<PAGE>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended DECEMBER 31, 1995
OR
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to _____________
Commission file number 0-11727
COOPER DEVELOPMENT COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 94-2876745
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
16160 CAPUTO DRIVE, MORGAN HILL, CA 95037
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 779-8088
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.10 PAR VALUE
(Title of Class)
RIGHTS
(Title of Class)
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. [_]
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 29, 1996:
COMMON STOCK, $.10 PAR VALUE- $2,177,626
Number of shares outstanding of each of the registrant's classes of common
stock, as of the latest practicable date.
Class Outstanding at December 31, 1995
COMMON STOCK, $.10 PAR VALUE 3,629,376
Documents Incorporated by Reference: NONE
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PART I
ITEM 1. BUSINESS
INTRODUCTION
Cooper Development Company (the "Company" or "CDC") is primarily engaged in
the development, manufacture and sale of skin care and cosmetic products under
the Cabot(R), Cabot(R) Vitamin E, Vitamines and Clear Perfection(TM) trademarks.
CDC was a wholly owned subsidiary of Cooper Laboratories, Inc. prior to the
consummation of an initial public offering of its common stock in August 1983.
Pursuant to a plan of liquidation, Cooper Laboratories, Inc. distributed its
shares of the Company's common stock to its stockholders in June 1985. CDC is a
Delaware corporation and was incorporated in April 1980. On December 20, 1994,
the Board of Directors approved a change in fiscal year-end from October 31 to
December 31.
BUSINESS OPERATIONS
Skin Care and Cosmetics
CDC, through its wholly owned subsidiary Cabot Laboratories, Inc.
("Cabot"), develops, manufactures and sells skin care and cosmetic products.
Cabot's products are sold directly to drug chains and mass volume retailers by
its own regional key account managers in the United States and to exclusive
distributors outside the United States.
The Cabot Vitmain E skin care line was one of the first to introduce
Vitamin E to its products. Today Cabot offers the most extensive line of Vitamin
E skin care products in the industry. Use of Vitamin E on the skin is of
increasing interest because ongoing medical and academic studies continue to
support fortifying the upper layers of the skin with Vitamin E. Vitamin E
continues to be used topically to help neutralize free radicals formed in the
environment by sunlight which are believed by many to be a major cause of
premature aging.
Avalon(R), a revolutionary new oatmeal fraction has been incorporated
into a new line of skin care products by Cabot. The Avalon line will include
anti-itch bath soaks and body sprays; and sensitive skin cleansing bars and body
washes. Avalon will compliment Cabot's Seban(R) Solution which controls the
secretion of facial oil "all day".
Cabot is the leader in the sales of single use pacs. The Cabot Vitamin E
skin care pac line includes Anti-Stress face pacs, bath soaks, and foot pacs as
well as a line of hair care pacs. Cabot recently acquired the trademark
Nature(R). Cabot has developed a revolutionary new line of protective peeling
facials which it will commercialize under the Nature trademark. These new pacs
are formulated with natural fruit ingredients shown to be beneficial to the
skin. Also included under the Nature trademark will be Cabot's Homeopathic
Sports Pacs, Marine Therapy Bath Pacs, and Hair Botanicals Pacs.
Cabot also markets Cabot(R) Clear Perfection(R) Corrective Cosmetics.
Cabot is the leading distributor of corrective cosmetics in the chain drug and
mass volume retail channels of trade. Clear Perfection products are enriched
with Vitamin E and designed to cover up blemishes and scars. Cabot recently
introduced its Tools of the Trade(TM) collection under the Clear Perfection
trademark. This new collection enhances the serious nature of the line by
providing serious contouring and spot coverage products. The products in this
collection are in attractive compacts and pencil forms to appeal to today's
user. Other product forms include Corrective Cover Cream, Retouch Concealer,
Cover Stick, Finishing Powder, Cover Cream Light cream to powder make-up in a
mirrored compact, and Total Cover Liquid Make-up full coverage liquid with AHA.
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Cabot employed 42 full time and 28 full time temporary employees at
December 31, 1995, at its new Morgan Hill, California facility. Cabot completed
the move from its Central Islip, New York facilities to Morgan Hill, California
in November, 1995.
CDC also develops skin care products through its wholly owned subsidiary
Cooper Cosmetics, S.A. ("CCSA"), a Swiss corporation. CCSA develops skin care
products which it licenses to independent licensees principally in Europe under
the Tokalon(R) trademark.
Antiviral and other
CDC, through its wholly owned distributor, Difa Cooper ("DIFA"),
manufactures and sells an antiviral product under an exclusive worldwide license
to distributors outside the United States under various trademarks. Under the
terms of the license, CDC pays a 5% royalty on sales of its antiviral product
for use in the treatment of herpes zoster and tabes dorsalis and a 1.5% royalty
for all other uses. This product line is subject to government regulation and
control in each country in which it is sold. These products may also be subject
to price controls and reimbursement limitations. Difa Cooper also distributes
skin care products, including a line of products developed by a dermatologist
which are sold under the Cosmeteci Magistrali(TM) trademark. DIFA was a
distributor for Revo sunglasses until the distribution agreement expired in
December 1995. See Note 14 of Notes to Consolidated Financial Statements in Item
8.
RECENT DEVELOPMENTS
During 1995, plans were developed to reduce costs of goods and improve
productivity. This restructuring involves consolidation of all offices and
manufacturing facilities into one leased facility in Morgan Hill, California,
and the resultant relocations, separations, and related costs. The consolidated
statement of operations includes $1,395,000 of pretax charges relating to this
program. Included in this amount is $810,000 for the severance costs of 71
employees working in manufacturing, distribution and administration at the
Company's Islip New York facilites and $585,000 related to facility leases,
closedown costs, and asset retirements. The closing of the Islip facilities was
completed by December 31, 1995. The Company is currently negotiating to
sublease its offices in New York City. The Company has paid $475,000 for its
restructuring program in 1995 and expects such payments to be completed by the
end of the second quarter in 1996.
On November 10, 1995 the Company entered into a Note and Warrant Purchase
Agreement (the "Purchase Agreement") with Parker G. Montgomery, the Company's
President and Chairman of the Board of Directors, and Theodore H. Kruttschnitt,
a member of the Company's Board of Directors. The Purchase Agreement provides
for the establishment of a $4,000,000 line of credit in favor of the Company.
The line of credit can be drawn down by the Company in $500,000 increments.
Amounts drawn down will be due on December 31, 2000 and bear interest at the
rate of 12% per annum. As consideration for the establishment of the line of
credit, the Company issued warrants to each of the lenders to purchase 500,000
shares of Common Stock of the Company. In addition, for each $1,000 borrowed by
the Company from a lender under the line of credit, the Company agreed to issue
to such lender warrants to purchase an additional 250 shares of Common Stock.
The exercise price of the warrants is $2.50 per share. The line of credit is an
unsecured obligation.
The transactions covered by the Purchase Agreement were negotiated and
approved by a Special Committee of the Board of Directors of the Company, with
the assistance of an independent investment banker and independent legal
counsel. The Company has used amounts drawn under the lines of credit to repay
existing accounts payable and for working capital. As of February 5, 1996, the
Company had drawn $4,000,000 under the line of credit and had issued warrants to
purchase 1,000,000 shares of its Common Stock to each of Mr. Montgomery and Mr.
Kruttschnitt.
On March 29, 1996 Mr. Montgomery advanced the Company $500,000. The advance
is unsecured and bears interest at 12% per annum.
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GENERAL INFORMATION REGARDING CDC'S BUSINESS
Research and Development
For the twelve months ended December 31, 1995, two months ended December
31, 1994, and twelve months ended October 31, 1994 and 1993 research and
development expenditures were $718,000, $153,000, $729,000 and $467,000,
respectively.
Raw Materials
In general, raw materials required by CDC are obtainable from various
sources and in the quantities desired.
Government Regulation
CDC's present and future operations, particularly with respect to certain
of its longer range goals, may be subject to regulation under the Occupational
Safety and Health Act, National Environmental Policy Act, Resource Conservation
and Recovery Act, Toxic Substances Control Act and other present or possible
future legislation or regulations. During 1994, the Italian health authorities
revised the register of pharmaceutical products resulting in the
reclassification of the Company's antiviral product from the completely
reimbursable category to a category that requires the customer to pay full price
for the product. This change may have an adverse effect on sales of the
Company's antiviral product. CDC believes, however, that except with respect to
regulation of its antiviral product by foreign governmental agencies, applicable
government regulations would not materially impair CDC's ability to sell its
products.
Competition
Each of CDC's business segments operates within a highly competitive
environment, especially in regard to the employment and retention of
professional and technical personnel. Many of CDC's present and potential
competitors have substantially greater financial resources, more personnel
devoted to research and selling, and greater sales volume.
Cabot competes in the skin care market through the uniqueness of its
product formulations and their ingredient orientation, the quality of its
products and their presentations to its customers and competitive pricing. Cabot
offers a line of skin care and cosmetic products incorporating Vitamin E. In
addition, Cabot markets a line of ingredient oriented and positioned unit dose
pacs which includes hair pacs and Anti-Stress face, bath, and foot pacs and the
Clear Perfection(TM) line of cover-up, problem/solution cosmetics. Cabot
recently expanded its line of unit-dose pacs to include Hair Botanicals, Marine
Therapy Bath Pacs, and Homeopathic Sports Pacs. Cabot competes in the skin care
and cosmetics market with manufacturers such as Proctor & Gamble, Avon, Estee
Lauder, Revlon, L'Oreal, Johnson & Johnson, Unilever, Maybelline, Del
Laboratories, Saint Ives, and Freeman Cosmetics.
Compliance with Environmental Laws
Federal, state and local provisions regulating the discharge of materials
into the environment, or otherwise relating to the protection of the
environment, do not currently have a material effect upon CDC's capital
expenditures, earnings or competitive position. CDC, however, was named in a
complaint asserting claims under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA" or "Superfund").
CDC has incurred expenses in connection with the environmental cleanup of
one of its former properties sold in 1986 to Cooper Technicon, Inc., a former
subsidiary of CDC. CDC has also reserved for future expenses (including an
additional $855,000 in 1995). In connection with this clean-up CDC has also
initiated legal action to obtain reimbursement for these expenses from
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its insurers; however, it is not possible to predict the outcome of these
efforts. See Note 9 of Notes to Consolidated Financial Statements in Item 8.
In August 1991, the U.S. Environmental Protection Agency sent CDC a General
Notice Letter under CERCLA notifying CDC that it may be one of several
Potentially Responsible Parties (individually, a "PRP") in connection with the
Frontera Creek waste site, Humacao, Puerto Rico. Potential liability is asserted
against CDC only as a parent corporation of a site owner; no liability is
asserted for operating the facility or discharging hazardous materials. Revlon,
Inc. is the principal PRP and has been undertaking the performance of the site
investigation. Pursuant to a May 1986 Agreement for the Purchase and Sale of
Technicon Corporation, CDC is fully indemnified by Revlon for all costs,
liability and expense arising out of the Frontera Creek Site.
On or about October 1, 1992, a Consent Decree was entered which fully
settles and resolves all liability in this matter. The Consent Decree obligates
the signatories to perform the remediation of the site and in return provides a
covenant not to sue and statutory contribution protection for all signatories.
Revlon, CDC and others are signatories to the Consent Decree. CDC is fully
indemnified by Revlon for all obligations arising from the Consent Decree and in
this regard Revlon is performing fully all obligations required under the
Consent Decree. Thus, no action from CDC under the Consent Decree will be
required.
Employees
CDC employed 98 people, of whom 65 were full time employees, 5 were part
time employees, and 28 were full time temporary employees at December 31, 1995.
CDC employees are provided with insurance and welfare benefits comparable to
those provided by CDC's competitors. CDC believes that its employee relations
are good.
Financial Information About Segments, Geographic Areas, Foreign and
Domestic Operations and Export Sales
See Note 11 of Notes to Consolidated Financial Statements in Item 8.
ITEM 2. PROPERTIES
The following are the principal leased facilities of CDC:
<TABLE>
<CAPTION>
APPROX. APPROX.
FLOOR AREA ANNUAL EXPIRATION
LOCATION PRINCIPAL OPERATIONS (SQ. FT.) RENT DATE
-------- -------------------- -------- ---- ----
<S> <C> <C> <C> <C>
Morgan Hill, CA Offices, Assembly, 45,650 $219,600 July 1997
Distribution and Research
and Development
New York, NY Offices 7,670 $270,000 November 2003
</TABLE>
CDC also owns its facilities in Italy, leases its facilities in Switzerland
and is currently negotiating to sublease its offices in New York City (see Note
4 of Notes to Consolidated Financial Statements in Item 8).
CDC believes that its offices, plants and facilities are well maintained
and generally adequate for its present needs and their intended uses.
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ITEM 3. LEGAL PROCEEDINGS
During 1995, CDC settled numerous legal actions in which it was a
defendant, including those described below. During 1995, CDC continued to be
involved in a group of product liability actions as described below. In the
opinion of management, after consultation with legal counsel, the disposition of
such actions will not materially affect CDC's financial position or results of
operations.
Avanza Corp.
The Company purchased options to acquire in excess of 51% of the
outstanding shares, on a fully diluted basis, of Avanza Corp. ("Avanza"), a
privately-held California corporation engaged primarily in the development,
manufacture and distribution of cosmetics and beauty aids. The options
contemplated a purchase price of $2.04 per share, based on various factors,
including an aggregate purchase price of $5,000,000 for all of the Avanza shares
issued, on a fully diluted basis, prior to May 1994. The Company paid
approximately $462,400 ($.30 per share) for the options, which payment was to be
credited against the purchase price paid for the shares, if the options were
exercised. As of October 31, 1994, the Company had exercised options covering an
aggregate of 99,375 shares.
On August 15, 1994, in the Superior Court of the State of California for
the County of San Bernardino, certain of the Avanza shareholders who granted
options to the Company for the purchase of their shares filed a lawsuit against
Avanza and each of its directors alleging, among other things, breach of
fiduciary duty. The primary actions of the Avanza directors which were the
subject of the lawsuit were the purported issuances to certain directors,
officers, employees and a supplier of Avanza, at $0.97 per share, of 1,096,287
shares of Avanza stock in May and July 1994. Such issuances, if valid, would
have resulted in substantial dilution to the pre-existing Avanza shareholders
and would have substantially reduced the percentage of Avanza shares subject to
the options referred to above, thereby effectively preventing the Company from
obtaining a controlling interest in Avanza.
In addition to seeking monetary damages, the plaintiffs demanded that
Avanza and its directors be enjoined from issuing additional Avanza securities
or any rights to acquire the same. The plaintiffs also sought to have the Court
impose a constructive trust with respect to a majority of the shares purportedly
issued in May and July 1994, with such defendants and Avanza's corporate
secretary to be enjoined from taking any action with respect to any of the
Avanza shares placed in the constructive trust.
On August 25, 1994, the Company, an Avanza shareholder who assisted the
Company in obtaining the Avanza options, and that shareholder's employer were
named as defendants in a related lawsuit brought by Avanza in the United States
District Court for the Central District of California alleging violation of
Section 14(e) of the Williams Act, breach of contract and various related
claims. In addition to seeking monetary damages, the plaintiff demanded that the
Company be enjoined from exercising the options granted to it by the Avanza
shareholders. On August 30, 1994, the Court denied Avanza's request to enjoin
the exercise of the options by the Company. Thereafter, this case was dismissed
at Avanza's request.
On September 29, 1994, Avanza filed a cross-complaint against the Company
and others in the lawsuit pending in the San Bernardino County Superior Court
referred to above. The cross-complaint sought to recover unspecified damages for
breach of contract, interference with contract and unfair competition, and
sought to enjoin the Company from exercising the options granted to it by the
Avanza shareholders.
On November 22, 1995, the Company entered into an Agreement of Settlement
and General Release (the "Settlement Agreement") with Avanza and numerous other
parties which resolved all disputes relating to the Company's efforts to acquire
Avanza. Under the terms of the Settlement Agreement, the lawsuits filed in San
Bernadino County Superior Court Holmes v. Avanza Corp., et
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al and Cooper Development Company v. Bomatic, Inc. et al. were dismissed, Avanza
purchased 99,375 shares of Avanza Common Stock from the Company for $69,562.50,
and Avanza paid $100,000 to the Company. In addition, Avanza transferred
ownership of the "Nature" trademark in the United States and Canada to the
Company and entered into a manufacturing and supply agreement with the Company
to provide products sold under the "Nature" name through December 31, 1996.
Berlex
In June 1988, Berlex Laboratories, Inc. ("Berlex") filed a number of
related actions in the Superior Court of New Jersey, the United States District
Court for the District of New Jersey, the United States District Court for the
District of Delaware, the United States District Court for the District of
Massachusetts, and the United States District Court for the District of the
Virgin Islands. Defendants in those actions are Cooper Holdings, Inc., CDC, The
Cooper Companies, Inc. ("TCC"), Cooper Life Sciences, Inc. ("CLS"), The First
National Bank of Boston (the "Trustee"), solely in its capacity as Trustee to
the Cooper Laboratories, Inc. Liquidating Trust (the "Trust"), Parker G.
Montgomery, A. Kenneth Nilsson and Charles Crocker, Dr. Robert Jamplis, The
Estate of Hugh K. Foster, Theodore H. Kruttschnitt, John Doe Directors of Cooper
Holdings, Inc., and other individual and corporate defendants.
By these actions, Berlex sought to force CDC, CLS and TCC, the Trustee and
the various individual defendants to ensure that Berlex would be indemnified, if
the need for indemnification should arise, with regard to Diethylstilbestrol
("DES") claims and environmental problems that could possibly arise at the
Virgin Islands and Cedar Knolls facilities sold to Berlex by Cooper
Laboratories, Inc. ("Labs"), in 1979 along with certain assets of Labs' internal
medicine business.
In November 1991, the parties settled the environmental claims related to
the Cedar Knolls facility. In January 1992, the parties settled all remaining
aspects of the litigation, which included both the DES and Virgin Islands
issues. However, before the terms of the agreement could be effected, the Trust
filed for protection under Chapter 7 of the U.S. Bankruptcy Code, and, as a
result, the January 1992 settlement agreement became void ab initio. However,
the Trust's filing did not affect the November 1991 agreement. In August 1995,
the U.S. Bankruptcy Court for the District of Delaware approved a settlement
agreement pursuant to which all actions initiated by Berlex were withdrawn with
prejudice. The settlement agreement did not require a financial contribution by
the Company.
DES Litigation
CDC is involved in a group of product liability actions relating to DES for
which CDC is indemnifying its former parent, Labs, since its liquidation in
1985. Actions are currently pending in state and federal courts in several
states. The plaintiffs in these actions are suing alleged predecessors of Labs
and, in most cases, numerous other defendants for alleged injuries resulting
from the ingestion of DES during pregnancy. The plaintiffs in substantially all
of these cases are unable to specifically identify the manufacturer of the DES
ingested and assert claims against many manufacturers of DES based on various
concert of action or market share theories of liability. Labs' potential
exposure in the majority of individual cases is generally quite low since the
combined market share of the manufacturers for whom Labs may have assumed
liability is approximately 1-4%. There is one case where specific identification
may render market share liability inapplicable. The ultimate exposure in this
case is undetermined at this time.
A majority of the DES claims and cases have been resolved and the Company
expects to resolve the remainder during 1996. Since the Trust filed for
protection under Chapter 7 of the U.S. Bankruptcy Code, in June 1992, all
remaining DES actions were stayed against the Trust pursuant to the automatic
stay provision of the U.S. Bankruptcy Code. The Company has been advised that
bankruptcy proceedings filed by the Trust is expected to be resolved in 1996
which should
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eliminate all pending claims and lawsuits against Labs. In a concurrent order,
the Trust will also be dissolved. The Company continuously evaluates its
exposure from DES claims in relation to unsettled cases and claim settlements
and believes that the estimated liability for claims recorded in its financial
statements as of December 31, 1995 is sufficient to satisfy its claim
obligations. The Company also initiated legal action to obtain reimbursement
from insurers and received approximately $448,000 from such insurers in 1995.
The Company expects to receive an additional $1,200,000 from such insurers in
1996. See Note 9 of Notes to Consolidated Financial Statements in Item 8.
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 Company's fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded in the OTC Bulletin Board. The Company
has not paid cash dividends since the initial public offering of its common
stock in August 1983, and the Company anticipates that for the foreseeable
future any earnings will be retained for use in its business and no cash
dividends will be paid on its common stock.
At December 31, 1995, there were 5,536 stockholders of record. The other
information called for by this item is set forth in Note 13 of Notes to
Consolidated Financial Statements in Item 8.
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ITEM 6. SELECTED FINANCIAL DATA
FIVE YEAR FINANCIAL HIGHLIGHTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED TWO MONTHS FISCAL YEARS ENDED OCTOBER 31,
DEC 31, ENDED DEC 31, ------------------------------------------
1995 1994 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
SUMMARY OF CONSOLIDATED OPERATIONS
- ----------------------------------
Net sales $ 20,160 $ 3,003 $20,078 $17,937 $16,308 $ 6,217
Cost of sales 11,331 1,397 9,659 7,446 6,559 2,343
-------- ------- ------- ------- ------- -------
Gross profit 8,829 1,606 10,419 10,491 9,749 3,874
Research and development expenses 718 153 729 467 533 327
Selling, general and administrative expenses 17,947 3,204 17,500 15,084 12,000 5,409
Restructuring charges (1) 1,395 -- -- -- -- --
Amortization of intangible assets (2) 400 56 352 274 2,687 2,504
-------- ------- ------- ------- ------- -------
Operating loss (11,631) (1,807) (8,162) (5,334) (5,471) (4,366)
Gain on sale of limited partnership interest (3) -- -- -- -- -- 18,340
Interest income 179 77 550 53 223 576
Interest expense (359) (42) (333) (262) (76) (87)
Other income (expense), net (4) 344 (30) (1,293) (459) (60) (1,245)
-------- ------- ------- ------- ------- -------
Income (loss) from continuing operations before
income taxes and extraordinary item (11,467) (1,802) (9,238) (6,002) (5,384) 13,218
Provision for income tax benefit (expense) (272) (89) 1,015 (65) (86) (6,523)
-------- ------- ------- ------- ------- -------
Income (loss) from continuing operations before
extraordinary item (11,739) (1,891) (8,223) (6,067) (5,470) 6,695
Discontinued operations (5):
Loss from operations (net of tax benefits
of $695 in fiscal 1994) -- -- (1,000) (1,023) (199) (1,236)
Gain on sale of operations (net of taxes of
$1,935 in fiscal 1994) -- -- 16,850 -- -- --
-------- ------- ------- ------- ------- -------
Income (loss) from discontinued operations -- -- 15,850 (1,023) (199) (1,236)
Extraordinary item (6) -- -- -- -- -- 4,365
-------- ------- ------- ------- ------- -------
Net income (loss) $(11,739) $(1,891) $ 7,627 $(7,090) $(5,669) $ 9,824
======== ======= ======= ======= ======= =======
Net income (loss) per share before extraordinary
item - primary:
Continuing operations $ (3.23) $ (0.52) $ (2.27) $ (2.00) $ (2.26) $ 2.19
Discontinued operations -- -- 4.37 (.34) (.08) (.40)
Extraordinary item (6) -- -- -- -- -- 1.42
-------- ------- ------- ------- ------- -------
Net income (loss) per share - primary $ (3.23) $ (0.52) $ 2.10 $ (2.34) $ (2.34) $ 3.21
======== ======= ======= ======= ======= =======
Net income (loss) per share before extraordinary
item - fully diluted:
Continuing operations $ (3.23) $ (0.52) $ (1.57) $ (2.00) $ (2.26) $ 2.19
Discontinued operations -- -- 3.12 (.34) (.08) (.40)
Extraordinary item (6) -- -- -- -- -- 1.42
-------- ------- ------- ------- ------- -------
Net income (loss) per share - fully diluted $ (3.23) $ (0.52) $ 1.55 $ (2.34) $ (2.34) $ 3.21
======== ======= ======= ======= ======= =======
Average number of shares outstanding - 3,629 3,629 3,629 3,033 2,420 3,058
======== ======= ======= ======= ======= =======
primary
Average number of shares outstanding - 3,629 3,629 5,086 3,033 2,420 3,058
======== ======= ======= ======= ======= =======
fully diluted
</TABLE>
___________________________
See page 10 for explanatory notes.
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FIVE YEAR FINANCIAL HIGHLIGHTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
------------------- ------------------------------
SUMMARY OF CONSOLIDATED FINANCIAL POSITION 1995 1994 1994 1993 1992 1991
- ------------------------------------------ ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Current assets $12,732 $20,719 $22,858 $10,486 $10,240 $13,482
Property, plant and equipment, net 3,359 2,808 2,734 1,248 1,099 963
Intangible assets, net 4,448 4,783 4,835 4,982 5,216 8,419
Other assets 530 515 501 308 186 158
Net assets discontinued operations (5) -- -- -- 4,225 4,997 4,524
------- ------- ------- ------- ------- -------
Total assets $21,069 $28,825 $30,928 $21,249 $21,738 $27,546
======= ======= ======= ======= ======= =======
Current liabilities $21,006 $19,789 $19,915 $16,988 $ 7,832 $ 6,772
Other long-term liabilities 4,393 2,195 2,189 3,073 7,515 8,729
------- ------- ------- ------- ------- -------
Total liabilities 25,399 21,984 22,104 20,061 15,347 15,501
Stockholders' equity (7) (4,330) 6,841 8,824 1,188 6,391 12,045
------- ------- ------- ------- ------- -------
Total liabilities and stockholders' equity $21,069 $28,825 $30,928 $21,249 $21,738 $27,546
======= ======= ======= ======= ======= =======
Book value per share (7) $ (1.19) $ 1.89 $ 2.43 $ .33 $ 2.64 $ 4.97
======= ======= ======= ======= ======= =======
</TABLE>
_________________________
(1) In 1995, the Company consolidated several offices and manufacturing
facilities into a newly leased faciltiy in Morgan Hill. The $1,395,000
charge to income includes costs for severance, facility leases and close
down costs.
(2) In fiscal 1992 the periods over which certain intangibles were being
amortized was re-evaluated.
(3) Sale of limited partnership interest to Limited Direct Associates, L.P. for
$18,750,000 resulting in a gain on sale, net of certain expenses, of
$18,340,000 or $6.00 per share.
(4) The year ended December 31, 1995 includes income of $1,142,000 related to
certain litigation and insurance settlements, a gain of $366,000 on the
sale of property and an expense of $855,000 related to a change in
estimated liability for certain environmental clean up costs. Fiscal 1994
includes an expense of $575,000 related to certain litigation and
settlement costs, a reserve of $537,000 for stock and options pertaining to
a potential acquisition and an expense of $206,000 related to a change in
estimated liability for certain environmental clean up costs. Fiscal 1991
includes an expense of $1,222,000 related to a change in the estimated
liability for certain product liability claims. See Notes 9 and 17 of Notes
to Consolidated Financial Statements in Item 8.
1994 1993 1992 1991
(5) Includes net sales from discontinued ---- ---- ---- ----
operations as follows (in thousands): $3,110 $18,462 $15,702 $10,085
See Note 6 of Notes to Consolidated Financial Statements in Item 8.
(6) Reflects utilization of net capital loss carryforwards in 1991.
(7) Fiscal 1993 reflects a net increase of $2,144,000 from the April 1993 sale
of 1,209,792 shares pursuant to the Rights Offering. Fiscal years ended
1994 through 1991 reflects the August 1991 reduction of 837,940 shares of
common stock acquired at a cost of $4,609,000. (Book value per share is
calculated based upon shares outstanding at the end of the year.) See Note
15 of Notes to Consolidated Financial Statements in Item 8.
9
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
On December 20, 1994 the Company elected to change the fiscal year from
October 31 to December 31. The management discussion that follows compares the
twelve months ended December 31, 1995 to the twelve months ended October 31,
1994, therefore the current period results are not directly comparable with
those of the prior period.
On January 28, 1994, the Company sold substantially all of the assets and
the buyer of such assets assumed substantially all of the liabilities of its
subsidiary, Revo, Inc. The results of the Company have been restated so as to
segregate the discontinued operations from continuing operations. The management
discussion that follows pertains to the Company's continuing operations.
1995 Compared with 1994
Net sales for the year ended December 31, 1995 were flat compared to the
sales for the twelve months ended October 31, 1994 as increased sales of the
Company's antiviral product were offset by lower sales of Skin care products.
The gross profit percent to sales decreased eight percentage points as a
percent of net sales over the twelve months ended October 31, 1994 primarily due
to higher inventory reserves and write-offs, higher returns and close out sales
at below standard gross margins.
Selling costs increased $560,000 primarily due to higher consulting and
personnel costs.
Restructuring costs of $1,395,000 reflect the costs of closing down the
Central Islip and Menlo Park facilities. See note 7 of Notes to Consolidated
Financial Statements in Item 8.
Interest income decreased $371,000 due to lower cash reserves available for
short term investments.
Other income (expense), net of $344,000 for the year ended December 31,
1995 includes a gain of $525,000 from a commission for services rendered to
CVI/Beta, a gain of $448,000 for insurance recoveries related to DES claims, and
a gain of $350,000 from the sale of property held by a wholly-owned subsidiary
of the Company. These gains were partially offset by an expense of $855,000
related to a change in estimated liability for certain environmental cleanup
costs, a $268,000 charge related to foreign currency fluctuations, and a
$112,000 write down of an investment in marketable securities. Other income
(expense), net for the year ended October 31, 1994 of ($1,293,000) includes a
one-time expense of $575,000 related to certain litigation and settlement costs,
a reserve of $537,000 for stock and options pertaining to a potential
acquisition and an expense of $206,000 related to a change in estimated
liability for certain environmental clean-up costs. These expenses were
partially offset by a gain of $131,000 related to the sale of substantially all
of the assets of the Bahamas facility, and $194,000 of distribution service fee
revenue.
The management discussion that follows compares the two months ended
December 31, 1994 to the three months ended January 31, 1994, therefore the
current period results are not directly comparable with those of the prior
period.
10
<PAGE>
Two Months Ended December 31, 1994 Compared with Three Months Ended
January 31, 1994
The Company's net sales for the two months ended December 31, 1994
amounted to $3,003,000 compared to net sales of $4,190,000 for the three months
ending January 31, 1994. Gross profit margin was 54% for the two months ended
December 31, 1994 as compared to 58% for the three months ended January 31,
1994. The gross profit margin decrease is attributable to higher returns for
discontinued products.
Selling, general and administrative expenses for the two months ended
December 31, 1994 amounted to $3,204,000 and were comprised of selling costs of
$1,132,000, advertising costs of $409,000 and general and administrative costs
of $1,663,000. Selling, general and administrative expenses for the three
months ended January 31, 1994 amounted to $3,807,000 and were comprised of
selling costs of $1,704,000, advertising costs of $546,000 and general and
adminsitrative costs of $1,557,000.
Interest expense of $42,000 decreased $106,000 for the two months ended
December 31, 1994 over the three months ended January 31, 1994 as average
borrowing levels for the two months ended December 31, 1994 were lower than the
period ending January 31, 1994.
Other income (expense) in the prior year includes $375,000 related to
certain litigation costs accrued in the three months ending January 31, 1994.
1994 Compared with 1993
Net sales for fiscal 1994 increased $2,141,000 over the prior year period.
The increase is primarily due to higher sales of the Company's Italian
subsidiary. These increases were partially offset by lower sales of its
antiviral product.
Gross profit margin on net sales was $10,419,000 or 52% in fiscal 1994 as
compared to $10,491,000 or 58% for fiscal 1993. The gross profit margin decrease
is attributable to increased reserves and returns for certain Cabot products
that were or are to be discontinued.
Selling, general and administrative expenses increased $2,416,000. Such
increases are primarily due to higher selling costs ($822,000), higher
advertising costs ($512,000) and higher general and administrative expenses
($1,082,000).
Interest income increased $497,000 over the prior year as a result of
investments of the proceeds from the sale of Revo.
Interest expense increased $71,000 over the comparable period in 1993 due
to higher average borrowing levels.
Other expense, net for fiscal 1994 increased by $834,000 over the prior
year. Fiscal 1994 includes a reserve of $537,000 for stock and options
pertaining to a potential acquisition, one-time expenses of $575,000 related to
certain litigation and settlement costs, and an expense of $206,000 related to a
change in estimated liability for certain environmental clean-up costs. These
expenses were partially offset by a gain of $131,000 related to the sale of
substantially all of the assets of the Bahamas facility, and $194,000 of
distribution service fee revenue. Other expense, net for fiscal 1993 includes an
expense of $589,000 related to a change in estimated liability for certain
environmental clean-up costs of previously owned property partially offset by a
gain of $250,000 from the sale of the rights to Alpha-1 Antitrypsin.
Inflation and Changing Prices
The Company has not been materially affected by inflation.
11
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY
The Company has experienced operating cash flow deficiencies for a number
of years and has relied upon asset sales and financing from stockholders to fund
liquidity needs. At December 31, 1995, current liabilities exceeded current
assets by $8,274,000 and cash required by continuing operations was $7,786,000
for the year then ended.
On November 10, 1995, the Company entered into a Note and Warrant
Purchase Agreement with Parker G. Montgomery and Theodore H Kruttschnitt. The
agreement provides for the establishment of a $4,000,000 line of credit which
can be drawn down in $500,000 increments. The notes are due on December 31,
2000 and bear interest at the rate of 12% per annum. As consideration for the
establishment of the line, the Company issued warrants to each lender to
purchase 500,000 shares of the Common Stock of the Company. In addition, for
each $1,000 borrowed by the Company from a lender under the line of credit, the
Company agreed to issue to such lender warrants to purchase an additional 250
shares of Common Stock. The exercise price of the warrants price is $2.50 per
share. As of December 31, 1995 the Company had drawn down $2,000,000.
The Company expects a continuing deficiency in cash generated from
operations in 1996. The Company plans to use the cash obtained for the line of
credit described above to fund its short term obligations. In addition, the
Company will continue its efforts to reduce costs and improve operating
efficiencies and may consider selling or licensing certain product lines and may
sell certain assets. The Company may also obtain additional financing from
stockholders, financial institutions or other sources to fund its long term
liquidity and capital expenditure requirements. No assurances can be given that
the Company will obtain financing on terms acceptable to the Company.
During 1995, the Company restructured its operations by consolidating its
Central Islip and Menlo Park facilities to Morgan Hill CA. The Company recorded
a restructuring charge of $1,395,000 and paid $475,000 in 1995 and expects to
pay the balance of the charges by the end of the second quarter in 1996.
12
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
COOPER DEVELOPMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED TWO MONTHS ENDED FISCAL YEARS ENDED
DECEMBER 31, DECEMBER 31, OCTOBER 31,
-------------------
1995 1994 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $ 20,160 $ 3,003 $20,078 $17,937
Cost of Sales 11,331 1,397 9,659 7,446
-------- ------- ------- -------
Gross profit 8,829 1,606 10,419 10,491
-------- ------- ------- -------
Research and development expenses 718 153 729 467
Selling expense 10,715 1,541 10,155 8,821
General and administrative expenses 7,232 1,663 7,345 6,263
Restructuring charges 1,395 -- -- --
Amortization of intangible assets 400 56 352 274
-------- ------- ------- -------
Operating loss (11,631) (1,807) (8,162) (5,334)
Interest income 179 77 550 53
Interest expense (359) (42) (333) (262)
Other income (expense), net 344 (30) (1,293) (459)
-------- ------- ------- -------
Loss from continuing operations
before income taxes (11,467) (1,802) (9,238) (6,002)
Provision for income tax benefit (expense) (272) (89) 1,015 (65)
-------- ------- ------- -------
Loss from continuing operations (11,739) (1,891) (8,223) (6,067)
-------- ------- ------- -------
Discontinued operations:
Loss from operations (net of tax
benefits of $695 in fiscal 1994) -- -- (1,000) (1,023)
Gain on sale of operations (net of taxes
of $1,935 in fiscal 1994) -- -- 16,850 --
-------- ------- ------- -------
Income (loss) from discontinued
operations -- -- 15,850 (1,023)
-------- ------- ------- -------
Net income (loss) $(11,739) $(1,891) $ 7,627 $(7,090)
======== ======= ======= =======
Net income (loss) per share - primary:
Continuing operations $ (3.23) $ (0.52) $ (2.27) $ (2.00)
Discontinued operations -- -- 4.37 (.34)
-------- ------- ------- -------
Net income (loss) per share - primary $ (3.23) $ (0.52) $ 2.10 $ (2.34)
======== ======= ======= =======
Net income (loss) per share -
fully diluted:
Continuing operations $ (3.23) $ (0.52) $ (1.57) $ (2.00)
Discontinued operations -- -- 3.12 (.34)
-------- ------- ------- -------
Net income (loss) per share -
fully diluted $ (3.23) $ (0.52) $ 1.55 $ (2.34)
======== ======= ======= =======
Average number of shares outstanding -
primary 3,629 3,629 3,629 3,033
======== ======= ======= =======
Average number of shares outstanding -
fully diluted 3,629 3,629 5,086 3,033
======== ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
13
<PAGE>
COOPER DEVELOPMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, OCTOBER 31,
------------ ------------ -----------
1995 1994 1994
----- ---- ----
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,780 $ 9,952 $ 12,286
Accounts receivable, net of allowance of $1,948,
$1,092, and $981 at December 31, 1995 and
1994 and October 31, 1994, respectively 4,211 4,139 4,374
Other receivables 302 429 407
Inventories 5,200 6,009 5,482
Prepaid expenses 239 190 309
-------- -------- --------
Total current assets 12,732 20,719 22,858
Property, plant and equipment at cost, net 3,359 2,808 2,734
Intangible assets, net of accumulated amortization of
$1,422, $1,022 and $966 as of December 31, 1995,
1994 and October 31, 1994, respectively:
Trademarks, tradenames and licenses 167 116 112
Excess cost over net assets acquired 4,281 4,667 4,723
Other assets 530 515 501
-------- -------- --------
$ 21,069 $ 28,825 $ 30,928
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ -- $ 1,000 $ 1,000
Notes and advances payable to related parties 2,948 2,948 2,948
Accounts payable 5,853 3,822 3,856
Accrued expenses 5,600 5,633 5,822
Tax liabilities 6,605 6,386 6,289
-------- -------- --------
Total current liabilities 21,006 19,789 19,915
Notes and advances payable to related parties 2,450 -- --
Other long-term liabilities 1,943 2,195 2,189
-------- -------- --------
Total liabilities 25,399 21,984 22,104
-------- -------- --------
Stockholders' equity (deficit):
Preferred stock, $.10 par value; 10,000,000
shares authorized; none issued -- -- --
Common stock, $.10 par value; 10,000,000
shares authorized; 4,470,546 shares
issued; 3,629,376 shares outstanding 447 447 447
Additional paid-in capital 68,580 68,580 68,580
Foreign currency translation adjustments 712 250 341
Accumulated deficit (69,407) (57,668) (55,777)
Cost of 841,170 shares held in treasury (4,662) (4,662) (4,662)
Unrealized loss on marketable securities -- (106) (105)
-------- -------- --------
Total stockholders' equity (deficit) (4,330) 6,841 8,824
-------- -------- --------
Commitments and contingencies
$ 21,069 $ 28,825 $ 30,928
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
14
<PAGE>
COOPER DEVELOPMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
TWO MONTHS
YEAR ENDED ENDED FISCAL YEARS ENDED
DECEMBER 31, DECEMBER 31, OCTOBER 31,
----------
1995 1994 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss from continuing operating activites: $(11,739) $(1,891) $(8,223) $(6,067)
Adjustments to reconcile net loss to net cash
used by continuing operating activities:
Depreciation and amortization 868 110 786 649
Valuation adjustment on Avanza stock and options -- -- 537 --
Gain on sale of property (359) -- -- --
Other 586 (92) (99) (389)
Changes in assets and liabilities, net of effects from
acquisitions:
Restricted cash -- -- 1,121 307
Accounts receivable (72) 235 (1,803) 474
Other receivables 127 (22) 231 1,044
Inventories 809 (527) (1,928) (138)
Prepaid expenses (49) 119 30 (92)
Other assets (15) (14) (139) --
Accounts payable and accrued expenses 1,998 (223) 1,948 1,152
Tax liabilities 219 97 28 --
Other long-term liabilities (159) 6 -- --
-------- ------- ------- -------
Net cash used by continuing operating activities (7,786) (2,202) (7,511) (3,060)
Net cash used by discontinued operating activities -- -- (2,270) (249)
-------- ------- ------- -------
Net cash used by operating activities (7,786) (2,202) (9,781) (3,309)
-------- ------- ------- -------
Cash flows from investing activities:
Proceeds from sale of discontinued operations -- -- 22,521 --
Proceeds from sale of fixed assets and intangible assets 739 -- 259 17
Purchase of fixed and intangible assets (1,482) (132) (930) (571)
Purchase of Avanza common stock and options -- -- (637) --
Cash acquired in CDSA transaction, net of amounts disbursed -- -- 731 --
-------- ------- ------- -------
Net cash provided (used) by investing activities (743) (132) 21,944 (554)
-------- ------- ------- -------
Cash flows from financing activities:
Borrowings from related parties, net of stock purchases 2,450 -- -- 2,948
Net proceeds from sale of common stock -- -- -- 2,144
Net borrowings (payments) from short-term notes (1,000) -- (1,300) 150
Payments of other long-term liabilities (93) -- (867) (200)
-------- ------- ------- -------
Net cash provided (used) by financing activities 1,357 -- (2,167) 5,042
-------- ------- ------- -------
Net increase (decrease) in cash and cash equivalents (7,172) (2,334) 9,996 1,179
Cash and cash equivalents, beginning of year 9,952 12,286 2,290 1,111
-------- ------- ------- -------
Cash and cash equivalents, end of year $ 2,780 $ 9,952 $12,286 $ 2,290
======== ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE>
COOPER DEVELOPMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITYO
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995, TWO MONTHS ENDED DECEMBER 31, 1994,
AND YEARS ENDED OCTOBER 31, 1994 AND 1993
UNREALIZED
COMMON STOCK ADDITIONAL LOSS ON
------------
PAR PAID-IN TRANSLATION ACCUMULATED TREASURY MARKETABLE
SHARES VALUE CAPITAL ADJUSTMENT DEFICIT STOCK SECURITIES TOTAL
------ ----- ------- ---------- ------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE OCTOBER 31, 1992 3,261 $ 326 $ 66,557 $ 484 $ (56,314) $ (4,662) $ -- $ 6,391
Net loss -- -- -- -- (7,090) -- -- (7,090)
Proceeds from rights
offering net of offering costs 1,210 121 2,023 -- -- -- -- 2,144
Aggregate translation
adjustment -- -- -- (198) -- -- -- (198)
Valuation adjustment -- -- -- -- -- -- (59) (59)
-------- -------- -------- -------- -------- -------- -------- --------
BALANCE OCTOBER 31, 1993 4,471 447 68,580 286 (63,404) (4,662) (59) 1,188
Net Income -- -- -- -- 7,627 -- -- 7,627
Aggregate translation
adjustment -- -- -- 55 -- -- -- 55
Valuation adjustment -- -- -- -- -- -- (46) (46)
-------- -------- -------- -------- -------- -------- -------- --------
BALANCE OCTOBER 31, 1994 4,471 447 68,580 341 (55,777) (4,662) (105) 8,824
Net Loss -- -- -- -- (1,891) -- -- (1,891)
Aggregate translation
adjustment -- -- -- (91) -- -- -- (91)
Valuation adjustment -- -- -- -- -- -- (1) (1)
-------- -------- -------- -------- -------- -------- -------- --------
BALANCE DECEMBER 31, 1994 4,471 477 68,580 250 (57,668) (4,662) (106) 6,841
Net Loss -- -- -- -- (11,739) -- -- (11,739)
Aggregate translation
adjustment -- -- -- 462 -- -- -- 462
Valuation adjustment -- -- -- -- -- -- 106 106
-------- -------- -------- -------- -------- -------- -------- --------
BALANCE DECEMBER 31, 1995 4,471 $ 447 $ 68,580 $ 712 $ (69,407) $ (4,662) $ -- $ (4,330)
======== ======== ======== ======== ========= ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE>
COOPER DEVELOPMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Cooper
Development Company (the "Company" or "CDC") and its wholly owned subsidiaries.
All material intercompany transactions and accounts are eliminated in
consolidation. 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.
CDC's present and future operations, particularly with respect to certain
of its longer range goals, may be subject to regulation under the Occupational
Safety and Health Act, National Environmental Policy Act, Resource Conservation
and Recovery Act, Toxic Substances Control Act and other present or possible
future legislation or regulations. During 1994, the Italian health authorities
revised the register of pharmaceutical products resulting in the
reclassification of the Company's antiviral product from the completely
reimbursable category to a category that requires the customer to pay full price
for the product. This change may have an adverse effect on sales of the
Company's antiviral product. CDC believes, however, that except with respect to
regulation of its antiviral product by foreign governmental agencies, applicable
government regulations would not materially impair CDC's ability to sell its
products. The antiviral product is sold by the Company's wholly owned subsidiary
DIFA Cooper ("DIFA"). DIFA was a distributor for Revo sunglasses until the
distribution agreement expired in December 1995.
CDC was a wholly owned subsidiary of Cooper Laboratories, Inc. ("Labs")
prior to the consummation of an initial public offering of its common stock in
August 1983. Pursuant to a plan of liquidation, Labs distributed its shares of
the Company's common stock to Labs' stockholders in June 1985. CDC is a Delaware
corporation and was incorporated in April, 1980. The Company continues to
fulfill certain obligations pursuant to agreements with Labs and certain of
Labs' former affiliates with regard to tax, legal and environmental issues.
Property plant and equipment are stated at cost.
Depreciation is computed principally on the straight-line method in amounts
sufficient to write-off the cost of depreciable assets over their estimated
useful lives ranging from 3 to 8 years. Leasehold improvements are amortized
over the lesser of the estimated useful lives of the assets or the related lease
term.
Income taxes: The Company accounts for income tax using the asset and
liability method as prescribed by Statement of Financial Accounting Standards
No. 109, Accounting for Income Taxes, (Statement 109). Under the asset and
liability method of Statement 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. Under
Statement 109, the effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date.
17
<PAGE>
The Company adopted Statement 109 effective November 1, 1993. There was no
cumulative effect of a change in the method of accounting for income taxes
because the Company reported a valuation allowance for the entire amount of
deferred tax assets as of November 1, 1993.
Pursuant to the deferred method under APB Opinion 11, which was applied in
1993 and prior years, deferred income taxes are recognized for income and
expense items that are reported in different years for financial reporting
purposes and income tax purposes using the tax rate applicable for the year of
the calculation. Under the deferred method, deferred taxes are not adjusted for
subsequent changes in tax rates.
Foreign currency translation: Assets and liabilities of the Company's
operations located outside the United States are generally translated at
prevailing year-end rates of exchange, and income and expense accounts are
generally translated at weighted average rates for each year. Foreign exchange
translation gains (losses) are recorded in the stockholders' equity section of
the consolidated balance sheets. Transaction gains and losses are included in
the determination of net income (loss) for each period.
Inventories are stated at the lower of cost, determined on a first-in,
first-out or average cost basis, or market.
Intangible assets are amortized on a straight-line basis over their
estimated useful lives which range from 2 to 20 years. Management assesses the
carrying value of intangible assets annually by reference to the operating
performance of companies acquired and projected future cash flows. An impairment
reserve, if any, is recorded at such time as the Company believes that the
carrying value of the asset will not be fully realized during its amortization
period (see Note 5).
Net income (loss) per share primary is determined using the weighted
average number of common shares outstanding during the respective periods.
Net income (loss) per share fully diluted is determined using the weighted
average number of common shares outstanding plus additional common shares that
may arise from convertible debt.
Cash equivalents consist of liquid investments with maturities of three
months or less at the time of purchase.
NOTE 2. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
1995 1994 1994
---- ---- ----
<S> <C> <C> <C>
Raw materials $2,290 $2,775 $2,389
Work-in-process 73 23 23
Finished goods 3,573 3,804 3,507
------ ------ ------
5,936 6,602 5,919
Less inventory reserves (736) (593) (437)
------ ------ ------
$5,200 $6,009 $5,482
====== ====== ======
</TABLE>
18
<PAGE>
NOTE 3. TRANSACTIONS WITH RELATED PARTIES
The Company entered into a Note Purchase Agreement (the "1992 Note Purchase
Agreement") as of December 11, 1992, with Mr. Montgomery, its Chairman of the
Board and President, and Mr. Kruttschnitt, a Director, to finance current
operations. The 1992 Note Purchase Agreement provided for the sale and issuance
of senior notes in an aggregate principal amount of up to $1,373,305. The notes
bear interest at 8% and are due on demand. The 1992 Note Purchase Agreement
provided for the payment of a loan fee of 1% of the principal amount of each
note to the purchaser of each note. The Company sold notes with an aggregate
principal amount of $1,373,305 pursuant to the 1992 Note Purchase Agreement.
On February 24, 1993, the Company entered into a Note Purchase Agreement
(the "February 1993 Note Purchase Agreement") with Mr. Montgomery and Mr.
Kruttschnitt. The February 1993 Note Purchase Agreement provided for the sale
and issuance of senior notes in the aggregate principal amount of up to
$1,651,175. The notes bear interest at 8% and are due on demand. The February
1993 Note Purchase Agreement provided for the payment of a loan fee of 1% of the
principal amount of each note to the purchaser of the note. The Company sold
notes with an aggregate principal amount of $1,651,175 pursuant to the February
1993 Note Purchase Agreement.
On April 30, 1993, Mr. Kruttschnitt and Mr. Montgomery applied an aggregate
of $2,051,902 principal amount of notes issued pursuant to the 1992 and February
1993 Note Purchase Agreements towards the purchase of an aggregate of 1,078,813
shares of common stock in the Rights Offering described in Note 15.
On May 28, 1993, the Company sold Mr. Kruttschnitt a note in the principal
amount of $169,670 pursuant to a Note Purchase Agreement dated as of May 28,
1993 (the "May 1993 Note Purchase Agreement"). This note bears interest at 8%
and is due on demand. Pursuant to Note Purchase Agreements dated October 15,
1993 and October 29, 1993 ("the October Note Purchase Agreements"), the Company
sold an additional $902,925 principal amount of promissory notes to each of
Messrs. Kruttschnitt and Montgomery. The notes bear interest at 8% per annum
and are due on demand no earlier than January 31, 1994. The October Note
Purchase Agreements and the May 1993 Note Purchase Agreement provide for the
payment of a loan fee of 1% of the principal amount of each note to the
purchaser of each note.
On November 10, 1995 the Company entered into a Note and Warrant Purchase
Agreement, (the "1995 Note Purchase Agreement") with Mr. Montgomery and Mr.
Kruttschnitt to finance current operations. The 1995 Note Purchase Agreement
provides for a $4,000,000 unsecured line of credit of which $2,000,000 was drawn
down as of December 31, 1995. The notes bear interest at 12% and are due on
December 31, 2000. As consideration for the establishment of the line of
credit, the Company has issued warrants to each of the lenders to purchase
500,000 shares of common stock of the Company. In addition, for each $1,000
actually borrowed under the line by the Company from each lender, the Company
has agreed to issue to such lender warrants to purchase an additional 250 shares
of common stock. The exercise price of the warrants is $2.50 per share and
expire on December 31, 2000. The line of credit is an unsecured obligation.
As of December 31, 1995, each of Messrs. Kruttschnitt and Montgomery held
notes with an aggregate principal amount of $1,474,049 purchased pursuant to
Note Purchase Agreements dated December 11, 1992, February 24, 1993, May 28,
1993, October 15, 1993 and October 29, 1993. These notes bear interest at 12%
and are convertible at the holder's option into shares of the Company's common
stock at a price ranging from $2.00 to $2.0625 per share. In addition, each of
Messrs. Kruttschnitt and Montgomery held notes with an aggregate principal
amount of $1,000,000 purchased pursuant to the 1995 Note Purchase Agreement. In
conjunction with the issuance of these notes, the Company issued warrants to
purchase 250,000 shares of common stock to each lender. The exercise price of
the warrants is $2.50 per share.
19
<PAGE>
On December 18, 1995 Mr. Montgomery advanced $450,000 to the Company. The
advance pays interest at 12%. This advance was converted to a note in January
1996.
As of December 31, 1995, the carrying value of notes and advances payable
approximate fair value.
NOTE 4. PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
1995 1994 1994
---- ---- ----
<S> <C> <C> <C>
Machinery and equipment $ 2,720 $ 1,975 $ 1,892
Building and improvements 1,459 1,335 1,275
Leasehold improvements 231 80 89
Land 887 888 887
------- ------- -------
5,297 4,278 4,143
Less: Accumulated depreciation (1,938) (1,470) (1,409)
------- ------- -------
$ 3,359 $ 2,808 $ 2,734
======= ======= =======
</TABLE>
Depreciation expense amounted to $468,000, $434,000 and $375,000 for the
years ended December 31, 1995 and the years ended October 31, 1994 and 1993,
respectively, and $75,000 for the two months ended December 31, 1994. Included
above is $1,659,000 of property and land held by CDSA which the Company intends
to sell (see Note 5).
NOTE 5. ACQUISITIONS AND INTANGIBLE ASSETS
Pursuant to a Stock Purchase Agreement, dated as of March 17, 1994, as
amended (the "Second Stock Purchase Agreement"), entered into between the
Company and Michael B. Joseph, as Chapter 7 Trustee (the "Trustee") of the
Trust, the Company, on April 27, 1994, acquired from the Trustee all of the
outstanding capital stock of Cooper Development S.A. ("CDSA"), a Swiss
Corporation, for $3,250,000. The purchase price was paid as follows: $2,250,000
in cash at the closing, and the balance through the delivery of a non-interest
bearing promissory note, in the aggregate principal amount of $1,000,000, due
April 27, 1995 (the "Note"), and secured by a letter of credit. As part of the
Second Stock Purchase Agreement, the Trust has agreed to cooperate and work with
the Company regarding certain outstanding legal matters, specifically pursuing
recoveries from insurers related to environmental and DES obligations of the
Company.
CDSA is the former parent of Cooper Cosmetics S.A. ("CCSA"), a Swiss skin
care products company, which was acquired by the Company in March 1992 and CCSA
has continued since that time to provide administrative services to CDSA. CDSA,
whose assets consisted principally of cash ($2,900,000 at acquisition), also
owns undeveloped real estate in Mougins, France (see Note 4). As part of the
transaction, the Company also assumed certain income tax liabilities of
$1,002,000. These tax liabilities are partially covered by bank guarantees which
are secured by compensating cash balances of approximately $330,000. The
acquisition of CDSA has been accounted for using purchase accounting. The
operating results, which are relatively insignificant, have been included in the
consolidated statement of operations from April 27, 1994, the date of
acquisition.
20
<PAGE>
The sole director and administrator of CDSA, Mr. Buchert, is also the sole
director and administrator of CCSA. In addition, the Company's Chairman of the
Board and President, Parker G. Montgomery, is a former director of CDSA.
Pursuant to a services agreement entered into with Mr. Buchert and approved by
CDSA's previous shareholders, CDSA paid Mr. Buchert approximately $28,500 during
1993 and through April 1994 for acting as administrator for CDSA and
approximately $50,000 in April 1994 for services rendered in 1993 in connection
with the sale by CDSA to an unaffiliated party of real estate in Mougins,
France. Pursuant to a consulting agreement entered into with Mr. Montgomery and
approved by CDSA's previous shareholders CDSA paid Mr. Montgomery approximately
$157,000 during 1993 and through April 1994 for assisting in the management,
development and sale of the real estate referred to above as well as certain
real estate in Mougins, France which is still owned by CDSA. Messrs. Buchert and
Montgomery have voluntarily waived their right to receive from CDSA any further
compensation arising out of any future sale of the real estate still owned by
CDSA.
NOTE 6. DISCONTINUED OPERATIONS
On November 2, 1993, pursuant to a Purchase and Sale Agreement, the Company
entered into a definitive agreement with Bausch & Lomb Incorporated ("B&L") to
sell substantially all of the assets of the Revo sunglass business for
$22,500,000. Pursuant to a Loan Agreement dated November 2, 1993, the Company
borrowed $5,000,000 from B&L. The consummation of the transaction contemplated
by the Purchase and Sale Agreement occurred on January 28, 1994, and the Company
received $22,521,000, of which $17,521,000 was paid in cash and $5,000,000 was
paid through cancellation of the entire $5,000,000 of indebtedness to B&L.
Net sales related to discontinued operations were $3,110,000 and
$18,462,000 for the fiscal years 1994 and 1993, respectively.
In April 1994, the Company completed the assignment of the Freeport,
Bahamas lease and the sale of substantially all of the assets of its Bahamas
facility to Hansi International, LTD. for $250,000. The Company recorded a net
gain of $131,000 on the sale.
NOTE 7. ACCRUED EXPENSES
Accrued expenses as of December 31, 1995 included accruals of $1,237,000
for advertising, $1,000,000 for environmental clean up and other environmentally
related costs, $920,000 for restructuring costs, and $328,000 for legal.
During 1995, plans were developed to reduce costs of goods and improve
productivity. This restructuring involves consolidation of several offices and
manufacturing facilities into one leased facility in Morgan Hill, California,
and the resultant relocations, separations, and related costs. The consolidated
statement of operations includes $1,395,000 or pretax charges relating to this
program. Included in this amount is $810,000 for the severance costs of 71
employees working in manufacturing, distribution and administration at the
Company's Islip New York facilties and $585,000 related to facility leases,
closedown costs, and asset retirements. The closing of the Islip facilites was
completed by December 31, 1995. The Company has paid $475,000 for its
restructuring program in 1995 and expects such payments to be completed by the
end of the second quarter in 1996.
Accrued expenses as of December 31, 1994, include accruals of $1,103,000
for advertising, $952,000 for legal, $532,000 for environmental clean-up and
other environmentally related costs and $490,000 for employee benefits.
Accrued expenses as of October 31, 1994 included accruals of $1,132,000 for
severance and employee benefits, $1,070,000 for legal and $623,000 for
environmental clean-up and other environmentally related costs.
21
<PAGE>
NOTE 8. EMPLOYEE BENEFITS
In April 1985, the Company adopted its Retirement Income Plan, which is a
non-contributory plan covering all full-time non-union United States employees
of the Company and its participating subsidiaries. Benefits are based upon a
combination of employee compensation and years of service. The Company pays the
entire cost of the plan for its employees and funds such costs as they accrue.
The Company's funding policy is to make annual contributions within minimum and
maximum levels required by applicable regulations. The projected unit credit
cost method is used to determine the annual cost. The Company froze benefit
accruals under this plan as of September 1988. The Company continued to
contribute as necessary for the underfunded liabilities. The plan was reinstated
effective January 1, 1993. The Retirement Income Plan's assets consist
primarily of a short term investment fund, an equity fund and a government bond
fund.
Items shown below for each fiscal year have been calculated as of January 1
of each fiscal year and projected to the end of each fiscal year.
Net periodic pension cost for the year ended December 31, 1995, two months
ended December 31, 1994 and the years ended October 31, 1994 and 1993 included
the following components (in thousands):
<TABLE>
<CAPTION>
TWO MONTHS
YEAR ENDED ENDED YEARS ENDED
DECEMBER 31, DECEMBER 31, OCTOBER 31,
------------ ------------ -----------
1995 1994 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Service cost-benefits earned during period $ 30 $ 7 $ 60 $ 66
Plus: Interest cost on projected benefit obligations 90 15 85 71
Less: Estimated return on assets (84) (12) (23) (61)
Plus: Other, net (33) (3) (29) 25
----- ----- ----- ----
Net periodic pension cost $ 3 $ 7 $ 93 $101
===== ===== ===== ====
</TABLE>
The above net periodic pension cost was calculated using assumptions from the
prior fiscal year end.
The following table provides a reconciliation between the estimated funded
status of the plan and the amounts recognized in the financial statements at
December 31, 1995, December 31, 1994, October 31, 1994, and 1993 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
------------- ------------
1995 1994 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Accumulated benefit obligation $ 1,059 $1,026 $1,023 $1,041
======= ====== ====== ======
Projected benefit obligation 1,162 $1,105 $1,099 $1,261
Market value of assets (1,055) (800) (791) (727)
Funded status 107 305 308 534
Unfunded prior service cost (72) (86) (86) (285)
Unrecognized gain (loss) 166 58 38 (105)
Additional minimum liability -- -- -- 170
------- ------ ------ ------
Liability included in the financial statements $ 201 $ 277 $ 260 $ 314
======= ====== ====== ======
</TABLE>
Substantially all of the accumulated benefit obligation balances above are fully
vested.
22
<PAGE>
Assumptions used in the accounting were:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
------------ -----------
1995 1994 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Discount rates (liability) 8.0% 8.0% 8.0% 7.0%
Long term rate of return (assets) 9.0% 9.0% 9.0% 9.0%
</TABLE>
Effective November 1, 1991, the Company adopted the Cooper Development
401(k) Plan ("401(k) Plan"), which is a contributory plan available to employees
of the Company and its participating subsidiaries. Employees who complete two
months of service during a twelve-consecutive-month period in which they worked
at least 1,000 hours are eligible to participate in the 401(k) Plan. Employees
who participate in the 401(k) Plan elect to have from 2% to 15% of pre-tax
covered compensation deferred (not in excess of $9,240 in calendar year 1995)
and contributed to the trust established under the 401(k) Plan. The Company, at
its discretion and subject to certain regulatory limitations, will make a
matching contribution equal to 25% of each participant's contribution up to 6%
of covered compensation. Generally, participants vest in Company contributions
at the rate of 10% for each year of service (as defined) and are fully vested
after five years of service or upon death. The Company's contribution to the
401(k) Plan was approximately $38,000, $37,000, and $32,000 for the calendar
year 1995 and fiscal years 1994, and 1993, and $6,000 for the two months ended
December 31, 1994, respectively.
NOTE 9. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
Total minimum annual rentals payable under non-cancelable operating leases
(all real property and equipment) at December 31, 1995 are payable as follows
(in thousands):
<TABLE>
<S> <C>
1996 $ 935
1997 647
1998 407
1999 294
2000 294
Thereafter 1,078
------
$3,655
======
</TABLE>
Aggregate rental expense for both cancelable and non-cancelable contracts
was approximately $1,046,000, $786,000, and $396,000 in 1995, and fiscal 1994,
and 1993, respectively, and $174,000 for the two months ended December 31, 1995.
LEGAL PROCEEDINGS
CDC is involved in a group of product liability actions relating to DES for
which CDC has been indemnifying its former parent, Cooper Laboratories, Inc.
("Labs"), since its liquidation in 1985. The Company continuously evaluates its
exposure to such claims in relation to unsettled cases and claim settlements.
The Company believes that the estimated liability for such claims of $1,376,000
included in other long-term liabilities in the consolidated balance sheet as of
December 31, 1995 ($1,697,000 and $1,717,000 as of December 31, 1994 and October
31, 1994, respectively) is sufficient to satisfy its claim obligations.
Inherent in the operations of the Company is the possibility that there may
exist environmental conditions as a result of current and past operations which
might be in violation of various federal and state laws relating to the
protection of the environment. In certain instances, the Company has received
notices of asserted violation of such laws and regulations and has taken or
plans to take steps to address the problems cited or to contest the allegations
of
23
<PAGE>
violation. As noted in Note 7, the Company recorded a reserve to provide for
the restoration and clean-up on one of the Company's former properties as a
result of past operations. The Company has made and will continue to make
expenditures relating to environmental conditions on this property. Adjustments
or additions to reserves on operating properties are recorded when probable
costs to the Company are reasonably determined based upon information available.
While the Company's management is unable to predict the ultimate costs involved
in such matters, it does not expect, based on present information and
established reserves, that disposition of these matters will have a material
adverse effect on the Company's financial position. However, there is no
assurance that material costs or liabilities related to environmental matters
will not be incurred in the future.
The Company is also a defendant in several legal actions. In the opinion of
management, after consultation with legal counsel, the disposition of these
actions will not have a material adverse effect on the financial position of the
Company.
NOTE 10. INCOME TAXES
As discussed in Note 1, the Company adopted Statement 109 as of November 1,
1993. There is no cumulative effect of this change in accounting for income
taxes as determined as of November 1, 1993 because the Company reported a
valuation allowance for the entire amount of deferred tax assets. Prior years'
financial statements have not been restated to apply the provisions of Statement
109.
The (expense) benefit for income taxes consists of the following amounts
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDED TWO MONTHS ENDED YEARS ENDED
DECEMBER 31, DECEMBER 31, OCTOBER 31,
----------
1995 1994 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Current:
Federal $ -- $ -- $ 784 $ --
State (17) (7) 231 (61)
Foreign (255) (82) -- (4)
-------- ------ ------ -------
Provision for income tax
(expense) benefit $ (272) $ (89) $1,015 $ (65)
======== ====== ====== =======
</TABLE>
The (provision) benefit for income taxes differs from the amounts computed
by applying the statutory Federal income tax rate to income (loss) from
continuing operations before extraordinary items and income taxes as follows:
<TABLE>
<CAPTION>
TWO MONTHS
YEAR ENDED ENDED YEARS ENDED
DECEMBER 31, DECEMBER 31, OCTOBER 31,
-------------
1995 1994 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Computed tax (expense) benefit based on
statutory rate $ 3,899 $ 613 $ 3,141 $ 2,411
State taxes (17) (7) 608 (61)
Income outside the U.S. subject to lower taxes 17 (20) 123 (4)
Loss from operations not utilized but carried forward (3,790) (661) (2,750) (2,411)
Subpart F income (248) (3) -- --
Other (42) 4 -- --
Amortization of intangibles (91) (15) (107) --
------- ----- ------- -------
$ (272) $ (89) $ 1,015 $ (65)
======= ===== ======= =======
</TABLE>
24
<PAGE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes and the amounts used for
income tax purposes. Significant components of the Company's deferred tax assets
and liabilities under Statement 109 as of December 31, 1995, 1994 and October
31, 1994 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, OCTOBER 31,
1995 1994 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Deferred tax assets:
Return allowances $ -- $ 131 $ --
Accounts receivable 700 199 283
Inventories 579 623 701
Accrued compensation and benefits 427 243 283
Accrued liabilities, principally due to
litigation reserves 1,004 1,648 1,357
Net operating loss carryforwards 24,396 19,934 17,726
Tax credits carryforward 1,551 1,551 1,551
Other 5 13 20
-------- ---------- --------
Total gross deferred tax assets 28,662 24,342 21,921
Less valuation allowance (28,597) (24,342) (21,921)
-------- ---------- --------
Net deferred tax assets $ 65 $ -- $ --
======== ========== ========
Deferred tax liability:
Fixed assets $ (65) $ -- $ --
-------- ---------- --------
Total deferred tax liability (65) -- --
-------- ---------- --------
Net deferred tax assets $ -- $ -- $ --
======== ========== ========
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1995 was
$24,342,000. The net change in the valuation allowance during the year ended
December 31, 1995 was an increase of $4,255,000.
The Company is a party to a tax sharing agreement between The Cooper
Companies, Inc. ("TCC") and Cooper Life Sciences, Inc. regarding the allocation
of tax liabilities of the Company's former parent, Labs. Under this tax sharing
agreement, the Company is liable to contribute 25% of any net taxes (after
refunds) ultimately levied on Labs. Included in tax liabilities is a $2.2
million accrual to cover the Company's share of any such liabilities. In
addition, the Company has not recognized any benefit of approximately $662,000
of Federal tax refunds which it obtained from TCC and which TCC originally
received in its capacity as agent from Labs. Such amount has been added to the
tax liability accrual. TCC is continuing to negotiate with various tax
authorities with respect to the relevant years covered by the tax sharing
agreement. Based on current information available, the Company estimates that
an amount of approximately $1.1 million would cover its share of Labs' tax
liabilities under the tax sharing agreement. Since there may be other tax
liabilities for those years of which the Company is not currently aware, it does
not intend to revise its tax accruals until all tax liabilities of Labs and the
Company are finally determined.
At December 31, 1995, the Company had net operating loss carryforwards of
approximately $62,348,000 for income tax reporting purposes. The remaining net
operating losses expire in varying amounts beginning 1998. Investment and
research and development credit carryforwards generated between 1984 and 1990
amounted to approximately $1,551,000 for income tax reporting purposes at
December 31, 1995 and will expire beginning in 1998.
Federal tax law imposes significant restrictions on the utilization of net
operating loss carryforwards in the event of a shift in ownership of the Company
which constitutes an ownership change, as defined by Internal Revenue Section
382. The Company's net operating
25
<PAGE>
loss and general business credit carryforwards may be subjected to potential
limitations as a result of these provistions.
NOTE 11. INDUSTRY SEGMENTS AND GEOGRAPHIC DATA
The Company's operations are classified into the following business
segments: skin care and cosmetics, antiviral and other.
Information by industry segment as of or for the calendar years ended
December 31, 1995 and fiscal years ended October 31, 1994, and 1993 and
transitional period ended December 31, 1994 (in thousands) follows:
<TABLE>
<CAPTION>
YEAR ENDED TWO MONTHS
DECEMBER 31, DECEMBER 31, OCTOBER 31,
----------
1995 1994 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales:
Skin care and cosmetics $ 15,376 $ 2,226 $16,748 $14,803
Antiviral and other 4,784 777 3,330 3,134
-------- ------- ------- -------
Total net sales $ 20,160 $ 3,003 $20,078 $17,937
======== ======= ======= =======
Operating loss:
Skin care and cosmetics $(10,018) $(1,459) $(6,020) $(3,485)
Antiviral and other 883 235 376 215
Corporate (2,496) (583) (2,518) (2,064)
-------- ------- ------- -------
Total operating loss $(11,631) $(1,807) $(8,162) $(5,334)
======== ======= ======= =======
Identifiable assets:
Skin care and cosmetics $ 13,613 $14,983 $14,358 $10,916
Antiviral and other 7,136 8,305 8,242 3,079
Corporate 320 5,537 8,328 3,029
Net Assets Discontinued Operations -- -- -- 4,225
-------- ------- ------- -------
Total identifiable assets $ 21,069 $28,825 $30,928 $21,249
======== ======= ======= =======
Capital expenditures:
Skin care and cosmetics $ 852 $ 71 $ 455 $ 500
Antiviral and other 558 81 208 23
Corporate 7 2 62 8
-------- ------- ------- -------
Total capital expenditures $ 1,417 $ 154 $ 725 $ 531
======== ======= ======= =======
Depreciation and amortization:
Skin care and cosmetics $ 764 $ 94 $ 629 $ 528
Antiviral and other 76 11 140 97
Corporate 28 5 17 24
-------- ------- ------- -------
Total depreciation and amortization $ 868 $ 110 $ 786 $ 649
======== ======= ======= =======
</TABLE>
Sales, operating income (loss) and identifiable assets by geographic area
as of or for the years ended December 31, 1995, October 31, 1994, 1993 and the
two months ended December 31, 1994 (in thousands) follows:
<TABLE>
<CAPTION>
NORTH
AMERICA EUROPE ELIMINATION CONSOLIDATION
------- ------ ----------- -------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1995
Sales to unaffiliated customers $ 10,726 $ 9,434 $ -- $ 20,160
Intercompany sales 835 -- (835) --
-------- ------- ------------ -------------
Total net sales $ 11,561 $ 9,434 $ (835) $ 20,160
======== ======= ============ =============
Operating loss $(12,157) $ 526 $ -- $ (11,631)
Identifiable assets $ 11,477 $ 9,952 $ -- $ 21,069
<CAPTION>
NORTH
AMERICA EUROPE ELIMINATION CONSOLIDATION
------- ------ ----------- -------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1994
Sales to unaffiliated customers $ 1,488 $ 1,515 $ -- $ 3,003
Intercompany sales 95 -- (95) --
-------- ------- ------------ -------------
Total net sales $ 1,583 $ 1,515 $ (95) $ 3,003
======== ======= ============ =============
Operating income(loss) $ (2,049) $ 242 $ -- $ (1,807)
Identifiable assets $ 18,118 $10,707 $ -- $ 28,825
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
NORTH
AMERICA EUROPE ELIMINATION CONSOLIDATION
-------- ------- ----------- -------------
<S> <C> <C> <C> <C>
OCTOBER 31, 1994
Sales to unaffiliated customers $ 12,874 $ 7,204 $ -- $ 20,078
Intercompany sales 588 -- (588) --
-------- ------- ----------- -------------
Total net sales $ 13,462 $ 7,204 $ (588) $ 20,078
======== ======= =========== =============
Operating income(loss) $ (8,932) $ 689 $ 81 $ (8,162)
Identifiable assets $ 20,165 $10,778 $ (15) $ 30,928
<CAPTION>
<S> <C> <C> <C> <C>
OCTOBER 31, 1993
Sales to unaffiliated customers $ 12,720 $ 5,217 $ -- $ 17,937
Intercompany sales 480 -- (480) --
-------- ------- ----------- -------------
Total net sales $ 13,200 $ 5,217 $ (480) $ 17,937
======== ======= =========== =============
Operating loss $ (4,992) $ (58) $ (284) $ (5,334)
Identifiable assets $ 17,002 $ 4,464 $ (217) $ 21,249
</TABLE>
NOTE 12. SUPPLEMENTAL DISCLOSURES TO CONSOLIDATED STATEMENTS OF CASH FLOWS
Supplemental and other disclosures required by Statement of Financial
Accounting Standards No. 95, Statement of Cash Flows, for calendar 1995 and
fiscal 1994, and 1993, are as follows:
In fiscal 1995 the Company acquired the rights to a trademark called
"Nature", as partial settlement of outstanding litigation.
In fiscal 1994 the Company issued a $1,000,000 note payable as partial
consideration for the purchase of CDSA (see Note 5).
In fiscal 1993, the Company converted $2,052,000 of related party notes
payable to common stock (see Note 3).
Cash paid in 1995 and fiscal 1994, and 1993 for interest was $298,000,
$342,000, and $262,000, respectively, and for income taxes was $29,000, $84,000,
and $58,000, respectively. Cash paid in the two month transition period ending
December 31, 1994 for interest was $2,000.
NOTE 13. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER(1) QUARTER QUARTER
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE FIGURES)
<S> <C> <C> <C> <C>
1995
Net sales $ 6,083 $ 4,774 $ 4,572 $ 4,731
Gross profit $ 3,366 $ 2,244 $ 1,739 $ 1,480
Net (loss) $ (1,329) $ (4,551) $ (2,793) $ (3,066)
Net (loss) per share- primary $ (.37) $ (1.25) $ (.77) $ (.84)
Common Stock price range:
High $ 3 1/8 $ 3 1/2 $ 3 1/2 $ 3 1/4
Low $ 2 1/4 $ 2 1/2 $ 2 1/2 $ 1 31/32
</TABLE>
(1) Includes a restructuring accrual of $1,395,000.
27
<PAGE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE FIGURES)
<S> <C> <C> <C> <C>
1994
Net sales $ 4,190 $ 4,509 $ 5,599 $ 5,780
Gross profit $ 2,425 $ 2,612 $ 2,524 $ 2,858
Net income (loss) $ 14,964 $ (1,542) $ (2,331) $ (3,464)
Net income (loss) per share* $ 4.12 $ (.42) $ (.64) $ (.95)
- - primary
Net income (loss) per share* $ 2.95 (.42) (.64) (.95)
- - fully diluted
Common Stock price range:
High $ 3 1\2 $ 3 1/4 $ 2 3/4 $ 4 1/4
Low $ 1 11/16 $ 2 1/2 $ 2 1/2 $ 2 1/4
</TABLE>
__________________
* The sum of net income (loss) per share for the four quarters is different
from the full year net income (loss) per share as a result of computing the
quarterly and full year amounts on the weighted average number of shares
outstanding in the respective periods.
Year-end adjustments to the investment in Avanza recorded in the
fourth quarter of fiscal 1994 increased selling, general and administrative
costs by $550,000 and increased other expense by $537,000.
NOTE 14. NOTES AND ADVANCES PAYABLE
Notes payable and advances as of December 31, 1995 consist of $5,398,000 of
notes and advances from related parties (see Note 3).
NOTE 15. COMMON STOCK AND STOCK RIGHTS
In December 1987, the Board of Directors of the Company declared a dividend
distribution of one right for each outstanding share of the Company's common
stock, par value $.10 per share, to stockholders of record at the close of
business on December 29, 1987. Each right entitles the registered holder to
initially purchase from the Company a unit consisting of one one-hundreth of a
share (a "Unit") of Series A Junior Participating Preferred Stock, par value
$.10 per share, at a purchase price of $52 per unit, subject to adjustment.
Under certain circumstances, the rights will be exercisable if a person or group
acquires beneficial ownership of 30% or more of the Company's common stock or
commences a tender or exchange offer upon consummation of which such person or
group would beneficially own 30% or more of the Company's common stock. On
November 1, 1993, the Company amended its stockholders rights plan to provide
that such rights will not become exercisable if a person or group would
beneficially own 30% or more of the Company's common stock upon the conversion
of outstanding promissory notes originally issued by the Company pursuant to
Note Purchase Agreements dated as of December 11, 1993, as of February 24, 1993,
as of May 28, 1993, as of October 15, 1993 and as of October 29, 1993 into
shares of the Company's Common Stock. Upon the occurrence of such event, each
holder who is not a party to the transaction may be entitled to purchase at the
right's then current exercise price shares of the Company's common stock having
a value of twice the right's exercise price. On November 10, 1995 the Company
adopted a Fifth Amendment to Rights Agreement dated as of November 10, 1995 to
the Rights Agreement dated as of December 15, 1987, as amended as of July 31,
1991, as of November 27, 1991, as of December 3, 1992 and as of November 1, 1993
(collectively, the "Rights Agreement"), between the Company and the First
National Bank of Boston, as Rights Agent. The amendment provides, in effect,
that no person shall become an "Acquiring Person" for purposes of the Rights
Agreement as a result of an acquisition of shares of Common Stock of the Company
upon exercise of outstanding warrants issued by the Company pursuant to the
28
<PAGE>
Purchase Agreement. A Special Committee of the Company's Board of Directors
comprised exclusively of non-management Directors is entitled to redeem the
rights if the Special Committee determines that such event is in the best
interest of the Company's stockholders. The rights expire in December 1997.
On February 16, 1993, the Company distributed to holders of record of its
common stock, one non-transferable right to purchase a share of its common stock
for each two shares of common stock held by such holders. The exercise price of
the rights was $1.902, and the rights expired on April 23, 1993. An aggregate of
1,209,792 shares of common stock were offered and sold to the Company's
stockholders pursuant to the Rights Offering. The proceeds from the Rights
Offering were $2,144,000, net of $157,000 of offering expenses.
NOTE 16. LIQUIDITY
The accompanying consolidated financial statements and financial statement
schedule have been prepared assuming the Company will continue as a going
concern. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
The Company has experienced operating cash flow deficiencies for a number
of years and has relied upon asset sales and financing from stockholders to fund
its liquidity needs. At December 31, 1995, current liabilities exceeded current
assets by $8,274,000 and cash required by continuing operations was $7,786,000
for the year then ended.
On November 10, 1995, the Company entered into a Note and Warrant
Purchase Agreement with Parker G. Montgomery and Theodore H Kruttschnitt. The
agreement provides for the establishment of a $4,000,000 line of credit which
can be drawn down in $500,000 increments. The notes are due on December 31,
2000 and bear interest at the rate of 12% per annum. As consideration for the
establishment of the line, the Company issued warrants to each lender to
purchase 500,000 shares of the Common Stock of the Company. In addition, for
each $1,000 borrowed by the Company from a lender under the line of credit, the
Company agreed to issue to such lender warrants to purchase an additional 250
shares of Common Stock. The exercise price of the warrants price is $2.50 per
share. As of December 31, 1995 the Company had drawn down $2,000,000.
The Company expects a continuing deficiency in cash generated from
operations in 1996. The Company plans to use the cash obtained for the line of
credit described above to fund its short term obligations. In addition, the
Company will continue its efforts to reduce costs and improve operating
efficiencies and may consider selling or licensing certain product lines and may
sell certain assets. The Company may also obtain additional financing from
stockholders, financial institutions or other sources to fund its long term
liquidity and capital expenditure requirements. No assurances can be given that
the Company will obtain financing on terms acceptable to the Company.
During 1995, the Company restructured its operations by consolidating its
Central Islip and Menlo Park facilities to Morgan Hill CA. The Company recorded
a restructuring charge of $1,395,000 and paid $475,000 in 1995 and expects to
pay the balance of the charges by the end of the second quarter in 1996.
NOTE 17. ACQUISITION OF STOCK AND OPTIONS
During fiscal 1994, the Company purchased options to acquire common stock
of Avanza Corporation ("Avanza"), which management believed would give the
Company control of more than 51% of the outstanding shares of Avanza. The
Company exercised certain options, and for
29
<PAGE>
Subsequent to the Company's purchase of the options, Avanza undertook a
number of defensive strategies, and entered into transactions which (1)
adversely affected the Company's ability and right to obtain a controlling
interest in Avanza and (2) potentially reduced Avanza's value to the Company.
Substantially all of the Company's legal challenges to Avanza's positions have
been unsuccessful to date. Accordingly, the Company has been forced to assess
the carrying value of its investment in the stock and options of Avanza. As a
result of this evaluation and in light of the non-marketablity of the stock, the
options and the shares underlying the options, and the limited life of the
options, the Company has concluded that it should record a loss provision for
the entire amount of cost of the options and provide a 50% reserve on the value
of the stock held. Accordingly, a $537,000 reserve was established against the
value of the investment and a related expense was recorded in other expense. In
addition, the Company expensed approximately $550,000 in legal fees related to
various litigation in conjunction with the attempted acquisition, which is
reflected in selling, general and administrative expenses.
On November 22, 1995, the Company entered into an Agreement of Settlement
and General Release (the "Settlement Agreement") with Avanza and numerous other
parties which resolves a number of disputes relating to the Company's efforts to
acquire Avanza Corp. Under the terms of the Settlement Agreement, the lawsuits
filed in San Bernadino County Superior Court, Holmes v. Avanza Corp., et al and
------- -------------------
Cooper Development Company v. Bomatic, Inc. et al. were dismissed, Avanza
- -------------------------- -------------------
purchased 99,375 shares of Avanza Corp. Common Stock from the Company for
$69,562.50, and Avanza Corp. paid $100,000 to the Company. In addition, Avanza
transferred ownership of the "Nature" trademark in the United States and Canada
and entered into a manufacturing and supply agreement with the Company to
provide products sold under the "Nature" name through December 31, 1996.
30
<PAGE>
NOTE 18. TRANSITION PERIOD
On December 20, 1994, the Company changed its fiscal year from October 31
to December 31. Accordingly, results of operations for the Transition Period
which ended December 31, 1994, covered a two month period and are compared to
the three months ended January 31, 1994.
<TABLE>
<CAPTION>
TWO MONTHS THREE MONTHS
ENDED ENDED
(IN THOUSANDS, EXCEPT PER SHARE FIGURES) DECEMBER 31, JANUARY 31,
1994 1994
---- ----
(Unaudited)
<S> <C> <C>
Net Sales $ 3,003 $ 4,190
Cost of sales 1,397 1,765
------- -------
Gross profit 1,606 2,425
------- -------
Research and development expenses 153 143
Selling, general and administrative expenses 3,204 3,807
Amortization of intangible assets 56 68
------- -------
Operating loss (1,807) (1,593)
Interest income 77 60
Interest expense (42) (148)
Other expense, net (30) (257)
------- -------
Loss from continuing operations before income taxes (1,802) (1,938)
Provision for income tax benefit (expense) (89) 653
------- -------
Loss from continuing operations (1,891) (1,285)
Discontinued operations:
Income (loss) from operations
(net of tax benefits of $680 in 1994) -- (1,015)
Gain on sale of operations (net of taxesof $1,521 of 1994) -- 17,264
------- -------
-- 16,249
------- -------
Net income (loss) $(1,891) $14,964
======= =======
Net income (loss) per share-primary:
Continuing operations $ (.52) $ (.35)
Discontinued operations -- 4.47
------- -------
Net income (loss) per share-primary $ (.52) $ 4.12
======= =======
Net income (loss) per share-fully diluted:
Continuing operations $ (.52) $ (.24)
Discontinued operations -- 3.19
------- -------
Net income (loss) per share-fully diluted $ (.52) $ 2.95
======= =======
Average number of shares outstanding - primary 3,629 3,629
======= =======
Average number of shares outstanding - fully diluted 3,629 5,086
======= =======
</TABLE>
31
<PAGE>
SCHEDULE II
COOPER DEVELOPMENT COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED DECEMBER 31, 1995, OCTOBER 31, 1994, 1993 AND
TWO MONTH TRANSITIONAL PERIOD ENDED DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED DEDUCTIONS/ BALANCE
BEGINNING COSTS AND TO OTHER RECOVERIES/ AT END
OF YEAR EXPENSES ACCOUNTS OTHER(1) OF YEAR
------- -------- -------- -------- -------
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995 $ 1,092 $ 890 $ -- $ (34) $ 1,948
========== ========= =========== ========== ==========
Two months ended December 31, 1994 $ 981 $ 111 $ -- $ -- $ 1,092
========== ========= =========== ========== ==========
Year ended October 31, 1994 $ 579 $ 425 $ -- $ (23) $ 981
========== ========= =========== ========== ==========
Year ended October 31, 1993 $ 523 $ 111 $ -- $ (55) $ 579
========== ========= =========== ========== ==========
<CAPTION>
INVENTORY RESERVES:
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995 $ 593 $ 143 $ -- $ $ 736
========== ========= =========== ========== ==========
Two months ended December 31, 1994 $ 437 $ 170 $ -- $ (14) $ 593
========== ========= =========== ========== ==========
Year ended October 31, 1994 $ 158 $ 741 $ -- $ (462) $ 437
========== ========= =========== ========== ==========
Year ended October 31, 1993 $ 98 $ 50 $ -- $ 10 $ 158
========== ========= =========== ========== ==========
</TABLE>
____________________
(1) Includes inventory written off, uncollectible accounts written off,
recovered accounts receivable previously written off and other items.
32
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Cooper Development Company:
We have audited the accompanying consolidated balance sheets of Cooper
Development Company and subsidiaries as of December 31, 1995, 1994, and October
31, 1994, and the related consolidated statements of operations, stockholders'
equity and cash flows for the years ended December 31, 1995, the two months
ended December 31, 1994, and the years ended October 31, 1994 and 1993. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedule. These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Cooper
Development Company and its subsidiaries as of December 31, 1995, 1994 and
October 31, 1994, and the results of their operations and their cash flows for
the year ended December 31, 1995, the two months ended December 31, 1994, and
the years ended October 31, 1994 and 1993, in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
The accompanying consolidated financial statements and financial statement
schedule have been prepared assuming that the Company will continue as a going
concern. As discussed in Note 16 to the consolidated financial statements, the
Company has suffered recurring losses from operations and has a net capital
deficiency that raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
that note. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
KPMG PEAT MARWICK LLP
San Francisco, California
March 28, 1996
33
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following are the current directors and executive officers of the
Company:
<TABLE>
<CAPTION>
NAME AGE OFFICE
---- --- ------
<S> <C> <C>
Michael J. Braden 45 Vice President, Treasurer and Controller
James E. Gilleran 62 Director
Theodore H. Kruttschnitt 53 Director
Parker G. Montgomery 67 Chairman of the Board of Directors and President
Jackson L. Schultz 70 Director
</TABLE>
Mr. Braden was elected Vice President and Controller in August 1988 and
Treasurer in September 1988. He served in various capacities with Cooper Labs
and TCC from January 1977 until January 1988 including Senior Internal Auditor,
Area Financial Director and Controller of CooperVision Optics. He also served as
Vice President, Treasurer and Controller of CLS from August 1988 until his
resignation in September 1989.
Mr. Gilleran was elected a Director in July 1988. He was elected Chairman
of the Board and Chief Executive Officer of the Bank of San Francisco in October
1994. He served as Superintendent of Banking for the State of California from
July 1989 until October 1994 and served as the President of The Commonwealth
Group, Inc. (a financial consulting firm) from October 1987 until July 1989. He
was the managing partner of the San Francisco office of Peat Marwick Main & Co.
(a public accounting firm) from July 1977 to September 1986 and a partner of
Peat Marwick Main & Co. from September 1986 to September 1987. He also serves as
a Director of The Fritz Companies, a freight forwarding company.
Mr. Kruttschnitt was elected a Director in March 1992. He founded
California Innkeepers (an owner/operator of hotels) in May 1970 and serves as
its Chairman of the Board. He also serves as a Director of Hanover Direct, Inc.
(a merchandiser of specialty products through catalog sales) and various private
companies.
Mr. Montgomery has been Chairman of the Board and President since 1988. He
founded Cooper Laboratories, the former parent of CDC, in 1958 and served in
various capacities with that company, most recently as its Chairman of its Board
and President, until its assets were distributed to its shareholders in June
1985. He was also Chairman of the Board of Directors and President of TCC until
July 1988 and October 1988, respectively, and Chairman of the Board and
President of CLS until his resignation in September 1989.
Mr. Schultz was elected as a Director in December of 1988. He has been a
consultant for Wells Fargo & Co. (a bank holding company) since September 1990
and served as Senior Vice President for Public and Governmental Affairs from
1973 to August 1990 also at Wells Fargo & Co. He also serves as a Director of
Sola International and a Director of the Bank of San Francisco.
34
<PAGE>
Section 16 Filings
Section 16(a) of the Securities Exchange Act of 1934, as amended, required
the Company's directors and executive officers, and persons who own more than
ten percent of a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission and NASDAQ. Directors, executive officers and greater than ten
percent holders are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received, the
Company believes that during fiscal 1995, all filing requirements under Section
16(a) applicable to its directors and executive officers were met, except that
Mr. Montgomery's form 4 for November 1995 was filed shortly after its due date
of December 10, 1995.
ITEM 11. EXECUTIVE COMPENSATION
Each director who is not an employee of CDC receives quarterly fees of
$9,000 for serving as a director and $1,500 for each day he attends a meeting of
the Board of Directors and, if on a separate day, of a committee of which he is
a member. Directors may also be compensated for services performed on special
assignments. During 1995, CDC's Board of Directors met 5 times and acted 5 times
by unanimous written consent, and its Audit and Finance Committee met once.
Messrs. Gilleran and Schultz each received $51,000 and Mr. Kruttschnitt received
$49,500 for services performed as a director during 1995.
The following table sets forth information as to all cash compensation paid
by CDC to each of the current executive officers of CDC for services rendered to
CDC and its subsidiaries during fiscal 1995. Also set forth is the current base
rate of pay.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Compensation Long Term Compensation All Other
-----------------------------------------------------------------------------------------------
Name and Principal Year Salary Bonus Other Annual Restricted Options/ Long-Term All Other
Position Compensation Stock SAR's (#) Incentive Compen-
Awards Payouts sation ($)
($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Parker G. Montgomery 1995 $300,000 $ -- -- -- -- -- $ --
COB/CEO 1994 $300,000 $ 200,000 -- -- -- -- $ --
1993 $300,000 $ 75,000 -- -- -- -- $ 938
- ------------------------------------------------------------------------------------------------------------------------------------
Michael J. Braden 1995 $120,000 $ 30,000 -- -- -- -- $ 2,250
Vice President, 1994 $120,000 $ 60,000 -- -- -- -- $ 2,250
Treasurer & Controller 1993 $120,000 $ 67,500 -- -- -- -- $ 1,800
- ------------------------------------------------------------------------------------------------------------------------------------
Ernst Buchert 1995 $220,956 $ 55,025 -- -- -- -- $ --
President 1994 $187,319 $ 46,830 -- -- -- -- $ --
Cabot International 1993 $170,861 $ 42,715 -- -- -- -- $ --
- ------------------------------------------------------------------------------------------------------------------------------------
Linda Maiocco 1995 $120,000 $ 30,000 -- -- -- -- $ 1,820
Executive Vice 1994 $120,000 $ 30,000 -- -- -- -- $ 1,525
President - Cabot USA 1993 $ 10,000 $ -- -- -- -- -- $ --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: The All Other Compensation column includes the Company match to the
401(k) Plan.
The Board of Directors has adopted the Cooper Development Company Incentive
Payment Plan ("Incentive Plan") for key executives and other personnel
(including officers) pursuant to which they may in certain years receive cash
bonuses based on CDC's performance. The Incentive Plan is administered by the
Audit and Finance Committee of the Board of Directors ("Committee"), none of
whose members is an employee of CDC and none of whose members is eligible to
participate in the Incentive Plan. The Committee (or the Chairman of the Board
under guidelines established by the Committee) determines which employees shall
participate in the Incentive Plan and the Incentive Plan category appropriate
for each participant. The Committee may establish corporate performance
objectives expressed in terms of net income, earnings from operations, return on
assets or sales. Depending upon whether such objectives are achieved, a
participant may receive in any one year from 5% to 50% of his salary. Certain
senior corporate and divisional executives may receive up to double such payment
if return on assets and net income or sales or earnings from operations reach
certain additional levels.
35
<PAGE>
The following table sets forth information as to estimated annual benefits
payable upon retirement in specified compensation and years of service
classifications:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
PENSION PLAN TABLE
- ---------------------------------------------------------------------------------
YEARS OF BENEFIT SERVICE
-----------------------------------------------------------
Compensation 15 20 25 30 35
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$100,000 $13,056 $17,408 $21,760 $26,112 $30,464
- ---------------------------------------------------------------------------------
$125,000 $16,806 $22,408 $28,010 $33,612 $39,214
- ---------------------------------------------------------------------------------
$150,000 $20,556 $27,408 $34,260 $41,112 $47,964
- ---------------------------------------------------------------------------------
more than $150,000 $20,556 $27,408 $34,260 $41,112 $47,964
- ---------------------------------------------------------------------------------
</TABLE>
Compensation covered under the plan is generally all taxable income
(excluding moving expenses) plus certain amounts deferred pursuant to salary
reduction agreements (e.g. 401(k)). Compensation in excess of limits set by law
for qualified plans is disregarded. In 1995, this limit was $150,000. For
purposes of determining benefits under the plan, average compensation over a
sixty month period (generally, that period which results in the highest average)
is used. Benefit amounts shown above are annual amounts payable for the life of
the participant, commencing at age 65. Benefits are reduced if retirement is
before age 65. As of December 31, 1995 Mr. Montgomery had eleven years of
benefit service, and Mr. Braden had eight years. Pensionable earnings during
1995 for Messrs. Montgomery and Braden were $150,000 each. Mr. Braden's
indicated service does not include his credited service under the Revo, Inc.
Plan. His accrued benefit of $4,585 from this plan was transferred to the plan
in 1990, and is payable in addition to benefits based on his indicated service.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF CDC
The following table sets forth certain information regarding beneficial
ownership of CDC common stock as of December 31, 1995, (i) by each person who is
known by CDC to own beneficially more than 5% of CDC common stock, (ii) by each
director and (iii) by each executive officer and (iv) by all current directors
and executive officers as a group.
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY OWNED
------------------
OFFICERS, DIRECTORS AND NUMBER PERCENTAGE
5% STOCKHOLDERS OF SHARES OF CLASS
--------------- --------- --------
<S> <C> <C>
James E. Gilleran 5,000 *
Theodore H. Kruttschnitt (1) 1,089,149 30%
1350 Bayshore Highway
Burlingame, California 94010
Parker G. Montgomery (2) 1,089,148 30%
16160 Caputo Drive
Morgan Hill, CA 95037
Jackson L. Schultz 5,000 *
All current directors and executive 2,191,257 60%
officers as a group (five persons)
</TABLE>
(1) Does not include 728,371 shares of common stock issuable upon conversion of
an aggregate of $1,474,049 of the Company's 12% promissory notes. Does not
include 1,000,000 shares of common stock issuable upon exercise of
warrants. Upon conversion of all the Company's 12% Promissory Notes and
exercise of warrants the percentage of class ownership would increase to
approximately 40%. See Item 13 Certain Relationships and Related
Transactions - CDC Loans.
(2) Does not include 728,371 shares of common stock issuable upon conversion of
an aggregate of $1,474,049 of the Company's 12% promissory notes. Does not
include 1,000,000 shares of common stock issuable upon exercise of
warrants. Upon conversion of all the Company's 12% Promissory Notes and
exercise of warrants the percentage of class ownership would increase to
approximately 40%. See Item 13 Certain Relationships and Related
Transactions - CDC Loans.
* Less than one percent.
36
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CDC LOANS
Pursuant to Note Purchase Agreements dated October 15, 1993 and October 29,
1993, the Company sold $902,925 principal amount of promissory notes to each of
Theodore H. Kruttschnitt and Parker G. Montgomery. The notes bore interest at 8%
per annum and are due on demand but no earlier than January 31, 1994. The notes
are convertible into shares of the Company's common stock at a conversion price
of $2.00 per share. Each of Mr. Kruttschnitt and Mr. Montgomery also holds notes
with an aggregate principal amount of $571,124 purchased pursuant to Note
Purchase Agreements date December 11, 1992, February 24, 1993 and May 28, 1993.
These notes are also convertible into shares of the Company's common stock at a
price of $21/16 per share at the holder's option. During fiscal 1995 the Company
paid Messrs. Kruttschnitt and Montgomery $149,182 each in interest.
The Company entered into a Note and Warrant Purchase Agreement (the
"Purchase Agreement") dated November 10, 1995 with Parker G. Montgomery and
Theodore H. Kruttschnitt. The Purchase Agreement provides for the establishment
of a $4,000,000 line of credit in favor of the Company. The line of credit can
be drawn down by the Company in $500,000 increments. Amounts drawn down will be
due on December 31, 2000 and bear interest at the rate of 12% per annum. As
consideration for the establishment of the line of credit, the Company has
issued warrants to each of the lenders to purchase 500,000 shares of Common
Stock of the Company. In addition, for each $1,000 borrowed by the Company from
a lender under the line of credit, the Company has agreed to issue to such
lender warrants to purchase an additional 250 shares of Common Stock. The
exercise price of the warrants is $2.50 per share. The line of credit is an
unsecured obligation.
The transactions covered by the Purchase Agreement were negotiated and
approved by a Special Committee of the Board of Directors of the Company, with
the assistance of an independent investment banker and independent legal
counsel. The Company plans to use amounts drawn under the lines of credit to
repay existing accounts payable and for working capital. As of December 31,
1995, the Company had drawn $2,000,000 under the line of credit and had issued
warrants to purchase 750,000 shares of its Common Stock to each of Mr.
Montgomery and Mr. Kruttschnitt.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents as part of this report:
1. Financial Statements
The Consolidated Financial Statements, Notes thereto, Financial Statement
Schedules and Independent Auditors' Report thereon are included in Part II,
Item 8 of this report.
2. Financial Statement Schedules
<TABLE>
<CAPTION>
SCHEDULE
NUMBER DESCRIPTION
------ -----------
<S> <C>
II Valuation and qualifying accounts
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are not applicable and, therefore, have been omitted.
37
<PAGE>
3. Exhibits
EXHIBIT
NUMBER DESCRIPTION
------ -----------
3(a) Restated Certificate of Incorporation of Cooper Development Company,
as amended, incorporated by reference to Exhibit 19 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended July 31,
1987.
3(b) Certificate of Designation, Preference and Rights of a Series A Junior
Participating Preferred Stock, incorporated by reference to Exhibit
3(b) to the Company's Annual Report on Form 10-K for the fiscal year
ended October 31, 1987.
3(c) By-Laws of CooperBiomedical, Inc. (currently Cooper Development
Company) incorporated by reference to Exhibit 3(b) to the Company's
Registration Statement on Form S-1 (No. 2-84122).
4(a) Rights Agreement dated as of December 15, 1987, between Cooper
Development Company and the First National Bank of Boston,
incorporated by reference to Exhibit 4.1 to the Company's Current
Report on Form 8-K dated December 15, 1987.
4(b) First Amendment to Rights Agreement dated as of August 5, 1991 between
Cooper Development Company and the First National Bank of Boston
incorporated by reference to Exhibit 4 to the Company's Current Report
on Form 8-K dated August 1, 1991.
4(c) Second Amendment to Rights Agreement dated as of November 19, 1991
between Cooper Development Company and the First National Bank of
Boston incorporated by reference to Exhibit 3 to the Company's Current
Report on Form 8-K dated November 19, 1991.
4(d) Third Amendment to Rights Agreement dated as of December 3, 1992
between Cooper Development Company and the First National Bank of
Boston incorporated by reference to Exhibit 4 to the Company's Current
Report on Form 8-K dated December 3, 1992.
4(e) Fourth Amendment to Rights Agreement dated as of November 1, 1993
between Cooper Development Company and the First National Bank of
Boston incorporated by reference to Exhibit 5 to the Company's Current
Report on Form 8-K dated October 15, 1993.
4(f) Fifth Amendment to Rights Agreement dated as of November 10, 1995
between Cooper Development Company and the First National Bank of
Boston incorporated by reference to Exhibit 99.6 to the Company's
Current Report on Form 8-K dated November 10, 1995.
10(a) Cooper Development 401(k) Plan incorporated herein by reference to
Exhibit 10(j) to the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1991.
10(b) Note Purchase Agreement dated as of December 11, 1992 between Cooper
Development Company and Theodore H. Kruttschnitt and Parker G.
Montgomery incorporated by reference to Exhibit 1 to the Company's
Current Report on Form 8-K dated December 11, 1992.
10(c) Note Purchase Agreement dated as of February 24, 1993 between Cooper
Development Company and Theodore H. Kruttschnitt and Parker G.
Montgomery incorporated by reference to Exhibit 10(c) to the Company's
Annual Report on Form 10-K for the fiscal year ended October 31, 1993.
38
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
10(d) Note Purchase Agreement dated as of May 28, 1993 between Cooper
Development Company and Theodore H. Kruttschnitt incorporated by
reference to Exhibit 1 to the Company's Current Report on Form 8-K
dated October 15, 1993.
10(e) Note Purchase Agreement dated as of October 15, 1993 between Cooper
Development Company and Theodore H. Kruttschnitt incorporated by
reference to Exhibit 6 to the Company's Current Report on Form 8-K
dated October 15, 1993.
10(f) Note Purchase Agreement dated as of October 29, 1993 between Cooper
Development Company and Parker G. Montgomery incorporated by reference
to Exhibit 7 to the Company's Current Report on Form 8-K dated October
15, 1993.
10(g) Stock Purchase Agreement dated as of March 17, 1994 between the
Company and Michael B. Joseph, as Chapter 7 Trustee of the Cooper
laboratories, Inc. Liquidating Trust incorporated by reference to
Exhibit 7(c) to the Company's Current Report on Form 8-K dated April
27, 1994.
10(h) Note and Warrant Purchase Agreement dated November 10, 1995 by and
between the Company, Theodore H. Kruttschnitt and Parker G. Montgomery
incorporated by reference to Exhibit 99.7 to the Company's report on
Form 8-K dated November 10, 1995.
22 Subsidiaries of Cooper Development Company.
25 Powers of Attorney.
(b) The following report on Form 8-K was filed by the Company during the
period from September 30, 1995, through and including December 31,
1995.
<TABLE>
<CAPTION>
Date of Report Item
-------------- ----
<S> <C>
November 10, 1995 Item 5, Other Events
</TABLE>
39
<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 ON APRIL 12, 1996.
COOPER DEVELOPMENT COMPANY
By: Michael J. Braden/S/
------------------------------
Michael J. Braden
Vice President, Treasurer,
and Controller
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 INDICATED ON APRIL 12, 1996.
SIGNATURE TITLE
--------- -----
Vice President, Treasurer and
Michael J. Braden Controller (Principal Financial
- --------------------------------------------
(MICHAEL J. BRADEN) and Accounting Officer)
James E. Gilleran* Director
- --------------------------------------------
(JAMES E. GILLERAN)
Theodore H. Kruttschnitt* Director
- --------------------------------------------
(THEODORE H. KRUTTSCHNITT)
Chairman of the Board of
Parker G. Montgomery* Directors and President
- --------------------------------------------
(PARKER G. MONTGOMERY) (Principal Executive Officer)
Jackson L. Schultz* Director
- --------------------------------------------
(JACKSON L. SCHULTZ)
*By: Michael J. Braden
- --------------------------------------------
(MICHAEL J. BRADEN, ATTORNEY-IN-FACT)
40
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby make,
constitute and appoint MICHAEL J. BRADEN and PARKER G. MONTGOMERY and each of
them, acting together or alone, his true and lawful attorneys-in-fact and agents
with full power of substitution, in his name, place and stead to execute on his
behalf, in his capacity as a Director and/or officer of Cooper Development
Company, an annual report on Form 10-K for the fiscal year ended December 31,
1995 to be filed with the Securities and Exchange Commission ("SEC") pursuant to
the Securities Exchange Act of 1934, as amended, (the "1934 Act") and any and
all other instruments, including any amendments thereto, which said
attorneys-in-fact and agents deem necessary or advisable to enable Cooper
Development Company to comply with the 1934 Act and the rules, regulations and
requirements of the SEC in respect thereof, giving and granting to said
attorneys-in-fact and agents, and each of them, acting together or alone, full
power and authority to do and perform each and every act and thing whatsoever
necessary or appropriate to be done in and about the premises as fully to all
intents as he might or would do if personally present at the doing thereof, with
full power of substitution and revocation, hereby ratifying and confirming all
that his said attorneys-in-fact or substitutes may or shall lawfully do or cause
to be done by virtue hereof.
THIS POWER OF ATTORNEY expires on December 31, 1996.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the date
indicated below.
Parker G. Montgomery/S/
-----------------------
Parker G. Montgomery
Dated:April 10, 1996.
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby make,
constitute and appoint MICHAEL J. BRADEN and PARKER G. MONTGOMERY and each of
them, acting together or alone, his true and lawful attorneys-in-fact and agents
with full power of substitution, in his name, place and stead to execute on his
behalf, in his capacity as a Director and/or officer of Cooper Development
Company, an annual report on Form 10-K for the fiscal year ended December 31,
1995 to be filed with the Securities and Exchange Commission ("SEC") pursuant to
the Securities Exchange Act of 1934, as amended, (the "1934 Act") and any and
all other instruments, including any amendments thereto, which said
attorneys-in-fact and agents deem necessary or advisable to enable Cooper
Development Company to comply with the 1934 Act and the rules, regulations and
requirements of the SEC in respect thereof, giving and granting to said
attorneys-in-fact and agents, and each of them, acting together or alone, full
power and authority to do and perform each and every act and thing whatsoever
necessary or appropriate to be done in and about the premises as fully to all
intents as he might or would do if personally present at the doing thereof, with
full power of substitution and revocation, hereby ratifying and confirming all
that his said attorneys-in-fact or substitutes may or shall lawfully do or cause
to be done by virtue hereof.
THIS POWER OF ATTORNEY expires on December 31, 1996.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the date
indicated below.
James E. Gilleran/S/
--------------------
James E. Gilleran
Dated:April 10, 1996.
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby make,
constitute and appoint MICHAEL J. BRADEN and PARKER G. MONTGOMERY and each of
them, acting together or alone, his true and lawful attorneys-in-fact and agents
with full power of substitution, in his name, place and stead to execute on his
behalf, in his capacity as a Director and/or officer of Cooper Development
Company, an annual report on Form 10-K for the fiscal year ended December 31,
1995 to be filed with the Securities and Exchange Commission ("SEC") pursuant to
the Securities Exchange Act of 1934, as amended, (the "1934 Act") and any and
all other instruments, including any amendments thereto, which said
attorneys-in-fact and agents deem necessary or advisable to enable Cooper
Development Company to comply with the 1934 Act and the rules, regulations and
requirements of the SEC in respect thereof, giving and granting to said
attorneys-in-fact and agents, and each of them, acting together or alone, full
power and authority to do and perform each and every act and thing whatsoever
necessary or appropriate to be done in and about the premises as fully to all
intents as he might or would do if personally present at the doing thereof, with
full power of substitution and revocation, hereby ratifying and confirming all
that his said attorneys-in-fact or substitutes may or shall lawfully do or cause
to be done by virtue hereof.
THIS POWER OF ATTORNEY expires on December 31, 1996.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the date
indicated below.
Jackson L. Schultz/S/
---------------------
Jackson L. Schultz
Dated:April 10, 1996.
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby make,
constitute and appoint MICHAEL J. BRADEN and PARKER G. MONTGOMERY and each of
them, acting together or alone, his true and lawful attorneys-in-fact and agents
with full power of substitution, in his name, place and stead to execute on his
behalf, in his capacity as a Director and/or officer of Cooper Development
Company, an annual report on Form 10-K for the fiscal year ended December 31,
1995 to be filed with the Securities and Exchange Commission ("SEC") pursuant to
the Securities Exchange Act of 1934, as amended, (the "1934 Act") and any and
all other instruments, including any amendments thereto, which said
attorneys-in-fact and agents deem necessary or advisable to enable Cooper
Development Company to comply with the 1934 Act and the rules, regulations and
requirements of the SEC in respect thereof, giving and granting to said
attorneys-in-fact and agents, and each of them, acting together or alone, full
power and authority to do and perform each and every act and thing whatsoever
necessary or appropriate to be done in and about the premises as fully to all
intents as he might or would do if personally present at the doing thereof, with
full power of substitution and revocation, hereby ratifying and confirming all
that his said attorneys-in-fact or substitutes may or shall lawfully do or cause
to be done by virtue hereof.
THIS POWER OF ATTORNEY expires on December 31, 1996.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the date
indicated below.
Theodore H. Kruttschnitt/S/
---------------------------
Theodore H. Kruttschnitt
Dated:April 10, 1996.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 2,780
<SECURITIES> 0
<RECEIVABLES> 6,159
<ALLOWANCES> 1,948
<INVENTORY> 5,200
<CURRENT-ASSETS> 12,732
<PP&E> 5,197
<DEPRECIATION> 1,838
<TOTAL-ASSETS> 21,069
<CURRENT-LIABILITIES> 23,456
<BONDS> 0
0
0
<COMMON> 447
<OTHER-SE> (4,777)
<TOTAL-LIABILITY-AND-EQUITY> 21,069
<SALES> 20,160
<TOTAL-REVENUES> 20,160
<CGS> 11,331
<TOTAL-COSTS> 11,331
<OTHER-EXPENSES> 2,750
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 359
<INCOME-PRETAX> (11,467)
<INCOME-TAX> 272
<INCOME-CONTINUING> (11,739)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,739)
<EPS-PRIMARY> (3.23)
<EPS-DILUTED> (3.23)
</TABLE>
