any employee benefit plan (or related trust)
of the Company, or by any corporation with respect to which, following such
acquisition, more than 50% of, respectively, the then outstanding shares of
common stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote generally in
<PAGE>
the election of directors is then beneficially owned, directly or indirectly, by
all or substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Common Stock and Voting Securities immediately
prior to such acquisition in substantially the same proportion as their
ownership, immediately prior to such acquisition, of the Common Stock and Voting
Securities, as the case may be, shall not constitute a Change of Control;
(ii) individuals who, as of the Effective Date, constitute
the Board of Directors (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board of Directors, provided that any
individual becoming a director subsequent to the Effective Date whose election
was approved by a vote of at least a majority of the directors then comprising
the Incumbent Board shall be deemed a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office is in settlement of an actual or threatened election contest relating to
the election of the directors of the Company; or
(iii) the stockholders of the Company approve (A) a
reorganization, merger or consolidation, in each case, with respect to which all
or substantially all of the persons who were the respective beneficial owners of
the Common Stock and the Voting Securities immediately prior to such
reorganization, merger or consolidation do not, following such reorganization,
merger or consolidation, beneficially own, directly or indirectly, more than 50%
of, respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such reorganization, merger or consolidation or (B) a complete
liquidation or dissolution of the Company or of the sale or other disposition of
all or substantially all of the assets of the Company.
12. Disability of the Executive. In the event that the
Executive during the period while employed under this Agreement shall at any
time become unable, due to ill-health, accident, injury or other disability, to
carry out his duties under this Agreement with reasonable accommodation provided
by the Company, the Company, upon a lump-sum payment to the Executive equal to
the Executive's then-current annual salary, may terminate this Agreement and be
relieved of all further obligations hereunder. Termination of employment under
this Section 12 shall not terminate the Executive's obligations under Sections
7, 8 or 13.
13. Non-Competition. The Executive hereby agrees that for a
period of one year following the termination for any reason of his employment
under this Agreement, he will not, directly or indirectly, engage in any
business involving (a) the development, production or sale of Calcitonin
products or (b) the development, production or sale of amidated peptides
anywhere in the world. The Executive agrees that the provisions of this Section
13 are necessary and reasonable to protect the Company in the conduct of its
business. If any restriction contained in this Section 13 shall be deemed to be
invalid or unenforceable by reason of the extent, duration of geographic scope
thereof, then the Company shall have the right to reduce such extent, duration,
geographic scope or other provisions thereof, and in their reduced form such
restrictions shall then be enforceable in the manner contemplated hereby.
14. Capacity. The Executive represents and warrants to the
Company that he is not now under any obligation, of a contractual nature or
otherwise, to any person, firm, corporation, association or other entity that is
inconsistent or in conflict with this Agreement or which would prevent, limit or
impair in any way the performance by him of his obligations hereunder.
<PAGE>
15. Waiver. No act, delay, omission or course of dealing on
the part of any party hereto in exercising any right, power or remedy hereunder
shall operate as, or be construed as, a waiver thereof or otherwise prejudice
such party's rights, powers and remedies under this Agreement.
16. Arbitration. The Executive agrees to submit to binding
arbitration all claims arising out of his employment with the Company and/or
this Agreement, including all claims under federal law (including but not
limited to Title VII of the Civil Rights Act of 1967) as well as all claims
under state law (including but not limited to claims under the New Jersey Law
Against Discrimination). This arbitration shall take place in New Jersey, under
the then prevailing rules of the American Arbitration Association.
17. Assignability. The rights and obligations contained herein
shall be binding on and inure to the benefit of the successors and assigns of
the Company. The Executive may not assign his rights or obligations hereunder
without the express written consent of the Company.
18. Completeness. This Agreement sets forth all, and is
intended by each party to be an integration of all, of the promises, agreements
and understandings between the parties hereto with respect to the subject matter
hereof.
19. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original, and all of which
together shall constitute one agreement binding on the parties hereto.
20. Severability. Each provision of this Agreement shall be
considered severable and if for any reason any provision that is not essential
to the effectuation of the basic purpose of the Agreement is determined to be
invalid or contrary to any existing or future law, such provision shall be
deemed to be omitted from this Agreement and such invalidity shall not impair
the operation of or affect those provisions of this Agreement that are valid.
21. Headings. Headings contained in this Agreement are
inserted for reference and convenience only and in no way define, limit, extend
or describe the scope of this Agreement or the meaning or construction of any of
the provisions hereof.
22. Survival of Terms. If this Agreement is terminated for any
reason, the provisions of Sections 7, 8 and 13 shall survive, and the Executive
and the Company, as the case may be, shall continue to be bound by the terms
thereof to the extent provided therein.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement to day and year first above written.
UNIGENE LABORATORIES, INC.
/s/Jay Levy By: /s/Warren P. Levy
- - - --------------- ------------------
Jay Levy Warren P. Levy
President and Chief
Executive Officer
Exhibit 23
Independent Auditors' Consent
The Board of Directors
Unigene Laboratories, Inc:
We consent to incorporation by reference in registration statements (Nos.
333-04557, 333-18079, 333-43439 and 333-63245) on Form S-3 and registration
statements (Nos. 33-18890, 333-01897 and 333-35951) on Form S-8 of Unigene
Laboratories, Inc. of our report dated March 17, 2000 relating to the balance
sheets of Unigene Laboratories, Inc. as of December 31, 1999 and 1998 and the
related statements of operations, stockholders' equity, and cash flows for each
of the years in the three-year period ended December 31, 1999, which report
appears in the December 31, 1999 annual report on Form 10-K of Unigene
Laboratories, Inc. Our report dated March 17, 2000, contains an explanatory
paragraph that states that the Company has suffered recurring losses from
operations and has a working capital deficiency which raise substantial doubt
about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/S/ KPMG LLP
Short Hills, New Jersey
March 30, 2000
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