<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 1999
Commission file number 0-17254
NOVEN PHARMACEUTICALS, INC.
STATE OF DELAWARE 59-2767632
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
11960 S.W. 144th Street Miami, FL 33186
----------------------------------------------------
(Address of principal executive offices) (Zip Code)
(305) 253-5099
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ].
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the last practicable date.
Class Outstanding at July 30, 1999
----------------------------- ----------------------------
Common stock $.0001 par value 21,515,530
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NOVEN PHARMACEUTICALS, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Statements of Operations for the Three and Six Months Ended
June 30, 1999 and 1998 3
Balance Sheets as of June 30, 1999 and December 31, 1998 4
Statements of Cash Flows for the Six Months Ended
June 30, 1999 and 1998 5
Notes to Financial Statements 6 - 7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 12
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 12
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders 12
Item 5 - Other Information 13
Item 6 - Exhibits and Reports on Form 8-K 13
SIGNATURES 14
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NOVEN PHARMACEUTICALS, INC.
Statements of Operations
Three and Six Months Ended June 30,
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
---------------------- ----------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Product sales $ 7,437 $ 6,338 $ 14,857 $ 8,827
License revenue 56 56 113 115
-------- -------- -------- --------
Total revenues 7,493 6,394 14,970 8,942
Expenses:
Cost of products sold 3,361 3,195 6,605 4,227
Research and development 1,485 1,981 3,142 3,982
Marketing, general and administrative 1,743 2,861 3,647 5,843
-------- -------- -------- --------
Total operating costs and expenses 6,589 8,037 13,394 14,052
-------- -------- -------- --------
Income (loss) from operations 904 (1,643) 1,576 (5,110)
Interest income, net 64 86 116 276
-------- -------- -------- --------
Net income (loss) before income taxes 968 (1,557) 1,692 (4,834)
Income taxes 9 -- 18 --
-------- -------- -------- --------
Net income (loss) $ 959 $ (1,557) $ 1,674 $ (4,834)
======== ======== ======== ========
Basic and diluted income (loss) per share $ 0.05 $ (0.08) $ 0.08 $ (0.24)
======== ======== ======== ========
Basic weighted average of common stock 21,460 20,605 21,496 20,541
======== ======== ======== ========
Diluted weighted average of common stock 21,638 20,605 21,673 20,541
======== ======== ======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
3
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NOVEN PHARMACEUTICALS, INC.
Balance Sheets
(in thousands, except share data)
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
(UNAUDITED) (AUDITED)
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 7,293 $ 5,573
Accounts receivable (less allowance for doubtful accounts
of $168 in 1999 and $268 in 1998) 4,201 3,044
Due from Vivelle Ventures LLC 3,284 3,489
Inventories 2,934 2,733
Prepaid and other current assets 350 421
-------- --------
18,062 15,260
Property, Plant and Equipment:
Property, plant and equipment, at cost 20,887 20,376
Less: accumulated depreciation and amortization 5,544 4,859
-------- --------
15,343 15,517
Other Assets:
Investment in Vivelle Ventures LLC 6,878 7,500
Patent development costs, net 1,816 1,765
Deposits and other assets 421 114
-------- --------
9,115 9,379
-------- --------
$ 42,520 $ 40,156
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 3,785 $ 4,954
Notes payable 424 179
Accrued compensation and related liabilities 1,072 913
Other accrued liabilities 484 141
-------- --------
5,765 6,187
Long Term Liabilities:
Deferred license revenue 5,531 5,644
Notes payable 815 --
-------- --------
6,346 5,644
Stockholders' Equity:
Preferred stock - authorized 100,000 shares of $.01 par
value; no shares issued or outstanding -- --
Common stock - authorized 40,000,000 shares,
par value $.0001 per share; issued and
outstanding 21,482,270 shares at June 30, 1999 and
21,482,423 at December 31, 1998 2 2
Additional paid-in capital 66,416 66,669
Accumulated deficit (36,009) (37,683)
Treasury stock, 97,100 shares, at cost -- (663)
-------- --------
30,409 28,325
-------- --------
$ 42,520 $ 40,156
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
4
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NOVEN PHARMACEUTICALS, INC.
Statements of Cash Flows
Six Months Ended June 30,
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,674 $ (4,834)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 685 496
Amortization of patent costs 104 104
(Increase) in inventories (201) (134)
Decrease (increase) in prepaid and other current assets 71 (64)
(Increase) in accounts receivable (1,157) (2,479)
Decrease in due from Vivelle Ventures LLC 205 --
(Decrease) increase in accounts payable (1,169) 947
Increase in accrued compensation and other accrued liabilities 831 698
(Decrease) in deferred license revenue (113) (113)
(Increase) in deposits and other assets (307) (404)
-------- --------
Cash flows provided by (used in) operating activities 623 (5,783)
Cash flows from investing activities:
Investment in Vivelle Ventures LLC -- (7,500)
Distribution from Vivelle Ventures LLC 622 --
Maturity of securities, net -- 5,880
Purchase of fixed assets (511) (497)
Payments for patent development costs (155) (130)
-------- --------
Cash (used in) investing activities (44) (2,247)
Cash flows from financing activities:
Notes payable 1,060 --
Sale of common stock 81 2,500
-------- --------
Cash flows provided by financing activities 1,141 2,500
-------- --------
Net increase (decrease) in cash and cash equivalents 1,720 (5,530)
Cash and cash equivalents - beginning of period 5,573 11,268
-------- --------
Cash and cash equivalents - end of period $ 7,293 $ 5,738
======== ========
</TABLE>
The accrued 1998 bonuses for employees and officers of $329 were settled by
issuance of common stock.
Cash payments for interest were $9.3 in 1999; no interest payments were made in
prior year.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
5
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NOVEN PHARMACEUTICALS, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. Basis of presentation
In management's opinion, the accompanying unaudited financial
statements of Noven Pharmaceuticals, Inc. ("Noven") contain all
adjustments (consisting of only normal recurring adjustments) necessary
to present fairly the financial position of Noven as of June 30, 1999,
and the results of its operations for the three and six months ended June
30, 1999 and 1998. The results of operations and cash flows for the six
months ended June 30, 1999 are not necessarily indicative of the results
of operations or cash flows which may be reported for the remainder of
1999.
The accompanying financial statements have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission
for reporting on Form 10-Q. Pursuant to such rules and regulations,
certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The financial
statements should be read in conjunction with the financial statements
and the notes to the financial statements included in Noven's Annual
Report on Form 10-K for the year ended December 31, 1998.
The accounting policies followed for interim financial reporting
are the same as those disclosed in Note 1 of the notes to the financial
statements included in Noven's Annual Report on Form 10-K for the year
ended December 31, 1998.
Certain amounts presented in the financial statements for prior
periods have been reclassified to the current period's presentation.
2. Inventories:
The following are the major classes of inventory (in thousands):
June 30, December 31,
1999 1998
------ ------
Finished goods $1,055 $ 685
Work in process 199 337
Raw materials 1,680 1,711
------- ------
Total $2,934 $2,733
======= ======
3. Income Taxes:
Income taxes for the three and six months ended June 30, 1999 is
a provision for the alternative minimum tax.
6
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4. Investment in Vivelle Ventures LLC:
Noven shares in the income of Vivelle Ventures LLC d/b/a
Novogyne Pharmaceuticals (the "Joint Venture") according to an
established formula after an annual preferred return of $6.1 million to
Novartis Pharmaceuticals Corporation ("Novartis"). Noven's share of
income increases as product sales increase, subject to a cap of 50%. The
Joint Venture did not produce sufficient income in the six months ended
June 30, 1999 under the established formula for Noven to recognize income
from the Joint Venture.
During the six months ended June 30, 1999 Noven sold $4.1
million of products to, and earned $1.3 million in royalties from, the
Joint Venture and was reimbursed for $6.5 million of sales and marketing
expenses incurred on behalf of the Joint Venture. As of June 30, 1999
Noven's receivable from the Joint Venture was $3.3 million, representing
products sold to and marketing expenses reimbursable from the Joint
Venture. All intercompany balances are generally paid by the 15th day of
the following month.
Subject to the approval of the Joint Venture's management
committee, cash may be distributed quarterly to Novartis and Noven based
upon a contractual formula. In April 1999, Noven received a cash
distribution of $622,000 from the Joint Venture based upon the results of
operations for the year ended December 31, 1998. This distribution was
recorded as a return of capital in the second quarter of 1999.
5. Notes Payable:
In May 1999, Noven entered into a Master Finance Lease Agreement
(the "Master Lease") with SunTrust Bank, Miami for a maximum principal
amount of $1 million with a base lease term of three or four years
depending upon the equipment type. The Master Lease contains certain
financial covenants. Transactions under the Master Lease have been
accounted for as financial arrangements. Under the Master Lease, Noven
has entered into one lease in the amount of $624,000 with an expiration
date of May 2003.
6. Stockholders' Equity:
In January 1999, Noven issued approximately 62,000 shares of its
common stock to certain officers and employees as a bonus for their
performance during 1998. The value of the shares issued was based upon
market price at the time of grant. The bonus amount was recognized as
compensation expense in 1998.
In April 1999, Noven retired 97,100 shares of treasury stock
valued at $663,000.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the financial statements, the related notes and management's discussion and
analysis of financial condition and results of operations included in Noven's
Annual Report on Form 10-K for the year ended December 31, 1998 and the
financial statements and related notes included in Item 1 of this Quarterly
Report on Form 10-Q. Except for historical information contained herein, the
matters discussed below are forward looking statements made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. Such
statements involve risks and uncertainties, including but not limited to
economic, competitive, governmental and technological factors affecting Noven's
operations, markets, products and prices, and other factors. These factors,
which are discussed elsewhere in this report and in the documents filed by Noven
with the Securities and Exchange Commission ("SEC"), may cause Noven's results
to differ materially from the forward looking statements made in this report or
otherwise made by or on behalf of Noven.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Total revenues for the six months ended June 30, 1999 were $15.0
million, an increase of $6.0 million, or 67%, over the same period in the prior
year. This increase in revenues was primarily attributable to the launch of
Vivelle-Dot(TM) by Vivelle Ventures LLC (the "Joint Venture") in May 1999, which
resulted in higher sales of the Vivelle family of products, and sales of
CombiPatch(TM), which was launched in the U.S. by Rhone-Poulenc Rorer, Inc.
("RPR") in September 1998. Royalties are included in product sales. Because
substantially all of Noven's product sales are to its licensees, Noven expects
that its product sales may fluctuate from quarter to quarter depending on
various factors not in Noven's control, including, but not limited to, the
inventory requirements of each licensee.
Gross profit for the six months ended June 30, 1999 was $8.3 million
(56% of product sales), compared to $4.6 million (52% of product sales) for the
same period in the prior year . The increase in gross margins resulted primarily
from a shift in product mix and an increase in manufacturing efficiency.
Research and development expenses decreased approximately $0.8 million,
or 21%, for the six months ended June 30, 1999, compared to the same period in
the prior year . This decrease was attributable to fewer clinical studies in the
first half of 1999 as a result of completion of studies relating to
Vivelle-Dot(TM). The future level of research and development expenditures will
depend on, among other things, the status of products under development and the
outcome of clinical trials, strategic decisions by management, the consummation
of new license agreements and Noven's liquidity.
Marketing, general and administrative expenses decreased approximately
$2.2 million, or 38%, for the six months ended June 30, 1999 from the same
period in the prior year . This decrease was primarily due to lower sales and
marketing expenses associated with Dentipatch(R).
8
<PAGE> 9
Interest income, net decreased approximately $0.2 million, or 58%, for
the six months ended June 30, 1999 compared to the same period in 1998,
primarily due to lower average balances in cash and cash equivalents and an
increase in debt associated with a Master Lease facility entered into in May
1999.
Income taxes for the six months ended June 30, 1999 is a provision for
the alternative minimum tax.
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
Total revenues for the three months ended June 30, 1999 were $7.5
million, an increase of $1.1 million, or 17%, over the same period in the prior
year. This increase in revenues was primarily attributable to the launch of
Vivelle-Dot(TM) in May 1999, which resulted in higher sales of the Vivelle
family of products, and sales of CombiPatch(TM), which was launched in the U.S.
by RPR in September 1998.
Gross profit for the three months ended June 30, 1999 was $4.1 million
(55% of product sales), compared to $3.1 million (50% of product sales) for the
same period in the prior year. The increase in gross margins resulted primarily
from a shift in product mix and an increase in manufacturing efficiency.
Research and development expenses decreased approximately $0.5 million,
or 25%, for the three months ended June 30, 1999 compared to the same period in
the prior year. This decrease was attributable to fewer clinical studies in the
first half of 1999, as a result of completion of studies relating to
Vivelle-Dot(TM).
Marketing, general and administrative expenses decreased approximately
$1.1 million, or 39%, for the three months ended June 30, 1999 compared to the
same period in the prior year. This decrease was primarily due to lower sales
and marketing expenses associated with Dentipatch(R) and, to a lesser extent,
lower administrative costs.
Interest income, net decreased approximately $22,000, or 26%, for the
three months ended June 30, 1999 compared to the same period in 1998, primarily
due to lower average balances in cash and cash equivalents and an increase in
debt associated with a Master Lease facility entered into in May 1999.
Income taxes for the three months ended June 30, 1999 is a provision
for the alternative minimum tax.
9
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1999 and December 31, 1998, Noven had $7.3 million and
$5.6 million, respectively, in cash and cash equivalents.
Net cash of approximately $0.6 million was provided by operating
activities during the first six months of 1999, compared to approximately $5.8
million used in operating activities during the same period in the prior year.
The increase in cash provided by operating activities was primarily the result
of improved operating income, offset by an increase in accounts receivable and a
reduction in accounts payable. The higher accounts receivable is a direct result
of higher sales of the Vivelle family of products and sales of CombiPatch(TM).
Net cash of approximately $44,000 was used in investing activities
during the first six months of 1999, compared to approximately $2.2 million used
in investing activities during the same period of the prior year. The difference
in cash flows was primarily attributable to the investment in the Joint Venture,
offset by the maturity of securities in the 1998 period. Net cash used in
investing activities during 1999 resulted from the purchase of fixed assets and
payment of patent development costs, partially offset by a cash distribution
from the Joint Venture.
Net cash of approximately $1.1 million was provided by financing
activities during the first six months of 1999, compared to approximately $2.5
million provided by financing activities during the same period of the prior
year. The difference in cash flows was primarily attributable to higher than
normal sales of common stock in 1998 as a result of the exercise of certain
warrants, partially offset by the increase in notes payable in 1999. In May
1999, Noven entered into a Master Lease with SunTrust Bank, Miami for a maximum
principal amount of $1.1 million with a lease term of three or four years
depending upon the equipment type. The Master Lease contains certain financial
covenants. Transactions under the Master Lease have been accounted for as
financial arrangements. Under the Master Lease, Noven has entered into one lease
in the amount of $624,000 with an expiration date of May 2003.
Noven's principal sources of short term liquidity are existing cash and
cash generated from product sales, royalties under license agreements and
distributions from the Joint Venture, which Noven believes will be sufficient to
meet its operating needs and anticipated capital requirements over the short
term. For the long term, Noven intends to utilize funds derived from these
sources, as well as funds generated through sales of products under development.
Noven expects that such funds will be comprised of payments received pursuant to
future licensing arrangements, as well as Noven's direct sales of its own
products. There can be no assurance that Noven will successfully complete the
development of products under development, that Noven will obtain regulatory
approval for any such products, or that any approved product may be produced in
commercial quantities, at reasonable costs, and be successfully marketed. To the
extent that capital requirements exceed available capital, Noven will need to
seek alternative sources of financing to fund its operations. Other than the
Master Lease, Noven has no credit facility and no assurance can be given that
alternative financing will be available, if at all, in a timely manner, on
favorable terms. If Noven is unable to obtain satisfactory alternative
financing, Noven may be required to delay or reduce its proposed expenditures,
including expenditures for research and development, or sell assets in order to
meet its future obligations.
10
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Year 2000 Compliance
Noven believes that its Year 2000 project is proceeding on schedule.
The project is addressing potential problems in certain computer programs and
embedded chips, which represent the calendar year with only the last two digits.
There is a risk that, with respect to the change in calendar year from 1999 to
2000, some programs or chips could interpret "00" as "2000", "1900", or some
other input. The project addresses issues in critical business areas related to
information technology ("IT") systems, such as computer equipment and software,
as well as non-IT systems, such as communication systems, alarm and security
systems, manufacturing and distribution equipment and control systems, and
laboratory testing and environmental control equipment and systems.
STATUS
Noven initiated its Year 2000 project in early 1998 and engaged an
independent consulting company to assist in coordinating its Year 2000 project.
The initial inventory, assessment and prioritization and planning phases were
completed by May 1998. Noven has completed the testing and remediation of its IT
and non-IT systems. None of Noven's other IT projects have been materially
delayed or impacted by the Year 2000 Project. The book value of computers,
software and equipment that will need to be written off as a result of not being
Year 2000 compliant is immaterial.
Noven has commenced efforts to determine the extent to which it may be
affected by Year 2000 issues of third parties, including suppliers, customers,
service providers and certain agencies and regulatory organizations. Noven has
been reviewing and continues to review with its critical suppliers and major
customers the status of their Year 2000 readiness. Some third parties have
either declined to provide the requested information or have limited the scope
of their assurances. Noven has established a plan for the continued monitoring
of critical business partners during 1999.
COSTS
The estimated total cost of the Year 2000 project is $250,000. As of
June 30, 1999, Noven had incurred costs of approximately $175,000 related to
this project. The project is being funded by cash on hand and from internally
generated funds, which Noven expects to be adequate to complete the project.
RISKS
Noven believes that failure to correct a material Year 2000 problem
could result in an interruption in, or failure of, certain normal business
activities or operations. Noven is unable to determine at this time whether the
results of any Year 2000 readiness issues will have an impact on Noven's results
of operations, liquidity or financial condition. The Year 2000 project is
expected to significantly reduce Noven's level of uncertainty about Year 2000
problems, including the Year 2000 compliance and readiness of its material third
parties. Noven believes that its programs for Year 2000 readiness will
significantly improve its ability to deal with its own Year 2000 readiness
issues and those of material third parties. A contingency plan has not been
developed for dealing with the most reasonably likely worst case scenario, and
such scenario has not yet been clearly identified. Noven currently plans to
complete such analysis and develop and implement any necessary contingency plans
by December 31, 1999.
11
<PAGE> 12
Such plans will not, however, guarantee that no material adverse effects will
occur.
The costs of Noven's Year 2000 project and the dates on which Noven
believes it will complete the various phases of this project are based upon
management's best estimates, which were derived using numerous assumptions
regarding future events, including the continued availability of certain
resources, third-party remediation plans and other factors. There can be no
assurance that these estimates will prove to be accurate, and actual results
could differ materially from those currently anticipated. Specific factors that
could cause such material differences include, but are not limited to, the
availability and cost of personnel trained in Year 2000 issues, the ability to
identify, assess, remediate and test all relevant computer code and embedded
technology, the performance of new systems and equipment, the reduction of
productivity pending completion of employee training and similar uncertainties.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Noven does not believe that it has material exposure to market rate
risk. Noven has no material debt obligations. Noven may, however, require
additional financing to fund future obligations and no assurance can be given
that the terms of future sources of financing will not expose Noven to material
market rate risk.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Annual Meeting of Stockholders held on June 8, 1999.
(i) Election of Directors
FOR AGAINST
---------- -------
Sheldon H. Becher 15,270,659 213,324
Sidney Braginsky 15,270,259 213,724
Rodolfo C. Bryce 15,270,059 213,924
Lawrence J. DuBow 15,270,259 213,724
Mitchell Goldberg 15,270,659 213,324
Steven Sablotsky 15,270,659 213,324
Robert C. Strauss 15,270,259 213,724
(ii) The ratification of the appointment of Deloitte & Touche LLP as
the independent certified public accountants for 1999 was
approved by an affirmative vote of 15,331,083 shares to a
negative vote of 133,529 shares, with 19,371 shares abstaining.
(iii) The proposal to approve the Noven Pharmaceuticals, Inc. Long-Term
Incentive Plan was approved by an affirmative vote of 14,053,781
shares to a negative vote of 1,379,261 shares, with 50,941 shares
abstaining.
12
<PAGE> 13
ITEM 5. OTHER INFORMATION
In August 1999, Noven's Board of Directors amended the Noven
Pharmaceuticals, Inc. 1992 Stock Option Plan and the Noven Pharmaceuticals, Inc.
1997 Stock Option Plan to conform the change in control provisions of such plans
to the comparable provisions of the Noven Pharmaceuticals, Inc. 1999 Long-Term
Incentive Plan, which was approved by Noven's shareholders in June 1999. The
amendments will affect outstanding options under the 1992 and 1997 plans, and
the Board believes that the amendments will enhance the incentive and retention
value of the plans.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.1 Amendment to Noven Pharmaceuticals, Inc. 1992 Stock Option Plan
10.2 Amendment to Noven Pharmaceuticals, Inc. 1997 Stock Option Plan
27 Financial Data Schedule
(b) REPORTS OF FORM 8-K
No reports on Form 8-K were filed by the Registrant during the three
months ended June 30, 1999.
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NOVEN PHARMACEUTICALS, INC.
Date: August 13, 1999 By: /s/ James B. Messiry
--------------- -----------------------
James B. Messiry
Vice President and
Chief Financial Officer
14
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EXHIBITS
10.1 Amendment to Noven Pharmaceuticals, Inc.
1992 Stock Option Plan
10.2 Amendment to Noven Pharmaceuticals, Inc.
1997 Stock Option Plan
27 Financial Data Schedule
15
<PAGE> 1
EXHIBIT 10.1
AMENDMENT TO STOCK OPTION PLAN
This Amendment to the Noven Pharmaceuticals, Inc. 1992 Stock Option
Plan (the "Plan") is dated as of this 4th day of August, 1999.
WHEREAS, the Board of Directors of Noven Pharmaceuticals, Inc.
("Noven") has determined that it is in the best interests of Noven and its
shareholders to amend the change in control provisions of the 1992 Plan.
NOW, THEREFORE, the Plan shall be amended as follows:
1. All capitalized terms used in this Amendment shall have the meanings
ascribed to them in the Plan, unless otherwise specifically provided.
2. Sections IX(b) and (c) of the Plan are deleted in their entirety and
replaced by the following:
(b) In the event of a Change in Control (as defined below),
(i) all Options then outstanding shall become fully exercisable as of
the date of the Change in Control, whether or not then exercisable, and
(ii) in the case of a Change in Control involving a merger of, or
consolidation involving, the Company in which the Company is (A) not
the surviving corporation (the "SURVIVING ENTITY") or (B) becomes a
wholly owned subsidiary of the Surviving Entity or any parent thereof,
each outstanding Option granted under the Plan and not exercised (a
"PREDECESSOR OPTION") will be converted into an option (a "SUBSTITUTE
OPTION") to acquire common stock of the Surviving Entity or its parent,
which Substitute Option will have substantially the same terms and
conditions as the Predecessor Option, with appropriate adjustments as
to the number and kind of shares and exercise prices.
A "Change in Control" of the Company shall be deemed to have
occurred when:
(a) any person, entity or group (other than the Company, any
Subsidiary of the Company, any employee benefit plan of
the Company or of any Subsidiary of the Company, or any
person or entity organized, appointed or established by
the Company or any Subsidiary of the Company for or
pursuant to the terms of any such plan), alone or together
with its affiliates and associates (collectively, an
<PAGE> 2
"ACQUIRING PERSON"), shall become the Beneficial Owner (as
defined in Rule 13d-3 under the Securities Exchange Act of
1934) of 40 percent or more of the then outstanding shares
of Common Stock or the combined voting power of the
Company,
(b) during any period of two consecutive years, individuals
who at the beginning of such period constitute the Board
of Directors, and any new director (other than a director
who is a representative or nominee of an Acquiring Person)
whose election by the Board of Directors or nomination for
election by the Company's shareholders was approved by a
vote of at least a majority of the directors then still in
office who either were directors at the beginning of the
period or whose election or nomination for election was
previously so approved (collectively, the "CONTINUING
DIRECTORS"), cease for any reason to constitute a majority
of the Board of Directors,
(c) the shareholders of the Company approve a merger or
consolidation of the Company with any other corporation,
other than a merger or consolidation which would result in
the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting
securities of the Surviving Entity (as defined in Section
IX(b) hereof) or any parent of such Surviving Entity) at
least a majority of the combined voting power of the
Company, such Surviving Entity or the parent of such
Surviving Entity outstanding immediately after such merger
or consolidation, or
(d) the shareholders of the Company approve a plan of
reorganization (other than a reorganization under the
United States Bankruptcy Code) or complete liquidation of
the Company or an agreement for the sale or disposition by
the Company of all or substantially all of the Company's
assets;
PROVIDED, HOWEVER, that a Change in Control shall not be
deemed to have occurred in the event of
(i) a sale or conveyance in which the Company continues as a
holding company of an entity or entities that conduct all
or
2
<PAGE> 3
substantially all of the business or businesses
formerly conducted by the Company, or
(ii) any transaction undertaken for the purpose of
incorporating the Company under the laws of another
jurisdiction, if such transaction does not materially
affect the beneficial ownership of the Company's capital
stock.
3. Notwithstanding the foregoing, if the Corporation enters into a
transaction which is intended to be accounted for using the pooling-of-interests
method of accounting, but it is determined by the Board that the amendments
effected hereby would preclude such treatment, then the Board may modify (to the
minimum extent required) or revoke (if necessary) such amendments to the extent
that the Board determines that such modification or revocation is necessary to
enable the transaction to qualify for pooling-of-interests accounting.
4. Except as specifically provided herein, the terms and provisions of
the Plan shall remain in full force and effect and unchanged.
3
<PAGE> 1
EXHIBIT 10.2
AMENDMENT TO STOCK OPTION PLAN
This Amendment to the Noven Pharmaceuticals, Inc. 1997 Stock Option
Plan (the "Plan") is dated as of this 4th day of August, 1999.
WHEREAS, the Board of Directors of Noven Pharmaceuticals, Inc.
("Noven") has determined that it is in the best interests of Noven and its
shareholders to amend the change in control provisions of the 1997 Plan.
NOW, THEREFORE, the Plan shall be amended as follows:
1. All capitalized terms used in this Amendment shall have the meanings
ascribed to them in the Plan, unless otherwise specifically provided.
2. Section 17(c) of the Plan is deleted in its entirety and replaced by
the following:
(c) In the event of a Change in Control (as defined below),
(i) all Options then outstanding shall become fully exercisable as of
the date of the Change in Control, whether or not then exercisable, and
(ii) in the case of a Change in Control involving a merger of, or
consolidation involving, the Company in which the Company is (A) not
the surviving corporation (the "SURVIVING ENTITY") or (B) becomes a
wholly owned subsidiary of the Surviving Entity or any parent thereof,
each outstanding Option granted under the Plan and not exercised (a
"PREDECESSOR OPTION") will be converted into an option (a "SUBSTITUTE
OPTION") to acquire common stock of the Surviving Entity or its parent,
which Substitute Option will have substantially the same terms and
conditions as the Predecessor Option, with appropriate adjustments as
to the number and kind of shares and exercise prices.
A "Change in Control" of the Company shall be deemed to have
occurred when:
(a) any person, entity or group (other than the Company, any
Subsidiary of the Company, any employee benefit plan of
the Company or of any Subsidiary of the Company, or any
person or entity organized, appointed or established by
the Company or any Subsidiary of the Company for or
pursuant to the terms of any such plan), alone or together
with its affiliates and associates (collectively, an
<PAGE> 2
"ACQUIRING PERSON"), shall become the Beneficial Owner (as
defined in Rule 13d-3 under the Securities Exchange Act of
1934) of 40 percent or more of the then outstanding shares
of Common Stock or the combined voting power of the
Company,
(b) during any period of two consecutive years, individuals
who at the beginning of such period constitute the Board
of Directors, and any new director (other than a director
who is a representative or nominee of an Acquiring Person)
whose election by the Board of Directors or nomination for
election by the Company's shareholders was approved by a
vote of at least a majority of the directors then still in
office who either were directors at the beginning of the
period or whose election or nomination for election was
previously so approved (collectively, the "CONTINUING
DIRECTORS"), cease for any reason to constitute a majority
of the Board of Directors,
(c) the shareholders of the Company approve a merger or
consolidation of the Company with any other corporation,
other than a merger or consolidation which would result in
the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting
securities of the Surviving Entity or any parent of such
Surviving Entity) at least a majority of the combined
voting power of the Company, such Surviving Entity or the
parent of such Surviving Entity outstanding immediately
after such merger or consolidation, or
(d) the shareholders of the Company approve a plan of
reorganization (other than a reorganization under the
United States Bankruptcy Code) or complete liquidation of
the Company or an agreement for the sale or disposition by
the Company of all or substantially all of the Company's
assets;
PROVIDED, HOWEVER, that a Change in Control shall not be
deemed to have occurred in the event of
(i) a sale or conveyance in which the Company continues as a
holding company of an entity or entities that conduct all
or substantially all of the business or businesses
formerly conducted by the Company, or
2
<PAGE> 3
(ii) any transaction undertaken for the purpose of
incorporating the Company under the laws of another
jurisdiction, if such transaction does not materially
affect the beneficial ownership of the Company's capital
stock.
3. Notwithstanding the foregoing, if the Corporation enters into a
transaction which is intended to be accounted for using the pooling-of-interests
method of accounting, but it is determined by the Board that the amendments
effected hereby would preclude such treatment, then the Board may modify (to the
minimum extent required) or revoke (if necessary) such amendments to the extent
that the Board determines that such modification or revocation is necessary to
enable the transaction to qualify for pooling-of-interests accounting.
4. Except as specifically provided herein, the terms and provisions of
the Plan shall remain in full force and effect and unchanged.
3
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY UNAUDITED FINANCIAL INFORMATION EXTRACTED FROM
NOVEN PHARMACEUTICALS, INC. FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> DEC-31-1998
<PERIOD-END> JUN-30-1999
<CASH> 7,293
<SECURITIES> 0
<RECEIVABLES> 4,369
<ALLOWANCES> 168
<INVENTORY> 2,934
<CURRENT-ASSETS> 18,062
<PP&E> 20,887
<DEPRECIATION> 5,544
<TOTAL-ASSETS> 42,520
<CURRENT-LIABILITIES> 5,765
<BONDS> 0
0
0
<COMMON> 2
<OTHER-SE> 30,407
<TOTAL-LIABILITY-AND-EQUITY> 42,520
<SALES> 14,857
<TOTAL-REVENUES> 14,970
<CGS> 6,605
<TOTAL-COSTS> 13,394
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9
<INCOME-PRETAX> 1,692
<INCOME-TAX> 18
<INCOME-CONTINUING> 1,674
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,674
<EPS-BASIC> .08
<EPS-DILUTED> .08
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