-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DiZCFkK8p7JCVyGagdzlt8kMyKUK8J26X5vq6M5khTa0u7+MkD6RhPNiq0HYuKZH 9tVHE1NMNmUDSSvwZ6un1A== 0000922423-98-001088.txt : 19981008 0000922423-98-001088.hdr.sgml : 19981008 ACCESSION NUMBER: 0000922423-98-001088 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 19981007 SROS: AMEX SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: COLUMBIA LABORATORIES INC CENTRAL INDEX KEY: 0000821995 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 592758596 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: SEC FILE NUMBER: 005-40470 FILM NUMBER: 98721730 BUSINESS ADDRESS: STREET 1: 2665 S BAYSHORE DR PH 11-B CITY: MIAMI STATE: FL ZIP: 33133 BUSINESS PHONE: 305-860-16 MAIL ADDRESS: STREET 1: 2665 SOUTH BAYSHORE DRIVE PH 11-B CITY: MIAMI STATE: FL ZIP: 33133 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: APOSTOLAKIS JAMES J CENTRAL INDEX KEY: 0001066096 STANDARD INDUSTRIAL CLASSIFICATION: [] FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: C/O LEXINGTON SHIPPING & TRADING CORP STREET 2: 950 3RD AVE CITY: NEW YORK STATE: NY ZIP: 10022 MAIL ADDRESS: STREET 1: C/O LEXINGTON SHIPPING & TRADING CORP STREET 2: 950 3RD AVE CITY: NEW YORK STATE: NY ZIP: 10022 SC 13D/A 1 AMENDMENT NO. 2 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: [ ] 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- 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- 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- 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- 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- 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 - 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 - 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 - 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 - 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 - 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 - 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 - 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 - 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 - EX-2 2 LETTER 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 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 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 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 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. 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 -----END PRIVACY-ENHANCED MESSAGE-----