As Filed With the Securities and Exchange Commission on August 9, 1995
Registration No. 33-60123
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
COLUMBIA LABORATORIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 5122 59-2758596
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
2665 SOUTH BAYSHORE DRIVE
MIAMI, FLORIDA 33133
(305) 860-1670
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Norman M. Meier, President
Columbia Laboratories, Inc.
2665 South Bayshore Drive
Miami, Florida 33133
(305) 860-1670
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Stephen M. Besen, Esq.
Weil, Gotshal & Manges
767 Fifth Avenue
New York, New York 10153
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, as amended, please check the following box [ x ].
<PAGE>
The Registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date or dates as the Commission,
acting pursuant to said Section 89(a), may determine.
Pursuant to Rule 416, there are also being registered such
additional shares of Common Stock as may become issuable pursuant to
anti-dilution provisions of the Warrants.
<PAGE>
COLUMBIA LABORATORIES, INC.
Cross Reference Sheet Showing the Location In the Prospectus of Information
Required by Items of Form S-1
ITEMS AND CAPTION LOCATION IN PROSPECTUS
----------------- ----------------------
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus Outside Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus Inside Front and Outside Back
Cover Pages
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Outside Front Cover Page
6. Dilution Dilution
7. Selling Security Holders Selling Securityholders
8. Plan of Distribution Plan of Distribution
9. Description of Securities to be
Registered Description of Securities
10. Interests of Named Experts and
Counsel Not Applicable
11. Information with respect to the
Registrant The Company; Business; Properties;
Legal Proceedings; Selected
Financial Data; Management's
Discussion and Analysis of
Financial Condition and Results of
Operations; Price Range of Common
Stock; Dividend Policy; Changes in
and Disagreements with Accountants
on Accounting and Financial
Disclosure; Management; Security
Ownership of Certain Beneficial
Owners and Management; Certain
Relationships and Related
Transactions; Selling
Securityholders; Consolidated
Financial Statements
12. Disclosure of Commission Position
on Indemnification for Securities Act
Liabilities Indemnification of Officers and
Directors
<PAGE>
COLUMBIA LABORATORIES, INC.
PROSPECTUS
300,000 Shares of Common Stock Issuable Upon Exercise of Certain Warrants
45,000 Shares of Common Stock Issuable in Payment of Legal Services
The Prospectus relates to (i) 300,000 shares of Common Stock, $.01
par value per share ("Common Stock"), issuable upon exercise of a warrant
to purchase 300,000 shares at $5.3125 per share and (ii) 45,000 shares of
Common Stock issuable in payment of legal services. The exercise price of
the warrants is subject to adjustment in certain events. The shares
registered hereby are collectively referred to as the "Shares".
The Shares offered pursuant to this Prospectus may be sold from
time to time by the selling securityholders ("Selling Securityholders"), or
by their transferees, in certain instances. No underwriting arrangements
have been entered into for the sale of the Shares. Sales may be made from
time to time on the American Stock Exchange at prices prevailing at the
time of sale, or in private transactions at negotiated prices, and any
commissions paid or discounts given will be those customary in the
transactions involved.
The Selling Securityholders and brokers and dealers through whom
such securities are sold may be deemed "underwriters" within the meaning of
the Securities Act of 1933, as amended ("Securities Act"), with respect to
such securities, and any profits realized or commissions received may be
deemed underwriting compensation. The Company has agreed to indemnify the
Selling Securityholders against certain liabilities, including liabilities
under the Securities Act.
The Company will not receive any of the proceeds from the sale of the
Shares by the Selling Securityholders. The Company will receive the
proceeds from the exercise of the warrants, which would aggregate
$1,593,750, if, and when, all of the warrants are exercised. There can be no
assurance that any of the warrants will be exercised. Expenses of this
offering, estimated at $5,500 are payable by the Company. See "Selling
Securityholders."
The Company's Common Stock trades on the American Stock Exchange
("AMEX") under the symbol COB. On August __, 1995, the last reported sale
price of the Company's Common Stock on the American Stock Exchange was
$_.__. See "Price Range of Common Stock."
THE SECURITIES OFFERED HEREBY INVOLVE
A HIGH DEGREE OF RISK.
SEE "RISK FACTORS ON PAGES 3-7."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS
THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is August __, 1995.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 under Section 15(d) thereof and in
accordance therewith files reports and other information with the
Securities and Exchange Commission ("Commission"). In addition, the Company
has filed with the Commission a registration statement on Form S-1 under
the Securities Act covering the securities offered by this Prospectus. Such
reports and other information can be inspected and copied at public
reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C.; Northwestern Atrium
Center, 500 W. Madison Street, Suite 1400, Chicago, Illinois; and 7 World
Trade Center, Suite 1300, New York, New York. Copies of such material can
be obtained from the Public Reference Section of the Commission, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
In addition, the Company's Common Stock trades on the American Stock
Exchange and reports, proxy statements and other information concerning the
Company can be inspected at the offices of the American Stock Exchange, 86
Trinity Place, New York, New York.
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<PAGE>
THE COMPANY
Columbia Laboratories, Inc. (the "Company") was incorporated as a
Delaware corporation in December 1986. The Company's principal executive
offices are located at 2665 South Bayshore Drive, Miami, Florida 33133, and
its telephone number is (305) 860-1670. The Company's subsidiaries, all of
which are wholly-owned, are Columbia Laboratories (Bermuda) Ltd. ("Columbia
Bermuda"), Columbia Laboratories (France) SARL ("Columbia France"),
Columbia Laboratories (UK) Limited ("Columbia UK"), Columbia Laboratories
(Ireland) Limited ("Columbia Ireland") and Columbia Research Laboratories,
Inc. ("Columbia Research").
The Company's objective is to develop on a worldwide basis a
portfolio of women's prescription and over-the-counter products, including
those which help prevent sexually transmitted diseases. Columbia's products
primarily utilize the Company's patented bioadhesive delivery technology,
the Bioadhesive Delivery System ("See "Business-Products").
Formulated products utilizing the Bioadhesive Delivery System
consist principally of a polymer, polycarbophil, and an active ingredient.
The Bioadhesive Delivery System is based upon the principle of bioadhesion,
a process by which the polymer adheres to epithelial surfaces and to mucin,
a naturally occurring secretion of the mucous membranes. The polymer
remains attached to epithelial surfaces and/or the mucin and is discharged
upon normal cell turnover or upon the detachment of the mucin from the
mucous membranes, a physiological process which, depending upon the area of
the body, occurs every 12 to 72 hours. This extended period of attachment
permits the Bioadhesive Delivery System to be utilized in products when
extended duration of effectiveness is desirable or required.
The Company's initial efforts have applied the technology to
women's health care products that can be sold as cosmetics and
over-the-counter drugs, which do not require governmental or regulatory
approval. The Company has focused on women's health care because of the
significant number of women--particularly of post-menopausal age--whose
health and hygiene needs have not been met by available products and
because the Company has found vaginal delivery to be particularly
effective. The Company intends to continue to develop products that improve
the delivery of previously approved drugs.
RISK FACTORS
An investment in the securities offered hereby is speculative and
involves a high degree of risk. The securities should be purchased only by
persons who are sophisticated in financial and business matters and who can
afford the loss of their entire investment. In addition, prospective
investors should carefully consider, along with the other information
contained herein, the following special considerations and risk factors in
analyzing the offering.
1. HISTORY OF LOSSES; SHORTAGE OF WORKING CAPITAL. The Company
sustained a net loss of $12,993,889 for the fiscal year ended December 31, 1994,
which was primarily the result of research and development activities. There can
be no assurance that the Company's current funds and funds generated from
operations will be sufficient to achieve the Company's research and development
plans. In the event that the Company is unable to generate sufficient funds from
sales of its current products, the Company expects to need additional funds to
continue and complete research and development, conduct pre-clinical and
clinical trials and apply for regulatory approval, if necessary. In such event,
if the Company is unable to obtain such additional funds, the Company may be
unable to continue operations. In addition, companies engaging in the
development and commercialization of prescription and over-the-counter drugs and
cosmetics frequently
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<PAGE>
encounter various unanticipated problems, including development, regulatory,
manufacturing, distribution and marketing difficulties. The failure to
adequately address such difficulties would adversely affect the Company's
prospects.
2. DEPENDENCE UPON STRATEGIC ALLIANCE AGREEMENTS. The Company's
original commercialization strategy was to market Replens through its own
sales force. In 1991, in order to gain mass marketing power and access to
worldwide markets quickly, the Company developed and executed an
alternative marketing strategy. The Company entered into strategic alliance
agreements with various companies for the distribution and marketing of its
bioadhesive products in certain countries. There can be no assurance that
any of the companies with whom the Company has entered into these
agreements will aggressively or successfully market the products. The
Company's success to a great extent is dependent on the marketing efforts
of its strategic alliance partners, over which the Company has limited
ability to influence. The failure of these companies to successfully market
the products could have a materially adverse effect on the Company's cash
flow. The failure of the Company to satisfy its obligations under any of
these agreements may result in modifications of the terms or termination of
the relevant agreement. There can be no assurance that the Company will
have the ability to satisfy all of its obligations under the agreements.
Modification or termination of these agreements could have a materially
adverse effect on the business and financial condition of the Company.
As part of these agreements, certain of the strategic alliance
partners have the right of first option or right of first refusal, in the
applicable countries, to license future gynecological products developed by
the Company. The Company is currently in discussions with these partners
and other companies regarding the potential licensing of other products.
See "Business--Products". There can be no assurance that the Company will
be able to enter into any such agreements or that any upfront payments or
ongoing royalties will be received or whether the partners will
aggressively or successfully market these products.
3. COMPETITION. While the Company has entered into the strategic
alliance agreements for the marketing of its bioadhesive products in
certain countries with large pharmaceutical companies, there can be no
assurance that the Company and its partners will have the ability to
compete successfully. The Company's success to a great extent is dependent
on the marketing efforts of its strategic alliance partners, over which the
Company has limited ability to influence. The markets which the Company and
its strategic alliance partners operate in or intend to enter are
characterized by intense competition. The Company and its partners compete
against established pharmaceutical and consumer product companies which
market products addressing similar needs. In addition, numerous companies
are developing or, in the future, may develop enhanced delivery systems and
products competitive with the Company's present and proposed products. Some
of the Company's and its partners' competitors possess greater financial,
research and technical resources than the Company or its partners.
Moreover, these companies may possess greater marketing capabilities than
the Company or its partners, including the resources to implement extensive
advertising campaigns.
4. GOVERNMENT REGULATION. The Company is subject to both the
applicable regulatory provisions of the Food and Drug Administration
("FDA") in the United States and the applicable regulatory agencies in
those foreign countries where its products are manufactured and/or
distributed.
As in the United States, a number of foreign countries require
pre-marketing approval by health regulatory authorities. Requirements for
approval may differ from country to country and may involve different types
of testing. There can be substantial delays in obtaining required approvals
from regulatory authorities after applications are filed. Even after
approvals are obtained, further delays may be encountered before the
products become commercially available.
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<PAGE>
5. FDA REVIEW REGARDING LEGATRIN(REGISTERED TRADEMARK) The FDA, in 1988,
initiated a review to determine whether drugs containing quinine sulfate for
night leg cramps, an ingredient in the Company's product Legatrin, should
remain on the market. The FDA issued a final monograph, which became effective
on February 22, 1995, restricting manufacturer's from selling over-the-counter
quinine sulfate based-products for the relief of night leg cramps. As a
result, in February 1995 the Company introduced New Advanced Formula
Legatrin PM(TRADEMARK), which does not contain quinine sulfate. Legatrin PM
provides relief of occasional pain and sleeplessness associated with minor
muscle aches such as leg cramps; however, it is not known at this time
whether consumers will find Legatrin PM as effective as Legatrin. Sales
of Legatrin and gross profit derived from sales of Legatrin approximated $4
million and $3 million, respectively, for each of the three years ended
December 31, 1994. Sales of Legatrin represented approximately 49%, 48% and
47% of the Company's net sales in 1994, 1993 and 1992, respectively.
There can be no assurance as to what future sales of Legatrin PM will be.
6. TECHNOLOGICAL CHANGE; PATENT AND TRADEMARK PROTECTION AND
PROPRIETARY INFORMATION. Notwithstanding the patents underlying the
Bioadhesive Delivery System, other companies may independently develop
equivalent or superior technologies or processes and may obtain patents or
similar rights with respect thereto. Moreover, the Company may determine
for financial or other reasons not to enforce its rights under the patents.
Although the Company believes that the patented technology has been
independently developed and does not infringe on the patents of others,
there can be no assurance that the technology does not and will not
infringe on the patents of others. In the event of infringement, the
Company would, under certain circumstances, be required to modify the
processes or obtain a license and/or pay a license fee. There can be no
assurance that the Company would be able to do either of the foregoing in a
timely manner or upon acceptable terms and conditions, and failure to do
any of the foregoing could have a materially adverse effect on the Company.
The Company has registered "Replens" as a trademark in the United
States, the United Kingdom and 49 other countries. Applications are pending
in an additional six countries. Applications for the trademarks "Advantage
24" and "Crinone" have recently been filed in over 50 countries. There can
be no assurance that such trademarks will afford the Company adequate
protection or that the Company will have the financial resources to enforce
its rights under such trademarks.
The Company also relies on confidentiality and nondisclosure
agreements. There can be no assurance that other companies will not acquire
information which the Company considers to be proprietary. Moreover, there
can be no assurance that other companies will not independently develop
know-how comparable or superior to that of the Company.
7. UNCERTAINTY OF DEVELOPMENT OF FORMULATED PRODUCTS UTILIZING THE
BIOADHESIVE DELIVERY SYSTEM. Several potential products utilizing the
Bioadhesive Delivery System remain in the early stages of development and
remain subject to all the risks inherent in the development of products
based on innovative technologies, including unanticipated development
problems, as well as the possible insufficiency of funds to undertake
development which could result in abandonment or substantial change in the
development of a specific formulated product. In addition, ethical products
developed by the Company will require pre-marketing regulatory approval.
Other than Replens and Advantage 24, which are fully developed, there can
be no assurance that formulated products utilizing the Bioadhesive Delivery
System can be successfully developed, can be developed on a timely basis or
will prove to be more effective than formulated products based on existing
or other newly developed technologies.
8. DEPENDENCE UPON PRINCIPAL SUPPLIER. Medical grade, cross-linked
polycarbophil, the polymer used in the Company's products utilizing the
Bioadhesive Delivery System, is currently available from only one supplier,
B.F. Goodrich Company ("Goodrich"). The Company believes that Goodrich will
supply as much of the material as the Company may require because the
Company's products rank among the highest value-added uses of the polymer.
There can be no assurance that Goodrich will continue to
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<PAGE>
supply the product. In the event that Goodrich cannot or will not supply enough
of the product to satisfy the Company's needs, the Company will be required to
seek alternative sources of polycarbophil. There can be no assurance that an
alternative source of polycarbophil will be obtained.
9. DEPENDENCE UPON KEY PERSONNEL. The success of the Company will
be largely dependent on the personal efforts of Norman M. Meier, its
President and Chief Executive Officer; William J. Bologna, its Chairman
and Nicholas A. Buoniconti, its Vice Chairman and Chief Operating
Officer. The Company has entered into an employment agreement with Mr.
Buoniconti which expires on April 15, 1997. The success of the Company is
also dependent upon certain other key personnel and the Company's ability
to hire additional qualified marketing, technical and other personnel.
There can be no assurance that the Company will be able to hire and retain
such additional employees when needed.
10. POTENTIAL PRODUCT LIABILITY. The Company may be exposed to
product liability claims by consumers. Although the Company presently
maintains product liability insurance coverage in the amount of $10
million, there can be no assurance that such insurance will be sufficient
to cover all possible liabilities. In the event of a successful suit
against the Company, insufficiency of insurance coverage could have a
materially adverse effect on the Company. In addition, certain food and
drug retailers require minimum product liability insurance coverage as a
condition precedent to purchasing or accepting products for retail
distribution. Failure to satisfy such insurance requirements could impede
the ability of the Company to achieve broad retail distribution of its
proposed products, which would have a materially adverse effect upon the
business and financial condition of the Company.
11. NO DIVIDENDS IN FORESEEABLE FUTURE ON COMMON, SERIES A OR
SERIES B STOCK. The Company has never paid a cash dividend on its Common
Stock and does not anticipate the payment of cash dividends in the
foreseeable future. The Company intends to retain any earnings for use in
the development and expansion of its business.
The Series A Preferred Stock pays cumulative dividends at a rate of
8% per annum payable quarterly. As of June 30, 1995, dividends of $92,563
have been earned but have not been declared and are included in other
long-term liabilities in the accompanying consolidated balance sheet.
12. EFFECT ON MARKET PRICE OF SALES OF SUBSTANTIAL AMOUNTS OF
COMMON STOCK. As of July 31, 1995, the Company had 25,679,354 shares of
Common Stock outstanding, of which 21,498,299 shares are freely tradeable.
In addition, the Company had outstanding Series A and Series B Preferred
Stock and outstanding warrants and options then exercisable, that if
exercised or converted would result in the issuance of an additional
1,933,396 shares of Common Stock, all of which have been registered under
the Securities Act and; accordingly, when issued will be freely tradeable.
The exercise and conversion of these securities is likely to dilute the
then book value per share of the Company's Common Stock. In addition, the
existence of these securities may adversely affect the terms on which the
Company can obtain additional equity financing. Moreover, the holders of
these securities are likely to exercise their rights at a time when the
Company would otherwise be able to obtain capital on terms more favorable
than those provided by their exercise prices. Approximately 4,175,404
shares of the Company's Common Stock that are restricted securities may
currently be sold pursuant to Rule 144. Sales of substantial amounts of
Common Stock in the open market could have a significant adverse effect on
the market price of the Company's Common Stock.
13. AUTHORITY TO ISSUE ADDITIONAL PREFERRED STOCK. The Company's
Certificate of Incorporation authorizes the issuance of preferred stock
with such designation, rights and preferences as may be determined from
time to time by the Board of Directors. The Board of Directors is
empowered, without stockholder approval, to issue preferred stock with
dividend, liquidation, conversion, voting or other rights which could
adversely affect the voting power or other rights of the holders of the
Company's Common
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Stock or outstanding series of preferred stock. In the event of issuance of
additional shares of the Company's preferred stock, such shares could be
utilized, under certain circumstances, as a method of discouraging, delaying
or preventing a change in control of the Company. There can be no assurance
that the Company will not, under certain circumstances, issue additional shares
of its preferred stock. See "Description of Securities."
14. DEPENDENCE UPON THIRD-PARTY MANUFACTURING ARRANGEMENT. The
Company currently relies on third-party arrangements for the manufacture of
its products. There can be no assurance that third-party manufacturers will
be able to satisfy the Company's needs. The Company's dependence upon third
parties for the manufacture of its products could have an adverse effect on
the Company's profit margins and its ability to deliver its products on a
timely and competitive basis.
15. NET OPERATING LOSS ABSORPTION LIMITATION. As of December 31,
1994, the Company had available net operating loss carryforwards of
approximately $40 million to offset its future U.S. taxable income. Under
Section 382 of the Internal Revenue Code of 1986, as amended ("Code"),
utilization of prior net operating loss carryforwards is limited after an
ownership change to the product of (a) an annual amount equal to the value
of the loss corporation's outstanding stock at the date of the ownership
change multiplied by (b) the federal long-term tax exempt bond rate. While
the Company's initial public offering of Common Stock (when combined with
prior and subsequent issuances and transfers of the Company's capital stock
since January 1, 1987) probably did constitute an ownership change, the
resulting annual limitation on utilization of the Company's net operating
loss carryforwards is not expected to cause a significant portion of the
Company's present net operating loss carryforwards to become unavailable
for offset against the Company's income on a long-term basis, although
depending upon the precise method utilized to compute the value of the
Company at the date of the ownership change, the Code Section 382
limitation may significantly limit utilization of such net operating losses
in any one year.
USE OF PROCEEDS
The Company will receive no proceeds from the sale of the Shares,
but will receive proceeds of $1,593,750, if, and when, all of the warrants are
exercised. There can be no assurance that any of the warrants will be
exercised. Expenses of this offering, estimated at $5,500 are payable by
the Company. The Company anticipates that any proceeds received from the
exercise of the warrants will be used for working capital and general
corporate purposes.
DILUTION
As of June 30, 1995, the net tangible book value of the Company
was $4,289,225. After consideration of the $311,500 liquidation
preference of the outstanding Series A and B Preferred Stock, the tangible
book value of the Common Stock was $3,977,725 or $.15 per share of Common
Stock. After giving effect to the conversion of the Series A and B
Preferred Stock and exercise of all the outstanding options and warrants,
the pro forma net tangible book value of the Company's Common Stock would
be $.84 per share, representing immediate dilution of $4.47 per share to
the individuals exercising the warrants.
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BUSINESS
GENERAL DESCRIPTION OF BUSINESS
The Company was incorporated in December 1986 for the purpose of
developing, marketing and selling pharmaceutical products utilizing
recognized, proven and effective ingredients. The Company's objective is to
develop on a worldwide basis a portfolio of women's prescription and
over-the-counter products, including those which help prevent sexually
transmitted diseases. Columbia's products primarily utilize the Company's
patented bioadhesive delivery technology, the Bioadhesive Delivery System.
Formulated products utilizing the Bioadhesive Delivery System
consist principally of a polymer, polycarbophil, and an active ingredient.
The Bioadhesive Delivery System is based upon the principle of bioadhesion,
a process by which the polymer adheres to epithelial surfaces and to mucin,
a naturally occurring secretion of the mucous membranes. The polymer
remains attached to epithelial surfaces and/or the mucin and is discharged
upon normal cell turnover or upon the detachment of the mucin from the
mucous membranes, a physiological process which, depending upon the area of
the body, occurs every 12 to 72 hours. This extended period of attachment
permits the Bioadhesive Delivery System to be utilized in products when
extended duration of effectiveness is desirable or required.
The Company's initial efforts have applied the technology to
women's health care products that can be sold as cosmetics and
over-the-counter drugs, which do not require governmental or regulatory
approval. The Company has focused on women's health care because of the
significant number of women--particularly of post-menopausal age--whose
health and hygiene needs have not been met by available products and
because the Company has found vaginal delivery to be particularly
effective. The Company intends to continue to develop products that improve
the delivery of previously approved drugs.
The Company is currently engaged solely in one business segment --
the development and sale of pharmaceutical products and cosmetics. See
footnote 7 to the consolidated financial statements for information on
foreign operations.
PRODUCTS
REPLENS(REGISTERED TRADEMARK). In November 1989, the Company introduced
Replens, the first product utilizing the Bioadhesive Delivery System, in the
United States. Replens replenishes vaginal moisture on a sustained basis and
relieves the discomfort associated with vaginal dryness. The Company
introduced Replens in England and Ireland in December 1990. The Company's
original commercialization strategy was to market Replens through its own
sales force.
In 1991, in an attempt to gain mass marketing power and access to
worldwide markets quickly, the Company developed and executed an
alternative marketing strategy. The Company has entered into strategic
alliance agreements for the marketing and distribution of Replens with: (i)
Warner-Lambert Company under which Warner-Lambert Company markets Replens
in the United States; (ii) subsidiaries of Johnson and Johnson under which
those subsidiaries market Replens in Italy and will market Replens in
Belgium; (iii) Roussel-UCLAF under which Roussel markets Replens in France,
certain French overseas territories and Greece; (iv) Sterling Drug Inc.
under which Sterling markets Replens in Japan, South America, Central
America, Australia, New Zealand, and other Pacific Rim nations; (v) Teva
Pharmaceutical under which Teva will market Replens in Israel; (vi) Logos
Pharmaceuticals (Pty) Limited under which Logos markets Replens in South
Africa and the sixteen countries of sub-Saharan Africa; (vii) LASA SA under
which LASA SA markets Replens in Spain; (viii) Unipath Ltd. under which
Unipath markets Replens in the United Kingdom; (ix) Roberts Pharmaceutical
Corporation under which Roberts will market Replens in Canada; (x) Vifor SA
under which Vifor will market Replens in Switzerland and Liechtenstein;
(xi) Hermes H/F under
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which Hermes is currently marketing Replens in Iceland and (xii) a Swedish
pharmaceutical company that has created a joint venture which markets Replens
in Sweden and other Scandinavian countries.
As a result of having marketed Replens in the United States and
England, which demonstrated the market for Replens, the Company has been
able to negotiate agreements with its strategic alliance partners pursuant
to which the Company manufactures Replens and in return receives as revenue
approximately 24% to 30% of its partners' selling price of the product.
These companies are responsible for all marketing and distribution costs of
Replens in their territories. The Company has been informed that its
strategic alliance partners expect to spend, in aggregate, over $20 million
during 1995 marketing Replens and Advantage 24; however, there can be no
assurance that such amounts will be spent or if spent will have a favorable
impact on the Company's sales. Prior to entering into these strategic
alliance agreements, the Company lost money on Replens as a result of the
significant amounts the Company was required to spend on product promotion.
As part of these agreements, certain of the strategic alliance partners
have the right of first option or right of first refusal, in the applicable
countries, to license future gynecological products developed by the
Company.
In December 1992, the United Kingdom Medicines Control Agency
("MCA") granted a General Sales License for Replens to be sold in the UK
for the symptomatic relief of vaginal dryness in postmenopausal women and,
when used regularly, for the reduction of pH to levels normally found in
premenopausal women. Replens had previously been sold in the UK under the
cosmetic regulations which restricted the claims that the Company could
make for the product. The Company believes that Replens is now the only
non-hormonal product approved for vaginal moisturization and reduction of
pH in the UK. In the United States, Replens is sold as a cosmetic.
In February 1994, the European Union recommended to its member
countries, based on consultation from each of the countries, that Replens
be approved as a drug. Currently, eleven of the twelve countries agree with
the European Union's recommendation and the Company believes that licenses
from these individual countries will be issued within the next several
months.
While the strategic alliance agreements in the United States and
abroad have not produced desired unit sales as quickly as planned, the
Company believes it has established effective working relationships with
its partners which the Company believes form a solid foundation to build
sales of Replens and the other products in the development pipeline. In
addition, upon granting of the European multistate license, Replens should
become a reimbursable product in certain countries. The Company believes
that sales of Replens in Europe should increase once the licenses are
granted. The Company's success to a great extent is dependent on the
marketing efforts of its strategic alliance partners, over which the
Company has limited ability to influence.
FEMINESSE. Feminesse, which also utilizes the Bioadhesive Delivery
System, helps eliminate vaginal odor on a sustained basis. Feminesse is
currently sold in the U.K. by Unipath.
ADVANTAGE 24(REGISTERED TRADEMARK). During 1993, Advantage 24, the
Company's 24 hour sustained release contraceptive gel, was qualified to be
sold in the United States, under the existing FDA monograph for nonoxynol-9
spermicidal products. In September 1994, the Company entered into a license
and distribution agreement with Lake Pharmaceutical, Inc. under which Lake
markets Advantage 24 in the United States.
Among Advantage 24's benefits is its slow release characteristic
which permits the spermicide to be effective for up to 24 hours, in
contrast with conventional spermicides that must be applied at most two
hours prior to intercourse. The slow release feature is derived from the
Company's Bioadhesive Delivery System, which enables the nonoxynol-9 to
adhere to the cervix. Broader claims relating to prevention of sexually
transmitted diseases (STD's) will be requested upon completion, if
successful, of clinical studies now underway. The Company expects that
within 12 months it will have sufficient data to apply for
-9-
<PAGE>
regulatory approval on the broader claims. In Europe, the Company intends
to register Advantage 24 as an over-the-counter drug.
Additionally, the World Health Organization (WHO) has recently
completed an approximately 300 women safety study on Advantage 24. WHO's
preliminary analysis of the data generated indicates that Advantage 24, as
used in the study, was free of any serious side effects. A full analysis of
the data is now being performed. Based on the results of this study, the
WHO has indicated an interest in studying the efficacy of Advantage 24 in
preventing the heterosexual transmission of HIV and other STD's. The WHO is
currently developing a protocol with the Company.
CRINONE(TRADEMARK). Preliminary analysis of the clinical data on the
Company's first prescription drug utilizing the Bioadhesive Delivery
System, Crinone, a vaginal progesterone product, has confirmed that it can
help protect against uterine cancer in women receiving estrogen replacement
therapy. The clinical studies have also indicated that the Company's
bioadhesive natural progesterone is applicable to women who have difficulty
in maintaining pregnancy, especially the difficulties of those undergoing
in-vitro fertilization procedures (IVF).
During 1994, the Company submitted registration files covering
Crinone to the U.K.'s Medical Control Agency and to certain other European
regulatory authorities for approval as a new drug. The Company anticipates
that a New Drug Application (NDA) will be filed in the United States upon
successful completion of two additional clinical studies.
During 1993, the Logos Replens Agreement was amended such that
Logos will also be the exclusive distributor of the Company's progesterone
product in South Africa and the sixteen countries of sub-Saharan Africa. As
part of the agreement, the Company received upfront licensing fees and
expects to receive ongoing revenue from manufacturing and product sales.
In May 1995, the Company entered into an exclusive worldwide, except
for South Africa, license and supply agreement with American Home Product
Corporation (AHP) under which the Wyeth-Ayerst division of AHP will market
Crinone. Under the terms of the agreement, the Company received a $6
million upfront payment and will receive milestone payments and a
significant percentage of sales.
OTHER PRODUCTS. The Company also markets New Advanced Formula
Legatrin PM(TRADEMARK), for the relief of occasional pain and sleeplessness
associated with minor muscle aches such as night leg cramps; Vaporizer in a
Bottle(REGISTERED TRADEMARK), a portable decongestant for relief of colds and
hay fever congestion; and Diasorb(REGISTERED TRADEMARK), a pediatric
antidiarrheal product. These products do not utilize the Bioadhesive Delivery
System.
RESEARCH AND DEVELOPMENT
The Company expended $9,376,047 in 1994, $5,290,912 in 1993 and
$3,129,026 in 1992, on research and development activities. The increase in
expenditures are primarily the result of costs associated with contracting
for, supervising and administering the clinical studies on the Company's
Crinone and Advantage 24 products. These studies are coordinated from the
Company's New York and Paris offices.
In December 1993, the Company entered into an Option and License
Agreement with a French research group based in Marseille, France, pursuant
to which it was granted an option to obtain an exclusive license to the
North and South American rights to a potential AIDS treatment. The option
cost $2 million, of which $1.1 million was paid in December 1993 and the
remaining $900,000 was paid in February 1994. The potential product was
recently granted a Clinical Trials Exemption (CTX) in the United Kingdom
and clinical trials in humans are now underway.
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The option, which must be exercised upon the occurrence of certain
events, expires in December 1998. Upon exercise of the option, the Company
will be required to pay an additional $5 million. If the Company does not
exercise its option upon the occurrence of certain events, the Company's
rights to the option are terminated.
The synthetic molecule, which could prove to be a breakthrough in
the treatment of AIDS, is a multibranched peptide, a type of protein, which
acts to prevent the AIDS virus from fusing with a healthy cell. Up to now,
the only treatments available for AIDS patients act by stopping the virus
from multiplying rapidly. The Marseille molecule, according to a recent
paper published in the Journal of France's Academy of Sciences, could
prevent the virus from attacking healthy cells in two ways: (i) in
lymphocytes, the white blood cells that are a key part of the body's immune
system and (ii) in macrophages, a type of white blood cell that is often a
vehicle for transmitting the virus to the brain.
PATENTS, TRADEMARKS AND PROTECTION OF PROPRIETARY INFORMATION
The Company purchased the patents underlying the Bioadhesive Delivery
System from Bio-Mimetics, Inc. ("Bio-Mimetics"). The Company has the
exclusive right to the use of the Bioadhesive Delivery System subject to
certain third party licenses issued by Bio-Mimetics that have been assigned
to the Company and certain restrictions on the assignment of the patents.
See "Management's Discussion and Analysis of Financial Conditions and
Results of Operations."
The basic patent that covers the Bioadhesive Delivery System was
issued in the United States in 1986 and by the European Patent Office in
1992. Corresponding patents have also been issued in Canada and Australia.
A corresponding application is currently pending in Japan. The Company is
continuing to develop the core Bioadhesive Delivery System and has filed
patent applications covering tissue moisturization, in general, as well as
vaginal moisturization. These applications are currently pending in the
U.S. Patent and Trademark Office, the European Patent Office, and
elsewhere, worldwide. While patent applications do not ensure the ultimate
issuance of a patent, it is the Company's belief that patents based on
these applications will issue.
In addition to the basic patents discussed above, the Company has
two additional patents that cover ophthalmic treatment products. These two
patents also underlie an agreement to share technology with InSite Vision
Incorporated ("Insite"). Under this agreement, the Company obtained from
Insite the worldwide rights to market ophthalmic veterinary products which
utilize Insite's sustained release gel technology. In addition, the Company
obtained the right to market, in all parts of the world except North
America and portions of Asia, ophthalmic over-the-counter drugs which
utilize Insite's sustained release gel technology. In exchange, Insite
obtained from the Company the worldwide rights to market prescription
ophthalmic products which utilize the Company's Bioadhesive Delivery
System. In addition, InSite obtained the right to market, in North America
and portions of Asia, ophthalmic over-the-counter drugs which utilize the
Company's Bioadhesive Delivery System.
Because the Company operates on a worldwide basis, the Company
seeks worldwide patent protection for its technology and products. While
having patent protection cannot ensure that no competitors will emerge,
this is a fundamental step in protecting the technologies of the Company.
The Company has registered "Replens" as a trademark in the United
States, the United Kingdom and in 49 other countries. Applications are
pending in an additional six countries. Applications for the trademarks
"Advantage 24" and "Crinone" have recently been filed in over 50 countries.
Applications for the registration of trademarks do not ensure the ultimate
registration of these marks. The Company believes these marks will be
registered.
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The Company also relies on confidentiality and nondisclosure
agreements. There can be no assurance that other companies will not acquire
information which the Company considers to be proprietary. Moreover, there
can be no assurance that other companies will not independently develop
know-how comparable to or superior to that of the Company.
MANUFACTURING
During 1991, the Company introduced a new, more efficient and less
expensive manufacturing and packaging process for the production of Replens
and its future women's health care products. The process, called "form,
fill and seal," is a single step process whereby the redesigned applicator
is created, filled and sealed in one process. Replens is currently being
manufactured and packaged, utilizing the process developed by the Company,
by third-party manufacturers in Europe. In 1991, the Company placed orders
for approximately $2.7 million of manufacturing equipment. As of June 30,
1995 and December 31, 1994 and 1993, $945,000 of this equipment was
completed and is included in machinery and equipment in the accompanying
consolidated balance sheet. Deposits on manufacturing equipment totalling
approximately $991,000 are included in other assets in the June 30, 1995
and December 31, 1994 and 1993 consolidated balance sheets. Due to
production delays, the Company does not expect to take delivery of this
equipment until 1995 or 1996.
Medical grade, cross-linked polycarbophil, the polymer used in the
Company's products utilizing the Bioadhesive Delivery System, is currently
available from only one supplier, B.F. Goodrich Company ("Goodrich"). The
Company believes that Goodrich will supply as much of the material as the
Company may require because the Company's products rank among the highest
value-added uses of the polymer. There can be no assurance that Goodrich
will continue to supply the product. In the event that Goodrich cannot or
will not supply enough of the product to satisfy the Company's needs, the
Company will be required to seek alternative sources of polycarbophil.
There can be no assurance that an alternative source of polycarbophil will
be obtained.
All of the other raw materials used by the Company for its products
utilizing the Bioadhesive Delivery System are available from several
sources.
OVER-THE-COUNTER DRUGS
GENERAL. The Company currently markets three over-the-counter drugs:
New Advanced Formula Legatrin PM(TRADEMARK), for the relief of occasional
pain and sleeplessness associated with minor muscle aches such as night leg
cramps; Diasorb, a pediatric antidiarrheal product; and Vaporizer in a
Bottle, a portable decongestant for relief of colds and hay fever
congestion. These over-the-counter drugs are manufactured by third-party
manufacturers. All of the raw materials used by the Company for its
over-the-counter drugs are available from several sources.
The over-the-counter drugs are sold to drug wholesalers and chain
drug stores. The Company utilizes 18 drug manufacturers' representative
firms to make calls on the Company's trade customers. The manufacturers'
representatives receive commissions based on sales made within their
respective territories. The Company supports the activities of the
manufacturers' representatives by advertising in medical and consumer
publications, direct mailings and convention participation.
LEGATRIN. In February 1989, the Company acquired from Scholl, Inc.,
a subsidiary of Schering-Plough Corporation, the North American rights to
the product Legatrin and the related trademark, for $300,000 and the
assumption of certain liabilities approximating $41,000. The FDA, in 1988,
initiated a review to determine whether drugs containing quinine sulfate
for night leg cramps, an ingredient in Legatrin,
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<PAGE>
should remain on the market. The FDA issued a final monograph, which became
effective on February 22, 1995, restricting manufacturer's from selling
over-the-counter quinine sulfate based-products for the relief of night leg
cramps. As a result, in February 1995 the Company introduced New Advanced
Formula Legatrin PM.
SALES
The following tables sets forth the percentage of the Company's
consolidated net sales by product, for each product accounting for 15% or
more of consolidated net sales in any of the three years ended December 31,
1994.
1994 1993 1992
---- ---- ----
Replens 39% 42% 42%
Legatrin 49 48 47
Other products 12 10 11
--- --- ---
100% 100% 100%
=== === ===
The Company anticipates the percentage of sales attributable to Legatrin
and the other products to decrease in future years as additional products
utilizing the Bioadhesive Delivery System are introduced. Warner-Lambert
accounted for approximately 27%, 29% and 32% of 1994, 1993 and 1992
consolidated net sales, respectively. Another customer accounted for
approximately 14% and 11% of 1994 and 1993 consolidated net sales,
respectively. As set forth above, the FDA issued a final monograph, which
became effective on February 22, 1995, restricting manufacturer's from
selling over-the-counter quinine sulfate based-products for the relief of
night leg cramps. As a result, in February 1995 the Company introduced New
Advanced Formula Legatrin PM.
COMPETITION
While the Company has entered into the strategic alliance
agreements for the marketing of Replens and Crinone with large
pharmaceutical companies, there can be no assurance that the Company and
its partners will have the ability to compete successfully. The Company's
success to a great extent is dependent on the marketing efforts of its
strategic alliance partners, over which the Company has limited ability to
influence. The markets which the Company and its strategic alliance
partners operate in or intend to enter are characterized by intense
competition. The Company and its partners compete against established
pharmaceutical and consumer product companies which market products
addressing similar needs. In addition, numerous companies are developing
or, in the future, may develop enhanced delivery systems and products
competitive with the Company's present and proposed products. Some of the
Company's and its partners' competitors possess greater financial, research
and technical resources than the Company or its partners. Moreover, these
companies may possess greater marketing capabilities than the Company or
its partners, including the resources to implement extensive advertising
campaigns.
Although the Company is not aware of any product incorporating
rate-controlled technology with respect to vaginal lubrication, the Company
believes that Replens competes in the same markets as K-Y Jelly(REGISTERED
TRADEMARK) and Gyne-Moisturin(REGISTERED TRADEMARK), vaginal lubricants
marketed by Johnson & Johnson Products, Inc. and Schering-Plough Corporation,
respectively. The Company also believes that Advantage 24, Legatrin PM and
Diasorb compete against numerous products in their respective categories and
that Vaporizer in a Bottle(REGISTERED TRADEMARK) competes against Vicks
Vaporsteam, a product distributed by Richardson-Vicks, Inc.
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<PAGE>
GOVERNMENT REGULATION
The Company is subject to both the applicable regulatory provisions
of the FDA in the United States and the applicable regulatory agencies in
those foreign countries where its products are manufactured and/or
distributed.
As in the United States, a number of foreign countries require
premarketing approval by health regulatory authorities. Requirements for
approval may differ from country to country and may involve different types
of testing. There can be substantial delays in obtaining required approvals
from regulatory authorities after applications are filed. Even after
approvals are obtained, further delays may be encountered before the
products become commercially available.
In the United States, manufacturers of pharmaceutical products are
subject to extensive regulation by various Federal and state governmental
entities relating to nearly every aspect of the development, manufacture
and commercialization of such products. The FDA, which is the principal
regulatory authority in the United States for such products, has the power
to seize adulterated or misbranded products and unapproved new drugs, to
require their recall from the market, to enjoin further manufacture or sale
and to publicize certain facts concerning a product. As a result of FDA
regulations, pursuant to which new pharmaceuticals are required to undergo
extensive and rigorous testing, obtaining premarket regulatory approval
requires extensive time and cash expenditures. The manufacturing of the
Company's products which are either manufactured and/or sold in the United
States, is subject to current Good Manufacturing Practices prescribed by
the FDA. The labeling of over-the-counter drugs in the United States, as
well as advertising relating to such products, are subject to the review of
the Federal Trade Commission ("FTC") pursuant to the general authority of
the FTC to monitor and prevent unfair or deceptive trade practices.
PRODUCT LIABILITY
The Company may be exposed to product liability claims by
consumers. Although the Company presently maintains product liability
insurance coverage in the amount of $10 million, there can be no assurance
that such insurance will be sufficient to cover all possible liabilities.
In the event of a successful suit against the Company, insufficiency of
insurance coverage could have a materially adverse effect on the Company.
EMPLOYEES
As of July 31, 1995, the Company had 22 employees, 5 in management,
4 in sales positions, 4 in research and development administration and 9 in
support functions. None of the Company's employees are represented by a
labor union. The Company believes that its relationship with its employees
is satisfactory.
The Company has employment agreements with certain employees, some of
whom are also stockholders of the Company. See "Executive
Compensation--Employment Agreements."
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PROPERTIES
As of July 31, 1995, the Company leases the following properties:
<TABLE>
<CAPTION>
ANNUAL
LOCATION USE SQUARE FEET EXPIRATION RENT
-------- --- ----------- ---------- ------
<S> <C> <C> <C> <C>
Miami, FL Corporate office 3,900 September 1998 $85,000
Paris, France Research admin office 2,000 January 1996 100,000
Paris, France Business residence 1,870 September 1995 50,000
New York, NY Residential office 1,000 April 1996 39,000
</TABLE>
LEGAL PROCEEDINGS
Various claims and complaints have been filed against the Company
with respect to various matters. In the opinion of management and counsel,
all such matters are adequately reserved for or covered by insurance or, if
not so covered, are without any or have little merit or involve such
amounts that if disposed of unfavorably would not have a material adverse
effect on the Company.
SELECTED FINANCIAL DATA
The following consolidated selected financial data of the Company
should be read in conjunction with the consolidated financial statements
and related notes thereto. See the financial statements of the Company
annexed to this Prospectus on pages F-1 to F-18.
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED
JUNE 30, FOR THE YEARS ENDED DECEMBER 31,
1995 1994 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
(amounts in thousands except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales $6,084 $3,878 $8,769 $8,150 $ 9,173 $ 10,675 $ 12,139
Net income (loss) 5,208 (5,571) (12,994) (10,453) (8,536) (14,548) (16,337)
Income (loss) per common share .21 (.25) (.58) (.49) (.51) (1.17) (1.62)
Weighted average number
of common shares outstanding 25,123 22,199 22,530 21,380 16,880 12,856 10,788
BALANCE SHEET DATA:
Working capital (deficiency) 2,284 (1,362) (3,858) $2,888 $(4,443) $ 1,542 $ (2,167)
Total assets 12,260 10,834 6,808 13,870 9,833 14,488 10,690
Long-term debt -- 7,212 6,218 5,474 58 1,692 123
Stockholders' equity (deficiency) 5,964 (4,005) (6,192) 1,475 (6,991) (720) (3,952)
</TABLE>
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
In May 1995, the Company entered into an exclusive worldwide, except
for South Africa, license and supply agreement with American Home Product
Corporation (AHP) under which the Wyeth-Ayerst division of AHP will market
Crinone. Under the terms of the agreement, the Company received a $6 million
upfront payment and will receive milestone payments and a significant percentage
of sales. A $2 million milestone payment was received in June 1995, when Crinone
was approved as a drug in the U.K. As a result cash and equivalents increased
from approximately $690,000 at December 31, 1994 to approximately $6 million at
June 30, 1995.
Cash and cash equivalents decreased from approximately $5.3 million at
December 31, 1993 to approximately $690,000 at December 31, 1994, primarily
as a result of approximately $7.8 million used for operating activities and
$900,000 used to pay the remaining cost of an option the Company acquired in
December 1993 to obtain an exclusive license to the North and South American
rights to a potential AIDS treatment; offset by approximately $4.2 million
received from the exercise of options and warrants and the issuance of
Common Stock. The loss for the year ending December 31, 1994, was
approximately $13.4 million, resulting in stockholders' deficit of
approximately $4.6 million as of December 31, 1994.
During 1995, the Company repaid $6,339,409 of long-term debt and
accrued interest through the issuance of 1,695,232 shares of the Company's
Common Stock.
During the three years ended December 31, 1994, the Company incurred an
aggregate of $18 million in research and development expenditures, resulting in
net cash used in operating activities aggregating approximately $24 million. To
fund these amounts, during the three years ended December 31, 1994, the Company
raised approximately $20 million through various debt and equity financings. The
year to year fluctuations in cash provided by (used for) operations, investing
and financing activities are primarily the result of the timing of the various
financings and the resultant cash balances.
The Company is currently in discussions with several large
pharmaceutical companies regarding the licensing of some of the Company's
products. In addition, the Company is in discussions regarding potential
product development agreements with certain of these companies, in which
the cost of development would be borne by the strategic alliance partner.
The Company expects to receive both upfront payments and ongoing royalties
upon consummation of any such agreements.
There can be no assurance that the Company will be able to enter
into any such agreements or that any upfront payments or ongoing royalties
will be received or, if received, will be sufficient to meet the Company's
funding requirements. The Company's future cash flow requirements are
substantially dependent upon the receipt of such upfront payments and on
the marketing efforts of its strategic alliance partners. If such payments
are not received, the Company will seek to raise additional capital, the
success of which is not determinable. If the Company is unable to raise
sufficient additional capital, the Company will explore the alternatives
available to it at such time, including without limitation, delaying
clinical studies or otherwise reducing its operating activities or seeking
other ways to reduce its cash requirements.
In December 1993, the Company entered into an Option and License
Agreement with a French research group based in Marseille, France, pursuant
to which it was granted an option to obtain an exclusive license to the
North and South American rights to a potential AIDS treatment. The option
cost $2 million, of which $1.1 million was paid in December 1993 and the
remaining $900,000 was paid in February 1994. The potential product was
recently granted a Clinical Trials Exemption (CTX) in the United Kingdom
(UK) and clinical trials in humans are now underway.
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<PAGE>
The option, which must be exercised upon the occurrence of certain
events, expires in December 1998. Upon exercise of the option, the Company
will be required to pay an additional $5 million. If the Company does not
exercise its option upon the occurrence of certain events, the Company's
rights to the option are terminated.
The FDA, in 1988, initiated a review to determine whether drugs
containing quinine sulfate for night leg cramps, an ingredient in Legatrin,
should remain on the market. The FDA issued a final monograph, which became
effective on February 22, 1995, restricting manufacturer's from selling
over-the-counter quinine sulfate based-products for the relief of night leg
cramps.
As a result, the Company recently introduced New Advanced Formula
Legatrin PM. Legatrin PM(TRADEMARK), which does not contain quinine sulfate,
provides relief of occasional pain and sleeplessness associated
with minor muscle aches such as leg cramps; however, it is not known at
this time whether consumers will find Legatrin PM as effective as Legatrin.
Sales of Legatrin and gross profit derived from sales of Legatrin approximated
$4 million and $3 million, respectively, for each of the three years ended
December 31, 1994. Sales of Legatrin represented approximately 49%, 48% and
47% of the Company's net sales in 1994, 1993 and 1992, respectively. There can
be no assurance as to what future sales of Legatrin PM will be.
In connection with the 1989 purchase of the assets of Bio-Mimetics,
Inc., which assets consisted of the patents underlying the Company's
Bioadhesive Delivery System, other patent applications and related
technology, the Company pays Bio-Mimetics, Inc. a royalty equal to two
percent of the net sales of products based on the Bioadhesive Delivery
System, to an aggregate of $7.5 million. The Company is required to prepay
a portion of the remaining royalty obligation, in cash or stock at the
option of the Company, if certain conditions are met.
As of June 30, 1995, the Company has outstanding exercisable
options and warrants that, if exercised, would result in approximately $11
million of additional capital. However, there can be no assurance that such
options or warrants will be exercised.
Material expenditures anticipated by the Company in the near future
are concentrated on production commitments related to Replens and research
and development related to new products. The Company has committed to spend
an aggregate of approximately $850,000 on additional molding capacity at
its suppliers during 1995 and 1996.
As of December 31, 1994, the Company had available net operating
loss carryforwards of approximately $40 million to offset its future U.S.
taxable income. In accordance with Statement of Financial Standards No.
109, as of December 31, 1994, other assets in the accompanying consolidated
balance sheet includes a deferred tax asset of approximately $14 million
(consisting primarily of a net operating loss carryforward) which has been
fully reserved as its ultimate realizability is not assured.
RESULTS OF OPERATIONS - YEARS ENDED DECEMBER 31, 1994 VERSUS DECEMBER
31, 1993 VERSUS DECEMBER 31, 1992
Sales and gross margin have remained relatively constant during the
last three years. While the strategic alliance agreements in the United
States and abroad have not produced desired unit sales as quickly as
planned, the Company believes it has established effective working
relationships with its partners which the Company believes form a solid
foundation to build sales of Replens and the other products in the
development pipeline. In addition, upon granting of the European multistate
license, Replens should become a reimbursable product in certain countries.
The Company believes that sales of Replens in Europe should increase once
the licenses are granted. The Company's success is dependent to a great
extent on the
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<PAGE>
marketing efforts of its strategic alliance partners, which the Company has
limited ability to influence.
In anticipation of the increased sales, during 1992 and 1993, the
Company built up its inventory of Replens applicators, the cost of which
were included in raw materials as of December 31, 1993. During 1994,
when the sales of Replens did not materialize as quickly as planned, the
Company significantly scaled back its manufacturing of Replens applicators
and in addition wrote off approximately $900,000 of outdated applicators,
thereby reducing raw material inventory as of December 31, 1994.
Selling and distribution expenses continue to decrease as a result
of the strategic alliance agreements whereby the Company's partners are
responsible for all marketing and distribution costs of Replens and
Advantage 24 in their territories. The Company has been informed that the
strategic alliance partners expect to spend in excess of $20 million during
1995 marketing Replens and Advantage 24; however, there can be no assurance
that such amounts will be spent, or if spent, will have a favorable impact
on the Company's sales.
General and administrative expenses have also decreased
significantly as a result of cost control programs implemented by the
Company.
Research and development expenditures have increased as a result of
costs associated with performing clinical studies on the Company's current
and future products.
Lease termination cost represents expenses incurred in relocating
the Company's corporate headquarters to a smaller premise and in closing
the Company's laboratory facility in Madison, Wisconsin. Of the total, $1.2
million was paid through the issuance of 239,238 shares of the Company's Common
Stock.
The increase in interest expense is primarily the result of the
interest on the 1993 Notes and the Warrants.
In August 1990, Columbia sold a 25% equity interest in Columbia UK,
to a group of European Investors for a purchase price of (pound)1.8
million. In connection therewith, the Company committed to provide the
European Investors a compound annual internal rate of return of 50% on
their investment. In January 1993, the Company repurchased the European
Investors interest in Columbia UK through the payment of $2.5 million in
cash and the issuance of 867,579 shares of the Company's Common Stock. As a
result of this transaction, the Company has no further obligations to the
European Investors.
During 1993 the Company entered into an Option and License Agreement
pursuant to which it was granted an option to obtain an exclusive license to the
North and South American rights to a potential AIDS treatment. In accordance
with SFAS No. 2, the $2 million option cost has been expensed when acquired in
1993.
As a result, the net loss for 1994 was $12,993,889 or $.58 per
share as compared to net losses in 1993 of $10,452,983 or $.49 per common
share and $8,535,936 or $.51 per share in 1992.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1995 VERSUS SIX
MONTHS ENDED JUNE 30, 1994
Sales have increased in 1995 as compared to 1994 primarily as a result
of Advantage 24(TRADEMARK) now being available on drug store shelves
throughout the U.S., renewed sales activity from the Company's OTC segment,
including the introduction of Legatrin PM, as well as revenue from a
research agreement which began in late 1994. While the strategic alliance
agreements in the United States and abroad have not produced desired unit
sales as quickly as planned, the Company believes it has established
effective working relationships with its partners which the Company
believes form a solid foundation to build sales of Replens and the other
products in the development pipeline. In addition, upon granting of the
European multistate license, Replens should become a reimbursable product
in certain countries. The Company believes that sales of Replens in Europe
should increase significantly once the licenses are granted. The Company's
success to a great extent is dependent on the marketing efforts of its
strategic alliance partners, over which
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<PAGE>
the Company has limited ability to influence.
Selling and distribution expenses increased as a result of costs
associated with the introduction of Legatrin PM.
Research and development expenditures have decreased as a result of
the completion of a majority of the clinical studies related to Crinone and
Advantage 24.
License fees, net includes $8 million received as upfront and milestone
payments in connection with the licensing agreement with AHP.
The decrease in interest expense is primarily the result of
repayment of a portion of the 1993 Notes.
As a result, the net income for 1995 was $5,208,095 or $.21 per share
as compared to a net loss in 1994 of $(5,570,960) or $(.25) per common share.
IMPACT OF INFLATION
Sales revenues, manufacturing costs, selling and distribution
expenses, general and administrative expenses and research and development
costs tend to reflect the general inflationary trends.
-19-
<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's Common Stock trades on the American Stock Exchange
("AMEX") under the symbol COB. The following table sets forth the high and
low sales prices of the Common Stock on the American Stock Exchange, as
reported on the Composite Tape.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
FISCAL YEAR ENDED DECEMBER 31, 1993
First Quarter $6.00 $4.25
Second Quarter 5.88 4.50
Third Quarter 5.88 3.56
Fourth Quarter 6.88 4.88
FISCAL YEAR ENDED DECEMBER 31, 1994
First Quarter $6.75 $4.25
Second Quarter 6.00 4.25
Third Quarter 4.94 4.00
Fourth Quarter 5.38 4.00
FISCAL YEAR ENDED DECEMBER 31, 1995
First Quarter $5.63 $4.06
Second Quarter 8.50 4.00
Third Quarter (through August __, 1995)
</TABLE>
At July 31, 1995, there were 670 shareholders of record of the
Company's Common Stock, although the Company estimates that there are
approximately 7,000 beneficial owners, 6 shareholders of record of the
Company's Series A Convertible Preferred Stock ("Series A Preferred Stock")
and 4 shareholders of record of the Company's Series B Convertible
Preferred Stock ("Series B Preferred Stock").
DIVIDEND POLICY
The Series A Preferred Stock pays cumulative dividends at a rate of
8% per annum payable quarterly. As of June 30, 1995, dividends of $92,563
have been earned but have not been declared and are included in other
long-term liabilities in the accompanying consolidated balance sheet. Upon
conversion of any shares of Series A Preferred Stock, the Company is
obligated to issue additional shares of Common Stock having a market value
equal to accrued but unpaid dividends on the Series A Preferred Stock at
the time of conversion.
The Company has never paid a cash dividend on its Common Stock and
does not anticipate the payment of cash dividends in the foreseeable
future. The Company intends to retain any earnings for use in the
development and expansion of its business.
Applicable provisions of the Delaware General Corporation Law may
affect the ability of the Company to declare and pay dividends on its
Common Stock as well as on its Preferred Stock. In particular, pursuant to
the Delaware General Corporation Law, a company may pay dividends out of
its surplus, as defined, or out of its net profits, for the fiscal year in
which the dividend is declared and/or the preceding year. Surplus is
defined in the Delaware General Corporation Law to be the excess of net
assets of the company over capital. Capital is defined to be the aggregate
par value of shares issued.
-20-
<PAGE>
MANAGEMENT
The executive officers and directors of the Company as of July 31,
1995 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
William J. Bologna 53 Chairman of the Board
Nicholas A. Buoniconti 54 Vice Chairman of the Board and Chief
Operating Officer
Norman M. Meier 56 President, Chief Executive Officer and
Director
Margaret J. Roell 35 Vice President--Finance and
Administration, Chief Financial Officer,
Secretary and Treasurer
Irwin L. Kellner 56 Director
John E. A. Kidd 50 Director
Lila E. Nachtigall, M.D. 61 Director
</TABLE>
WILLIAM J. BOLOGNA has been a director of the Company since
inception and was elected Chairman of the Company's Board of Directors in
January 1992. From December 1988 to January 1992, Mr. Bologna served as
Vice Chairman of the Company's Board of Directors. In addition, since 1980,
he has been Chairman of Bologna & Hackett ("B&H"), an advertising agency
specializing in pharmaceutical products which has in the past performed
services for various international pharmaceutical companies. B&H ceased
operations in May 1991 and has remained inactive since that date; however,
B&H has not yet been dissolved. Prior to 1980, Mr. Bologna was employed by
William Douglas McAdams, Inc., a company engaged in the marketing of
pharmaceuticals, in a variety of positions, including Senior Vice
President. In 1965, Mr. Bologna received his B.S. in Pharmacy from Fordham
University. He received an MBA in Finance from Columbia University in 1971.
NICHOLAS A. BUONICONTI has been a director of the Company since
June 1991 and was elected Vice Chairman and Chief Operating Officer of the
Company in April 1992. Mr. Buoniconti, an attorney, is a member of the
Massachusetts and Florida Bar. From January 1990 to April 1992, he was a
member of the law firm of Nicholas A. Buoniconti, P.A. He held the position
of President and Chief Operating Officer of UST, a Fortune 500 company,
from May 1987 to December 1989. From 1985 to 1987, Mr. Buoniconti served as
President and Chief Operating Officer of U.S. Tobacco (which changed its
name to UST), as well as serving on the Board of Directors from 1978 to
1989. He has served as a member of the Board of Directors of the Miami
Project to Cure Paralysis, and is heavily involved in the fund-raising
efforts for the Project through the Marc Buoniconti Fund, named for his
son. Mr. Buoniconti is a former All-Pro linebacker for the Miami Dolphins.
Since 1978, he has co-hosted "Inside the NFL" on the Home Box Office cable
network. Mr. Buoniconti is also a director of American Bankers Insurance
Co. and Simmons Outdoor Corporation.
-21-
<PAGE>
NORMAN M. MEIER has been President, Chief Executive Officer and a
director of the Company since inception. In addition, since 1980, Mr. Meier
has been an officer and director of B&H. B&H ceased operations in May 1991
and has remained inactive since that date; however, B&H has not yet been
dissolved. From 1971 to 1977, Mr. Meier was Vice President of Sales and
Marketing for Key Pharmaceuticals, Inc., a company which had been engaged
in the marketing and sales of pharmaceuticals until its sale to
Schering-Plough Corporation in June 1986. From 1977 until June 1986, Mr.
Meier served as a consultant to Key Pharmaceuticals, Inc. In 1960, Mr.
Meier received his B.S. in Pharmacy from Columbia University. He received
his M.S. in Pharmacy Administration from Long Island University in 1964.
Mr. Meier is also a director of Universal Heights, Inc.
MARGARET J. ROELL has been Vice President--Finance and Administration,
Chief Financial Officer, Treasurer and Secretary of the Company since June
1991. Ms. Roell was employed by Arthur Andersen & Co., independent public
accountants, from 1981 to 1991 and was an audit manager with Arthur
Andersen & Co. from 1986 to 1991.
IRWIN L. KELLNER has been a director of the Company since May 1988.
Dr. Kellner is the chief economist of Chemical Banking, formed by the
merger of Chemical Bank with Manufacturers Hanover Trust Company ("MHT").
Dr. Kellner has been employed by MHT since 1970. From 1980 to 1991, Dr.
Kellner was the Chief Economist of MHT. Dr. Kellner, a past president of
the Forecasters Club of New York and the New York Association of Business
Economists, holds membership, and has held a variety of posts, in several
professional associations, including the American Economic Association,
American Statistical Association and the National Association of Business
Economists. Dr. Kellner is also a governor of the Money Marketeers. His
other board memberships include the Juvenile Diabetes Foundation, the
Children's AIDS Network, North Shore University Hospital, the Don Monti
Memorial Research Foundation and Touro College's Barry Z. Levine School of
Health Sciences.
JOHN E. A. KIDD has been a director of the Company since April 1988
and served as Chairman of the Board of Directors of the Company from
December 1988 to December 1991. From July 1988 to 1990, Mr. Kidd was a
director of Care Plus, Inc., a publicly owned health care company traded
over-the-counter. For approximately the past five years, Mr. Kidd has been
an Executive Director of a number of public companies located in the United
Kingdom, in which an investment company controlled by his family had been a
major investor.
LILA E. NACHTIGALL, M.D. has been a director of the Company since
November 1992. Dr. Nachtigall has been employed by the New York University
School of Medicine since 1961. Dr. Nachtigall is currently a Professor of
Obstetrics and Gynecology. In addition, Dr. Nachtigall is the Clinic
Coordinator of GYN-Endocrine Clinic at Bellevue Hospital and Co-director of
the GYN-Endocrine Program and Director of Women's Wellness Division at New
York University Medical Center.
All directors hold office until the next annual meeting of
stockholders and the election and qualification of their successors.
Directors receive no compensation for serving on the Board, except for the
receipt of stock options and the reimbursement of reasonable expenses
incurred in attending meetings. Officers are elected annually by the Board
of Directors and serve at the discretion of the Board. The Board of
Directors has two standing committees, the Audit Committee and the
Compensation/Stock Option Committee.
-22-
<PAGE>
EXECUTIVE COMPENSATION
The tables and descriptive information set forth below are intended
to comply with the Securities and Exchange Commission compensation
disclosure requirements. This information is being furnished with respect
to the Company's Chief Executive Officer ("CEO") and its three other
executive officers, other than the CEO, whose salary and bonus exceeded
$100,000 for the most recent fiscal year (collectively, the "Executive
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- ----------------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (1) OPTIONS (3)
--------------------------- ---- ------ --------- -----------
<S> <C> <C> <C> <C>
Norman M. Meier 1994 $ 180,000 $ - 470,000
President and Chief 1993 180,000 - 200,000
Executive Officer 1992 180,000 45,100 -
William J. Bologna 1994 180,000 - 470,000
Chairman of the Board 1993 180,000 - 200,000
1992 180,000 45,100 -
Nicholas A. Buoniconti 1994 135,000 - 910,000
Vice Chairman and 1993 135,000 - 200,000
Chief Operating Officer 1992 95,625(2) - 675,000
Margaret J. Roell 1994 120,000 - -
Vice President - 1993 120,000 - 20,000
Finance & Administration 1992 120,000 - 50,000
Chief Financial Officer
<FN>
(1) These amounts are accrued as of year end and paid during the following
year.
(2) Mr. Buoniconti was hired as of April 15, 1992.
(3) The options granted in 1993 and 1992 to Messrs. Meier, Bologna and
Buoniconti, were cancelled in 1994. See Ten Year Option Repricings Chart on
the following page.
</FN>
</TABLE>
OPTION GRANTS DURING 1994
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS GRANT
UNDERLYING GRANTED TO EXERCISE DATE
OPTIONS EMPLOYEES PRICE EXPIRATION PRESENT
NAME GRANTED (1) IN 1994 ($/SH) DATE VALUE (2)
---- ----------- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Norman M. Meier 470,000 24% $4.375 9/28/2004 $1,640,300
William J. Bologna 470,000 24% 4.375 9/28/2004 1,640,300
Nicholas A. Buoniconti 910,000 47% 4.375 9/28/2004 3,175,900
Margaret J. Roell - - - - -
<FN>
(1) These options were granted in connection with Messrs. Meier, Bologna and
Buoniconti each investing $200,000 into the Company. In connection
therewith, options to purchase 450,000, 450,000 and 910,000 shares of
Common Stock previously granted to Messrs. Meier, Bologna and Buoniconti,
respectively, were cancelled.
(2) The estimated grant date present value reflected in the above table is
determined using the Black-Scholes model. The material assumptions and
adjustments incorporated in the Black-Scholes model in estimating the
value of the options reflected in the above table include the following:
(i) an exercise price of $4.375, equal to the fair market value of the
-23-
<PAGE>
underlying stock on the date of grant, (ii) an option term of ten years,
(iii) an interest rate of 7.46% that represents the interest rate on a
U.S. Treasury security with a maturity date corresponding to that of the
option term, (iv) volatility of 65.104% calculated using daily stock
prices for the one-year period prior to the grant date and (v) no
annualized dividends paid with respect to a share of Common Stock at the
date of grant. The ultimate values of the options will depend on the
future price of the Company's Common Stock, which cannot be forecast with
reasonable accuracy. The actual value, if any, an optionee will realize
upon exercise of an option will depend on the excess of the market value
of the Company's Common Stock over the exercise price on the date the
option is exercised.
</FN>
</TABLE>
AGGREGATED OPTION EXERCISES DURING 1994 AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES ACQUIRED VALUE DECEMBER 31, 1994 DECEMBER 31, 1994
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Norman M. Meier - $ - - 470,000 $ - 256,250
William J. Bologna - - - 470,000 - 256,250
Nicholas A. Buoniconti - - - 910,000 - 568,750
Margaret J. Roell - - 75,000 45,000 3,125 3,125
</TABLE>
TEN YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
NUMBER OF LENGTH OF
SECURITIES MARKET PRICE EXERCISE ORIGINAL
UNDERLYING OF STOCK AT PRICE AT OPTION TERM
OPTIONS TIME OF TIME OF REMAINING AT
REPRICED OR REPRICING OR REPRICING OR NEW DATE OF
AMENDED AMENDMENT AMENDMENT EXERCISE REPRICING OR
NAME DATE (#) ($) ($) PRICE ($) AMENDMENT
---- -------- ----------- --------------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Norman M. Meier 9/28/94 100,000 $4.375 $4.50 $4.375 6.5 years
9/28/94 200,000 4.375 5.50 4.375 9 years
9/28/94 120,000 4.375 13.25 4.375 3 months
9/28/94 29,244 4.375 14.58 4.375 3 months
William J. Bologna 9/28/94 100,000 4.375 4.50 4.375 6.5 years
9/28/94 200,000 4.375 5.50 4.375 9 years
9/28/94 120,000 4.375 13.25 4.375 3 months
9/28/94 29,244 4.375 14.58 4.375 3 months
Nicholas A. Buoniconti 9/28/94 400,000 4.375 4.875 4.375 7.5 years
9/28/94 200,000 4.375 5.500 4.375 9 years
9/28/94 25,000 4.375 5.750 4.375 7 years
9/28/94 10,000 4.375 8.000 4.375 7 years
9/28/94 250,000 4.375 8.000 4.375 7.5 years
9/28/94 25,000 4.375 9.000 4.375 7 years
</TABLE>
EMPLOYMENT AGREEMENTS
In January 1990, the Company entered into five-year employment
agreements with each of John E.A. Kidd, William J. Bologna and Norman M.
Meier, to serve as Chairman, Vice-Chairman and President of the Company,
respectively. Pursuant to their respective employment agreements, each such
employee is entitled to a base salary of $180,000 per year and a bonus
equal to one-half of 1% of the Company's net revenues. Net revenues are
defined to be gross sales less discounts, allowances and returns. In
addition, each such employee was granted options to purchase 150,000 shares
of the Company's Common Stock at an exercise
-24-
<PAGE>
price of $13.25 with respect to Mr. Kidd and $14.58 with respect to each of
Messrs. Meier and Bologna. Pursuant to the terms of such agreements, each
employee has agreed to dedicate his services on a substantially full-time
basis and has agreed for the term of his agreement and for two years thereafter
not to compete with the Company. As of December 31, 1991, contemporaneously
with his resignation as Chairman of the Board, Mr. Kidd's contract was amended
such that he will receive a salary of $1,000 per year for performing certain
investor relations tasks for the Company. In June 1993, Messrs. Bologna and
Meier 's employment agreements were amended such that effective January 1,
1993, the provisions pursuant to which they would have received an
aggregate bonus equal to one percent of sales in 1993 and 1994 were
canceled. If the Company would have had pre-tax earnings during 1994,
Messrs. Bologna and Meier would have been eligible to participate in the
incentive compensation plan approved by the shareholders at the 1993 annual
meeting of the Company. During 1994, in connection with Messrs. Meier and
Bologna each investing $200,000 into the Company, these options were
canceled and new options were granted. New employment agreements have not
been entered into; however, Messrs. Meier and Bologna have continued to
provide the same services to the Company and therefore have been receiving
the same compensation and benefits as provided for in the original
employment agreements.
In April 1992, the Company entered into a five-year employment
agreement with Nicholas A. Buoniconti, to serve as Vice Chairman and Chief
Operating Officer of the Company. Pursuant to this agreement, Mr.
Buoniconti is paid an annual salary of $135,000. As additional
compensation, Mr. Buoniconti was granted options to purchase 250,000 and
400,000 shares of the Company's Common Stock at exercise prices of $8.00
and $4.88 per share, respectively, which options vest over five years.
Pursuant to the terms of such agreement, Mr. Buoniconti agreed to dedicate
his services on a substantially full-time basis and has agreed for the term
of his agreement and for two years thereafter not to compete with the
Company. During 1994, in connection with Mr. Buoniconti investing $200,000
into the Company, these options were canceled and new options were granted.
In June 1991, the Company entered into a two-year employment
agreement with Margaret J. Roell, its Vice-President -- Finance and
Administration, Chief Financial Officer, Secretary and Treasurer, with
provision for extension of the agreement for an additional two years.
Pursuant to this agreement, Ms. Roell is paid an annual salary of $120,000.
As additional compensation, Ms. Roell was granted options to purchase
50,000 shares of the Company's Common Stock at an exercise price of $5.75.
One half of such options became exercisable in June 1992 with the remainder
exercisable beginning in June 1993. In June 1993, Ms. Roell's contract was
renewed under the same terms for an additional two years. A new employment
agreement has not been entered into; however, Ms. Roell has continued to
provide the same services to the Company and therefore has been receiving
the same compensation and benefits as provided for in the original
employment agreement.
The exercise price of all of the options granted pursuant to the
aforementioned employment agreements are based on the closing price of the
Company's Common Stock on the American Stock Exchange on the day prior to
grant.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of July 31, 1995, directors and named executive officers,
individually and as a group, beneficially owned Common Stock as follows:
NAME OF SHARES, NATURE OF INTEREST
BENEFICIAL OWNER AND PERCENTAGE OF EQUITY SECURITIES(1)
---------------- --------------------------------------
Norman M. Meier (3) 1,295,800 5.0%
William J. Bologna (2)(3) 2,408,632 9.2%
-25-
<PAGE>
Nicholas A. Buoniconti (3) 990,000 3.7%
Irwin L. Kellner (3) 121,500 *
John E. A. Kidd (3) 165,936 *
Lila E. Nachtigall (3) 57,000 *
Margaret J. Roell (3) 100,200 *
Officers and directors as a group
(7 people) 5,139,068 18.4%
* Represents less than 1 percent.
(1) Includes shares issuable upon exercise of both
options and warrants which are currently exercisable or
which may be acquired within 60 days and shares issuable
upon conversion of the Series A and Series B Preferred Stock
(12.36 for the Series A Preferred Stock and 20.57 for the
Series B Preferred Stock).
(2) Includes 20,570 shares issuable upon conversion
of 1,000 shares of Series B Preferred Stock. Includes 98,062
shares beneficially owned by Mr. Bologna's spouse.
(3) Includes shares issuable upon exercise of options, which are
currently exercisable or which may be acquired within 60 days,
to purchase 470,000 shares with respect to Mr. Meier, 470,000
shares with respect to Mr. Bologna, 910,000 shares with respect
to Mr. Buoniconti, 82,000 shares with respect to Dr. Kellner, 115,936
shares with respect to Mr. Kidd, 57,000 shares with respect to
Dr. Nachtigall and 100,000 shares with respect to Ms. Roell.
As of July 31, 1995, the following table sets forth information
regarding the number and percentage of Common Stock held by all persons who
are known by the Company to beneficially own or exercise voting or
dispositive control over 5% or more of the Company's outstanding Common
Stock:
NUMBER OF SHARES
NAME AND ADDRESS BENEFICIALLY OWNED PERCENT OF CLASS
---------------- ------------------ ----------------
Dominion Capital, Inc./
Dominion Resources, Inc. (1)
901 East Byrd Street, 17th Floor
Richmond, VA 23219 1,292,123 5.1%
(1) Based on information included on Schedule 13D dated January 10,
1995. Includes warrants to purchase 150,000 shares of the Company's
Common Stock.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1993, the Company loaned Messrs. Meier and Bologna, $80,000
and $110,350, respectively. The notes, which bear interest at 10% per annum
and are unsecured but with full recourse, are due on or before December 7,
1996.
During 1994, Messrs. Meier, Bologna and Buoniconti, each invested
$200,000 into the Company, through the purchase of 50,000, 38,663 and
50,000 shares, respectively.
-26-
<PAGE>
PLAN OF DISTRIBUTION
The Shares owned by the Selling Securityholders may be sold from time to
time by the Selling Securityholders, or by pledges, donees, transferees or other
successors in interest. Such sales may be made on the American Stock Exchange or
otherwise at prices and at terms then prevailing or at prices related to the
then current market prices, or in privately negotiated transactions. The Shares
may be sold publicly by one or more of the following: (i) ordinary brokerage
transactions and transactions in which the broker solicits purchasers; (ii)
purchases by a broker or dealer as principal and resale by such broker or dealer
for its account pursuant to this Prospectus; and (iii) a block trade in which
the broker or dealer so engaged will attempt to sell the shares as agent but may
position and resell a portion of the block as principal to facilitate the
transaction. In effecting sales, brokers or dealers engaged by the Selling
Securityholders may arrange for other brokers or dealers to participate. Brokers
or dealers will receive commissions or discounts from the Selling
Securityholders in amounts to be negotiated immediately prior to the sale. Such
brokers or dealers and any other participating brokers or dealers may be deemed
to be "underwriters" within the meaning of the Securities Act in connection with
such sales. The sale of a substantial number of the Shares by the Selling
Securityholders may have an adverse effect on the market price of the Company's
Common Stock.
The Company will pay certain expenses incident to the offering and sale of
the Shares. The Company will not pay for, among other expenses, commissions and
discounts of underwriters, dealers or agents or the fees and expenses of counsel
for the Selling Securityholders. The Company has agreed to indemnify the Selling
Securityholders against certain liabilities, including liabilities under the
Securities Act.
SELLING SECURITYHOLDERS
The Selling Securityholders are the holders of the Shares.
In April 1992, the Company filed an action against Bank Piquet ("Piquet"),
and certain other defendants (all of whom except Piquet have defaulted), for a
declaratory judgement ("Action"), in the United States District Court for the
Southern District of Florida ("Court"), relating to the ownership and rights to
exercise certain warrants to purchase shares of the Company's Common Stock
("Warrants"). The Action was commenced by the Company when it determined that
Piquet, the purported holder of the Warrants, was not the registered owner in
accordance with the procedures for transfer set forth in the warrant agreement,
and Piquet's ownership claims were from an entity different from the entity to
whom the Warrants were issued. Thereafter, Piquet filed a counterclaim claiming
$600,000 in damages as a result of the Company's denying Piquet the right to
exercise the Warrants. The Company filed the Action in order to avoid being
exposed to duplicate claims to the right to exercise the Warrants, and the
attendant liability thereto. This Action was settled as of May 13, 1995. In
connection therewith, the Company issued Piguet a warrant to purchase 300,000
shares of Common Stock at $5.31 per share, exercisable through May 13, 1998. The
terms of the settlement were approved by the Company's Board of Directors.
The Common Stock was issued to Sherman & Fischman and Slatt & Lane as of
the effective date of this prospectus in payment of legal services aggregating
$210,000 and $105,000, respectively, provided to the Company. The number of
shares of Common Stock issued to Sherman & Fischman and Slatt & Lane was based
on the market price of the Company's Common Stock on the date the issuance of
the Common Stock was approved by the Company's Board of Directors.
The following table sets forth as of the commencement of the offering,
based on information provided to the Company by the Selling Securityholders, the
shares of Common Stock being offered by each of the Selling Securityholders. The
percentage of voting securities to be owned after the offering assumes the sale
of the securities registered hereby, and takes into consideration the voting
rights of the Common Stock and Series A and B Preferred Stock as of July 31,
1995.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF PERCENTAGE OF VOTING
NAME OF SELLING COMMON STOCK SECURITIES OWNED
SECURITYHOLDERS INCLUDED IN THE OFFERING AFTER OFFERING
--------------- ------------------------ --------------------
<S> <C> <C>
Bank Piguet et Cie, SA 300,000 *
Sherman & Fischman 30,000 *
Slatt & Lane 15,000 *
-------
Total 345,000
=======
<FN>
* Less than 1 percent
</FN>
</TABLE>
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<PAGE>
DESCRIPTION OF SECURITIES
GENERAL
The Company is authorized to issue 40,000,000 shares of common
stock, par value $.01 per share, ("Common Stock") and 1,000,000 shares of
preferred stock, par value $.01 per share, of which 151,000 shares have
been designated Series A Preferred Stock and 150,000 shares have been
designated Series B Preferred Stock. As of July 31, 1995, 25,679,354 shares
of Common Stock, 1,365 shares of Series A Preferred Stock and 1,750 shares
of Series B Preferred Stock were outstanding, and there were 670, 6 and 4
holders of record of Common Stock, Series A and Series B Preferred Stock,
respectively. The Company has been informed that there are approximately
7,000 beneficial owners of its Common Stock.
COMMON STOCK
With the exception of certain circumstances, holders of the Series
A and Series B Preferred Stock and Common Stock vote together as a single
class on all matters upon which stockholders are entitled to vote. The
holders of Common Stock are entitled to one vote for each share of such
stock held of record by them and may not accumulate votes. This means that
the holders of more than 50% of the shares voting for the election of
directors can elect all of the directors if they choose to do so; and, in
such event, the holders of the remaining shares will not be able to elect
any person to the Board of Directors. The holders of Common Stock are
entitled to receive dividends when, as and if declared by the Board of
Directors out of funds legally available therefor, subject to prior rights
of preferred stockholders, and in the event of liquidation, dissolution or
winding up of the Company, to share ratably in all assets remaining after
payment of liabilities and after payment of any preferential amounts to
which holders of preferred stock are entitled. Holders of shares of Common
Stock, as such, have no conversion, preemptive or other subscription
rights, and there are no redemption or sinking fund provisions applicable
to the Common Stock.
DIVIDENDS
The Company has never paid a cash dividend on its Common Stock and
does not anticipate the payment of cash dividends in the foreseeable
future. The Company intends to retain any earnings for use in the
development and expansion of its business.
FUTURE SALES OF COMMON STOCK
Approximately 4,175,404 shares of Common Stock outstanding are
"restricted securities" as that term is defined in Rule 144 under the
Securities Act and may be sold only in compliance with such Rule, pursuant
to registration under the Act or pursuant to exemption therefrom.
Generally, under Rule 144, each person holding restricted securities for a
period of two years may, every three months after such two-year holding
period, sell in ordinary brokerage transactions or to market makers an
amount of shares equal to the greater of one percent of the Company's then
outstanding Common Stock or the average weekly trading volume during the
four weeks prior to the proposed sale. This limitation on the amount of
shares which may be sold under the Rule does not apply to restricted
securities sold for the account of a person who is not and has not been an
affiliate of the Company during the three months prior to the proposed sale
and who has beneficially owned the securities for at least three years. In
addition, the shares of Common Stock underlying the shares of Series A and
Series B Preferred Stock have been registered under the Securities Act and,
accordingly, when issued, will not be restricted securities. Sales of
substantial amounts of Common Stock in the public market under Rule 144,
pursuant to registration statements, or otherwise, could adversely affect
prevailing market prices of the Common Stock.
-28-
<PAGE>
WARRANTS
The statements under this caption are summaries that do not purport
to be complete. They are qualified by reference to the Warrant Instruments,
which have been filed with the Securities and Exchange Commission.
As of July 31, 1995, the Company had warrants outstanding for the
purchase of up to 1,015,381 shares of Common Stock at prices ranging from
$4.00 to $8.875 per share. These warrants are exercisable through 1999. The
exercise price of the warrants and the number of shares of Common Stock
issuable upon the exercise of the warrants are subject to adjustment in
certain circumstances. Warrants may be exercised at any time during their
exercise periods by surrendering to the Company the certificate evidencing
such warrants, with the form to exercise all or a portion of such Warrants
duly filled in and signed, together with payment of the exercise price.
PREFERRED STOCK
The Board of Directors is authorized to issue shares of preferred
stock and, subject to the limitations contained in the Certificate of
Incorporation and any limitations prescribed by law, to establish and
designate series and to fix the number of shares and the relative rights,
conversion rights, voting rights, terms of redemption and liquidation
preferences. If shares of preferred stock with voting rights are issued,
such issuance could affect the voting rights of the holders of the
Company's Common Stock by increasing the number of outstanding shares
having voting rights. In addition, if the Board of Directors authorizes the
issuance of shares of preferred stock with conversion rights, the number of
shares of Common Stock outstanding could potentially be increased up to the
authorized amount. The issuance of preferred stock, could, under certain
circumstances, have the effect of delaying or preventing a change in
control of the Company and may adversely affect the rights of holders of
Common Stock. Also, preferred stock could have preferences with respect to
dividend and liquidation rights.
The Company issued 151,000 shares of Series A Preferred Stock in
connection with its private placement completed in November 1989 and
150,000 shares of Series B Preferred Stock in connection with its private
placement completed in August 1991. The following description of the
rights, preferences and privileges of the Series A and Series B Preferred
Stock does not purport to be complete and is subject to and qualified in
its entirety by reference to the Certificates of Designation to the
Company's Certificate of Incorporation, which sets forth the terms and
provisions of the Series A and Series B Preferred Stock, copies of which
have been previously filed with the Securities and Exchange Commission.
DIVIDENDS
The Series A Preferred Stock pays cumulative dividends at a rate of
8% per annum payable quarterly. As of June 30, 1995, dividends of $92,563
have been earned but have not been declared and are included in other
long-term liabilities in the accompanying consolidated balance sheet. Upon
conversion of any shares of Series A Preferred Stock, the Company is
obligated to issue additional shares of Common Stock having a market value
equal to accrued but unpaid dividends on the Series A Preferred Stock at
the time of conversion. The issuance of any such shares of Common Stock is
subject to applicable provisions of the Delaware General Corporation Law.
The Company does not presently intend to declare dividends with
respect to the Series B Preferred Stock. In the event the Board of
Directors elects to declare any cash dividends on the Common Stock, the
Board must also declare a cash dividend on the Series B Preferred Stock in
an amount equal to the common equivalent per share dividend declared on the
Common Stock. Dividends will be cumulative from the payment date of any
such declaration, whether or not there are funds of the Company legally
available
-29-
<PAGE>
for the payment of such dividends. Accumulations of dividends on shares of
Series B Preferred Stock shall not bear interest. See "Dividend Policy."
CONVERSION RIGHTS
Holders of Series A and Series B Preferred Stock are entitled to
convert their shares of Preferred Stock into shares of Common Stock at any
time. As of July 31, 1995, each share of Series A Preferred Stock is
convertible into 12.36 shares of Common Stock and each share of Series B
Preferred Stock is convertible into 20.57 shares of Common Stock.
The Conversion Rates are subject to adjustment in certain
circumstances. If the Company declares a dividend on its Common Stock
payable in Common Stock or payable in securities convertible into Common
Stock, or if the Company subdivides, combines, or reclassifies its
outstanding shares of Common Stock, then the Conversion Rates will be
adjusted such that each holder of Series A or Series B Preferred Stock will
be entitled to receive on conversion of his shares that number of shares of
Common Stock he would have held after the dividend, subdivision,
combination, or reclassification if he had converted his shares of Series A
and Series B Preferred Stock immediately prior to the record date or
effective date thereof, and, in the case of a dividend payable in
securities convertible into Common Stock, after he had converted all such
securities into Common Stock.
The Series B Preferred Stock will be automatically converted into
Common Stock upon the first to occur of the following events: (i) the
completion of at least a $10 million public offering with an offering price
of at least $10 per share or (ii) the date on which the closing price of
the Common Stock on a national exchange is at least $10.00 per share for a
minimum of 20 consecutive trading days where the average daily volume
during such period is at least 30,000 shares.
REDEMPTION RIGHT
The Company has the right to redeem all or part of the shares of
Series A Preferred Stock at redemption prices ranging from $103.20 per
share of Series A Preferred Stock in 1995 to $100 in 1999, plus accrued and
unpaid dividends, if any.
VOTING RIGHTS
Holders of Series A and Series B Preferred Stock are each entitled
to one vote for each share of Common Stock into which the shares of Series
A and Series B Preferred Stock are convertible. With the exception of
certain circumstances, holders of Series A and Series B Preferred Stock and
Common Stock vote together as a single class on all matters upon which
stockholders are entitled to vote. Holders of Series A Preferred Stock also
have the right, voting as a separate class, to approve any creation of a
series of stock senior to the Series A Preferred Stock as to dividends or
liquidation. In the event the Company fails to pay dividends that have been
declared on the Series A Preferred Stock for four consecutive quarters, the
holders of Series A Preferred Stock, voting as a separate class, have the
right to elect one member of the Board of Directors. Holders of Series B
Preferred Stock have the right, voting as a separate class, to approve the
creation of any series of stock senior to the Series B Preferred Stock as
to liquidation.
LIQUIDATION RIGHTS
In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Company, holders of Series A and Series B
Preferred Stock will be entitled to receive out of assets of the Company
available for distribution to its stockholders, before any distribution is
made to holders of its Common Stock, liquidating distributions in an amount
equal to $100 per share. In addition, holders of Series A Preferred Stock
will be entitled to receive all accrued but unpaid dividends. After payment
of the full amount of the
-30-
<PAGE>
liquidating distributions to the holders of the Series A
and Series B Preferred Stock, holders of the Company's Common Stock will
be entitled to any further distribution of the Company's assets. If the
assets of the Company are insufficient to pay the full amounts of the
liquidating distributions on the Series A and Series B Preferred Stock,
then all available assets of the Company will be distributed ratably to the
holders of the Series A and Series B Preferred Stock.
TRANSFER AGENT
The transfer agent for the Company's Common Stock and Series A and
Series B Preferred Stock is First Union National Bank, 230 S. Tryon Street,
Charlotte, NC 28288-1154.
REPORTS TO STOCKHOLDERS
The Company furnishes its stockholders with annual reports
containing audited financial statements and other periodic reports as the
Company determines to be appropriate or as may be required by law.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Delaware law provides, in general, that a corporation shall have
power to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation), by reason of the
fact that he is or was a director or officer of the corporation. Such
indemnity may be against expenses (including attorney's fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred in
connection with such action, suit or proceeding, if the indemnified party
acted in good faith and in a manner reasonably believed to be in or not
opposed to the best interests of the corporation with respect to any
criminal action or proceeding and the indemnified party did not have
reasonable cause to believe his conduct was unlawful.
Delaware law also provides, in general, that a corporation shall
have power to indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action or suit
by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director or officer of the
corporation, against any expenses (including attorney's fees) actually and
reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interest of the corporation.
Additionally, Delaware law provides, in general, that a corporation
shall have the power to purchase and maintain insurance on behalf of any
person who is or was a director or officer of the corporation against any
liability asserted against him or incurred by him in any such capacity, or
arising out of his status as such, whether or not the corporation would
have the power to indemnify him against such liability under the provisions
of the law.
Article EIGHTH of the Registrant's Restated and Amended Certificate
of Incorporation and Section 1 of Article VI of the Registrant's By-Laws
give a director or officer the right to be indemnified by the Registrant to
the fullest extent permitted under Delaware law.
Article TENTH of the Registrant's Restated and Amended Certificate
of Incorporation provides that no director shall be personally liable to
the Registrant or any stockholder for monetary damages for breach of
fiduciary duty as a director, except for any matter in respect of which
such director shall be liable under Section 174 of Title 8 of the General
Corporation Law of the State of Delaware, or shall be liable by reason
that, in addition to any and all other requirements for such liability, he
(i) shall have breached his duty of
-31-
<PAGE>
loyalty to the Registrant or its stockholders, (ii) shall not have acted
in good faith or, in failing to act, shall not have acted in good faith,
(iii) shall have acted in a manner involving intentional misconduct or a
knowing violation of law or, in failing to act, shall have acted in a manner
involving intentional misconduct or a knowing violation of law or (iv) shall
have derived an improper personal benefit. The provisions of such article do
not limit or eliminate the liability of any director for any act or omission
occurring prior to the effective time of such article.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons
controlling the Company pursuant to the foregoing provisions, the Company
has been informed that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in
the Act and is therefore unenforceable.
LEGAL MATTERS
The legality of the securities offered hereby will be passed upon for
the Company by Weil, Gotshal & Manges (a partnership including professional
corporations), New York, New York.
EXPERTS
The financial statements and schedules included in this prospectus
and elsewhere in the registration statement have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their reports
with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
-32-
<PAGE>
COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets
As of June 30, 1995 (unaudited) and December 31, 1994 and 1993 F-3
Consolidated Statements of Operations
for each of the three years ended December 31, 1994 and for the
six months ended June 30, 1995 (unaudited) and 1994 (unaudited) F-5
Consolidated Statements of Stockholders' Equity (Deficit)
for each of the three years ended December 31, 1994 and for the
six months ended June 30, 1995 (unaudited) F-6
Consolidated Statements of Cash Flows
for each of the three years ended December 31, 1994 and for the
six months ended June 30, 1995 (unaudited) and 1994 (unaudited) F-8
Notes to Consolidated Financial Statements F-11
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Columbia Laboratories, Inc.:
We have audited the accompanying consolidated balance sheets of Columbia
Laboratories, Inc. (a Delaware corporation) and subsidiaries as of December
31, 1994 and 1993, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for each of the three years
in the period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Columbia Laboratories,
Inc. and subsidiaries as of December 31, 1994 and 1993, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1994 in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Miami, Florida,
February 24, 1995.
F-2
<PAGE>
COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
--------- DECEMBER 31,
JUNE 30, ------------------------
1995 1994 1993
--------- ---- ----
(UNAUDITED)
CURRENT ASSETS:
<S> <C> <C> <C>
Cash and cash equivalents $ 6,038,642 $ 689,749 $ 5,280,829
Accounts receivable, net of
allowance for doubtful accounts
of $136,754, $98,370, and $110,015
in 1995, 1994 and 1993,
respectively 1,011,768 904,277 1,361,604
Inventories 1,253,400 1,117,243 2,874,208
Prepaid expenses 184,117 125,832 218,729
----------- ---------- ----------
Total current assets 8,487,927 2,837,101 9,735,370
----------- ---------- ----------
PROPERTY AND EQUIPMENT:
Leasehold improvements 16,167 15,162 13,045
Machinery and equipment 1,430,261 1,394,788 1,123,847
Furniture and fixtures 71,700 70,597 65,499
----------- ---------- ----------
1,518,128 1,480,547 1,202,391
Less-Accumulated depreciation
and amortization 712,634 564,924 359,231
----------- ---------- ----------
805,494 915,623 843,160
----------- ---------- ----------
INTANGIBLE ASSETS, net 1,674,847 1,786,037 2,007,937
OTHER ASSETS 1,292,356 1,268,803 1,283,584
----------- ----------- -----------
$12,260,624 $6,807,564 $13,870,051
=========== ========== ===========
</TABLE>
(Continued)
F-3
<PAGE>
COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ------------------------
1995 1994 1993
--------- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 156,751 $ - $ 37,527
Accounts payable 3,560,662 3,707,966 1,748,704
Accrued expenses 761,586 1,059,960 2,421,261
Deferred revenue 1,335,445 1,540,549 2,328,542
Estimated liability for returns
and allowances 389,545 387,075 311,147
---------- ----------- ----------
Total current liabilities 6,203,989 6,695,550 6,847,181
---------- ----------- ----------
LONG-TERM DEBT, net of current portion
and debt discount - 6,217,649 5,473,838
OTHER LONG-TERM LIABILITIES 92,563 86,743 74,144
COMMITMENTS AND CONTINGENCIES
(Notes 1 and 5)
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.01 par value;
1,000,000 shares authorized;
Series A Convertible Preferred
Stock, 1,365, 1,515 and 1,915
shares issued and outstanding
in 1995, 1994 and 1993,
respectively (liquidation
preference of $136,500 and
$151,500 at June 30, 1995
and December 31, 1994,
respectively) 14 15 19
Series B Convertible Preferred
Stock, 1,750, 2,000 and 7,750
shares issued and outstanding
in 1995, 1994 and 1993,
respectively (liquidation
preference of $175,000 and
$200,000 at June 30, 1995
and December 31, 1994,
respectively) 18 20 77
Common stock, $.01 par value;
40,000,000 shares authorized;
25,648,354, 23,778,897 and
22,155,906 shares issued and
outstanding in 1995, 1994 and
1993, respectively 256,484 237,789 221,559
Capital in excess of par value 71,339,245 64,206,507 58,926,490
Accumulated deficit (65,645,261) (70,853,356) (57,859,467)
Cumulative translation adjustment 13,572 216,647 186,210
----------- ----------- -----------
Total stockholders' equity
(deficit) 5,964,072 (6,192,378) 1,474,888
----------- ----------- -----------
$12,260,624 $ 6,807,564 $13,870,051
=========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of these balance sheets.
F-4
<PAGE>
COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
---------------------------- ----------------------------------------
1995 1994 1994 1993 1992
------------ ------------ ------------ ------------ ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES $ 6,083,866 $ 3,877,732 $ 8,769,064 $ 8,150,227 $ 9,173,042
COST OF GOODS SOLD 3,197,014 2,029,088 5,539,424 5,077,816 5,327,459
----------- ---------- ----------- ----------- -----------
Gross profit 2,886,852 1,848,644 3,229,640 3,072,411 3,845,583
----------- ---------- ----------- ----------- -----------
OPERATING EXPENSES:
Selling and distribution 1,448,463 1,077,567 2,036,353 2,571,164 3,373,259
General and administrative 1,572,054 1,573,311 2,799,863 3,491,201 4,701,646
Research and development 2,725,085 4,087,422 8,976,047 5,290,912 3,129,026
Lease termination cost - - - 238,282 1,000,000
----------- ---------- ------------ ----------- -----------
Total operating expenses 5,745,602 6,738,300 13,812,263 11,591,559 12,203,931
----------- ---------- ------------ ----------- -----------
Loss from operations (2,858,750) (4,889,656) (10,582,623) (8,519,148) (8,358,348)
----------- ---------- ------------ ----------- -----------
OTHER INCOME (EXPENSE):
License fees, net 8,054,883 60,464 174,741 561,297 2,776,043
Interest income 40,205 37,144 61,030 89,540 114,801
Interest expense (140,750) (714,068) (2,479,610) (431,983) (548,924)
Guaranteed return to minority
shareholders of subsidiary - - - - (2,585,118)
Purchase of option - - - (2,000,000) -
Other, net 112,507 (64,844) (167,427) (152,689) 65,610
----------- ----------- ------------ ----------- ----------
8,066,845 (681,304) (2,411,266) (1,933,835) (177,588)
----------- ----------- ------------ ----------- ----------
Net income (loss) $ 5,208,095 $(5,570,960) $(12,993,889) $(10,452,983) $(8,535,936)
=========== =========== ============ ============ ===========
NET INCOME (LOSS) PER COMMON SHARE $ .21 $ (.25) $ (.58) $ (.49) $ (.51)
=========== =========== ============ =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 25,123,000 22,199,000 22,530,000 21,380,000 16,880,000
=========== =========== ============ =========== ===========
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of these statements.
<PAGE>
COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
SERIES A SERIES B
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
--------------- --------------- -----------------------
NUMBER NUMBER NUMBER
OF OF OF
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ---------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1992 3,165 $ 32 22,750 $ 227 16,392,281 $163,923
Common stock issued in payment
for services rendered - - - - 15,000 150
Options exercised - - - - 561,432 5,614
Warrants exercised - - - - 123,898 1,239
Conversion of preferred stock (975) (10) (10,000) (100) 212,051 2,120
Accumulated dividends on
preferred stock - - - - - -
Payment of accumulated dividends - - - - 757 8
Translation adjustment - - - - - -
Net loss - - - - - -
--------- ------- --------- ------ ---------- -------
BALANCE, December 31, 1992 2,190 22 12,750 127 17,305,419 173,054
Issuance of common stock - - - - 3,992,002 39,920
Options exercised - - - - 531,568 5,316
Warrants exercised - - - - 220,668 2,207
Issuance of warrants - - - - - -
Conversion of preferred stock (275) (3) (5,000) (50) 106,249 1,062
Accumulated dividends on
preferred stock - - - - - -
Translation adjustment - - - - - -
Net loss - - - - - -
--------- ------- --------- ------ ---------- -------
BALANCE, December 31, 1993 1,915 19 7,750 77 22,155,906 221,559
</TABLE>
<TABLE>
<CAPTION>
CAPITAL IN CUMULATIVE
EXCESS OF ACCUMULATED TRANSLATION
PAR VALUE DEFICIT ADJUSTMENT TOTAL
--------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
BALANCE, January 1, 1992 $38,369,579 $(38,870,548) $(383,298) $(720,085)
Common stock issued in payment
for services rendered 119,850 - - 120,000
Options exercised 1,015,322 - - 1,020,936
Warrants exercised 126,145 - - 127,384
Conversion of preferred stock (2,010) - - -
Accumulated dividends on
preferred stock (19,826) - - (19,826)
Payment of accumulated dividends 6,336 - - 6,344
Translation adjustment - - 1,010,097 1,010,097
Net loss - (8,535,936) - (8,535,936)
----------- ------------ ----------- ----------
BALANCE, December 31, 1992 39,615,396 (47,406,484) 626,799 (6,991,086)
Issuance of common stock 16,644,494 - - 16,684,414
Options exercised 474,689 - - 480,005
Warrants exercised 296,727 - - 298,934
Issuance of warrants 1,912,500 - - 1,912,500
Conversion of preferred stock (1,009) - - -
Accumulated dividends on
preferred stock (16,307) - - (16,307)
Translation adjustment - - (440,589) (440,589)
Net loss - (10,452,983) - (10,452,983)
----------- ------------ ----------- ----------
BALANCE, December 31, 1993 58,926,490 (57,859,467) 186,210 1,474,888
(Continued)
<PAGE>
COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(Continued)
</TABLE>
<TABLE>
<CAPTION>
SERIES A SERIES B
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
--------------- --------------- -----------------------
NUMBER NUMBER NUMBER
OF OF OF
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ---------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1994 1,915 $ 19 7,750 $ 77 22,155,906 $221,559
Issuance of common stock - - - - 126,061 1,261
Options exercised - - - - 20,000 200
Warrants exercised - - - - 1,060,000 10,600
Conversion of debt - - - - 293,710 2,937
Conversion of preferred stock (400) (4) (5,750) (57) 123,220 1,232
Accumulated dividends on
preferred stock - - - - - -
Translation adjustment - - - - - -
Net loss - - - - - -
------- ----- ------ ---- ---------- --------
BALANCE, December 31, 1994 1,515 15 2,000 20 23,778,897 237,789
Issuance of common stock (unaudited) - - - - 67,610 676
Options exercised (unaudited) - - - - 35,000 350
Warrants exercised (unaudited) - - - - 64,619 646
Conversion of debt (unaudited) - - - - 1,695,232 16,953
Conversion of preferred stock
(unaudited) (150) (1) (250) (2) 6,996 70
Accumulated dividends on
preferred stock (unaudited) - - - - - -
Translation adjustment (unaudited) - - - - - -
Net income (loss) (unaudited) - - - - - -
------- ----- ------ ---- ---------- --------
BALANCE, June 30, 1995 (unaudited) 1,365 $ 14 1,750 $ 18 25,648,354 $256,484
======= ===== ====== ==== ========== ========
</TABLE>
<TABLE>
<CAPTION>
CAPITAL IN CUMULATIVE
EXCESS OF ACCUMULATED TRANSLATION
PAR VALUE DEFICIT ADJUSTMENT TOTAL
--------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
BALANCE, January 1, 1994 $58,926,490 $(57,859,467) $186,210 $1,474,888
Issuance of common stock 525,739 - - 527,000
Options exercised 28,600 - - 28,800
Warrants exercised 3,714,400 - - 3,725,000
Conversion of debt 1,025,048 - - 1,027,985
Conversion of preferred stock (1,171) - - -
Accumulated dividends on
preferred stock (12,599) - - (12,599)
Translation adjustment - - 30,437 30,437
Net loss - (12,993,889) - (12,993,889)
----------- ------------ ------------ -----------
BALANCE, December 31, 1994 64,206,507 (70,853,356) 216,647 (6,192,378)
Issuance of common stock
(unaudited) 302,471 - - 303,147
Options exercised (unaudited) 161,525 - - 161,875
Warrants exercised (unaudited) 352,173 - - 352,819
Conversion of debt (unaudited) 6,322,456 - - 6,339,409
Conversion of preferred stock
(unaudited) (67) - - -
Accumulated dividends on
preferred stock (unaudited) (5,820) - - (5,820)
Translation adjustment (unaudited) - - (203,075) (203,075)
Net income (loss) (unaudited) - 5,208,095 - 5,208,095)
----------- ------------ ------------ -----------
BALANCE, June 30, 1995
(unaudited) $71,339,245 $(65,645,261) $ 13,572 $ 5,964,072
=========== ============ ============ ===========
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of these statements.
<PAGE>
COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
---------------------------- -----------------------------------------
1995 1994 1994 1993 1992
------------ ------------ ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 5,208,095 $ (5,570,960) $(12,993,889) $(10,452,983) $(8,535,936)
Adjustments to reconcile net income
(loss) to net cash used in
operating activities-
Depreciation and amortization 255,658 213,269 440,496 496,984 568,669
Provision for (recovery of) doubtful
accounts 38,384 16,382 (3,030) 4,734 (113,977)
Provision for returns and allowances 13,092 335,844 168,215 233,969 532,073
Lease termination cost - - - 112,007 1,000,000
Write-down of property and equipment - - - 216,133 11,815
Write-down of inventories - - 888,277 451,460 -
Guaranteed return to minority
shareholders of subsidiary - - - - 2,585,118
Interest expense - 347,770 1,738,635 173,865 -
Changes in assets and liabilities -
(Increase) decrease in:
Accounts receivable (393,186) (51,074) 43,773 (469,726) (197,360)
Inventories (136,159) 337,453 868,688 (31,914) (3,053,773)
Prepaid expenses 201,090 267,432 78,365 (87,374) 393,302
Other assets (18,418) 18,626 20,548 (510,804) 96,127
Increase (decrease) in:
Accounts payable 40,352 1,634,050 2,071,080 (1,617,947) 1,703,535
Accrued expenses (203,383) (1,311,017) (1,516,010) 1,579,201 (1,428,550)
Deferred revenue 54,882 (231,304) (387,993) (144,738) 128,244
Estimated liability for returns
and allowances (10,622) - (92,287) (344,203) (558,460)
--------- ----------- ----------- ------------ ----------
Net cash used in operating
activities 5,049,785 (3,993,529) (8,675,132) (10,391,336) (6,869,173)
--------- ----------- ----------- ------------ -----------
(Continued)
<PAGE>
COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
---------------------------- -----------------------------------------
1995 1994 1994 1993 1992
------------ ------------ ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment $ (29,177) $ (140,765) $ (275,210) $ (118,023) $(423,613)
Proceeds from sale of investment - - - 25,817 53,653
--------- ----------- ----------- ---------- ----------
Net cash used in investing activities (29,177) (140,765) (275,210) (92,206) (369,960)
--------- ----------- ----------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable
and long-term debt - - - 7,250,000 -
Repayments of notes payable and
long-term debt (91,954) (37,527) (37,527) (192,024) (28,519)
Repayment of amount owed to minority
shareholders of a subsidiary - - - (2,500,000) -
Proceeds from issuance of common stock 78,147 - 500,000 9,448,813 -
Proceeds from exercise of options
and warrants 514,694 78,800 3,753,800 778,939 1,148,320
--------- ----------- ----------- ---------- ----------
Net cash provided by financing
activities 500,887 41,273 4,216,273 14,785,728 1,119,801
--------- ----------- ----------- ---------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (172,602) 115,564 142,989 (62,143) 19,592
--------- ----------- ----------- ---------- ----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 5,348,893 (3,977,457) (4,591,080) 4,240,043 (6,099,740)
CASH AND CASH EQUIVALENTS,
beginning of period 689,749 5,280,829 5,280,829 1,040,786 7,140,526
--------- ----------- ----------- ---------- ----------
CASH AND CASH EQUIVALENTS,
end of period $6,038,642 $ 1,303,372 $ 689,749 $5,280,829 $1,040,786
========== =========== =========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Interest paid during the period $ 12,435 $ - $ 573,338 $ 29,857 $ 147,231
========= =========== =========== ========== ==========
</TABLE>
(Continued)
<PAGE>
COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
SUPPLEMENTAL SCHEDULE OF NONCASH
OPERATING AND FINANCING ACTIVITIES:
During the six months ended June 30, 1995, the Company issued 1,695,232
shares of Common Stock in payment of long-term debt and accrued interest
totalling $6,339,409.
During the six months ended June 30, 1995, the Company issued 50,000
shares of Common Stock in payment of legal fees totalling $225,000.
In January 1993, the Company completed a private placement of 2.5
million shares of its Common Stock, raising net proceeds of approximately
$9.5 million. In addition, the Company repaid the amount owed to the
minority shareholders of a subsidiary through the payment of $2.5 million
in cash and the issuance of 867,579 shares of the Company's Common Stock.
The Company also repaid $1.6 million of long-term debt through the payment
of $100,000 in cash and the issuance of 375,000 shares of the Company's
Common Stock.
During 1993, the Company issued 239,238 shares of Common Stock in
payment of lease termination costs which totaled $1.2 million. In addition,
during 1994 and 1993, the Company issued 5,008 and 10,300 shares of Common
Stock, respectively, in payment of consulting fees, which totaled $27,000
and $54,000, respectively.
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-10
<PAGE>
COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Data with respect to June 30, 1995 and 1994 have not been
audited by independent certified public accountants.)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION-
Columbia Laboratories, Inc. (the "Company") was incorporated as a Delaware
corporation in December 1986. The Company's objective is to develop on a
worldwide basis a portfolio of women's prescription and over-the-counter
products, including those which help prevent sexually transmitted diseases.
The Company's products primarily utilize the Company's patented bioadhesive
delivery technology.
PRINCIPLES OF CONSOLIDATION-
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
ADJUSTMENT OF PRIOR YEARS' FINANCIAL STATEMENTS-
In December 1993, the Company entered into an Option and License Agreement
pursuant to which it was granted an option to obtain an exclusive license to the
North and South American rights to a potential AIDS treatment. The option cost
$2 million, which in accordance with SFAS No. 2, should have been expensed when
acquired in 1993. As a result, the Company has restated net income (loss) for
1993, 1994 and 1995.
The effect of the restatement is to increase 1993 net loss by $2 million or
$(.09) per share and decrease 1994 net loss $400,000 or $.01 per share. The
effect on the 1994 and 1995 per share quarterly amounts is immaterial.
FOREIGN CURRENCY-
The assets and liabilities of the Company's foreign subsidiaries are
translated into U.S. dollars at current exchange rates and revenue and
expense items are translated at average rates of exchange prevailing during
the period. Resulting translation adjustments are accumulated as a separate
component of stockholders' equity (deficit).
INVENTORIES-
Inventories are stated at the lower of cost (first-in, first-out) or
market. Components of inventory cost include materials, labor and
manufacturing overhead. Inventories consist of the following:
DECEMBER 31,
JUNE 30, --------------------------
1995 1994 1993
----------- ---------- ----------
Finished goods $ 232,923 $ 260,666 $ 236,241
Raw materials 1,020,477 856,577 2,637,967
---------- ---------- ----------
$1,253,400 $1,117,243 $2,874,208
========== ========== ==========
PROPERTY AND EQUIPMENT-
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed on the straight-line method over the estimated
useful lives of the respective assets, as follows:
YEARS
------
Machinery and equipment 5 - 10
Furniture and fixtures 5
F-11
<PAGE>
Costs of major additions and improvements are capitalized and expenditures
for maintenance and repairs which do not extend the life of the assets are
expensed. Upon sale or disposition of property and equipment, the cost and
related accumulated depreciation are eliminated from the accounts and any
resultant gain or loss is credited or charged to income.
INTANGIBLE ASSETS-
Intangible assets consist of the following:
DECEMBER 31,
JUNE 30, --------------------------
1995 1994 1993
----------- ---------- ----------
Patents $2,600,000 $2,600,000 $2,600,000
Trademarks 341,000 341,000 341,000
----------- ---------- ----------
2,941,000 2,941,000 2,941,000
Less accumulated
amortization (1,730,362) (1,154,963) (933,063)
----------- ---------- ----------
$1,674,847 $1,786,037 $2,007,937
=========== ========== ==========
Patents are being amortized on a straight-line basis over their remaining
lives (through 2003). Trademarks are being amortized on a straight-line
basis over ten years.
Following the acquisition of any intangible assets, the Company continually
evaluates whether later events and circumstances have occurred that indicate
that a trademark or patent may not be recoverable. Factors considered when
determining whether an impairment of value has occurred and the amount of such
an impairment, if any, include the underlying products estimated future
undiscounted net income, including amounts to be received over the remaining
life of the intangible from license fees, royalty income, and related deferred
revenues as compared to the carrying value of the related intangible.
Unrecoverable amounts are charged to operations.
INCOME TAXES-
As of December 31, 1994, the Company has U.S. tax net operating loss
carryforwards of approximately $40 million which expire through 2009. The
Company also has unused tax credits of approximately $738,000 which expire
at various dates through 2004. Utilization of net operating loss
carryforwards may be limited in any year due to limitations in the Internal
Revenue Code.
In February 1992, the Financial Accounting Standards Board issued a new
standard on accounting for income taxes ("SFAS No. 109"). The Company
adopted the new accounting and disclosure rules as of
F-12
<PAGE>
January 1, 1993. Implementation of SFAS No. 109 had no effect on the Company's
reported financial position and net loss. As of December 31, 1994 and 1993,
other assets in the accompanying consolidated balance sheets include deferred
tax assets of approximately $14 million (comprised primarily of a net operating
loss carryforward) which have been fully reserved for as their ultimate
realizability is not assured.
REVENUE RECOGNITION-
Sales are recorded as products are shipped and services are rendered.
Royalties and additional monies owed to the Company based on the
strategic alliance partners selling prices are recorded as revenue as
sales are made by the strategic alliance partners.
RESEARCH AND DEVELOPMENT COSTS-
Company sponsored research and development costs related to future products
are expensed as incurred. Costs related to research and development
contracts are charged to cost of sales upon recognition of the related
revenue.
LEASE TERMINATION COST-
Lease termination cost represents expenses incurred in relocating the
Company's corporate headquarters to a smaller premises and in closing the
Company's laboratory facility in Madison, Wisconsin. Of this amount, $1.2
million was paid through the issuance of 239,238 shares of the Company's
$.01 par value Common Stock ("Common Stock").
LOSS PER SHARE-
Loss per share is computed by dividing the net loss plus preferred
dividends by the weighted average number of shares of common stock
outstanding during the period. Shares to be issued upon the exercise of the
outstanding options and warrants or the conversion of the preferred stock
are not included in the computation of loss per share as their effect is
antidilutive.
STATEMENTS OF CASH FLOWS-
For purposes of the statements of cash flows, the Company considers all
investments purchased with a maturity of three months or less to be cash
equivalents.
(2) STRATEGIC ALLIANCE AGREEMENTS:
The Company has entered into strategic alliance agreements for the
marketing and distribution of Replens with: (i) Warner-Lambert Company
under which Warner-Lambert Company markets Replens in the United States;
(ii) subsidiaries of Johnson and Johnson under which those subsidiaries
market Replens in Italy and will market Replens in Belgium; (iii)
Roussel-UCLAF under which Roussel markets Replens in France, certain French
overseas territories and Greece; (iv) Sterling Drug Inc. under which
Sterling markets Replens in Japan, South America, Central America,
Australia, New Zealand, and other Pacific Rim nations; (v) Teva
Pharmaceutical under which Teva will market Replens in Israel; (vi) Logos
Pharmaceuticals (Pty) Limited under which Logos markets Replens in South
Africa and the sixteen countries of sub-Saharan Africa; (vii) LASA SA under
which LASA SA markets Replens in Spain; (viii) Unipath Ltd. under which
Unipath markets Replens and Feminesse(TM) in the United Kingdom; (ix)
Roberts Pharmaceutical Corporation under which Roberts will market Replens
in Canada; (x) Vifor SA under which Vifor will market Replens in
Switzerland and Liechtenstein; (xi) Hermes H/F under which Hermes is
currently marketing Replens in Iceland and (xii) a Swedish pharmaceutical
company that has created a joint venture which markets Replens in Sweden
and other Scandinavian countries. Pursuant to these agreements, the Company
has received advance payments, of which $1,540,549 and $2,328,542,
respectively, are reflected as deferred revenue in the
F-13
<PAGE>
accompanying December 31, 1994 and 1993 consolidated balance sheets,
respectively. These advance payments will be recognized as products are
shipped to the applicable strategic alliance partners or as sales are made
by the strategic alliance partners.
During 1993, the Logos agreement was amended such that Logos will also be
the exclusive distributor of the Company's progesterone product in South
Africa and the sixteen countries of sub-Saharan Africa. As part of the
agreement, the Company received upfront licensing fees as well as ongoing
revenue from manufacturing and product sales.
In September 1994, the Company entered into a license and distribution
agreement with Lake Pharmaceutical, Inc. under which Lake markets Advantage
24 in the United States.
(3) LONG-TERM DEBT:
Long-term debt consists of the following:
DECEMBER 31,
JUNE 30, --------------------------
1995 1994 1993
----------- ---------- ----------
10% notes payable $ 156,751 $6,217,649 $7,250,000
Less - Debt discount - - (1,738,635)
Less - Payments
due within one
year (156,751) - (37,527)
----------- ---------- ----------
$ - $6,217,649 $5,473,838
=========== ========== ==========
During 1993, the Company issued $7.25 million of unsecured 10% notes
payable due on June 30, 1996 ("1993 Notes"). Pursuant to the terms of the
1993 Notes, if the Company or any of its subsidiaries receives upfront
license fees for the marketing and distribution of the Company's
prescription progesterone product, the Company will use one-third of the
net proceeds of such upfront fees to make "pro-rata" prepayments of the
notes payable. In January 1994, a prepayment totaling $37,527 was made. In
connection with the 1993 Notes, the Company issued warrants to purchase
1,212,500 shares of the Company's Common Stock at an exercise price of
$4.00 per share, which was less than the market value of the Company's
Common Stock on the date of grant. The difference, aggregating $1,912,500,
is being recorded as additional interest expense over the term of the 1993
Notes. As of December 31, 1993, $1,738,635 is reflected as debt discount
in the accompanying consolidated balance sheet. The warrants are
exercisable during the period from July 1, 1994 through June 30, 1998.
During 1994, the exercise price of certain of the warrants was reduced from
$4.00 per share to $3.50 per share, conditioned on the immediate exercise
of the warrants. As additional consideration for the immediate exercise of
the warrants, the holders were granted the right at any time to convert the
outstanding principal amount of the 1993 debt and accrued interest thereon,
into shares of Common Stock at an exchange rate equal to a 25% discount to
the then current market price, based on the average closing price of the
Common Stock for the fifteen days prior to the conversion date, but in no
event at a price less than $3.50 per share. As consideration for the
repricing of the warrants, the note holders waived their right to receive
one-third of the net proceeds of any upfront licensing fees. As a result,
warrants to purchase 1,050,000 shares of Common Stock were exercised
resulting in net proceeds of $3,675,000 to the Company.
During 1994, the Company repaid $1,027,985 of long-term debt and accrued
interest through the issuance of 293,710 shares of the Company's Common
Stock. In addition, during 1995, the Company repaid an
F-14
<PAGE>
additional $6,339,409 of long-term debt and accrued interest through the
issuance of 1,695,232 shares of the Company's Common Stock. As a result of the
exercise of the warrants and the repayment of the debt, during 1994, debt
discount aggregating $1,738,635 has been recorded as additional interest
expense.
(4) STOCKHOLDERS' EQUITY (DEFICIT):
PREFERRED STOCK-
In November 1989, the Company completed a private placement of 151,000
shares of Series A Convertible Preferred Stock ("Series A Preferred
Stock"). The Series A Preferred Stock pays cumulative dividends at a rate
of 8% per annum payable quarterly and each share is convertible into 12.36
shares of the Company's Common Stock. As of June 30, 1995 and December 31,
1994 and 1993, dividends of $92,563, $86,743 and $74,144, respectively,
have been earned but have not been declared and are included in other
long-term liabilities in the accompanying consolidated balance sheets.
In August 1991, the Company completed a private placement of 150,000 shares
of Series B Convertible Preferred Stock ("Series B Preferred Stock"). Each
share of Series B Preferred Stock is convertible into 20.57 shares of the
Company's Common Stock.
Upon liquidation of the Company, the holders of the Series A and Series B
Preferred Stock are entitled to $100 per share. In addition, the holders of
Series A Preferred Stock are entitled to accumulated unpaid dividends. The
Series A Preferred Stock shares are redeemable for cash, at the option of
the Company, at specified redemption prices. The Series B Preferred Stock
will be automatically converted into Common Stock upon the occurrence of
certain events. Holders of the Series A and Series B Preferred Stock are
entitled to one vote for each share of common stock into which the
preferred stock is convertible.
WARRANTS-
As of June 30, 1995, December 31, 1994 and 1993, the Company had warrants
outstanding for the purchase of 1,015,381, 780,000 and 2,316,500 shares of
Common Stock, respectively. Information on outstanding warrants is as follows:
DECEMBER 31,
EXERCISE JUNE 30, -----------------------------
PRICE 1995 1994 1993
----------- ----------- --------- ---------
$4.00 162,500 162,500 1,212,500
4.375 150,000 150,000 -
4.81 75,000 75,000 75,000
4.875 57,500 57,500 -
5.00 14,000 14,000 398,000
5.25 7,000 7,000 7,000
5.31 300,000 - 300,000
5.46 60,381 125,000 125,000
5.625 7,000 7,000 7,000
5.875 7,000 7,000 7,000
7.13 - - 10,000
8.875 175,000 175,000 175,000
--------- ------- ---------
1,015,381 780,000 2,316,500
========= ======= =========
All of the warrants, except the $4.875 warrants, were exercisable on
December 31, 1994.
F-15
<PAGE>
STOCK OPTION PLAN-
All employees, officers, directors and consultants of the Company or any
subsidiary are eligible to participate in the Columbia Laboratories, Inc.
1988 Stock Option Plan (the "Plan"). Under the Plan, as amended, a total of
5,000,000 shares of Common Stock have been authorized for issuance upon
exercise of the options. Information on options are as follows:
NUMBER
OF SHARES PRICE PER SHARE
----------- -----------------
Outstanding, January 1, 1993 2,979,068 $ .25 - 16.03
Granted 1,003,572 5.38 - 5.63
Exercised (531,568) .25 - 2.72
Canceled (110,500) 4.88 - 13.25
----------
Outstanding, December 31, 1993 3,340,572 1.44 - 16.03
Granted 1,925,000 4.38 - 6.13
Exercised (20,000) 1.44
Canceled (1,995,252) 4.34 - 14.58
----------
Outstanding, December 31, 1994 3,250,320 1.44 - 16.03
Granted - -
Exercised (35,000) 4.50 - 5.38
Canceled (208,174) 13.25
----------
Outstanding, June 30, 1995 3,007,146 1.44 - 16.03
==========
Options exercisable:
December 31, 1993 1,625,500 $ 1.44 - 16.03
========== ==============
December 31, 1994 1,074,320 $ 1.44 - 16.03
========== ==============
June 30, 1995 891,146 $ 1.44 - 16.03
========== ==============
(5) COMMITMENTS AND CONTINGENCIES:
LEASES-
The Company leases office space, apartments and office equipment under
noncancelable operating leases. Lease expense for each of the six months
ended June 30, 1995 and 1994 and for each of the three years ended
December 31, 1994, 1993 and 1992 totaled $207,073, $239,583, $461,489,
$308,625 and $842,512, respectively. Future minimum lease payments as of
December 31, 1994 are as follows:
1995 $351,902
1996 200,171
1997 105,830
1998 73,258
1999 2,850
--------
$734,011
========
ROYALTIES-
In 1989, the Company purchased the assets of Bio-Mimetics, Inc. which
consisted of the patents underlying the Company's Bioadhesive Delivery
System, other patent applications and related technology, for $2,600,000,
in the form of 9% convertible debentures which were converted into 500,000
shares of the Company's Common Stock during 1991, and $100,000 in cash. The
Company also agreed to pay Bio-Mimetics, Inc. a royalty equal to one
percent of the net sales of products based on the Bioadhesive Delivery
System to an aggregate amount of $7,500,000. In settlement of certain
claims made by Bio-Mimetics, Inc.
F-16
<PAGE>
and the Company, the royalty was increased to two percent effective July 1,
1992. In addition, beginning in March 1995, the Company agreed to prepay a
portion of the remaining royalty obligation if certain conditions are met.
The Company may not assign the patents underlying the Bioadhesive Delivery
System without the prior written consent of Bio-Mimetics, Inc. until the
aggregate royalties have been paid. Until September 1993, Joseph Robinson,
Ph.D., the developer of the Bioadhesive Delivery System and a 50% owner of
Bio-Mimetics, Inc., was the Vice President-Pharmaceutical Development of the
Company. The assets and revenues of Bio-Mimetics, Inc. prior to acquisition
were not significant to the financial statements of the Company.
In May 1989, the Company signed an exclusive agreement to license the U.S.
and Canadian marketing rights for Diasorb, a unique pediatric antidiarrheal
product formerly marketed by Schering-Plough Corporation. Under the terms
of the agreement, the Company is obligated to pay a royalty equal to 5% of
the net sales of Diasorb.
EMPLOYMENT AGREEMENTS-
The Company has employment agreements with certain employees, some of whom
are also stockholders of the Company. The terms of the employment
agreements range from one to five years. Future base compensation to be
paid under these agreements as of December 31, 1994 are as follows:
1995 $388,958
1996 147,083
1997 39,375
--------
$575,416
========
During 1993, the Company's shareholders approved an Incentive Compensation
Plan covering all employees pursuant to which an aggregate of 5% of pretax
earnings of the Company for any year will be awarded to designated
employees of the Company. As a result of the net loss, no amounts were
awarded for 1994.
MANUFACTURING EQUIPMENT-
In 1991, the Company placed orders for approximately $2,700,000 of
manufacturing equipment. As of June 30, 1995 and December 31, 1994 and
1993, $945,000 of this equipment was completed and is included in machinery
and equipment in the accompanying consolidated balance sheets. Deposits on
manufacturing equipment totalling approximately $991,000 as of June 30,
1995 and December 31, 1994 and 1993, are included in other assets in the
accompanying consolidated balance sheets.
LEGAL PROCEEDINGS-
Various claims and complaints have been filed or are pending against the
Company with respect to various matters. In the opinion of management and
counsel, all such matters are adequately reserved for or covered by
insurance or, if not so covered, are without any or have little merit or
involve such amounts that if disposed of unfavorably would not have a
material adverse effect on the Company.
(6) OTHER RELATED-PARTY TRANSACTION:
During 1993, the Company loaned two individuals who are officers, directors
and stockholders of the Company an aggregate of $190,350. These notes,
which bear interest at 10% per annum, are due on or before December 7,
1996. The notes and the related accrued interest, aggregating $211,219 and
$192,184, respectively, are included in other assets in the accompanying
December 31, 1994 and 1993 consolidated balance sheets.
F-17
<PAGE>
(7) SEGMENT INFORMATION:
The Company and its subsidiaries are engaged in one line of business, the
development and sale of pharmaceutical products and cosmetics. One customer
accounted for approximately 27%, 29% and 32% of 1994, 1993 and 1992
consolidated net sales, respectively. Another customer accounted for
approximately 14% and 11%, respectively, of 1994 and 1993 consolidated net
sales. The following table shows selected information by geographic area:
<TABLE>
<CAPTION>
NET LOSS FROM IDENTIFIABLE
SALES OPERATIONS ASSETS
----------- ------------ ------------
<S> <C> <C> <C>
As of and for the year
ended December 31, 1994-
United States $7,681,985 $ (2,798,773) $3,153,159
Europe 1,087,079 (7,783,850) 3,654,405
---------- ------------ -----------
$8,769,064 $(10,582,623) $6,807,564
========== ============ ===========
As of and for the year
ended December 31, 1993-
United States $7,009,867 $(5,144,088) $10,306,454
Europe 1,140,360 (3,375,060) 3,563,597
----------- ------------ -----------
$8,150,227 $(8,519,148) $13,870,051
=========== ============ ===========
As of and for the year
ended December 31, 1992-
United States $8,235,564 $(6,251,978) $ 4,783,501
Europe 937,478 (2,106,370) 5,049,653
----------- ------------ -----------
$9,173,042 $(8,358,348) $ 9,833,154
=========== ============ ===========
As of and for the six months
ended June 30, 1995-
United States $5,061,930 $ (566,178) $ 3,444,518
Europe 1,021,936 (2,302,572) 8,816,106
----------- ------------ -----------
$6,083,866 $(2,858,750) $12,260,624
=========== ============ ===========
As of and for the six months
ended June 30, 1994-
United States $3,432,906 $(1,578,175) $ 4,895,854
Europe 444,826 (3,311,481) 5,938,486
----------- ------------ -----------
$3,877,732 $(4,889,656) $10,834,340
=========== ============ ===========
</TABLE>
F-18
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED IN
CONNECTION WITH THIS OFFERING TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. THIS
PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN
OFFER TO BUY, THE SECURITIES OFFERED HEREBY.
TABLE OF CONTENTS
Available Information 2
The Company 3
Risk Factors 3
Use of Proceeds 7
Dilution 7
Business 8
Properties 15
Legal Proceedings 15
Selected Financial Data 15
Management's Discussion and Analysis of
Financial Condition and Results
of Operations 16
Price Range of Common Stock 20
Dividend Policy 20
Management 21
Security Ownership of Certain Beneficial
Owners and Management 25
Certain Relationships and Related
Transactions 26
Plan of Distribution 27
Selling Securityholders 27
Description of Securities 28
Indemnification of Officers and Directors 31
Legal Matters 32
Experts 32
Index to Consolidated Financial Statements F-1
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
SEC registration fees $ 922
Accounting fees and expenses 2,000
Legal fees and expenses 2,000
Miscellaneous 578
-------
Total $ 5,500
=======
The Company is responsible for paying all of these fees.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145(a) of the General Corporation Law of the State of
Delaware (the "General Corporation Law") provides, in general, that a
corporation shall have power to indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation),
by reason of the fact that he is or was a director or officer of the
corporation. Such indemnity may be against expenses (including attorney's
fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred in connection with such action, suit or proceeding, if
the indemnified party acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the corporation
with respect to any criminal action or proceeding and the indemnified party
did not have reasonable cause to believe his conduct was unlawful.
Section 145(b) of the General Corporation Law provides, in general,
that a corporation shall have power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director or
officer of the corporation, against any expenses (including attorney's
fees) actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interest of the corporation.
Section 145(g) of the General Corporation Law provides, in general,
that a corporation shall have the power to purchase and maintain insurance
on behalf of any person who is or was a director or officer of the
corporation against any liability asserted against him or incurred by him
in any such capacity, or arising out of his status as such, whether or not
the corporation would have the power to indemnify him against such
liability under the provisions of the law.
Article EIGHTH of the Registrant's Restated and Amended Certificate
of Incorporation and Section 1 of Article VI of the Registrant's By-Laws
give a director or officer the right to be indemnified by the Registrant to
the fullest extent permitted under Delaware law.
Article TENTH of the Registrant's Restated and Amended Certificate
of Incorporation provides that no director shall be personally liable to
the Registrant or any stockholder for monetary damages for breach of
fiduciary duty as a director, except for any matter in respect of which
such director shall be liable under Section 174 of Title 8 of the General
Corporation Law, or shall be liable by reason that, in addition to any and
all other requirements for such liability, he (i) shall have breached his
duty of loyalty to the Registrant or its stockholders, (ii) shall not have
acted in good faith or, in failing to act, shall not have acted in good
II-I
<PAGE>
faith, (iii) shall have acted in a manner involving intentional misconduct
or a knowing violation of law or, in failing to act, shall have acted in a
manner involving intentional misconduct or a knowing violation of law or
(iv) shall have derived an improper personal benefit. The provisions of
such article do not limit or eliminate the liability of any director for
any act or omission occurring prior to the effective time of such article.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons
controlling the Company pursuant to the foregoing provisions, the Company
has been informed that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in
the Act and is therefore unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following sets forth certain information with respect to all
unregistered securities of the Company sold by the Company within the past
three years:
A. In December 1992, the Company issued warrants ("1992 Warrants") to
purchase the following number of shares of the Company's Common Stock on or
prior to December 1997: McKinley Capital 75,000 shares and Ken Pelton,
35,000 shares. Mc Kinley Capital's warrants are exercisable at $4.81 per
share. Mr. Pelton's warrants are exercisable at various prices ranging from
$5.00 to $5.875 per share.
The 1992 Warrants were issued in settlement of lawsuits between
McKinley Capital and the Company and between Mr. Pelton and the Company.
The exercise price of the McKinley warrants is equal to the closing price
of the Company's Common Stock on November 17, 1992, the day prior to the
date the transaction was approved by the Company's Board of Directors.
Pursuant to the settlement agreement with Mr. Pelton, approved by the
Company's Board of Directors, the exercise price of 7,000 of Mr. Pelton's
warrants were based on the closing price of the Company's Common Stock on
each of December 14, 1992, January 14, 1993, February 12, 1993, March 13,
1993 and April 14, 1993.
The issuance of the 1992 Warrants was made in reliance upon the
exemption from the registration provisions of the Act, afforded by Section
4(2) of the Act, as transactions by an issuer not involving a public
offering. The "purchasers" of the 1992 Warrants were familiar with or had
access to information concerning the operations and financial condition of
the Company.
B. In January 1993, the Company sold an aggregate of 2,500,000
shares of Common Stock ("1993 Private Placement") to the purchasers below
in the amounts appearing beside their respective names through Allen &
Company Incorporated, as Placement Agent.
NUMBER OF SHARES AGGREGATE
NAME OF PURCHASER OF COMMON STOCK PURCHASE PRICE
----------------- ---------------- --------------
American Diversified Enterprises, Inc.
Portfolio Managed Account C-1 200,000 $ 800,000
The Chestnut Hill Fund L.P. 40,000 160,000
Roger Stone 25,000 100,000
The Kraft Irrevocable Family Trust 25,000 100,000
Robert K. Kraft 25,000 100,000
Edward C. Huebner 24,000 96,000
Quasar Partners LTD 15,000 60,000
ECH Fund Inc. 15,000 60,000
Hausmann Holdings 7,000 28,000
Citibank, N.A. 300,000 1,200,000
II-II
<PAGE>
Delaware Group Trend Fund, Inc. 400,000 1,600,000
Harvey P. Eisen 100,000 400,000
Family Partnership L.P. 300,000 1,200,000
Frontier Partnership L.P. 224,650 896,600
Hugh Knowlton Trust U/W/O Hugh Knowlton
F/B/O Erica Knowlton 32,000 128,000
Winthrop Knowlton 20,000 80,000
Brae Group, Inc. 50,000 200,000
Paine Webber Olympus Fund
(Paine Webber Growth Fund) 160,000 640,000
Paine Webber Series Trust
(Growth Portfolio) 40,000 160,000
Samuel P. Reed 25,000 100,000
Richard A. Horstmann 50,000 200,000
Trainer, Worham Profit Sharing Trust 25,000 100,000
Berol Family Trust
FBO Margaret B. Beattie 25,000 100,000
Family Trust FBO John A. Berol 25,000 100,000
Family Trust FBO David N. Berol 25,000 100,000
Berol Family Trust FBO John A. Berol 25,000 100,000
Patricia Billhardt Master Trust 23,000 92,000
Patricia Billhardt Gift Trust 22,000 98,000
John L. Newbold III 15,000 60,000
John B. Horton 15,000 60,000
Allen & Company Incorporated 204,850 819,400
John A. Schneider 17,500 70,000
--------- -----------
2,500,000 $10,000,000
========= ===========
The sales in connection with the 1993 Private Placement were made
in reliance upon the exemption from the registration provisions of the Act,
afforded by Section 4(2) of the Act, as transactions by an issuer not
involving a public offering. All of the purchasers in connection with the
1993 Private Placement are "accredited investors" within the meaning of
Rule 501 of the Act. All of the foregoing purchasers were familiar with or
had access to information concerning the operations and financial condition
of the Company.
C. In August 1990, the Company sold a 25% equity interest in
Columbia UK to a group of European Investors for a purchase price of
(pound)1.8 million. In connection therewith, the Company committed to
provide the European Investors a compound annual rate of return of 50% on
their investment. In January 1993, the Company repurchased the European
Investors interest in Columbia UK through the payment of $2.5 million in
cash and the issuance of 867,579 shares of the Company's Common Stock. The
Company issued 289,193 shares to each of Charterhouse Venture Nominees
Ltd., Alta Berkeley Associates and SED Ventures.
The issuance of the 867,579 shares was made in reliance upon the
exemption from the registration provisions of the Act, afforded by Section
4(2) of the Act, as transactions by an issuer not involving a public
offering. All of the "purchasers" of the shares are "accredited investors"
within the meaning of Rule 501 of the Act. All of the foregoing
"purchasers" were familiar with or had access to information concerning the
operations and financial condition of the Company.
D. In January 1993, the Company issued 375,000 shares of Common Stock
in repayment of the $1,500,000 Dominion Notes.
The issuance of the 375,000 shares was made in reliance upon the
exemption from the registration provisions of the Act, afforded by Section
4(2) of the Act, as transactions by an issuer not involving a public
offering. The "purchaser" of the shares is an "accredited investor" within
the meaning of Rule 501 of the Act
II-III
<PAGE>
and is familiar with or had access to information concerning the operations and
financial condition of the Company.
E. In July 1993, the Company issued 250,000 shares of Common Stock
to Hollywood Corporate Circle Associates as consideration for the
termination of an Office Lease Agreement dated January 18, 1990, of which
10,762 shares were canceled in December 1993, pursuant to the terms of the
Lease Termination Agreement.
The issuance of the 250,000 shares was made in reliance upon the
exemption from the registration provisions of the Act, afforded by Section
4(2) of the Act, as transactions by an issuer not involving a public
offering. The "purchaser" of the shares is an "accredited investor" within
the meaning of Rule 501 of the Act and is familiar with or had access to
information concerning the operations and financial condition of the
Company.
F. In August, September and October 1993, the Company issued an
aggregate of $7,250,000 of notes due June 30, 1996 ("1993 Notes") to the
following parties and in the following amounts: Dominion Capital, Inc.
("Dominion"), in which William J. Hopke, a former director of the Company,
is Vice President, Treasurer and a director, $1,000,000; Citibank, N.A.,
$1,500,000; John Hunter, $1,000,000; Flagship Partners, $320,000; Frontier
Partners, $500,000; Erica Knowlton Trust, $180,000; Family Partnership,
$500,000; Charles Marran, $250,000; Scott Paper Company, $300,000;
Riverbank Associates, $200,000; SBSF Biotechnology Fund, $1,000,000 and
SBSF Convertible Securities Fund, $500,000. The 1993 Notes bear interest at
the rate of 10% per annum. In connection with the issuance of the 1993
Notes, the Company issued warrants ("1993 Warrants") to purchase the
following number of shares of the Company's Common Stock at an exercise
price of $4.00 per share during the period from July 1, 1994 to June 30,
1998: Dominion, 150,000 shares; Citibank, N.A., 225,000; Hyprom, S.A.,
150,000; Flagship Partners, 48,000; Frontier Partners, 75,000; Erica
Knowlton Trust, 27,000; Family Partnership, 75,000; Charles Marran, 37,500;
Scott Paper Company, 45,000; Riverbank Associates, 30,000; SBSF
Biotechnology Fund, 150,000 and SBSF Convertible Securities Fund, 75,000.
The exercise prices of the 1993 Warrants and the number of shares of Common
Stock issuable upon exercise of the 1991 Warrants are subject to adjustment
in certain instances.
The issuance of the 1993 Notes and the 1993 Warrants was made in
reliance upon the exemption from the registration provisions of the Act,
afforded by Section 4(2) of the Act, as transactions by an issuer not
involving a public offering. The "purchasers" of the 1993 Notes and the
1993 Warrants are "accredited investors" within the meaning of Rule 501 of
the Act and were familiar with or had access to information concerning the
operations and financial condition of the Company.
G. In October 1993 and March 1994, the Company issued warrants
("1993-1994 Warrants") to purchase the following number of shares of the
Company's Common Stock at an exercise price of $4.00 per share during the
period from July 1, 1994 to June 30, 1998: John Bendell,
37,500 shares and Ruth Maasbach, as nominee, 87,500 shares.
The 1993-1994 Warrants were issued in connection with investment
banking services provided to the Company in connection with the 1993 Notes.
Accordingly, the exercise price of the 1993-1994 Warrants are equal to
the exercise price of the 1993 Warrants. This transaction was approved
by the Company's Board of Directors.
The issuance of the 1993-1994 Warrants was made in reliance upon
the exemption from the registration provisions of the Act, afforded by
Section 4(2) of the Act, as transactions by an issuer not involving a
public offering. The "purchasers" of the 1993-1994 Warrants are "accredited
investors" within the meaning of Rule 501 of the Act and were familiar with
or had access to information concerning the operations and financial
condition of the Company.
II-IV
<PAGE>
H. In July 1994, the Company issued warrants ("1994 Warrants") to
purchase the following number of shares of the Company's Common Stock at an
exercise price of $4.875 per share during the period from July 19, 1995 to
July 19, 1999: John Bendell, 12,500 shares and Leroy Goldfarb, 45,000
shares.
The 1994 Warrants were issued in recognition of the continued
support Messrs. Goldfarb and Bendall provide the Company. The exercise
price of the 1994 Warrants is equal to the closing price of the Company's
Common Stock on July 18, 1994, the day prior to the date the transaction
was approved by the Company's Board of Directors.
The issuance of the 1994 Warrants was made in reliance upon the
exemption from the registration provisions of the Act, afforded by Section
4(2) of the Act, as transactions by an issuer not involving a public
offering. The "purchasers" of the 1994 Warrants are "accredited investors"
within the meaning of Rule 501 of the Act and were familiar with or had
access to information concerning the operations and financial condition of
the Company.
I. In September 1994, the Company issued warrants ("1994 Dominion
Warrants") to purchase 150,000 shares of the Company's Common Stock at an
exercise price of $4.375 per share until September 28, 1994, to Dominion
Capital, Inc.
The 1994 Dominion Warrants were issued in recognition of the
continued financial consulting support Dominion Capital provides the
Company. The exercise price of the 1994 Dominion Warrants is equal to
the closing price of the Company's Common Stock on September 27, 1994,
the day prior to the date the transaction was approved by the Company's
Board of Directors.
The issuance of the 1994 Dominion Warrants was made in reliance
upon the exemption from the registration provisions of the Act, afforded by
Section 4(2) of the Act, as transactions by an issuer not involving a
public offering. The "purchaser" of the 1994 Dominion Warrants is an
"accredited investor" within the meaning of Rule 501 of the Act and is
familiar with or had access to information concerning the operations and
financial condition of the Company.
J. In October and November 1994, in connection with a private
placement ("1994 Private Placement"), the Company issued an aggregate of
121,053 shares of Common Stock to the following subscribers:
NUMBER OF SHARES AGGREGATE
NAME OF PURCHASER OF COMMON STOCK PURCHASE PRICE
----------------- ---------------- --------------
Nicholas A. Buoniconti 50,000 $200,000
William J. Bologna 21,053 100,000
Norman M. Meier 50,000 200,000
------- --------
121,053 $500,000
======= ========
The sales in connection with the 1994 Private Placement were made
in reliance upon the exemption from the registration provisions of the Act,
afforded by Section 4(2) of the Act, as transactions by an issuer not
involving a public offering. All of the purchasers in connection with the
1994 Private Placement are "accredited investors" within the meaning of
Rule 501 of the Act. All of the foregoing purchasers were familiar with or
had access to information concerning the operations and financial condition
of the Company.
K. In October 1994, the Company issued 900,000 shares of Common Stock
upon exercise of 900,000 of the 1993 Warrants by the following persons and
in the following amounts:
SHARES OF
II-V
<PAGE>
COMMON STOCK
NAME OF PURCHASER ISSUED
----------------- ------------
Citibank, N.A. 225,000
Dominion Capital, Inc. 150,000
Scott Paper Company 45,000
Riverbank Associates 30,000
SBSF Biotechnology Fund L.P. 150,000
SBSF Convertible Securities Fund L.P. 75,000
Flagship Partners, ltd. 48,000
Frontier Partnership, l.P. 75,000
Winthrop Knowlton and Erica Knowlton
Trustees u/w/o Hugh Knowlton
FBO Erica Knowlton 27,000
Family Partnership 75,000
-------
900,000
=======
The issuance of the 900,000 shares was made in reliance upon the
exemption from the registration provisions of the Act, afforded by Section
4(2) of the Act, as transactions by an issuer not involving a public
offering. All of the "purchasers" of the shares are "accredited investors"
within the meaning of Rule 501 of the Act. All of the foregoing
"purchasers" were familiar with or had access to information concerning the
operations and financial condition of the Company.
L. In October 1994, the Company issued 293,710 shares to John Hunter
upon conversion of certain of the 1993 Notes and accrued interest.
The issuance of the 293,710 shares was made in reliance upon the
exemption from the registration provisions of the Act, afforded by Section
4(2) of the Act, as transactions by an issuer not involving a public
offering. The "purchaser" of the shares is an "accredited investor" within
the meaning of Rule 501 of the Act and is familiar with or had access to
information concerning the operations and financial condition of the
Company.
M. In May 1995, the Company issued warrants ("Piguet Warrants") to
purchase 300,000 shares of the Company's Common Stock at an exercise price
of $5.3125 per share until May 1998, to Bank Piguet et Cie, S.A.
The Piguet warrants were issued in settlement of a lawsuit between
Bank Piguet and the Company. The exercise price of the Piguet Warrants is
equal to the exercise price of the warrant, which had expired, in dispute
in the lawsuit. The market value of the Company's Common Stock on May 13,
1995, the date the lawsuit was settled, was $4.9375. The transaction was
approved by the Company's Board of Directors.
The issuance of the Piguet Warrants was made in reliance upon the
exemption from the registration provisions of the Act, afforded by Section
4(2) of the Act, as transactions by an issuer not involving a public
offering. The "purchaser" of the Piguet Warrants is an "accredited
investor" within the meaning of Rule 501 of the Act and is familiar with or
had access to information concerning the operations and financial condition
of the Company.
II-VI
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES.
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Indexes to financial statements and financial statement schedules
appear on F-1 and S-1, respectively.
EXHIBITS
3.1 -- Restated Certificate of Incorporation of the Company, as amended2/
3.2 -- By-laws of Company1/
5.1 -- Opinion re: Legality
10.1 -- Employment Agreement dated as of January 1, 1990, between the
Company and Norman M. Meier2/
10.2 -- Employment Agreement dated as of January 1, 1990, between the
Company and William J. Bologna2/
10.3 -- 1988 Stock Option Plan, as amended, of the Company7/
10.4 -- Joint Venture Agreement for Replens-Sweden dated June 20, 1990,
between Columbia Ireland, Sovro KB and Columbia Linc Sweden AB3/
10.5 -- Licensing and Distribution Agreement dated January 15, 1991,
between the Company and Janssen Pharmaceutica, N.V.4/
10.6 -- License Agreement dated March 20, 1991, between the Company and
Sterling Drug, Inc.3/
10.7 -- Agreement for Replens-Italy dated as of February 19, 1991,
between Janssen Farmaceutica S.p.A and Columbia Laboratories
(Ireland) Limited4/
10.8 -- Distribution Agreement between Columbia Laboratories (Ireland)
Limited and Roussel UCLAF4/
10.9 -- Joint Venture Agreement for Replens-Spain dated as of May 31,
1991, between the Company and LASA4/
10.10 -- License Agreement for Replens-Pac Rim dated as of July 23, 1991,
between the Company and Sterling Drug Inc.4/
10.11 -- License and Supply Agreement between Warner-Lambert Company and
the Company dated December 5, 19915/
10.12 -- Distributorship Agreement for Replens-Japan dated as of
December 28, 1992, between the Company and Sterling-Winthrop Inc.7/
10.13 -- Asset Purchase, License and Option Agreement, dated November 22,
19892/
10.14 -- Employment Agreement dated as of April 15, 1992, between the
Company and Nicholas A. Buoniconti6/
10.15 -- License and Supply Agreement for Crinone between Columbia
Laboratories (Bermuda) Limited and American Home Products dated as
of May 21, 19959/
21 -- Subsidiaries of the Company8/
23.1 -- Consent of Independent Certified Public Accountants
23.2 -- Consent of Attorneys (included in exhibit 5.1)
1/ Incorporated by reference to the Registrant's Registration
Statement on Form S-1 (File No. 33-22062-A) declared effective on
July 28, 1988.
2/ Incorporated by reference to the Registrant's Registration
Statement on Form S-1 (File No. 33-31962) declared effective on
May 14, 1990.
3/ Incorporated by reference to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1990.
4/ Incorporated by reference to the Registrant's Quarterly Report on
Form 10-Q for the three months ended June 30, 1991.
II-VII
<PAGE>
5/ Incorporated by reference to the Registrant's Current Report on
Form 8-K, filed on January 2, 1992.
6/ Incorporated by reference to the Registrant's Post-Effective
Amendment No. 4 to the Registration Statement on Form S-1
(File No. 33-35723) declared effective on May 28, 1992.
7/ Incorporated by reference to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1993.
8/ Incorporated by reference to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1994.
9/ Portions of this exhibit are subject to a request for confidential
treatment. Accordingly, confidential portions of the agreement have
been omitted and filed separately with the Commission.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the registration statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with securities being registered,
the Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-VIII
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1933, the Company has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized in the City of
Miami, State of Florida on August 7, 1995.
COLUMBIA LABORATORIES, INC.
By: /S/ MARGARET J. ROELL
---------------------------------
Margaret J. Roell, Vice President
Know all persons by these presents, that each person whose
signature appears below constitutes and appoints Norman M. Meier or
Margaret J. Roell his attorney-in-fact, with power of substitution, for him
in any and all capacities, to sign amendments to this Registration
Statement on Form S-1, and to file same, with exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorney-in-fact,
or his substitute or substitutes, may do or cause to be done by virtue
hereof.
/S/ NORMAN M. MEIER President, Chief Executive August 7, 1995
-------------------- Officer, Director
Norman M. Meier (Principal Executive Officer)
/S/ WILLIAM J. BOLOGNA Chairman of the Board of Directors August 7, 1995
-----------------------
William J. Bologna
/S/ NICHOLAS A. BUONICONTI Vice Chairman of the August 7, 1995
-------------------------- Board of Directors
Nicholas A. Buoniconti
/S/ MARGARET J. ROELL Vice President-Finance and August 7, 1995
--------------------- Administration, Chief Financial
Margaret J. Roell Officer, Treasurer and Secretary
(Principal Financial and Accounting
Officer)
/S/ IRWIN L. KELLNER Director August 7, 1995
--------------------
Irwin L. Kellner
/S/ JOHN E. A. KIDD Director August 7, 1995
-------------------
John E. A. Kidd
Director August 7, 1995
----------------------
Lila E. Nachtigall
<PAGE>
COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENT SCHEDULE
PAGE
----
Report of Independent Certified Public Accountants S-2
Schedule VIII-Valuation and Qualifying Accounts and Reserves S-3
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Columbia Laboratories, Inc.:
We have audited in accordance with generally accepted auditing standards,
the financial statements of Columbia Laboratories, Inc. and subsidiaries
included in this Form 10-K and have issued our report thereon dated
February 24, 1995. Our audits were made for the purpose of forming an
opinion on the basic financial statements taken as a whole. Schedule VIII
is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in relation to
the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Miami, Florida,
February 24, 1995.
S-2
<PAGE>
COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
CHARGED TO
BALANCE AT (CREDITED TO) BALANCE
BEGINNING COSTS AND AT END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
----------- ---------- ------------ ---------- ---------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1994:
Allowance for doubtful
accounts $110,015 $ (3,030) $ (8,615) $ 98,370
======== ========= ======== ========
YEAR ENDED DECEMBER 31, 1993:
Allowance for doubtful
accounts $106,624 $ 4,734 $ (1,343) $110,015
======== ========= ======== ========
YEAR ENDED DECEMBER 31, 1992:
Allowance for doubtful
accounts $297,352 $(113,977) $(76,751) $106,624
======== ========= ======== ========
</TABLE>
S-3
EXHIBIT 5.1
June 9, 1995
Columbia Laboratories, Inc.
2665 South Bayshore Drive
Miami, Florida 33133
RE: Columbia Laboratories, Inc.
Registration Statement on Form S-1
Gentlemen:
We have acted as counsel to Columbia Laboratories, Inc. (the
"Company") in connection with the preparation and filing with the
Securities and Exchange Commission of the Company's Registration Statement
on Form S-1 (the "Registration Statement") under the Securities Act of
1933, as amended, with respect to 345,000 shares of common stock, par value
$.01 per share (the "Common Shares"), of the Company.
In so acting, we have examined originals or copies, certified or
otherwise identified to our satisfaction, of the Registration Statement and
such corporate records, agreements, documents and other instruments, and
such certificates or comparable documents of public officials and of
officers and representatives of the Company, and have made such inquiries
of such officers and representatives as we have deemed relevant and
necessary as a basis for the opinions hereinafter set forth.
In such examination, we have assumed the genuineness of all
signatures, the legal capacity of natural persons, the authenticity of all
documents submitted to us as originals, the conformity to original
documents of documents submitted to us as certified or photostatic copies
and the authenticity of the originals of such latter documents. As to all
questions of fact material to this opinion that have not been independently
established, we have relied upon certificates or comparable documents of
officers and representatives of the Company.
Based on the foregoing, and subject to the qualifications stated
herein, we are of the opinion that the Common Shares have been duly
authorized by all requisite corporate action and, when issued as described
in the Registration Statement, will be validly issued, fully paid and
non-assessable, and no personal liability will attach to the holders of
such Common Shares under the laws of the State of Delaware (the state in
which the Company is incorporated).
The opinion is limited to the laws of the State of Delaware, and we
express no opinion as to the effect on the matters covered by this opinion
of the laws of any other jurisdiction.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement. We further consent to any and all references to our
firm in the Prospectus which is a part of said Registration Statement.
Very truly yours,
WEIL, GOTSHAL & MANGES
EXHIBIT 10.15
*** Confidentiality Treatment Requested
LICENSE AND SUPPLY AGREEMENT
This agreement made and entered into as of the 21st day of May, 1995 by
and between Columbia Laboratories (Bermuda) Limited, a Bermuda corporation
having its principal place of business at Rosebank Center, 14 Bermudiana Road,
Pembroke, HM08 Bermuda ("Licensor"), and American Home Products Corporation of
Five Giralda Farms, Madison, New Jersey 07940-0874, a Delaware corporation,
represented by its Wyeth-Ayerst Laboratories Division ("Licensee").
WHEREAS, Licensor is the owner or exclusive Licensee of, and has the
right to, grant licenses with respect to certain Technology, Patents and the
Trademark (as hereinafter defined); and
WHEREAS, Licensor wishes to grant to Licensee an exclusive license
(subject only to Licensor's retained use and manufacturing rights) to the
Crinone Technology (as hereinafter defined), Patents and to the Trademark for
use and sale of Crinone Product (as hereinafter defined), in the Territory (as
hereinafter defined), and Licensee wishes to receive such a license, on the
terms and subject to the conditions set forth herein;
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NOW, THEREFORE, for and in consideration of the mutual promises and
covenants herein contained, the parties hereto agree as follows.
1. Definitions. As used in this Agreement, the following terms (except
as otherwise expressly provided or unless the context otherwise requires) shall
have the respective meanings set forth below (it being understood that the terms
defined in this Agreement shall include the singular number in the plural, and
the plural number in the singular):
(a) "Affiliate" shall mean any corporation or other business entity,
which either directly or indirectly controls a party to this Agreement, is
controlled by such party, or is under common control of such party. As used
herein, the term "control" means possession of the power to direct or cause the
direction of the management and policies of a corporation or other entity
whether through the ownership of voting securities, by contract or otherwise.
(b) "Base Price" shall mean ***.
(c) "Confidential Information" shall mean all information and/or
technical data which is disclosed by one party hereto to the other party hereto
which the disclosing party treats as confidential and identifies as such, other
than (i) information known to the receiving party or its Affiliates prior to the
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disclosure of such information to such party, provided said prior knowledge is
supportable by documentary evidence, (ii) information which at the time of the
disclosure is, or thereafter becomes, generally known to the public, provided
that such public knowledge does not result from any act or disclosure by the
receiving party or one of its Affiliates in violation of the terms of this
Agreement, (iii) information which can be shown to be independently discovered,
after the date hereof, by a party, or one of its Affiliates, without the aid,
application or use of the disclosed information, or (iv) information obtained by
the receiving party from a third party which is determined to be in lawful
possession of such information, provided such third party is not in violation of
any contractual or legal obligation to the disclosing party with respect to such
information.
(d) "Direct Cost" shall mean the following direct costs of
manufacturing Product (as herein defined): raw material/ingredient costs,
packaging costs, direct labor and direct overhead.
(e) "Effective Date" shall mean the date of the execution of this
agreement.
(f) "FDA" shall mean the U.S. Food and Drug Administration.
(g) "Field" shall mean ***.
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(h) "Finished Package Form" shall mean applicators wrapped in aluminum
foil with required leaflet printed in two colors and inserted into an
appropriate box with customary trade dress printed in up to four colors. The
boxes will be placed into appropriate outer cartons which will be printed in one
color with required labeling and UPC codes.
(i) "Forecast" shall mean the official Licensee forecast as required by
paragraph 4(i) and 4(j).
(j) "Intellectual Property Rights" shall mean trade secrets,
trademarks, tradenames, logos, trade dress, graphics, designs, patents,
copyrights or other proprietary rights.
(k) "NDA" shall mean a New Drug Application as defined by the U.S. FDA.
(l) "Net Sales" shall mean the aggregate equivalent of gross revenue
derived by or payable to Licensee or its Affiliates from or on account of the
sale of the Product to non affiliated third parties on which payments are due
under this agreement, less (a) reasonable credits or allowances, if any,
actually granted on account of cash or trade discounts, recalls, rebates,
rejection or return of Product previously sold, (b) excises, sales taxes, value
added taxes,
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consumption taxes, duties or other taxes imposed upon and paid with respect to
such sales (excluding income or franchise taxes of any kind) and (c) separately
itemized insurance and transportation costs incurred in shipping the Product to
such third parties. No deduction shall be made for any item of cost incurred by
Licensee or its Affiliates in preparing, manufacturing shipping or selling the
Product except as permitted pursuant to clauses (a), (b) or (c) of the foregoing
sentence. Net Sales shall not include any transfer between Licensee and any of
its Affiliates for resale. No transfer of the Product for test or development
purposes or as free samples shall be considered a sale hereunder for accounting
and payment purposes.
(m) "Patents" shall mean the patents and/or patent applications filed
in the Territory owned by the Licensor or its Affiliates or with respect to
which Licensor or its Affiliates may now or hereafter have the right to grant
licenses in the Territory, the claims of which may be infringed, absent a
license, by the manufacture, use or sale of Product within the Territory,
including without limitation, the patents and applications set forth in Schedule
A hereto and any and all patents issued pursuant thereto, as well as any patents
to be applied for or issued to Licensor or its affiliates in the future during
the term of this Agreement, which future patents and patent applications shall
be added to schedule A by written notice of Licensor to Licensee within thirty
(30) days of such application and/or issuance.
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(n) "Product" shall mean the progesterone/COL-1620 vaginal gel.
(o) "Purchase Price" shall have the meaning set forth in Section 5 of
this Agreement.
(p) "Technology" shall mean all pharmacological, toxicological,
preclinical, clinical, technical and other information, data and analysis and
know-how relating to the registration, manufacture, packaging, use, marketing
and sale of the Product (including, without limitation, all works copyrighted by
Licensor) and all proprietary rights relating thereto owned by Licensor or to
which Licensor has rights so as to be able to license, whether prior to or after
the Effective Date, and relating or pertaining to Product.
(q) "Territory" shall mean the world except sub-Saharan Africa
which is comprised of the following countries:
The Republic of South Africa, Lesotho, Botswana, Zimbabwe,
Namibia, Mozambique, Zaire, Kenya, Malawi, Mauritius, Seychelles,
Madagascar, Zambia and Swaziland.
(r) "Trademark" shall mean the trademark "Crinone" for use on cosmetic
and pharmaceutical products used primarily for progesterone
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supplementation as set forth in Schedule B.
(s) "Unit" shall mean a single applicator.
(t) "Valid Claim" shall mean a claim which is contained in an
unexpired, issued Patent which has not been held invalid or unenforceable by a
decision of a court or patent office of competent jurisdiction, unappealable or
unappealed within the time allowed for appeal, and which has not been admitted
to be invalid by the owner through disclaimer.
2. Grant of License.
(a) Licensor grants to Licensee, and Licensee accepts from Licensor, on
the terms and conditions stated herein, an exclusive (even as to Licensor and
Licensor's Affiliates) right and license, with the right to sublicense its
Affiliates under the Patents and Technology to market, use and sell the Product
in the Territory. Licensor grants to Licensee, and Licensee accepts from
Licensor, on terms and conditions stated herein, a nonexclusive right and
license under the Patents and Technology to make, have made Product anywhere in
the world, but only for sale in the Territory.
(b) Licensor grants to the Licensee, and Licensee accepts from
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Licensor, on the terms and conditions contained herein, (i) an exclusive right
and license to use the Trademark in the distribution, advertising, marketing and
sale of the Product (and any line extension to the Product as to which Licensee
has obtained Licensor's prior written consent, not to be unreasonably withheld)
in the Territory, and (ii) a nonexclusive right and license to use the Trademark
in the manufacture, labeling, packaging of Product and any line extensions to
Product as to which Licensee has obtained Licensor's prior written consent, not
to be unreasonably withheld) anywhere in the world. Licensor shall not use, nor
permit any of its Affiliates or other licensees to use, the Trademark on any
other product marketed or sold in the Territory.
(c) Licensor's retained rights in the Territory in connection with the
Product shall include only those rights under the Patents, the Trademark and
Technology to make, have made and use Product as necessary for Licensor to
fulfill its commitments now or in the future with respect to this Agreement and
with respect to its licensees who market the Product outside the Territory, to
otherwise operate its business (it being understood that Licensor, its
Affiliates and other licensees shall not sell or market the Product within the
Territory), and to make, have made, use, market and sell Product, itself or
through its Affiliates or licensees, outside the Territory.
(d) Licensor will use its best efforts to convince its licensee outside
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<PAGE>
the Territory not to use the Trademark.
(e) Licensee may, at any time, request from Licensor and Licensor
agrees to grant directly to any party ("Direct Licensees") in any country of the
Territory exclusive license rights consistent with those granted to Licensee
herein. Accordingly, upon receipt of Licensee's request, Licensor shall enter
into and sign a separate direct license agreement or agreements with the
companies designated by Licensee in the request. All direct agreements shall be
prepared by Licensee. In the absence or upon the expiration of laws and
regulations to the contrary, the terms and conditions thereof shall not be less
favorable by Licensor than those contained in this Agreement and shall be
similar to the terms and conditions contained in this Agreement. Such Agreements
must be approved by Licensor, which approval shall not be unreasonably withheld.
In those countries in which the validity of such a direct license agreement
requires prior governmental approval or registration, such direct license
agreement shall not be binding or have any force or effect until the required
governmental approval or registration has been granted. Incidental out of pocket
costs incurred by Licensor in the re-negotiation of this License Agreement, the
execution of sublicense agreements and matters pertaining thereto shall be for
the account of Licensee, when prior approved by Licensee.
(f) In the event that any local government would request or local
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regulations would require that the regulatory approval for the Product be held
in the name of the Licensee or should it reasonably appear that ownership of the
registration for Product by Licensee would facilitate regulatory approval, then
Licensor, upon the request of the Licensee, shall transfer to Licensee ownership
of the regulatory approval for such country or countries.
3. License Fees.
In consideration of the services by Licensor to research and develop
the Product and to obtain respective local approvals for the Product, all to the
benefit of Licensee pursuant to the license and other rights granted to Licensee
hereunder, Licensee shall pay to Licensor the following (all dollars mean U.S.
dollars):
(a) Six million dollars ($6 million) on the Effective Date.
(b) ***
(c) ***
(d) ***
(e) ***
(f) ***
(g) ***
(h) ***
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(i) ***
4. Supply.
(a) During the term of the agreement Licensor shall supply, unless
otherwise agreed, Licensee with the Product exclusively. All such Product shall
be delivered in Finished Package Form. Also, during the term of the agreement,
Licensor shall not develop, license, manufacture nor sell to another party any
product in the Field. Licensor is not restricted from developing, licensing,
manufacturing or selling other hormones or drugs. Licensor represents that as of
the date of the Effective Date it has not entered into any arrangement which
would contravene the intentions of this paragraph.
(b) Although Licensor is responsible for production and quality
control, Licensee has the right of inspection to ensure Licensor meets all
appropriate standards set by the FDA or other appropriate regulatory agencies.
(c) Licensor shall be obliged to maintain the registration of the
manufacturing facilities with the appropriate regulatory authorities and to
allow inspection of such facilities by regulatory authorities insofar as
necessary or advisable in order to facilitate the supply to Licensee of the
Product, and promptly to notify Licensee of any inspection of its own or its
contract supplier's
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manufacturing facilities by the regulatory authorities and to provide Licensee
with copies of any correspondence received from the regulatory authorities
setting forth the results of any such inspection insofar as Product is
concerned. Furthermore, as may be required for regulatory purposes Licensor
grants Licensee the right to refer to, and shall cause its contract supplier to
grant to Licensee access to contract supplier's Master file relating to Product
and undertakes to notify Licensee and provide Licensee with specific details of
any changes to said Master File or other filings by contract supplier with the
regulatory authorities relative to Product. Licensor shall be kept duly informed
without any delay by copy letter of any correspondence between Licensee and
contract supplier, in the event that any such communication should occur.
(d) Upon reasonable prior notice given by Licensee to Licensor in
writing, Licensor shall cause contract supplier to permit representatives of
Licensee or designees of Licensee acceptable to contract supplier to inspect any
manufacturing or testing facilities used by or in connection with the
manufacture or testing of Product and annual GMP audits provided that such
representatives or designees of Licensee shall conduct such inspections in a
manner which shall cause the least possible interruption to contract supplier's
operations under the particular circumstances. Such inspection shall take place
in a timely manner and shall be permitted to take place during any or all phases
of manufacturing and testing, and shall provide contract supplier's granting to
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Licensee access to information in its possession relevant to determining whether
GMP are likely to be met with respect to manufacture of Product.
(e) Personnel of Licensee or Licensee's designee shall be entitled to
witness the manufacturing of test batches, scale-up batches and full-size
production batches which in each case will be used as NDA support batches filed
by Licensee or in regulatory authority presentations. These batches would be
prepared by the intended commercial process for the Product or prepared to
demonstrate the quality of the entire process (validation) or any single aspect
of a critical manufacturing parameter. Licensee may witness and/or review the
analytical laboratory testing of any of the above cited batches or of the
methodology which will be used to support a regulatory authority presentation.
Licensee may prospectively review, to the extent necessary for compliance with
applicable GMP and for scheduling purposes, the protocols and actual study data
and results (process, cleaning, sterilization validation) as related to such
batches.
(f) Licensee shall keep all information disclosed or obtained by
Licensee under paragraphs 4(c)(d)(e), strictly confidential and not disclose the
same to any other person, except to the extent reasonably necessary or
appropriate under applicable regulations for Licensee to register Product with
the regulatory authorities or otherwise comply with applicable law.
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(g) The information disclosed shall be used only for that purpose which
is to check the compliance of contract supplier to GMP or any other applicable
regulation or any otherwise purpose agreed by Licensor and contract
manufacturer. In no case, Licensee shall use such information to manufacture
Product, except in case where such rights have been acquired from or transferred
to Licensor.
(h) Product in Finished Packaged Form shall be delivered by Licensor so
as to comply with the packaging and labeling requirements set forth by the FDA
or other appropriate regulatory agencies.
(i) Licensee will supply Licensor with sales forecast between the time
of submission of a registration file in each country and the approval by the
appropriate regulatory authority in each country of the Territory so that
Licensor can plan production. Except with respect to the U.K. where the parties
hereto shall mutually agree on a date for introduction of the Product in that
country, if Licensee does not market the Product in a country within *** of
approval for both marketing and price, where applicable, (eg. France and Italy),
Licensee will pay to Licensor *** of the first year Forecast for each year of
delay in such country. It is additionally provided that such payment will be
reduced in the event Licensee introduces the Product within the *** period from
the date of regulatory approval (including price approval) by the extent of the
*** of net
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sales actually made by Wyeth-Ayerst in any such country during said *** period.
(j) After the Product has been launched in at least four (4) countries
Licensee will give Licensor, on the first business day of each quarter, a
Forecast of its requirements of Product for each country in which the Product is
marketed for the six month period that begins three months later. The first
three (3) months of each six month Forecast will be a firm order, and the
Product described in the order will be delivered to Licensee in accordance with
the terms of the order, but not less than three (3) months from the date of the
order. Licensor is obliged to supply the amount of Product requested in the firm
order except to the extent that such amount is more than 15% higher than the
amount that had been forecasted for the period in the last Forecast received by
Licensor; With respect to any excess, Licensor is obligated to use commercially
reasonable efforts to supply the requested amounts to Licensee.
(k) Licensor shall use reasonable commercial efforts to notify Licensee
within thirty (30) days after the Effective Date and thereafter thirty (30) days
prior to the end of each calendar year, of factory vacation schedules for the
coming year, and such vacation schedules will be incorporated into Licensee's
Forecasts.
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(l) Licensor bears the expense and responsibility for transportation
and insurance to the Licensee choice of airport or seaport (FOB port) nearest to
the manufacturing site where the Product is manufactured; thereafter,
transportation, insurance and duties are the responsibility of Licensee.
(m) Licensor will air freight samples of each shipment to Licensee no
later than 15 days prior to the delivery of the shipment for Licensee's tests
and quality control procedures. Licensee must notify Licensor in writing of any
rejection under those tests and procedures within 15 days (except as to latent
defects), and Licensor has 30 days to replace the rejected shipment with Product
that meets the agreed upon specifications in the regulatory filings. The expense
of return, manufacture of replacement Product and shipment of replacement
Product are Licensor's.
(n) Licensor will use its best efforts to provide Licensee with its
ordered amounts (up to 15% over the Licensee's Forecast) and with respect to any
excess over the 15% above Forecast, Licensor will use commercially reasonable
efforts to supply the requested amounts. Licensor represents that its contract
manufacturers have current manufacturing capability to provide *** million units
to Licensee for calendar 1996 of this Agreement, *** million units for calendar
1997 of this Agreement, *** million units for calendar 1998 of this Agreement.
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(o) In the event the Licensor is unable, due to reasons beyond its
control, to provide Licensee the amount of Product set forth in any firm order,
Licensor shall be obligated to provide such amounts of Product to Licensee
through third parties with which the Licensor contracts, and Licensor shall be
responsible for any additional costs of Product caused thereby, provided that
the provisions of this sentence shall not apply to the extent that the amount of
Product set forth in such firm order exceed by more than 15% the Forecast.
(p) In countries (eg. in some countries in South America, India etc.)
where the purchase price of *** of Net Sales for Finished Package Form is below
the Base Price, Licensor will provide Licensee finished product in tubes with
reusable applicators or other appropriate presentation, at a negotiated second
base price. In countries where import duties make it impractical to import
Product in Finished Package Form (eg. Argentina), Licensor will grant Licensee
the right to manufacture locally if requested by Licensee for such country and
will be paid a royalty of ***, provided such royalty can be legally expatriated
from any such country and further provided, that the total cost including
royalty does not exceed *** of Net Sales in any such country.
The royalty with respect to those countries covered by this paragraph
(p) shall remain at *** on such sales until the expiration of any issued patents
or the emergence of significant competition from a vaginally-administered
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progesterone product as indicated in paragraph 5 (e) hereof. Subsequent to
either event taking place in any such country of the Territory, the royalty
payable to Licensor on sales in such country or countries shall be reduced to
*** in consideration of rights to Trademark and Know How until a date which
shall be *** years from the date of execution of the Agreement, whereafter the
royalty payable shall be ***, in consideration of the Trademark until a date
which shall be *** years from date of execution of this Agreement. Thereafter
Licensee shall have a paid up license to Patents and Know How, and Trademark
(subject to the condition set forth in paragraph 13 hereof), relative to the
Product.
(q) If after the *** period defined in Section 13, the parties cannot
agree upon mutually acceptable terms for supply and Licensee has given ***
written notice to Licensor, Licensee has the option of converting the Supply
Agreement into a License Agreement and Licensee will be free to manufacture, or
have manufactured, the Product provided, that Licensee pay to the Licensor on a
quarterly basis a royalty for the license of the Patents, Technology and
Trademark of *** of Net Sales.
The royalty with respect to those countries covered by this paragraph
(q) shall remain at *** on such sales until the expiration of any issued patents
or the emergence of significant competition from a vaginally-administered
progesterone product as indicated in paragraph 5 (e) hereof. Subsequent to
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either event taking place in any such country of the Territory, the royalty
payable to Licensor on sales in such country or countries shall be reduced to
*** in consideration of rights to Trademark and Know How until a date which
shall be *** years from the date of execution of the Agreement, whereafter the
royalty payable shall be ***, in consideration of the Trademark until a date
which shall be *** years from date of execution of this Agreement. Thereafter
Licensee shall have a paid up license to Patents and Know How, and Trademark
(subject to the condition set forth in paragraph 13 hereof), relative to the
Product.
5. Price and Payment Terms.
(a) The ex works Purchase Price to be paid by Licensee for the Product
in Finished Package Form shall be the Base Price or *** of Net Sales, whichever
is greater, unless otherwise agreed as contemplated in paragraph 4(p). For
product to be supplied for the U.K. in 1995 the Base Price is expected to be ***
pounds sterling for the 4% Product and *** pounds sterling for the 8% Product.
If the Base Price were to exceed *** of Net Sales, the parties shall meet to
discuss how to resolve the high cost of goods. The parties hereby acknowledge
that a Base Price is contemplated for six Units (applicators) - 12 days therapy
in Finished Package Form which shall be calculated on the basis of *** except as
otherwise agreed as contemplated in
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paragraph 4(p). If Licensee orders Product in Finished Package Form containing
fewer than 6 applicators the Base Price shall be reduced. This reduction will
reflect a pro rata reduction in the cost of Product based on the number of units
specified as well as any reduction in the cost of packaging. If Licensee wishes
to order finished product in packages that contain more than six units the Base
Price will be adjusted accordingly.
(b) The following quantity discounts will be applied to annual Licensee
purchases:
i. Over *** Units - *** - which would reduce the Purchase Price
to *** of Net Sales.
ii. Over *** Units - *** - which would reduce the Purchase Price
to *** of Net Sales.
iii. Over *** Units - *** - which would reduce the Purchase Price
to *** of Net Sales.
(c) At Licensee's request Licensor will supply promotional samples of
Product in Finished Package Form ex works Purchase Price equal to ***.
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(d) Licensee's Purchase Price for Product purchased from Licensor shall
be paid in ECU's 30 days after the later of (A) receipt by Licensee of an
invoice for such Product, and (B) the shipment by Licensor of the corresponding
Product. Such payments by Licensee and invoice by Licensor shall be based upon a
reasonable estimate of the applicable Purchase Price described in Sections 5 (a)
(b) (c) hereof. Such estimated payments by Licensee shall be adjusted on a
quarterly basis to reflect actual amounts due from Licensee pursuant to Sections
5 (a) (b) (c) hereof.
All payments to be made pursuant to this paragraph (d) shall accrue
in the national currency of the country where the sale on which payment is based
was made. Such payment shall be converted into the equivalent value in ECU's
currency at the applicable rate of exchange existing at the time of payment and
shall be paid at the appointed place of payment.
(e) If a vaginally administered progesterone-containing product is
approved in any country of the Territory subsequent to the date of execution of
this Agreement which product captures a significant share of the sales of
Product in such country the parties would renegotiate price based on the
economic impact upon the Licensee for any such country or countries.
6. Marketing.
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(a) Licensee will be responsible for marketing and sales of Product in
the Territory. Licensee will use its diligent efforts to make Product a
commercial success by making a commitment throughout the term of the agreement,
financial and otherwise, to no less than its commitment, to those of its own
brands and products in similar circumstances that it actively and aggressively
promotes, in accordance with the life cycle of such products.
(b) Licensee will provide quarterly sales and other marketing
information useful to the Licensor in monitoring sales progress.
7. Clinical Trials and Registration
(a) Licensor will be responsible for clinical trials and registration
filings related to the Product throughout the world. All clinical trials
contemplated and completed are attached in Schedule C. These studies are
designed to register the Product for the following indications:
***
In some countries additional approvals may be obtained based on the
clinical trials enumerated in Schedule C for indications that are not at the
moment approvable in the United States, specifically, *** and ***.
(b) Licensee shall have the right to monitor and audit the clinical
trials
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and/or other tests required by the protocols described in Schedule C for
Product.
(c) Pilot trials are now underway to expand the use of Product in such
areas as a ***. If the pilot studies are successful and the market is deemed to
be substantial, the parties will negotiate in good faith an agreement to pay for
the studies required to submit an NDA in the U.S. and/or registration in other
countries.
(d) To the extent Licensee seeks to amend the labeling or support
additional advertising claims for the Product beyond that which is contemplated
in paragraph 7(a), at its sole discretion and expense it may design conduct and
control such additional clinical trials necessary to obtain FDA or other
regulatory approval, provided, that Licensee shall give Licensor prior written
notice of its intention to do so. Licensee shall own and have unrestricted
rights to the clinical data generated as a result of clinical trials conducted
by Licensee; provided that the results of such clinical trials shall be made
available to Licensor free of charge to be filed in connection with Licensor's
regulatory submissions outside the Territory.
(e) Each party will immediately notify the other of any adverse or
unexpected reaction or results or any actual or potential government action
relevant to Product and the parties will discuss with each other measures to be
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undertaken to resolve the problem.
8. Maintenance of Patents and Trademarks.
(a) Licensor shall keep Licensee currently advised of all steps taken
or to be taken in the prosecution of all applications for patents relating to
the Product. Licensor shall have full and complete control over any reissue or
reexamination or other proceedings relating to the Patents, the Trademark and/or
Technology and of any disclaimers thereof. Licensor shall bear all costs for the
maintenance and enforcement of the Patents and Trademark, as well as all costs
for the filing, maintenance and enforcement of all additional patents which may
be filed by the Licensor during the term hereof. If Licensor fails to carry out
such obligations set forth in this Section 8, Licensee may carry out such
obligations on Licensors behalf at Licensor's cost and may set off such cost
against amounts due to Licensor hereunder provided that such action is
commercially reasonable.
(b) Trademark Use and Quality Control
i. Licensee agrees to use the Trademark in accordance with good
customary trademark practice, and to avoid taking any action that
would in any manner impair or detract from the value of the
Trademark or the goodwill and reputation of Licensee. Licensee
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acknowledges Licensor's ownership of the Trademark and related
goodwill, both in the Territory and outside the Territory.
ii. Licensee agrees that the nature and quality of all of
Licensee's advertising, promotional and other related uses of the
Trademark pursuant to this Agreement shall conform to standards set
by Licensor. Licensee agrees to cooperate with Licensor in
facilitating Licensor's control of such nature and quality, and to
supply Licensor in advance with specimens of all uses of the
Trademark. Licensee also agrees to obtain Licensor's written
permission regarding the nature and quality of each use of the
Trademark, prior to such use, provided, however, that such
permission shall be granted unless Licensor reasonably objects on
the basis that the proposed use will impair the value of the
Trademark or will otherwise fail to conform to the standards set by
Licensor. If such permission or objection is not transmitted by
Licensor within three (3) business days of Licensor's receipt of
the request for permission along with the subject specimens, then
Licensor shall be deemed to have granted permission.
iii. Licensee agrees to use the Trademark only in the form and
manner and with appropriate legends as approved from time to
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time by Licensor, and not to use any other trademark or service
mark in combination with the Trademark without prior written
approval of Licensor.
(9) Infringement.
(a) Licensee and Licensor shall each promptly notify the other
following the discovery of any alleged infringement or unauthorized use of the
Patents, Technology and/or Trademark which may come to their attention. Licensor
shall promptly undertake, at Licensor's expense, reasonable efforts to obtain a
discontinuance of the infringement or unauthorized use and, if not successful,
Licensor may, at its sole option, bring suit against such infringer.
(b) If Licensor fails to obtain a discontinuance of such infringement
and/or elects not to bring an infringement suit, then Licensor shall give notice
in writing to Licensee within thirty (30) days of such failure or election and
Licensee may, but is not required to, obtain a discontinuance of the alleged
infringement or unauthorized use or bring an infringement suit; provided, that
Licensee shall not agree to any settlement with respect to such infringement or
unauthorized use without the prior written consent of Licensor. Any infringement
suit by the Licensee shall be in the name of the Licensee, or in the name of the
Licensor, or jointly by both Licensee or Licensor, as may be
26
<PAGE>
required by the law of the forum. Licensor shall execute such documentation
as may be reasonably required by Licensee.
(c) It is understood and agreed that the party to this Agreement that
institutes suit or action shall bear solely all costs and expenses in connection
therewith and shall be entitled to recover all costs first and then share 50/50
the balance of any sums received, obtained, collected or recovered whether by
judgement, settlement or otherwise, as a result of such suit; provided, however,
that if a settlement by Licensee (with the prior written consent of the
Licensor) includes the granting by Licensee of rights hereunder to a third
party, amounts received by Licensee or such third party shall not be included in
Net Sales. In addition, with respect to any suit for infringement or
unauthorized use of the Patents, Technology and /or Trademark, the party that
did not institute suit shall render all reasonable assistance to the party that
did institute suit, including but not limited to, executing all documents as may
be reasonably requested by the party that did institute the suit.
10. Infringement of Third Party Intellectual Property Rights.
(a) Each party hereto shall notify the other promptly in the event of
the receipt of notice of any action, suit or claim alleging infringement by the
Patents, the Trademark or the Product, of any Intellectual Property Rights of a
27
<PAGE>
third party.
(b) In no event shall Licensee settle any such allegation of
infringement without the prior written consent of Licensor. In the event that
the Licensor agrees in writing or it is necessary, in Licensors's judgement,
after a final judgement from a court of competent jurisdiction from which no
further appeal can be taken and with the Licensor's prior written consent, for
Licensee to make royalty or other payments to a third party in order for the
Licensee to make, have made, use or sell or to continue making, having made,
using or selling the Product, Licensee shall be entitled to offset such amounts
so paid to any third party, against any amounts which may become due to Licensor
under this Agreement.
11. Confidentiality.
Each party hereto shall hold all Confidential Information in confidence
and use its diligent efforts (consistent with that which it uses to safeguard
its own Confidential Information) to safeguard Confidential Information and to
preven the unauthorized use or disclosure of any Confidential Information. Each
party hereto shall ensure that its employees who have access to any Confidential
Information shall be made aware of and subject to these obligations. The
obligations of the parties hereto under this Section 11 shall survive for five
(5) years after the expiration or termination of this Agreement.
28
<PAGE>
12. Representations, Warranties and Covenants.
(a) Licensor hereby represents, warrants and covenants the following:
(i) Licensor is a corporation duly organized, existing and in good
standing under the laws of Bermuda, with full right, power and authority to
enter into and perform this Agreement and to grant all of the rights, powers and
authorities herein granted.
(ii) The execution, delivery and performance of this Agreement do not
conflict with, violate or breach any agreement to which Licensor is a party, or
Licensor's articles of incorporation or bylaws.
(iii) This Agreement has been duly executed and delivered by Licensor
and is a legal, valid and binding obligation enforceable against Licensor in
accordance with its terms.
(iv) Licensor shall comply with all applicable laws, consent decrees
and regulations of any federal, state or other governmental authority.
(v) To the best of Licensor's knowledge and belief as of the date of
this Agreement, there are no issued or pending patent or trademark
29
<PAGE>
applications relating to the Product that would prevent Licensee from using or
selling the Product in the Territory.
(b) Licensee hereby represents, warrants and covenants the following:
(i) Licensee is a corporation duly organized, existing and in good
standing under the laws of the state of Delaware, with full right, power and
authority to enter into and perform this Agreement and to grant all of the
rights, powers and authorities herein granted.
(ii) The execution, delivery and performance of this Agreement do not
conflict with, violate or breach any agreement to which Licensee is a party, or
Licensee's articles of incorporation or bylaws.
(iii) This Agreement has been duly executed and delivered by Licensee
and is a legal, valid and binding obligation enforceable against Licensee in
accordance with its terms.
(iv) Licensee shall comply with all applicable laws, consent decrees
and regulations of any federal, state or other governmental authority.
(c) Indemnification:
30
<PAGE>
i. Licensor agrees to indemnify and hold harmless Licensee and its
Affiliates and their respective employees, agents, officers and
directors from and against any claims, losses, liabilities, damages,
costs and expenses (including reasonable attorneys' fees) incurred by
Licensee or its Affiliates arising out of or in connection with any (a)
breach of any representation, warranty, covenant or obligation
hereunder, (b) claim or demand of any kind for injury to a person or
property arising from Licensor's or its manufacturer's manufacturing,
packaging, or labeling of Product; provided, that this indemnification
shall not apply if such manufacturing, packaging, or labeling is
conducted by or at the direction of Licensee or its Affiliates; and
provided, further, that there has been no negligent act or omission
with respect to such Product by Licensee, its Affiliates, employees,
agents or manufacturers, (c) act or omission on the part of Licensor or
any of its employees or agents or manufacturers in the performance of
this agreement, and (d) payments, commissions or fees of any kind due
to consultants or brokers retained by Licensor relating to Product.
(ii) Licensee agrees to indemnify and hold harmless Licensor and its
Affiliates and their respective employees, agents, officers and
directors from and against any claims, losses, liabilities, damages,
costs and expenses (including reasonable attorneys' fees) incurred by
Licensor or
31
<PAGE>
its Affiliates arising out of or in connection with any (a) breach of
any representation, warranty, covenant or obligation hereunder, (b)
claim or demand of any kind for injury to person or property arising
from Licensee's marketing, distribution and sale of Product, except to
the extent that there has been a negligent act or omission with respect
to such Product by Licensor, its employees, agents or manufacturers,
(c) act or omission on the part of Licensee or any of its employees or
agents in the performance of this Agreement (d) third party claims
alleging infringement of such third parties' intellectual property
rights as a result of the advertisement, promotion or marketing
materials created by or at the direction of Licensee and used in
connection with the sale of Product hereunder, and (e) payments,
commissions or fees of any kind due to consultants or brokers retained
by Licensee relating to Product.
(iii) A party seeking indemnification under this section 12(c) must
give prompt written notice thereof to the other party (the
"Indemnifying Party"). The Indemnifying Party shall have the right to
compromise, settle or defend any such claim, loss, liability, damage,
cost or expense.
13. Term of License.
Except as otherwise provided for herein, and subject to the
provisions of
32
<PAGE>
paragraph 4 (q), the duration of the subject agreement shall be for *** years
from date of first commercial sale in a country of the Territory renewable upon
mutual agreement for *** year periods at commercial terms to be agreed upon. It
is understood that if after the *** period the parties cannot agree upon
mutually acceptable terms, Licensee would have the option of converting the
Supply Agreement to a license agreement and Licensee will be free to manufacture
or have manufactured the Product. Under such circumstances, Licensor shall
continue to supply Finished Package Form for as long as is necessary and under
the terms of this Agreement, will assist Licensee as necessary so that Licensee
can undertake manufacture of the Product and continue the sale of the Product
without interruption. In the event that Licensee shall continue to market
Product under the terms of this Agreement for *** years from date of first
commercial sales in the countries of the EEC, Canada and the United States of
America, Licensee shall thereafter own the Trademark and related goodwill.
14. Termination.
(a) This Agreement may be terminated upon the mutual written agreement
of the parties.
(b) Either party may terminate this Agreement forthwith by written
notice to the other, if the other party commits a material breach of any part of
33
<PAGE>
this Agreement and such breach has not been remedied by the defaulting party
within sixty (60) days after written notice of such breach has been given by the
other. If the breach cannot be remedied within sixty (60) days, the breaching
party may submit a plan, reasonably acceptable to the other party, outlining the
steps that it intends taking to cure the breach.
(c) This Agreement may also be terminated upon the giving of notice, if
the other party shall be involved in financial difficulties as evidenced:
(i) by its commencement of a voluntary case under any applicable
bankruptcy code or statute, or by its authorizing, by appropriate proceedings,
the commencement of such voluntary case; or
(ii) by its failing to receive dismissal of any involuntary case under
any applicable bankruptcy code or statute within sixty (60) days after
initiation of such action or petition; or
(iii) by its seeking relief as a debtor under any applicable law or any
jurisdiction relating to the liquidation or reorganization of debtors or to the
modification or alteration or the rights of creditors, or by consenting to or
acquiescing in such relief; or
(iv) by the entry of an order by a court of competent jurisdiction
finding it to be bankrupt or insolvent, or ordering or approving its
liquidation, reorganization or any modification or alteration of the rights of
its creditors or
34
<PAGE>
assuming custody of, or appointing a receiver or other custodian for, all or a
substantial part of its property or assets; or
(v) by its making an assignment for the benefit of, or entering into a
composition with its creditors, or appointing or consenting to the appointment
of a receiver or other custodian for all or a substantial part of its property.
(d) Licensee may terminate this agreement after *** with *** written
notice if the product is not a commercial success, and on *** notice at any time
during the Agreement for reasons of safety or efficacy.
(e) The failure by a party to exercise its rights to terminate this
Agreement pursuant to this Section (14) in the event of any occurrence giving
rise thereto shall not constitute waiver of the rights in the event of any
subsequent occurrence.
15. Publicity.
The parties hereto shall coordinate the preparation and issuance of any
public announcement of this Agreement. Any such announcement shall comply with
relevant Securities and Exchange Commission requirements and shall take into
account any reasonable concern regarding the trade. The wording of such
announcement shall be agreed upon by the parties before release.
35
<PAGE>
16. Inspections and Audits.
(a) At reasonable intervals during each year of the manufacture by any
manufacturing facility, each party hereto or its agents shall have the right to
inspect, upon reasonable prior written notice to the other party hereto and at
times mutually agreed upon, the manufacturing and quality control facilities of
such party (and/or its contract manufacturers) during customary business hours
for such facilities. Licensor shall direct its contract manufacturers to permit
such inspection visits by Licensee, as described above.
(b) Licensee shall keep accurate records of all Product sales and other
relevant data concerning the Product for a period of two (2) years following the
year in which such records were created and Licensee shall provide Licensor
quarterly reports thereof at the same time that amounts are paid pursuant to
this Agreement. Such reports shall state the number of Units of Product
manufactured by it or its Affiliates and the number of units of Product sold by
it or its Affiliates during the applicable quarter as well as the number of free
samples of Product and any returns together with an accounting of any other
applicable components of the amounts paid or to be paid hereunder. Once a year,
upon reasonable notice at time mutually agreed upon and during business hours,
Licensor at Licensor's cost may have the accounts of Licensee relating to the
Product reviewed by independent certified public accountants
36
<PAGE>
appointed by the Licensor and reasonably approved by the Licensee, in order to
verify amounts due under this Agreement. Licensee shall promptly pay any
underpayment evidenced by such audit. In the event such an audit evidences an
underpayment of more than five percent (5%) with respect to the amounts actually
paid, Licensee shall promptly pay such underpayment to Licensor with interest at
the prime rate as set by Citibank, from the time when such underpayment's
accrued, and shall reimburse Licensor for the reasonable costs and expenses
(including fees) of such audit.
(c) Licensor shall keep accurate records of its Direct Costs of
manufacturing Product for a period of two (2) years following the year in which
such records were created. Upon reasonable notice and during business hours and
at times mutually agreed upon, Licensee shall have the right to review such
records. Once a year, upon reasonable notice and during business hours, Licensee
at Licensee's cost may have the accounts of Licensor relating to the Direct
Costs of manufacturing Product reviewed by independent certified public
accountants appointed by the Licensee and reasonably approved by the Licensor,
in order to verify amounts due under this Agreement. Licensor shall promptly pay
any overpayment evidenced by such audit. In the event such audit evidences an
overpayment of more than five percent (5%) with respect to the amounts actually
paid, Licensor shall promptly refund such overpayment to Licensee with interest
at the prime rate as set by Citibank, from
37
<PAGE>
the time when such overpayments accrued, and shall reimburse Licensee for the
reasonable costs and expenses (including fees) of such audit.
17. Notices.
All notices required hereunder shall be in writing and shall be deemed
to be properly given if sent by United States registered, overnight or certified
mail to the party to be notified at the address set forth on page 1 hereof, or
at such other latest address as either party may hereafter designate in writing
to the other; provided that a copy of each notice to be sent to Licensor
hereunder shall also be sent by the same means to William J. Bologna, Chairman
of the Board, Columbia Laboratories Inc., 2665 South Bayshore Drive PH IIB,
Miami Florida 33133; and further provided that a copy of each notice sent to
Licensee hereunder shall also be sent by the same means to Senior V.P. Business
Development, Wyeth-Ayerst Laboratories, 555 E. Lancaster Avenue, St. Davids, PA
19087. The date of service of any notice so sent by registered or certified main
shall be the date of receipt.
18. Ownership Change: Assignment; Successors.
This Agreement shall be binding on and inure to the benefit of the successors
and assigns of the parties, including any affiliate, subsidiary, division or any
38
<PAGE>
entity controlled by either party. Licensee may not sublicense or assign this
Agreement in whole or in part, without the consent in writing of Licensor, and
any purported assignment without such consent (which may be withheld without
reason) shall be void; provided, that Licensee may upon notice to Licensor
assign this Agreement to any of its Affiliates, but may not then sell such
Affiliate without Licensor's prior written consent unless this Agreement is
first assigned back from such Affiliate to Licensee. Licensor may not assign its
rights under this agreement, in whole or in part without written agreement by
the Licensee; provided that Licensor may upon notice to Licensee assign all or
any portion of this Agreement to any of its Affiliates, but may not then sell
such Affiliate without Licensee's prior written notice unless this Agreement is
first assigned back from such Affiliate to Licensor.
If any person, individually, or in concert with others, shall
acquire directly or indirectly, through one or more intermediaries, the
beneficial ownership of fifty percent or more of the equity or assets of
Licensor during the term of this Agreement, or from Licensee, the beneficial
ownership of fifty percent or more of the equity or assets of Wyeth-Ayerst the
party not being acquired may require from the new owners of the acquired party a
written affirmation of its intent and capability to comply with all the terms of
this Agreement. Under no circumstances shall such action by Licensor interfere
or compromise the continued supply of Product to Licensee, provided however
39
<PAGE>
that Licensee in such event shall have the option of terminating the Agreement.
19. Tax.
All taxes levied on account of any payments accruing under
this Agreement which constitutes income to Licensor, shall be the obligation of
the Licensor, and if provision is made in law or regulation for withholding,
such tax shall be deducted from any payment then due, paid to the proper taxing
authority, and receipt for payment of the tax secured and promptly sent to
Licensor.
20. Independent Contractors.
The relationship of the parties under this Agreement is that of
independent contractors. Neither party shall be deemed to be the agent of the
other and neither is authorized to take any action binding upon the other.
21. Entire Agreement; Modification.
This Agreement contains the entire understanding between the parties
hereto relating to the subject matter hereof, there being no terms and
conditions other than those set forth herein, and it supersedes all prior
agreements, written or oral, between the parties hereto with respect to the
40
<PAGE>
matters covered hereunder. This Agreement may not be modified, altered or
otherwise changed other than by an instrument in writing, duly executed by each
of the parties hereto.
22. Severability.
If any provision of this Agreement should be or becomes fully or partly
invalid or unenforceable for any reason whatsoever or should be adjudged to
violate any applicable law, this Agreement is to be considered divisible as to
such provision and such provision is deemed to be deleted from this Agreement,
and the remainder of this Agreement shall be valid and binding as if such
provision were not included herein; provided, however, that this Agreement is
not rendered fundamentally different in its content or effect.
23. Effects of Headings.
The headings for the paragraphs of this Agreement are to facilitate
reference only, do not form a part of this Agreement, and shall not in any way
affect the interpretation hereof.
24. Choice of Law.
41
<PAGE>
This Agreement and performance hereof shall be construed and governed
by the laws of the State of New York. Any dispute, controversy, claim or
difference arising between the parties out of, or relating to, or in connection
with, this Agreement shall be submitted to the jurisdiction of the courts
sitting in the State of New York.
25. No Waiver.
No delay or omission or failure to exercise any right or remedy
provided for herein shall be deemed to be a waiver thereof or acquiescence in
the event giving rise to such right or remedy.
26. Counterparts.
This Agreement may be executed in any number of counterparts and by the
different parties hereto on separate counterparts, each of which, when so
executed shall be deemed an original, but all such counterparts shall constitute
but one and the same instrument.
27. Further Assurances.
Licensor and Licensee each agree to produce or execute such other
42
<PAGE>
documents or agreements as may be necessary or desirable for the execution and
implementation of this Agreement and the consummation of the transactions
contemplated hereby.
28. Schedules.
The terms and provisions of the schedules attached to this Agreement
are hereby incorporated herein as if fully set forth herein.
29. Bankruptcy.
All Trademark, Patent and Technology rights and licenses granted to the
Product under or pursuant to this Agreement by Licensor to Licensee are, and
shall otherwise be deemed to be, for purposes of Section 365(n) of the
Bankruptcy Code, licenses of rights to "intellectual property" as defined under
Section 101 (60) of the Bankruptcy Code. The parties hereto agree that so long
as Licensee, as a licensee of such rights under this Agreement, makes all
payments to Licensor required under this Agreement, Licensee shall retain and
may fully exercise all of its rights and elections under the Bankruptcy Code.
The parties further agree that, in the event that any proceeding shall be
instituted by or against Licensor seeking to adjudicate it as bankrupt or
insolvent, or seeking liquidation, winding up, reorganization, arrangement,
43
<PAGE>
adjustment, protection, relief or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of debtors, or
seeking and entry of an order for relief or the appointment of a receiver,
trustee or other similar official for it or any substantial part of its property
or it shall take an action to authorize any of the foregoing actions, Licensee
shall have the right to retain and enforce its rights under this Agreement with
respect to the Product.
30. Force Majeure.
No failure or omission by a party hereto in the performance of any
obligation of this Agreement shall be deemed a breach of this Agreement nor
shall it create any liability if the same shall arise from any cause or causes
beyond the control of the party, including but not limited to, the following,
which, for the purposes of this Agreement, shall be regarded as beyond the
control of the party in question: acts of God, acts of omission of any
government, any rules, regulations, or orders issued by any governmental
authority or any officer, department, agency, or instrumentality thereof, fire,
storm, flood, earthquake, accident, war, rebellion, insurrection, riot,
invasion, strikes, lockouts; provided however, that the party so affected shall
use its best efforts to avoid or remove such causes of nonperformance and shall
continue performance hereunder with the utmost dispatch whenever such causes are
44
<PAGE>
removed.
31. (a) Licensee hereby appoints the undersigned Wyeth-Ayerst
International, Inc. ("WAII"), as its sole and exclusive agent during the term of
this Agreement for purposes of administering on its behalf rights and
obligations (except those pertaining to Patents) under this Agreement for
countries outside of the United States of America, including but not limited to
collection, receipt and payment of sums due Licensor pursuant to activities
covered by this Agreement outside of the United States of America, as well as
verification of reports and statements relating to the sale of the Product
hereunder. WAII hereby accepts such appointment and agrees to be bound under
this Agreement as fully as Licensee, including without limitation all duties,
obligations, representations, warranties and covenants.
Licensor hereby accepts the appointment of Wyeth-Ayerst
International, Inc., as the exclusive agent of Licensee as provided for, above,
in this paragraph.
(b) Licensor hereby appoints the undersigned Columbia Laboratories
Inc. as its sole and exclusive agent during the term of this Agreement for
purposes of administering on its behalf rights and obligations (except those
pertaining to Patents) under this Agreement including but not limited to
45
<PAGE>
collection, receipt and payment of sums due Licensee pursuant to the activities
covered by this Agreement, as well as verification of reports statements
relating to the sale of the product hereunder. Columbia Laboratories hereby
accepts such appointment and agrees to be bound under this Agreement as fully as
Columbia Laboratories (Bermuda) Ltd., including without limitation all duties,
obligations, representations, warranties and covenants.
IN WITNESS WHEREOF, the parties hereto have set their hands as of the
day and year first above written.
Columbia Laboratories (Bermuda) Ltd.
By /S/ WILLIAM J. BOLOGNA
----------------------
(Title) Chairman of the Board
American Home Products Corporation
By /s/ Fred Hassen
(Title) Senior Vice President (AHP)
Wyeth-Ayerst International, Inc.
(As agent of American Home Products Corporation)
BY /s/ David M. Olivier
(Title)
46
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE A:
CRINONE PATENTS
SUBJECT COUNTRY SER. NO. FILED PAT NO. GRANTED
------- ------- -------- ----- ------- -------
<S> <C> <C> <C> <C> <C>
1. Treating agent U.S. 551,295 11/14/83 Abandoned in favor of
Ser. No. 07/690,483
U.S. 690,483 11/9/84 4,615,697 10/7/86
Australia 36,148 11/9/84 565,354 2/15/88
EPO 84.904286.6 11/9/84 0163696 11/25/92
Austria E 82 667 B 5/25/93
Belgium 0-163-696
Denmark
France 0163696
Germany P3485996,0-08 12/15/92
Liechtenstein 0163696
Luxembourg 0163696
Netherlands
Sweden 0163696
Switzerland 0163696
U.K.
Japan 504250/84 11/9/84 (response filed 7/27/93)
PCT US84/01827 11/9/94 Inactive
Canada 496,209 11/13/85 1,260,832 9/26/89
EPO (1) 92105052.2 3/24/92 response filed 10/10/94
<FN>
(1) Austria, Belgium, France, Germany, Liechtenstein, Luxembourg,
Netherlands, Sweden, Switzerland, United Kingdom
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUBJECT COUNTRY SER. NO. FILED PAT NO. GRANTED
------- ------- -------- ----- ------- -------
<S> <C> <C> <C> <C> <C>
2. Progesterone U.S. 08/122,371 9/15/93
Delivery
PCT (2) US94/10270 9/13/94
Argentina 329.462 9/14/94
Chile 1319-94 9/9/94
Colombia 94041745 9/15/94
Israel 110972 9/14/94
Malaysia PI 9402436 9/14/94
Mexico 94 7089 9/14/94
Morroco (and 23.649 9/14/94
Tangiers) (1249)
Peru 250745 9/15/94
Philippines 49001 9/15/94
South Africa 94/07073 9/14/94
Venezuela 11/23/94
<FN>
(2) Armenia, Australia, Brazil, Belarus, Canada, Finland, Georgia, Hungary,
Japan, Kyrgyzstan, Republic of Korea, Kazakhstan, Lithuania, Latvia,
Republic of Moldova, Norway, New Zealand, Russian Federation, Slovenia,
Slovakia, Tajikistan, Ukraine, Uzbekistan and EPO (Austria, Belgium,
Switzerland and Liechtenstein, Germany, Denmark, Spain, France, United Kingdom,
Greece, Ireland, Italy, Luxembourg, Monaco, Netherlands, Portugal, Sweden).
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE B:
CRINONE TRADEMARKS
COUNTRY SERIAL NO. FILING DATE STATUS
------- ---------- ----------- ------
<S> <C> <C> <C>
U.S. 74/494,324 2/25/94
Algeria to be filed
Antigua None assigned
Argentina 1,909,614 2/18/94
Aruba
Australia 622,906 2/17/94
Austria AM 706/94 2/16/94 Reg. No. 152,207
Reg. Dt. 4/20/94
Bahamas 16,603 7/18/94
Bahrain to be filed
Barbados
Benelux 822,038 2/15/94 Reg. No. 544,594
Reg. Dt. 2/15/94
Bermuda
Brazil 817,711,643 3/1/94
Canada 748,373 3/1/94
Chile 266,724 2/18/94
Colombia 94.001.931 3/11/94
Costa Rica 4,426/403 3/17/94 Reg. No. 89,706
Reg. Dt. 1/3/95
Denmark 01294/1994 2/16/94 Reg. No. 3,349/1994
Reg. Dt. 5/20/94
Dominica
Dominican
Republic None assigned Reg. No. 74,643
Reg. Dt. 10/15/94
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COUNTRY SERIAL NO. FILING DATE STATUS
------- ---------- ----------- ------
<S> <C> <C> <C>
Ecuador 45168 2/17/94
Egypt to be filed
Finland 868/94 2/17/94 Reg. No. 135,416
Reg. Dt. 12/5/94
France 94/507,153 2/18/94 Reg. No. 94/507,153
Reg. Dt. 2/18/94
Gaza 2649 2/21/95
Germany C 46 417/5 Wz 2/15/94
Greece 118,091 3/4/94
Grenada
Guatemala 5530/94 8/18/94
Honduras 3,319/94 4/29/94
Hong Kong 94/01,823 2/18/94
Indonesia 2/24/94
Ireland 94/1,054 2/21/94
Israel 91,275 2/16/94
Italy MI 94C-001,469 2/18/94
Jamaica
Japan 16,695/94 2/17/94
Jordan to be filed
Korea 94-6072 2/17/94
Kuwait to be filed
Lebanon to be filed
Malaysia 94/01,482 2/28/94
Mexico 194,789 3/28/94
Morocco to be filed
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COUNTRY SERIAL NO. FILING DATE STATUS
------- ---------- ----------- ------
<S> <C> <C> <C>
New Zealand 235,877 4/12/94
Nicaragua 94-00692 3/15/94 Reg. No. 27,140 C.C.
Reg. Dt. 11/8/94
Norway 94.1168 2/24/94
Oman to be filed
Panama
Peru 237,422 2/25/94 Reg. No. 7560
Reg. Dt. 5/24/94
Philippines 93,975 7/1/94
Portugal 298,172 2/17/94
Qatar to be filed
Ramallah to be filed
(West Bank)
St. Kitts & Nevis None assigned
St. Lucia None assigned 11/9/94
St. Vincent None assigned Reg. No. 5 of 1995
Reg. Dt. 1/18/95
Saudi Arabia 26,156 2/26/94
Singapore 1,504/94 2/22/94
South Africa 941,526 2/15/94
Spain 1,806,658 3/1/94
Sudan to be filed
Sweden C-94-01662 2/15/94 Reg. No. 263,029
Reg. Dt. 12/23/94
Switzerland 1078/1994.0 2/17/94
Syria to be filed
Taiwan (83)8061 2/24/94
Thailand 261,887 3/15/94
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COUNTRY SERIAL NO. FILING DATE STATUS
------- ---------- ----------- ------
<S> <C> <C> <C>
Trinidad 22,865 7/8/94
Tunisia to be filed
United Arab to be filed
Emirates
United Kingdom 1,562,409 2/15/94 Reg. No. 1,562,404
Reg. Dt. 2/15/94
Uruguay 269,001 3/18/94
Venezuela 2,201 2/22/94
Yemen (North) to be filed
Yemen (South) to be filed
</TABLE>
<PAGE>
SCHEDULE C:
CLINICAL TRIALS
***
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use
of our reports (and to all references to our Firm) included in or made part
of this Amendment No. 2 to Form S-1 Registration Statement No. 33-60123.
ARTHUR ANDERSEN LLP
Miami, Florida,
August 7 1995.
