SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2
to
SCHEDULE 13D
Under the Securities Exchange Act of 1934
Columbia Laboratories, Inc.
(Name of Issuer)
Common Stock, $.01 par value
(Title of Class of Securities)
197779101
(CUSIP Number)
James J. Apostolakis
c/o Lexington Shipping and Trading Corp.
950 Third Avenue, 27th Floor
New York, New York 10022
(212) 588-1900
(Name, Address and Telephone Number of
Person Authorized to Receive Notices
and Communications)
October 2, 1998
(Date of Event which Requires Filing
of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box: [ ]
<PAGE>
SCHEDULE 13D
CUSIP No. 197779101
1) NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
James J. Apostolakis
2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [X]
(b) [ ]
3) SEC USE ONLY
4) SOURCE OF FUNDS
PF,WC
5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(D) OR 2(E) [ ]
6) CITIZENSHIP OR PLACE OF ORGANIZATION
United States
NUMBER 7) SOLE VOTING POWER
OF 815,400 (See Item 5)
SHARES
BENEFICIALLY 8) SHARED VOTING POWER
OWNED BY Not Applicable
EACH
REPORTING 9) SOLE DISPOSITIVE POWER
PERSON 815,400 (See Item 5)
WITH
10) SHARED DISPOSITIVE POWER
Not Applicable
11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
815,400 (See Item 5)
12) CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES [ ]
13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
2.8%
14) TYPE OF REPORTING PERSON
IN
- --------------------------------------------------------------------------------
-2-
<PAGE>
SCHEDULE 13D
CUSIP No. 197779101
1) NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
David Ray
2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [X]
(b) [ ]
3) SEC USE ONLY
4) SOURCE OF FUNDS
PF
5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(D) OR 2(E) [ ]
6) CITIZENSHIP OR PLACE OF ORGANIZATION
United States
NUMBER 7) SOLE VOTING POWER
OF 185,000
SHARES
BENEFICIALLY 8) SHARED VOTING POWER
OWNED BY Not Applicable
EACH
REPORTING 9) SOLE DISPOSITIVE POWER
PERSON 185,000
WITH
10) SHARED DISPOSITIVE POWER
Not Applicable
11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
185,000
12) CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES [ ]
13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0.6%
14) TYPE OF REPORTING PERSON
IN
- --------------------------------------------------------------------------------
-3-
<PAGE>
SCHEDULE 13D
CUSIP No. 197779101
1) NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Bernard Marden
2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [X]
(b) [ ]
3) SEC USE ONLY
4) SOURCE OF FUNDS
PF
5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(D) OR 2(E) [ ]
6) CITIZENSHIP OR PLACE OF ORGANIZATION
United States
NUMBER 7) SOLE VOTING POWER
OF 423,700
SHARES
BENEFICIALLY 8) SHARED VOTING POWER
OWNED BY Not Applicable
EACH
REPORTING 9) SOLE DISPOSITIVE POWER
PERSON 423,700
WITH
10) SHARED DISPOSITIVE POWER
Not Applicable
11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
423,700
12) CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES [ ]
13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
1.5 %
14) TYPE OF REPORTING PERSON
IN
- --------------------------------------------------------------------------------
-4-
<PAGE>
SCHEDULE 13D
CUSIP No. 197779101
1) NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Anthony R. Campbell
2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [X]
(b) [ ]
3) SEC USE ONLY
4) SOURCE OF FUNDS
WC
5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(D) OR 2(E) [ ]
6) CITIZENSHIP OR PLACE OF ORGANIZATION
United States
NUMBER 7) SOLE VOTING POWER
OF 1,344,000 (See Item 5)
SHARES
BENEFICIALLY 8) SHARED VOTING POWER
OWNED BY Not Applicable
EACH
REPORTING 9) SOLE DISPOSITIVE POWER
PERSON 1,344,000 (See Item 5)
WITH
10) SHARED DISPOSITIVE POWER
Not Applicable
11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,344,000 (See Item 5)
12) CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES [ ]
13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
4.7%
14) TYPE OF REPORTING PERSON
IN
- --------------------------------------------------------------------------------
-5-
<PAGE>
SCHEDULE 13D
CUSIP No. 197779101
1) NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Christopher Castroviejo
2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [X]
(b) [ ]
3) SEC USE ONLY
4) SOURCE OF FUNDS
WC
5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(D) OR 2(E) [ ]
6) CITIZENSHIP OR PLACE OF ORGANIZATION
United States
NUMBER 7) SOLE VOTING POWER
OF 0 (See Item 5)
SHARES
BENEFICIALLY 8) SHARED VOTING POWER
OWNED BY Not Applicable
EACH
REPORTING 9) SOLE DISPOSITIVE POWER
PERSON 0 (See Item 5)
WITH
10) SHARED DISPOSITIVE POWER
Not Applicable
11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
0 (See Item 5)
12) CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES [ ]
13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0%
14) TYPE OF REPORTING PERSON
IN
- --------------------------------------------------------------------------------
-6-
<PAGE>
SCHEDULE 13D
ITEM 1 OF THE SCHEDULE 13D, "SECURITY AND ISSUER," IS AMENDED AND RESTATED IN
ITS ENTIRETY AS FOLLOWS:
This Statement amends the Schedule 13D dated July 16, 1998, as amended
by Amendment No. 1 filed on July 23, 1998 (the "Schedule 13D"), filed by James
J. Apostolakis and the other Reporting Persons named therein relating to the
Common Stock, $.01 par value (the "Common Stock"), of Columbia Laboratories,
Inc., a Delaware corporation (the "Company"). Notwithstanding this Amendment No.
2, the Schedule 13D speaks as of this date. Capitalized terms used herein
without definition have the meanings assigned to them in the Schedule 13D.
ITEM 2 (A) - (C) OF THE SCHEDULE 13D, "IDENTITY AND BACKGROUND," IS AMENDED TO
AMEND AND RESTATE THE SECOND PARAGRAPH THEREOF IN ITS ENTIRETY AS FOLLOWS:
An aggregate of 3,912,800 Shares of Common Stock, representing
approximately 13.6% of the shares of outstanding Common Stock, were beneficially
owned by the members of the group described in Item 4, consisting of the
Reporting Persons together with Mr. David Knott (who has filed a separate
Schedule 13D), as of October 6, 1998.
ITEM 2 (A) - (C) OF THE SCHEDULE 13D IS FURTHER AMENDED TO ADD THE FOLLOWING:
The Reporting Persons and Mr. Knott have formed The Committee to
Improve Shareholder Value of Columbia Laboratories (the "Committee"), of which
they are presently the sole members.
ITEM 3 OF THE SCHEDULE 13D, "SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION,"
IS AMENDED TO AMEND AND RESTATE THE FIRST SENTENCE THEREOF IN ITS ENTIRETY AS
FOLLOWS:
As of October 6, 1998 the Reporting Persons beneficially owned an
aggregate of 2,768,100 shares of Common Stock, all of which were acquired on the
open market over the course of time at then-current prices for an aggregate
consideration of approximately $32,231,294.
ITEM 4 OF SCHEDULE 13D, "PURPOSE OF TRANSACTION," IS AMENDED TO ADD THE
FOLLOWING:
During the latter part of the summer, certain of the Reporting Persons
and Mr. Knott had further conversations with the Company's senior management
regarding immediate steps to address shareholder concerns over the collapse of
the Company's stock price and the perceived ineffectiveness of current
management.
Unfortunately, efforts to pursue those discussions have not been
productive.
- 7 -
<PAGE>
Accordingly, on October 2, 1998, the Committee formed by the Reporting
Persons and Mr. Knott wrote to the Board of Directors of the Company, and each
Director individually, to call their urgent attention to these matters. A copy
of that letter is attached as Exhibit 2 to this Amendment No. 2.
The Reporting Persons are hopeful that the Company's Directors will
respond constructively to their letter of October 2. In the absence of a prompt
and positive response, however, their letter to the Board has reserved the
alternative of taking other actions with respect to the Company, including,
without limitation, going to court to demand that the Company schedule and hold
a 1998 annual meeting of shareholders as required by Delaware law and seeking to
nominate candidates to the Company's Board of Directors at such a meeting.
No 1998 annual meeting of the Company's shareholders has been announced
and to the knowledge of the Reporting Persons no such meeting is scheduled. Any
action with respect to a future shareholders meeting, including any decision to
seek to nominate candidates to the Company's Board or to take other action in
that regard, would be pursued only in connection with such a meeting and in the
context of the circumstances then obtaining, and in compliance with applicable
rules of the Securities and Exchange Commission.
ITEM 5 (A) AND (C) OF THE SCHEDULE 13D, "INTEREST IN SECURITIES OF THE ISSUER,"
ARE AMENDED AND RESTATED IN THEIR ENTIRETY AS FOLLOWS:
(a) An aggregate of 3,912,800 Shares of Common Stock, representing
approximately 13.6% of the shares of outstanding Common Stock, were beneficially
owned by the members of the group described in Item 4, consisting of the
Reporting Persons together with Mr. David Knott (who has filed a separate
Schedule 13D), as of October 6, 1998.
The Reporting Persons included in this Schedule 13D beneficially own an
aggregate of 2,768,100 shares of Common Stock, representing approximately 9.7%
of the shares of the outstanding Common Stock./1/
The additional 1,144,700 shares of Common Stock, representing an
additional approximately 4.0% of the shares of the outstanding Common Stock,
were beneficially owned by David Knott as of October 6, 1998 including 1,007,100
shares reported in a Schedule 13D separately filed and an aggregate of 137,600
shares of Common Stock purchased since that filing.
- --------
/1/ Based upon 28,684,687 shares of Common Stock reported by the Company to be
outstanding as of July 31, 1998.
- 8 -
<PAGE>
The following table sets forth the number of shares of Common Stock
beneficially owned by each of the Reporting Persons as of October 6, 1998 and
the percentage of the outstanding Common Stock such ownership represents. Item 2
sets forth the entities which own Common Stock of which Mr. Apostolakis, Mr.
Campbell or Mr. Castroviejo may be deemed beneficial owners.
Percentage of
Reporting Shares of Outstanding
Person Common Stock Common Stock
- ------ ------------ ------------
Mr. Apostolakis 815,400/2/ 2.8
Mr. Ray 185,000 0.6
Mr. Marden 423,700 1.5
Mr. Campbell 1,344,000 4.7
Mr. Castroviejo/3/ 0 0
The following table sets forth the number of shares of Common Stock
owned by the Apostolakis Entities as of October 6, 1998.
Percentage of
Apostolakis Shares of Outstanding
Entity Common Stock Common Stock
- ------ ------------ ------------
Lexington Corp. 48,000 0.2
Bradmar Corp. 57,850 0.2
Bradford Inc. 34,000 0.1
Pension Plans 17,625 0.06
Additionally, Mr. Apostolakis individually owns 657,925 shares of
Common Stock, representing approximately 2.3% of the outstanding Common Stock.
- --------
/2/ Not including certain non-qualified options, not presently exercisable, to
purchase 50,000 shares at a price of $11.625 granted on February 2, 1998.
/3/ Through his position as a general partner of TC Management, the sole general
partner of Windsor LP, Mr. Castroviejo may also be deemed to beneficially own
shares of Common Stock, owned by Windsor LP, as to which he disclaims beneficial
ownership. The above table reflects only Mr. Castroviejo's position as president
of the manager of International Parallax and general partner of Parallax LP.
(see Item 2).
- 9 -
<PAGE>
The following table sets forth the number of shares of Common Stock
owned by the Campbell Entities as of October 6, 1998.
Percentage of
Campbell Shares of Outstanding
Entity Common Stock Common Stock
- ------ ------------ ------------
TC Management/4/ 1,246,500 4.3
Windsor LP 1,185,500 4.1
TC Managed Account 86,000 .3
Additionally, Mr. Campbell individually owns 42,500 shares of Common
Stock, and a trust estate for the benefit of Mr. Campbell's children owns 30,000
shares of Common Stock (as to which Mr. Campbell disclaims beneficial
ownership), representing an aggregate of approximately .3% of the outstanding
Common Stock.
The following table sets forth the number of shares of Common Stock
owned by the Castroviejo Entities as of October 6, 1998/5/.
Percentage of
Castroviejo Shares of Outstanding
Entity Common Stock Common Stock
- ------ ------------ ------------
International Parallax 0 0
Parallax LP 0 0
Mr. Castroviejo and the Castroviejo Entities no longer hold
any shares of Common Stock as of October 6, 1998.
(c) Except as set forth on Schedule I annexed hereto, the Reporting
Persons, Apostolakis Entities, Campbell Entities and Castroviejo Entities have
not effected any transactions in the Common Stock during the past 60 days. All
such transactions were effected in the open market.
- --------
/4/ TC Management, as general partner of Windsor LP and manager of the TC
Managed Account, may be deemed to beneficially own the shares directly owned by
Windsor LP and the TC Managed Account.
/5/ Formerly International Parallax owned 15,000 shares of Common Stock,
representing approximately .05% of the outstanding Common Stock, and Parallax LP
owned 315,000 shares of Common Stock, representing approximately 1.1% of the
outstanding Common Stock. The shares held by International Parallax and Parallax
LP were inadvertently interchanged in Schedule 13D/A Amendment No. 1.
- 10 -
<PAGE>
ITEM 7 OF SCHEDULE 13D, "MATERIAL TO BE FILED AS EXHIBITS," IS AMENDED TO ADD
THE FOLLOWING ITEM:
Exhibit 2- Letter to the Board of Directors of the
Company dated October 2, 1998.
- 11 -
<PAGE>
SIGNATURES
After reasonable inquiry and to the best knowledge and belief of the
undersigned, the undersigned certify that the information set forth in this
Statement is true, complete and correct.
Dated: October 6, 1998
/s/ James J. Apostolakis
--------------------------
Name: James J. Apostolakis
/s/ David Ray
---------------------------
Name: David Ray
/s/ Bernard Marden
---------------------------
Name: Bernard Marden
/s/ Anthony R. Campbell
---------------------------
Name: Anthony R. Campbell
/s/ Christopher Castroviejo
----------------------------
Name: Christopher Castroviejo
- 12 -
<PAGE>
SCHEDULE I IS AMENDED AND RESTATED IN ITS ENTIRETY AS FOLLOWS:
SCHEDULE I
TRANSACTIONS IN COMMON
STOCK OF COLUMBIA LABORATORIES, INC.
DURING THE PRECEDING 60 DAYS
SHARES SOLD BY JAMES J. APOSTOLAKIS:
NUMBER OF
SHARES
DATE SOLD TOTAL COST
- ---- ---- ----------
8/14/98 3,800 $20,900
8/24/98 15,200 76,000
8/25/98 35,600 178,000
8/27/98 16,000 66,000
8/28/98 15,000 48,750
SHARES PURCHASED BY JAMES J. APOSTOLAKIS:
NUMBER OF
SHARES
DATE PURCHASED TOTAL COST
- ---- --------- ----------
9/28/98 2,000 $7,750
10/1/98 2,000 6,750
10/2/98 3,000 9,180
10/5/98 6,000 17,625
10/6/98 6,300 17,325
SHARES PURCHASED BY BRADMAR CORP.:
NUMBER OF
SHARES
DATE PURCHASED TOTAL COST
- ---- --------- ----------
9/23/98 10,000 $40,625
9/22/98 4,000 16,250
9/1/98 10,000 33,750
- 13 -
<PAGE>
SHARES SOLD BY LEXINGTON CORP.:
NUMBER OF
SHARES
DATE SOLD TOTAL COST
- ---- ---- ----------
8/28/98 5,000 $16,250
8/27/98 2,000 8,125
SHARES PURCHASED BY LEXINGTON CORP.:
NUMBER OF
SHARES
DATE PURCHASED TOTAL COST
- ---- --------- ----------
10/1/98 2,000 $6,750
10/2/98 1,000 3,060
10/5/98 1,000 2,937.50
10/6/98 2,400 6,900
SHARES SOLD BY BRADFORD INC.:
NUMBER OF
SHARES
DATE SOLD TOTAL COST
- ---- ---- ----------
8/28/98 5,000 $16,250
SHARES PURCHASED BY WINDSOR LP:
NUMBER OF
SHARES
DATE PURCHASED TOTAL COST
- ---- --------- ----------
8/17/98 7,500 $39,837
8/19/98 10,000 58,950
8/21/98 10,000 52,150
8/24/98 8,000 41,137
8/26/98 5,000 24,075
8/26/98 7,500 34,350
9/30/98 10,000 38,125
10/6/98 25,000 73,750
SHARES SOLD BY WINDSOR LP:
NUMBER OF
SHARES
DATE SOLD TOTAL COST
- ---- ---- ----------
8/18/98 4,500 $23,607
8/18/98 3,000 15,919
- 14 -
<PAGE>
SHARES SOLD BY MR. CAMPBELL:
NUMBER OF
SHARES
DATE SOLD TOTAL COST
- ---- ---- ----------
8/12/98 2,500 $15,475
8/26/98 5,000 21,575
SHARES SOLD BY PARALLAX LP:
NUMBER OF
SHARES
DATE SOLD TOTAL COST
- ---- ---- ----------
9/1/98 265,000 $703,946
9/3/98 10,000 38,124
9/8/98 30,000 116,546
SHARES SOLD BY INTERNATIONAL PARALLAX:
NUMBER OF
SHARES
DATE SOLD TOTAL COST
- ---- ---- ----------
9/1/98 15,000 $43,913
9/23/98 10,000 40,099
SHARES PURCHASED BY MR. RAY:
NUMBER OF
SHARES
DATE PURCHASED TOTAL COST
9/2/98 10,000 $38,706
9/2/98 10,000 39,375
- 15 -
EXHIBIT 2
THE COMMITTEE TO IMPROVE SHAREHOLDER
VALUE OF COLUMBIA LABORATORIES
c/o Knott Partners, L.P.
485 Underhill Boulevard
Syosset, NY 11791
October 2, 1998
Board of Directors
Columbia Laboratories, Inc.
2665 South Bayshore Drive
Miami, Florida 33133
Ladies and Gentlemen:
Our Committee has been formed by several significant shareholders of
the Company who have developed very serious concerns with many aspects of the
Company's affairs. Since members of the Committee publicly filed a statement on
Schedule 13D last July, we have been contacted by many other shareholders who
appear to share our sense of outrage over the collapse of the Company's stock
price and the perceived ineffectiveness of current management.
For months, members of the Committee have sought to pursue a dialog
with the Company's senior management regarding immediate steps to address these
concerns and improve the Company's business and financial situation, enhancing
value for all of its shareholders.
Unfortunately, our efforts to pursue those discussions have not been
productive, and to our great disappointment we have found senior management
entirely unprepared to focus on the Company's most serious problems or to
discuss with open minds constructive action to address the Company's pressing
difficulties. We write now in an effort to call the urgent attention of each
Director to these vital matters.
In the absence of a prompt and positive response, we must reluctantly
conclude that further communication with senior management will be fruitless,
and that shareholders wishing to assist the Company and protect their investment
must take other action. We expect that action to include, without limitation,
going to court to demand that
<PAGE>
Board of Directors
October 2, 1998
Page 2
the Company schedule and hold a 1998 annual meeting of shareholders as required
by Delaware law and nominating qualified candidates for election to the Board at
such a meeting.
We have repeatedly attempted to explore shareholder concerns in detail
with the Company's senior management. Among the most significant of those
concerns are the following:
Stock Price and Shareholder Value. The Committee understands that the
Company's Common Stock is reported to be one of the ten worst performing public
stocks during the past year. In fact, over the last twelve months, since
September 30, 1997, the Company's Common Stock has lost almost 80% of its value,
declining from $19 1/8 to $3 1/4 per share, and recently traded as low as $2 3/8
per share. We believe that this decline is attributable to bad management rather
than the inherent potential of the Company and its business. Immediate steps
must be taken to restore investor confidence, management accountability, and
credibility in the financial community, including addressing the other issues
discussed in detail below.
Management Compensation. Despite the Company's disastrous performance,
over the last three years the three senior officers of the Company have been
given salary increases which have almost doubled their base salaries and been
granted stock options to acquire a total of 1,350,000 shares. These excessive
and unjustified compensation increases include salary increases to $300,000 from
$167,500 per year, and a grant of 450,000 options, for the Company's part-time
Chief Operating Officer, who apparently spends little time on the Company's
affairs. Even after entering a new four-year employment agreement with the
Company in April 1997, this officer evidently went back to the Company just five
months later, in September 1997, for a further salary increase of $100,000 per
year. The level of last year's option grants to each member of the ineffective
senior management group is at least ten times that of the grant to the senior
scientific officer directly responsible for key product development, while that
individual received a total salary increase of only 10% over the three-year
period during which senior management salaries increased by almost 100%.
Moreover, as the Company's stock price has fallen and its shareholders have lost
tremendous value, the exercise price of stock options granted to senior
management has been unilaterally lowered for the benefit of those officers. We
believe that management compensation should be based on demonstrated
performance, and that option grants should be
<PAGE>
Board of Directors
October 2, 1998
Page 3
designed to give management an interest in the Company which coincides with the
interests of its shareholders.
Corporate Expense. After repeated demands from members of our Committee
and a public Schedule 13D filing expressing our concern, management belatedly
announced a new plan to reduce research and development expense by $5 million.
Whether those measures will be successfully implemented by present management
remains uncertain. In any event, the Company continues to be burdened by
exceptional and unnecessary corporate overhead, travel and entertainment, and
other expenses. For example, apartments are maintained at the Company's expense
in New York City and Paris, France. The Committee understands that the New York
apartment is often utilized by relatives of senior management (while senior
management members themselves choose to spend additional Company money staying
in expensive hotels when visiting the city), and that the Paris apartment serves
as the personal residence of the Company's Chairman and his family. Moreover,
the Company unnecessarily spends more than $107,000 per year in rent alone, in
addition to undisclosed salaries and other expenses, maintaining an office and
support staff in the Miami, Florida area (where it has limited operations) for
the convenience of its Chief Executive Officer and Chief Operating Officer, who
are engaged in local business activities unrelated to the Company. Such
decentralized operations would be wasteful and inefficient under any
circumstances. For an enterprise in the Company's dire financial condition, they
are simply indefensible. We believe that the Miami area office should be closed
and the Company's American operations consolidated in a single location
convenient to the focus of its important business relations in the
pharmaceutical industry.
Management Credibility. We have repeatedly stressed that senior
management is perceived by elements of the business and financial community as
lacking candor and credibility. The individual nominally serving as Chief
Operating Officer, whose primary stated responsibility is investor relations and
corporate communications, has apparently done little or nothing in that regard,
leaving this important task to the Chairman. While the Chairman may be qualified
to serve as the Company's most senior scientific officer, we believe that he has
been completely ineffective in his other role. In fact, it seems that repeated
misjudgments and failure to meet announced business expectations have all but
destroyed management's credibility with the financial community. Senior
management has been consistently wrong and failed to meet their own estimates
and projections regarding such vital matters as timing of product launches,
timing of product reorders, product revenues, product positioning, product
competition, product acceptance, product labeling and
<PAGE>
Board of Directors
October 2, 1998
Page 4
side effects, and earnings. Because of their disillusionment and frustration
with senior management, we understand that financial analysts who previously
followed the Company's stock no longer do so, further crippling efforts to raise
capital, attract investor interest and maintain a stable market for the
Company's stock. Responsibility for the Company's crucial investor relations and
corporate communication functions must be effectively re-allocated, either to
qualified individuals within the Company or outsiders.
Management Performance. The Chief Operating Officer, left with no
apparent duties with the Company after relinquishing responsibility for investor
relations to the Chairman, is still employed at great expense despite the
Company's past assurances that his departure was imminent. The Company's Chief
Executive Officer is perceived as devoting insufficient time and energy to the
Company's affairs and being inaccessible to investors, while pursuing numerous
unrelated business activities. In connection with one such venture, he borrowed
money against the Company's stock and was ultimately compelled to sell 182,000
shares. Meanwhile, in the Chief Executive Officer's primary area of
responsibility for the Company, over-the-counter products, results have been
disastrous. The Chairman should return his focus to product development and
scientific matters. The Chief Executive Officer and Chief Operating Officer
should be replaced with qualified individuals who can address the Company's
business problems and regain the confidence of the financial community.
Board Composition and Conduct. Despite the Company's pressing problems,
the Board of Directors met only three times during the last fiscal year --
sometimes by telephone. In addition, we believe that the Company suffers from a
lack of additional independent Directors capable of bringing a range of business
experience, objectivity and judgment to bear on the Company's affairs. Of the
eight present Directors, four are Company officers, one is a close relative of
an officer, and others have business or personal ties to Company officers. We
believe that the Board must be re-aligned to protect the interests of the
shareholders.
Financial Management. Senior management has repeatedly permitted the
Company to confront severe cash shortages and been forced to make
disadvantageous arrangements under pressure to prevent the Company from running
out of money altogether. In addition, it appears that senior management has
expended millions of dollars on work toward an AIDS drug in which they now seem
to have lost interest. We believe that this lack of planning and fiscal
responsibility has discouraged serious investors from acquiring
<PAGE>
Board of Directors
October 2, 1998
Page 5
and holding the Company's stock. New measures must be implemented to restore
fiscal responsibility.
Product Introduction and Marketing. We believe that senior management
has failed to effectively coordinate and monitor the introduction of the
Company's important new products. In our view, the Company's business was
seriously damaged by mishandling the significant relationships with Lake
Pharmaceuticals and Warner-Lambert. We also believe that management mishandled
negotiations for the introduction and marketing of Crinone, its most promising
new product, by the Wyeth-Ayerst Laboratories division of American Home Products
Corporation and failed to monitor the timing of that process. We believe that
the potential for the Company's products remains very promising. However, it
appears to us that management failure has prevented the Company and its
shareholders from receiving the benefit of the introduction of these products.
Shareholder Meetings and Corporate Governance. Senior management has
still not scheduled the 1998 annual meeting of shareholders, more than a year
after the last meeting was held. As stated, the Committee intends to apply to
Delaware Chancery Court for an order that a shareholders meeting be held
promptly as required by Section 211 of the Delaware General Corporation Law. The
failure to schedule a 1998 annual meeting, forcing shareholders to go to court
in order to exercise their franchise as the owners of the corporation, reflects
senior management's indifference to ordinary standards of corporate governance
and the legitimate interests of all shareholders.
We believe that it is imperative that the Board take immediate action
to address the Company's situation, including the following:
o Remove and replace the Company's inactive and ineffective
senior officers including the Chief Executive Officer, Chief
Operating Officer and Chief Financial Officer, bringing in an
experienced pharmaceutical industry executive. If necessary, a
recognized executive search firm should be retained
to assist in this process.
o Revise management compensation and implement an
incentive-based system which rewards management dedication and
demonstrable performance.
<PAGE>
Board of Directors
October 2, 1998
Page 6
o Undertake a detailed review of the Company's expenses and
develop a responsible budget for a business in the Company's
position. Close the Company's unnecessary and expensive Miami
area office and consolidate American operations in a location
convenient to the focus of the pharmaceutical industry.
o Restore credibility with the financial community by
identifying qualified individuals, whether inside or outside
the organization, to deal with investor relations and
corporate communications.
o Require full Board meetings at least monthly. Add additional
independent directors to bring perspective, experience and
objective oversight to bear on the Company's affairs and
demand management accountability.
o Immediately schedule an annual meeting of the Company's
shareholders as provided by Delaware law.
o Engage investment bankers to consider and report to the Board
regarding strategic alternatives and prospects for enhancing
shareholder value, including a merger or sale of the Company.
The Committee and, we believe, many other shareholders are deeply
concerned by these and other serious issues facing the Company. We urge each
Board member to take the time to consider our concerns. We would be happy to
meet with any members of the Board to discuss these matters and we invite you to
contact us, through Mr. David Knott at 516-364-0303, for that purpose.
Very truly yours,
The Committee to Improve Shareholder
Value of Columbia Laboratories
