<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 0-24424
CIMA LABS INC.
(Exact name of registrant as specified in its charter)
Delaware 41-1569769
- -------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
10000 Valley View Road, Eden Prairie, Minnesota 55344-9361
(Address of principal executive offices including zip code)
(612) 947-8700
(Registrant's telephone number, including area code)
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 latest practicable date.
Common Stock $.01 par value 9,546,128 Shares
----------------------------- ---------------------------------
(Class) (Outstanding at August 1, 1997)
1
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CIMA LABS INC.
TABLE OF CONTENTS
PAGE NUMBER
-----------
COVER PAGE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
TABLE OF CONTENTS . . . . . . . . . . . . . . . . . . . . . . . . . 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Condensed Balance Sheets as of June 30, 1997
and December 31, 1996 . . . . . . . . . . . . . . . . . . . . . 3
Condensed Statements of Operations for the three-
month and six-month periods ended June 30, 1997
and 1996 and the period from December 12, 1986
(inception) to June 30, 1997. . . . . . . . . . . . . . . . . . 4
Condensed Statements of Cash Flows for the six-month
periods ended June 30, 1997 and 1996 and the period
from December 12, 1986 (inception) to June 30, 1997 . . . . . . 5
Notes to Condensed Financial Statements . . . . . . . . . . . . 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. . . . . . . . . . . . . . 7
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . 12
ITEM 2. CHANGES IN SECURITIES. . . . . . . . . . . . . . . . 12
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. . . . . . . . . . . 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS. . . . . . . . . . . . . . . . . . . . . . . 13
ITEM 5. OTHER INFORMATION. . . . . . . . . . . . . . . . . . 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. . . . . . . . . . . 14
SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
EXHIBIT INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CIMA LABS INC.
(A Development Stage Company)
Condensed Balance Sheets (Unaudited)
June 30, December 31,
1997 1996
---------- ------------
(Note)
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . $4,245,858 $2,666,032
Short-term investments. . . . . . . . . . . 2,246,278 7,597,162
Accounts receivable . . . . . . . . . . . . 767,106 247,578
Inventories--Note B . . . . . . . . . . . . 915,234 534,587
Prepaid expenses. . . . . . . . . . . . . . 131,213 71,880
----------- -----------
Total current assets. . . . . . . . . . . . . 8,305,689 11,117,239
Property, plant and equipment . . . . . . . . 13,738,625 13,377,085
Less accumulated depreciation . . . . . . . . (3,334,415) (2,972,474)
----------- -----------
10,404,210 10,404,611
Other assets:
Lease deposits. . . . . . . . . . . . . . . 40,651 290,650
Patents and trademarks, net of
amortization. . . . . . . . . . . . . . . 249,443 252,404
----------- -----------
290,094 543,054
----------- -----------
Total assets. . . . . . . . . . . . . . . . . $18,999,993 $22,064,904
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable. . . . . . . . . . . . . . $560,311 $264,370
Accrued expenses. . . . . . . . . . . . . . 571,900 529,402
Advance royalties . . . . . . . . . . . . . 250,000 250,000
----------- -----------
Total current liabilities . . . . . . . . . . 1,382,211 1,043,772
Commitments and contingencies
Stockholders' equity
Preferred Stock, $.01 par value:
Authorized shares--5,000,000; issued and
outstanding shares-- none . . . . . . . . - -
Common Stock, $.01 par value:
Authorized shares--20,000,000; issued and
outstanding shares--9,546,128--June 30, 1997;
9,411,589-- December 31, 1996 . . . . . . 95,461 94,116
Additional paid-in capital. . . . . . . . . 57,043,803 56,586,958
Deficit accumulated during the development
stage. . . . . . . . . . . . . . . . . . . (39,521,482) (35,659,942)
----------- -----------
Total stockholders' equity. . . . . . . . . . 17,617,782 21,021,132
----------- -----------
Total liabilities and stockholders' equity. . $18,999,993 $22,064,904
----------- -----------
----------- -----------
Note: The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
3
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CIMA LABS INC.
(A Development Stage Company)
Condensed Statements of Income (Unaudited)
<TABLE>
<CAPTION>
Period from
December 12,
1986
Three Months Ended Six Months Ended (Inception) to
June 30, June 30, June 30,
----------------------- ----------------------- ---------------
1997 1996 1997 1996 1997
----------------------- ----------------------- ---------------
<S> <C> <C> <C> <C> <C>
Revenues:
Net sales $640,864 $0 $832,572 $0 $14,583,456
Research and development fees & 381,564 275,277 458,112 667,135 5,804,702
Licensing revenues
----------------------- ----------------------- ---------------
1,022,428 275,277 1,290,684 667,135 20,388,158
Costs and expenses:
Cost of goods sold 987,233 0 1,568,106 0 19,399,521
Research and product development 754,161 1,298,850 1,984,661 2,674,796 22,507,509
Selling, general and administrative 998,680 797,057 1,888,359 1,580,759 19,532,434
----------------------- ----------------------- ---------------
2,740,074 2,095,907 5,441,126 4,255,555 61,439,464
Other income (expense):
Interest income, net 65,413 128,093 193,704 167,478 1,313,104
Other income (expense) 123,029 2,555 124,222 (2,824) 394,252
----------------------- ----------------------- ---------------
188,442 130,648 317,926 164,654 1,707,356
----------------------- ----------------------- ---------------
Net loss and deficit accumulated
during the development stage ($1,529,204) ($1,689,982)($3,832,516) ($3,423,766)($39,343,950)
----------------------- ----------------------- ---------------
----------------------- ----------------------- ---------------
Net loss per share:
Primary $(0.16) $(0.20) $(0.40) $(0.42) $(12.23)
Fully diluted $(0.16) $(0.20) $(0.40) $(0.42) $(8.86)
Weighted average shares outstanding:
Primary 9,490,541 8,654,230 9,468,893 8,239,311 3,216,080
Fully diluted 9,490,541 8,654,230 9,468,893 8,239,311 4,442,029
See notes to condensed financial statements.
</TABLE>
4
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CIMA LABS INC.
(A Development Stage Company)
Condensed Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Period from
December 12,
1986
Six Months Ended (Inception) to
June 30, June 30,
-------------------------------- --------------
1997 1996 1997
-------------------------------- --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss . . . . . . . . . . . . . . . . . . . . . . . . ($3,832,516) ($3,423,765) ($39,343,950)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and amortization. . . . . . . . . . . . . 422,382 294,116 4,442,945
Preferred stock issued for accrued interest. . . . . . 0 0 141,448
Gain on sale of property, plant and equipment. . . . . 0 0 (53,270)
Changes in operating assets and liabilities:
Accounts receivable. . . . . . . . . . . . . . . . . . (519,528) (143,248) (767,106)
Inventories. . . . . . . . . . . . . . . . . . . . . . (380,647) 19,613 (915,234)
Other current assets . . . . . . . . . . . . . . . . . (59,333) (302,313) (131,213)
Accounts payable . . . . . . . . . . . . . . . . . . . 295,941 512,014 560,307
Accrued expenses . . . . . . . . . . . . . . . . . . . 42,498 195,157 571,900
Advance royalties. . . . . . . . . . . . . . . . . . . 0 0 250,000
-------------------------------- --------------
Net cash used in operating activities. . . . . . . . . . (4,031,203) (2,848,426) (35,244,173)
INVESTING ACTIVITIES
Purchase of and deposits on
property, plant and equipment . . . . . . . . . . . . . (360,943) (270,884) (14,822,279)
Purchase of short-term investments . . . . . . . . . . . 0 0 (26,144,302)
Proceeds from sale of property, plant & equipment. . . . 0 0 471,883
Proceeds of maturities of short-term investments . . . . 5,350,885 0 23,898,025
Patents and trademarks . . . . . . . . . . . . . . . . . (58,081) (38,147) (673,509)
-------------------------------- --------------
Net cash used in investing activities. . . . . . . . . . 4,931,861 (309,031) (17,270,182)
FINANCING ACTIVITIES
Proceeds from issuance of stock:
Common Stock . . . . . . . . . . . . . . . . . . . . . 429,168 13,551,189 31,261,343
Preferred Stock. . . . . . . . . . . . . . . . . . . . 0 0 25,458,690
Lease financing of equipment . . . . . . . . . . . . . . 0 0 2,441,650
Security deposits on leases. . . . . . . . . . . . . . . 250,000 0 (40,651)
Proceeds from issuance of notes payable and warrants . . 0 0 1,923,951
Payments on notes payable. . . . . . . . . . . . . . . . 0 0 (1,823,700)
Payments on capital leases . . . . . . . . . . . . . . . 0 0 (2,441,650)
Organization costs . . . . . . . . . . . . . . . . . . . 0 0 (19,420)
-------------------------------- --------------
Net cash (used in) provided by financing activities. . . 679,168 13,551,189 56,760,213
-------------------------------- --------------
Increase (decrease) in cash and cash equivalents . . . . 1,579,826 10,393,732 4,245,858
Cash and cash equivalents at beginning of period . . . . 2,666,032 3,558,743 -
-------------------------------- --------------
Cash and cash equivalents at end of period . . . . . . . $4,245,858 $13,952,475 $4,245,858
-------------------------------- --------------
-------------------------------- --------------
Supplemental schedule of noncash
investing and financing activities:
Note payable exchanged for issuance
of common stock $1,517,500
Common stock issued for note receivable 50,000
See notes to condensed financial statements.
</TABLE>
5
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CIMA LABS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1997 (UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three-month and six-month periods ended
June 30, 1997 are not necessarily indicative of the results that may be expected
for the year ended December 31, 1997. For further information, refer to the
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended December 31, 1996.
NOTE B - INVENTORIES
Inventories are stated at the lower of cost (first in, first out) or fair market
value.
June 30, December 31,
1997 1996
-------- ------------
Raw materials . . . . . . . . . . . . $437,933 $534,587
Work in process . . . . . . . . . . . 75,434 --
Finished products . . . . . . . . . . 401,867 --
-------- ------------
$915,234 $534,587
NOTE C - INITIAL PUBLIC OFFERING
The Company completed its initial public offering ("IPO") of its Common Stock in
August 1994. Outstanding shares of Series A, B, C, D and E Preferred Stock were
automatically converted on a one-for-one basis to shares of Common Stock on the
closing date of August 4, 1994.
NOTE D - NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of common
shares outstanding during the period. Common equivalent shares from stock
options and warrants are excluded from the computation as their effect is
antidilutive. In February 1997, the Financial Accounting Standards Board (FASB)
issued FASB Statement No. 128, "EARNINGS PER SHARE." This Statement replaces
the presentation of primary earnings per share (EPS) with basic EPS and also
requires dual presentation of basic and diluted EPS for entities with complex
capital structures. This Statement is effective for the fiscal year ended
December 31, 1997. For the quarter ended June 30, 1997, there is no difference
between basic earnings per share under Statement No. 128 and primary net loss
per share as reported.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE FOLLOWING
DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. WHEN USED HEREIN, THE WORDS "ANTICIPATE," "EXCEPT," "ESTIMATE"
AND SIMILAR EXPRESSIONS AS THEY RELATE TO THE COMPANY OR ITS MANAGEMENT ARE
INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD
CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THE
SUCCESS OF THE COMPANY IN MANUFACTURING PRODUCTS USING THE COMPANY'S TECHNOLOGY,
THE AVAILABILITY OF ADEQUATE FUNDS FOR THE COMPANY'S OPERATIONS, THE SUCCESS OF
THE COMPANY IN COMMERCIALIZING ITS NEW DRUG DELIVERY PROGRAMS, AND THE COMPANY'S
RELIANCE ON ITS KEY PERSONNEL AND COLLABORATIVE PARTNERS, AS WELL AS THOSE
DISCUSSED IN "BUSINESS RISKS" BELOW.
GENERAL
CIMA, founded in 1986, is a drug delivery company focused primarily on
the development and manufacture of pharmaceutical products based upon its
patented OraSolv-Registered Trademark- technology for marketing by
multinational pharmaceutical companies. OraSolv is an oral dosage
formulation incorporating microencapsulated active drug ingredients into a
tablet which dissolves quickly in the mouth without chewing or water and
which effectively masks the taste of the medication being delivered.
OraSolv's fast-dissolving capability may enable patients in certain age
groups or those with a variety of conditions that limit their ability to
swallow conventional tablets to receive medication in a more convenient oral
dosage form. The Company believes that OraSolv is more convenient than
traditional tablet-based oral dosages as it does not require water to be
ingested, thereby enabling immediate medication at the onset of symptoms. In
addition, OraSolv can provide more accurate administration of doses than
liquid or suspension formulations as no measuring is required. The Company
believes OraSolv's ease of use and effective taste-masking may foster greater
patient compliance with recommended dosage regimens, both for
over-the-counter ("OTC") and prescription products, thereby improving
therapeutic outcomes and reducing costs in the healthcare system.
CIMA's business strategy is to commercialize its OraSolv technology through
collaborations with multi-national pharmaceutical companies with emphasis on
products which command a large market share and/or are in large market segments.
The Company is currently focused on the development and manufacture of OraSolv
products for the OTC market. Product differentiation and brand name identity
are critical to the successful marketing of OTC products. The Company believes
that OraSolv affords pharmaceutical companies a means to significantly
differentiate their products in the competitive OTC marketplace. Because it is
a patented technology, OraSolv affords more enduring product differentiation
than the more traditional approaches of changing product flavor or packaging
innovations, which can be easily replicated. The Company has entered into
agreements with a number of pharmaceutical companies for development,
manufacture and commercialization of OTC and Rx to OTC switch products.
The Company also intends to develop OraSolv products for selected
prescription drug applications. The Company believes that such prescription
OraSolv products might result in improved taste acceptance and ease of
administration, and so enhance patient compliance with the recommended dosage
regimen for such prescription pharmaceuticals. The Company has also initiated
the development of new drug technologies. These technologies include new oral
solid delivery systems, unique sustained-released delivery systems and improved
efficacy delivery systems. The goal is to focus on technologies that improve
efficacy.
7
<PAGE>
At June 30, 1997, the Company had accumulated losses of approximately $
39,344,000. The Company recorded its first commercial sales using the Company's
OraSolv technology in the three month period ending March 31, 1997. Prior to
this the Company's revenues have been from sales using the Company's
AutoLution-Registered Trademark- (a liquid effervescent) technology, license
fees paid by corporate partners in consideration of the transfer of rights under
collaboration agreements, and research and development fees paid by corporate
partners to fund the Company's research and development efforts for products
developed under such agreements. To date, such revenues have been derived
primarily from manufacturing agreements with third parties for liquid
effervescent, other products, and products using OraSolv technology, the latter
generated in the last four months. To a lesser extent revenue has been
generated from research and development fees and licensing arrangements,
primarily in the last five years. The Company is not currently manufacturing
liquid effervescent products, and has not recognized any revenues from such
products since 1995. As noted above, the Company began manufacturing OraSolv
products in the first quarter of 1997, and the Company expects to continue
generating revenue from manufacturing OraSolv products. In addition to revenues
from manufacturing, research and development and licensing, the Company has
funded operations from private and public sales of equity securities, realizing
net proceeds of approximately $25,963,000 from private sales of equity
securities and $16,379,000 and $12,038,000 from the Company's July 1994 initial
public offering and May 1996 public offering of its Common Stock, respectively.
The total shares outstanding at June 30, 1997 were 9,546,128.
The Company's ability to generate revenues is dependent upon its ability to
develop new, innovative drug delivery technologies and to enter into and be
successful in collaborative arrangements with pharmaceutical and other
healthcare companies for the development and manufacture of OraSolv products to
be marketed by these corporate partners. The Company is highly dependent upon
the efforts of the corporate partners to successfully market OraSolv products.
Although the Company believes these partners will have an economic motivation to
market these products vigorously, the amount and timing of resources to be
devoted to marketing are not within the control of the Company. These partners
independently could make material marketing and other commercialization
decisions which could adversely affect the Company's future revenues. Moreover,
certain of the Company's products are seasonal in nature and the Company's
revenues could vary materially from quarter to quarter depending on which of
such products, if any, are then being marketed.
The Company expects that losses will continue through at least 1998, even
though CIMA expects to continue generating sales revenue from manufacturing
OraSolv products in 1997 and 1998. Research and development expenses will
increase as CIMA investigates new drug delivery technologies, including the
possibility of utilizing microencapsulation for the development of controlled
release systems, as well as sublingual systems which could deliver faster
absorption of drug ingredients. Personnel costs for research and development
are expected to remain relatively stable as the majority of the necessary
personnel for this function has already been hired. Personnel costs for
administration may decrease slightly in an effort to reduce corporate overhead.
As CIMA continues production for its first commercial launch of a product
incorporating its OraSolv technology, additional operations personnel may need
to be added to meet a corporate partner's order. Manufacturing infrastructure
costs should not need to increase materially as there is capacity to meet
short-term production needs.
In the fourth quarter of 1996, the Company signed a Supply Agreement with
Bristol-Myers Squibb, a major pharmaceutical company. The Agreement covers
full-scale production of an over-the-counter product in CIMA's OraSolv dosage
form. CIMA began commercial production for this product during the first
quarter of 1997. The product was launched in May 1997. In the second quarter
of 1997, the Company expanded its relationship with Bristol-Myers Squibb and
signed a global non-exclusive license agreement which covers multiple products.
8
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In recent years the Company has actively marketed its OraSolv technology to
the pharmaceutical industry. The Company is presently engaged in product
development and manufacturing scale-up efforts and negotiations with several
different pharmaceutical companies regarding a variety of potential products.
There can be no assurance, however, that these activities or discussions will
result in license agreements or the marketing of products using the OraSolv
technology. The Company believes that mergers and acquisitions in the
pharmaceutical industry in recent years, together with changes in product plans
by potential partners, may have had an adverse effect on the progress of certain
projects, and the eventual marketing of products incorporating the Company's
technology.
RESULTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1996 AND 1997
The Company's results of operations for the three- and six-month periods
ended June 30, 1997 reflect the increased emphasis on the manufacturing of an
OraSolv product for a commercial launch by one of our corporate partners in
1997. Net product sales increased to $641,000 and $833,000 in the three- and
six-month periods ended June 30, 1997 from zero in the first six months in 1996.
All sales in 1997 relate to the first commercial sales of a product using the
OraSolv technology, which began in March 1997. Research and development fees
and licensing revenues were $382,000 and $458,000 for the three- and six-month
periods ended June 30, 1997, respectively, compared to $275,000 and $667,000,
respectively, in the comparable periods of 1996. These fees and revenues
reflect the signing of license option and development agreements with
multinational pharmaceutical companies that provide for licensing fees,
milestone payments, royalties and manufacturing fees. So long as the Company
has relatively few agreements with corporate partners, research and development
fees will tend to fluctuate on a quarter to quarter basis.
Cost of goods sold increased to $987,000 and $1,568,000 in the three- and
six-month periods ended June 30, 1997, respectively, from zero in the first six
months of 1996. Costs in cost of goods sold include the manufacturing
infrastructure costs necessary to meet future anticipated sales levels. These
costs caused the cost of goods sold to exceed the net sales price for the
product in the first six months of 1997. The Company anticipates this situation
will not improve until production increases, and it approaches full
manufacturing capacity. In 1996, these costs were classified as product
development expenses. Research and development expenses decreased to $754,000
and $1,985,000 in the three- and six-month periods ended June 30, 1997,
respectively, from $1,299,000 and $2,675,000 in the three- and six-month periods
ended June 30, 1996, respectively. After accounting for the reclassification of
manufacturing infrastructure costs, as noted above, research and development
expenses actually increased on a like-to-like comparison by approximately
$30,000, and $370,000 for the three- and six-month periods ended June 30, 1997,
respectively. The increase, which was mostly in the first three-months of 1997,
was due to expenses related to the hiring of the new Vice President of Research
and Development, additional efforts on the development of future OraSolv
products, and product development expenses related to the transition to
commercial production. Selling, general and administrative expenses increased
to $999,000 and $1,888,000 in the three- and six-month periods ended June 30,
1997, respectively, from $797,000 and $1,581,000 for the same periods in 1996,
respectively. The increase represents spending on consumer marketing studies to
support OraSolv, and general operating costs. Net interest and other income
increased to $188,000, and $318,000, respectively, in the three- and six-month
periods ended June 30, 1997 from $131,000 and $165,000, respectively, for the
same periods in 1996. Other income in the three-month period ended June 30,
1997 includes a $120,000 state sales and use tax refund for previously purchased
fixed assets. The balance is net interest income which is dependent on the cash
position of the Company.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations to date primarily through private
and public sales of its equity securities and revenues from manufacturing
agreements. Through June 30, 1997, CIMA had received net offering proceeds from
such private and public sales of approximately $57,044,000 and had net sales
from manufacturing agreements of approximately $14,584,000. Cash, cash
equivalents and short-term investments were approximately $6,492,000 at June 30,
1997.
The Company's long-term capital requirements will depend upon numerous
factors, including the status of the Company's collaborative arrangements, the
progress of the Company's research and development programs and receipt of
revenues from the collaborative agreements, and sales of the Company's products.
The Company believes that its currently available funds, including any license
fees and sales revenue anticipated to be received in the future, will meet its
needs through 1997. Thereafter, or sooner if conditions make it necessary, the
Company will need to raise additional funds through public or private
financings, including equity financing which may be dilutive to stockholders.
There can be no assurance that the Company will be able to raise additional
funds if its capital resources are exhausted, or that funds will be available on
terms attractive to the Company.
The Company has not generated taxable income through June 1997. At
December 31, 1996, the net operating losses available to offset taxable income
were approximately $35,247,000. Because the Company has experienced ownership
changes, pursuant to Internal Revenue Code regulations, future utilization of
the operating loss carryforwards will be limited in any one fiscal year. The
carryforwards expire beginning in 2001. As a result of the annual limitation, a
portion of these carryforwards may expire before ultimately becoming available
to reduce potential federal income tax liabilities.
BUSINESS RISKS
The Company has recently initiated commercial production of its first
product in CIMA's OraSolv dosage form, and must be evaluated in light of the
uncertainties and complications present for any such company and, in particular,
a company in the pharmaceutical industry. The Company has accumulated aggregate
net losses from inception through June 30, 1997 of $39,344,000. Losses have
resulted principally from costs incurred in research and development of the
Company's technologies and from general and administrative costs. These costs
have exceeded Company's revenues, which until recently have been derived
primarily from the manufacturing of AutoLution (a liquid effervescent) and other
non-OraSolv products for which the Company no longer manufactures. In more
recent years, the Company has also received revenue from its commercial partners
for product development and licensing of OraSolv, and to a lesser extent,
OraSolv for which commercial production commenced in the first quarter of 1997
for a commercial partner. The Company expects to continue to incur losses at
least through 1998. There can be no assurance that the Company will ever
generate substantial revenues or achieve profitability.
The Company is dependent upon its ability to enter into and perform under
collaborative arrangements with pharmaceutical companies for the development and
commercialization of its products. Failure of these partners to market the
Company's products successfully could have a material adverse effect on the
Company's financial condition and results of operations. The Company's revenues
are also dependent upon ultimate consumer acceptance of the OraSolv drug
delivery system as an alternative to conventional oral dosage forms. The
Company expects that OraSolv products will be priced slightly higher than
conventional swallow tablets. Although the Company believes that initial
consumer research has been encouraging, there can be no assurance that market
acceptance for the Company's OraSolv products will ever develop or be sustained.
The Company began manufacturing OraSolv products in commercial quantities
in February 1997. Commercial sales have been made and revenue has been
recognized from sales of an OraSolv product. To achieve future desired levels
of production, the Company will be required to increase its manufacturing
capabilities. There can be no
10
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assurance that manufacturing can be scaled-up in a timely manner to allow
production in sufficient quantities to meet the needs of the Company's
corporate partners.
The Company intends to increase its research and development expenditures
to enhance its current technologies, and to pursue internal proprietary drug
delivery technologies. Even if these technologies appear promising during
various stages of development, they may not reach the commercialization stage
for a number of reasons. Such reasons include the possibilities of not finding
a partner to market the product, the product being difficult to manufacture on a
large scale or of being uneconomical to market.
The foregoing risks reflect the Company's stage of development and the
nature of the Company's industry and products. Also inherent in the Company's
stage of development and the nature of the Company's industry is a range of
additional risks, including competition, uncertainties regarding the effects of
healthcare reform on the pharmaceutical industry, including pressures exerted on
the prices charged for pharmaceutical products, and uncertainties regarding
protection of patents and proprietary rights.
11
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CIMA LABS INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None
ITEM 2. CHANGES IN SECURITIES.
On March 13, 1997, the Board of Directors of the Company
declared a dividend of one preferred share purchase right (a "Right")
for each outstanding share of the Company's Common Stock (the "Common
Shares"). The dividend was effective as of April 10, 1997 (the
"Record Date") and the Rights also attached to new Common Shares
issued after the Record Date. Each Right entitles the registered
holder to purchase from the Company one one-hundredth of a share of
Series A Junior Participating Preferred Stock, par value $.01 per
share (the "Preferred Shares"), subject to adjustment. Each Preferred
Share is designed to be the economic equivalent of 100 Common Shares.
The description and terms of the Rights are set forth in a Rights
Agreement dated as of March 14, 1997 between the Company and Norwest
Bank Minnesota, N.A., which is filed as an Exhibit to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended March 31,
1997.
Initially, the Rights are evidenced by the stock certificates
representing Common Shares then outstanding. Upon the occurrence of
certain events resulting in, or which are intended to result in, a
person or group of persons (an "Acquiring Person") acquiring
beneficial ownership of 15% or more of the outstanding Common Shares,
(i) the Rights will be evidenced by Rights Certificates and (ii) the
Rights will become exercisable. In the event that any person or group
of affiliated or associated persons becomes an Acquiring Person,
proper provision shall be made so that each holder of a Right, other
than Rights beneficially owned by the Acquiring Person (which will
thereafter be void), will thereafter have the right to receive upon
exercise that number of Common Shares having a market value of two
times the exercise price of the Right. In the event that the Company
is acquired in a merger or other business combination transaction or
50% or more of its consolidated assets or earning power are sold,
proper provision will be made so that each holder of a Right will
thereafter have the right to receive, upon the exercise thereof at the
then current exercise price of the Right, that number of shares of
common stock of the acquiring company which at the time of such
transaction will have a market value of two times the exercise price
of the Right.
The Rights are subject to certain redemption provisions (at $.01
per Right) and exchange provisions (at a rate of one Common Share or
one-hundredth of a Preferred Share per Right), in each case subject to
adjustment, which are exercisable at the sole discretion of the Board
of Directors. In addition, the terms of the Rights may be amended by
the Board of Directors of the Company without the consent of the
holders of the Rights, except that from and after such time as any
person or group of affiliated or associated persons becomes an
Acquiring Person no such amendment may adversely affect the interests
of the holders of the Rights.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On May 14, 1997, the Company held its annual meeting of stockholders,
at which meeting the stockholders took the following actions:
(i) elected John M. Siebert, Ph.D., Terrence W. Glarner, David B.
Musket, Steven B. Ratoff, Joseph R. Robinson, Ph.D., and Jerry A.
Weisbach, Ph.D., to serve as directors of the Company for the ensuing
year and until their successors are elected;
(ii) rejected the amendment and restatement of the Company's Equity
Incentive Plan to increase the aggregate number of shares of Common
Stock authorized for issuance under such plan by 250,000 shares to
2,250,000 shares;
(iii) approved the Company's Directors' Fee Option Grant Program; and
(iv) ratified the selection of Ernst & Young LLP as independent
auditors of the Company for its fiscal year ending December 31, 1997.
Such actions were taken by the following votes:
VOTES FOR VOTES
--------- WITHHELD
--------
Election of Directors:
John M. Siebert, Ph.D. 7,469,119 4,781
Terrence W. Glarner 7,469,119 4,781
David B. Musket 7,469,119 4,781
Steven B. Ratoff 7,469,119 4,781
Joseph R. Robinson, Ph.D. 5,542,446 1,931,454
Jerry A. Weisbach, Ph.D. 7,469,119 4,781
BROKERS
VOTES FOR VOTES AGAINST ABSTENTIONS NON-VOTES
---------- ------------- ----------- ---------
Amendment of Stock Plan 3,675,344 3,733,850 10,461 54,245
Directors' Fee Option
Grant Program 6,812,943 652,003 8,954 0
Ratification of Auditors 7,460,700 7,786 5,414 0
ITEM 5. OTHER INFORMATION.
None
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
Item Description
10.11 Equity Incentive Plan, as amended and restated and
currently in effect.
10.26 Amendment to Supply Agreement between Bristol-Myers
Squibb Company and the Company, dated June 26, 1997.
(1)
10.27 License Agreement between Bristol-Myers Squibb Company
and the Company, dated June 26, 1997. (1)
27 Financial Data Schedule.
____________
(1) Confidential treatment has been requested for this exhibit.
(b) The Company filed no reports on Form 8-K during the quarter ended
June 30, 1997.
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CIMA LABS INC.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
CIMA LABS INC.
Date: August 7, 1997 By: /s/ John M. Siebert
- ----------------------- --------------------------------
John M. Siebert
President and Chief Executive Officer
Date: August 7, 1997 By: /s/ Keith P. Salenger
- ----------------------- --------------------------------
Keith P. Salenger
Vice President, Finance and
Chief Financial Officer
(Principal Financial and Accounting
Officer)
15
<PAGE>
EXHIBIT INDEX
NO. OF EXHIBIT DESCRIPTION
- -------------- -----------
10.11 Equity Incentive Plan, as amended and restated and currently
in effect.
10.26 Amendment to Supply Agreement between Bristol-Myers Squibb
Company and the Company, dated June 26, 1997. (1)
10.27 License Agreement between Bristol-Myers Squibb Company and
the Company, dated June 26, 1997. (1)
27 Financial Data Schedule.
____________
(1) Confidential treatment has been requested for this exhibit.
16
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CIMA LABS INC.
EQUITY INCENTIVE PLAN
AMENDED AND RESTATED MARCH 25, 1996
FURTHER AMENDED, EFFECTIVE SEPTEMBER 24, 1996
INTRODUCTION.
In 1987, the Board of Directors adopted the CIMA LABS, INC. Stock Option
and Stock Award Plan, which was later amended and restated. On March 25, 1996,
the Board of Directors adopted a subsequent amendment and restatement and
retitled this the Equity Incentive Plan.
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which selected
Employees and Directors of and Consultants to the Company, and its Affiliates,
may be given an opportunity to benefit from increases in value of the stock of
the Company through the granting of (i) Incentive Stock Options, (ii)
Nonstatutory Stock Options, (iii) stock bonuses, (iv) rights to purchase
restricted stock, and (v) stock appreciation rights, all as defined below.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees or Directors of or Consultants to the Company or
its Affiliates, to secure and retain the services of new Employees, Directors
and Consultants, and to provide incentives for such persons to exert maximum
efforts for the success of the Company and its Affiliates.
(c) The Company intends that the Stock Awards issued under the Plan shall,
in the discretion of the Board or any Committee to which responsibility for
administration of the Plan has been delegated pursuant to subsection 3(c), be
either (i) Options granted pursuant to Section 6 hereof, including Incentive
Stock Options and Nonstatutory Stock Options, (ii) stock bonuses or rights to
purchase restricted stock granted pursuant to Section 7 hereof, or (iii) stock
appreciation rights granted pursuant to Section 8 hereof. All Options shall be
separately designated Incentive Stock Options or Nonstatutory Stock Options at
the time of grant, and in such form as issued pursuant to Section 6, and a
separate certificate or certificates will be issued for shares purchased on
exercise of each type of Option.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in accordance
with subsection 3(c) of the Plan.
(e) "COMPANY" means CIMA LABS INC., a Delaware corporation.
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(f) "CONCURRENT STOCK APPRECIATION RIGHT" or "CONCURRENT RIGHT" means a
right granted pursuant to subsection 8(b)(2) of the Plan.
(g) "CONSULTANT" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated for
such services, provided that the term "Consultant" shall not include Directors
who are paid only a director's fee by the Company or who are not compensated by
the Company for their services as Directors.
(h) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means the
employment or relationship as a Director or Consultant is not interrupted or
terminated. The Board or the chief executive officer of the Company, in that
party's sole discretion, may determine whether Continuous Status as an Employee,
Director or Consultant shall be considered interrupted in the case of: (i) any
leave of absence approved by the Board or chief executive officer of the
Company, including sick leave, military leave, or any other personal leave; or
(ii) transfers between locations of the Company or between the Company,
Affiliates or their successors.
(i) "COVERED EMPLOYEE" means the chief executive officer and the four (4)
other highest compensated officers of the Company for whom total compensation is
required to be reported to shareholders under the Exchange Act, as determined
for purposes of Section 162(m) of the Code.
(j) "DIRECTOR" means a member of the Board.
(k) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(m) "FAIR MARKET VALUE" means, as of any date, the value of the common
stock of the Company determined as follows:
(1) If the common stock is listed on any established stock exchange
or a national market system, including without limitation the Nasdaq National
Market, the Fair Market Value of a share of common stock shall be the closing
sales price for such stock (or the closing bid, if no sales were reported) as
quoted on such system or exchange (or the exchange with the greatest volume of
trading in common stock) on the last market trading day prior to the day of
determination, as reported in the Wall Street Journal or such other source as
the Board deems reliable;
(2) If the common stock is quoted on the Nasdaq Stock Market (but not
on the National Market thereof) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a share of common stock shall be the mean between the bid and asked prices for
the common stock on the last market trading day prior to the day of
determination, as reported in the Wall Street Journal or such other source as
the Board deems reliable;
(3) In the absence of an established market for the common stock, the
Fair Market Value shall be determined in good faith by the Board.
(n) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
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(o) "INDEPENDENT STOCK APPRECIATION RIGHT" or "INDEPENDENT RIGHT" means a
right granted pursuant to subsection 8(b)(3) of the Plan.
(p) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
of 1933 ("Regulation S-K")), does not possess an interest in any other
transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K, and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(q) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as
an Incentive Stock Option.
(r) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(s) "OPTION" means a stock option granted pursuant to the Plan.
(t) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option grant.
Each Option Agreement shall be subject to the terms and conditions of the Plan.
(u) "OPTIONEE" means an Employee, Director or Consultant who holds an
outstanding Option.
(v) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(w) "PLAN" means this CIMA LABS INC. Equity Incentive Plan.
(x) "RULE 16B-3" means Rule 16b-3 of the Exchange Act or any successor to
Rule 16b-3, as in effect with respect to the Company when discretion is being
exercised with respect to the Plan.
(y) "STOCK APPRECIATION RIGHT" means any of the various types of rights
which may be granted under Section 8 of the Plan.
(z) "STOCK AWARD" means any right granted under the Plan, including any
Option, any stock bonus, any right to purchase restricted stock, and any Stock
Appreciation Right.
(aa) "STOCK AWARD AGREEMENT" means a written agreement between the Company
and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to
the terms and conditions of the Plan.
19
<PAGE>
(bb) "TANDEM STOCK APPRECIATION RIGHT" or "TANDEM RIGHT" means a right
granted pursuant to subsection 8(b)(1) of the Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the Board
delegates administration to a Committee, as provided in subsection 3(c).
(b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(1) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; whether a Stock Award will be an Incentive Stock Option, a
Nonstatutory Stock Option, a stock bonus, a right to purchase restricted stock,
a Stock Appreciation Right, or a combination of the foregoing; the provisions of
each Stock Award granted (which need not be identical), including the time or
times when a person shall be permitted to receive stock pursuant to a Stock
Award; whether a person shall be permitted to receive stock upon exercise of an
Independent Stock Appreciation Right; and the number of shares with respect to
which a Stock Award shall be granted to each such person.
(2) To construe and interpret the Plan and Stock Awards granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(3) To amend the Plan or a Stock Award as provided in Section 13.
(4) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.
(c) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members (the "Committee"), all of the members
of which Committee may be, in the discretion of the Board, Non-Employee
Directors and/or Outside Directors. If administration is delegated to a
Committee, the Committee shall have, in connection with the administration of
the Plan, the powers theretofore possessed by the Board, including the power to
delegate to a subcommittee of two (2) or more Outside Directors any of the
administrative powers the Committee is authorized to exercise (and references in
this Plan to the Board shall thereafter be to the Committee or such
subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan. Notwithstanding anything in this Section 3 to the
contrary, at any time the Board or the Committee may delegate to a committee of
one or more members of the Board the authority to grant Stock Awards to eligible
persons who (1) are not then subject to Section 16 of the Exchange Act and/or
(2) are either (i) not then Covered Employees and are not expected to be Covered
Employees at the time of recognition of income resulting from such Stock Award,
or (ii) not persons with respect to whom the Company wishes to avoid the
application of Section 162(m) of the Code.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 12 relating to adjustments upon
changes in stock, the stock that may be issued pursuant to Stock Awards shall
not exceed in the aggregate Two Million (2,000,000) shares of the Company's
common stock. If any Stock Award shall for any reason expire or otherwise
terminate, in whole or in part, without having been exercised in full, the stock
not acquired under such Stock Award shall revert to and again
20
<PAGE>
become available for issuance under the Plan. Shares subject to Stock
Appreciation Rights exercised in accordance with Section 8 of the Plan shall
not be available for subsequent issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) Incentive Stock Options and Stock Appreciation Rights appurtenant
thereto may be granted only to Employees. Stock Awards other than Incentive
Stock Options and Stock Appreciation Rights appurtenant thereto may be granted
only to Employees, Directors or Consultants.
(b) No person shall be eligible for the grant of an Incentive Stock Option
or an award to purchase restricted stock if, at the time of grant, such person
owns (or is deemed to own pursuant to Section 424(d) of the Code) stock
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or of any of its Affiliates unless the exercise
price of such Incentive Stock Option is at least one hundred ten percent (110%)
of the Fair Market Value of such stock at the date of grant and the Incentive
Stock Option is not exercisable after the expiration of five (5) years from the
date of grant.
(c) Subject to the provisions of Section 12 relating to adjustments upon
changes in stock, no person shall be eligible to be granted Options and Stock
Appreciation Rights covering more than five hundred thousand (500,000) shares of
the Company's common stock in any three (3) calendar year period.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of ten (10)
years from the date it was granted.
(b) PRICE. The exercise price of each Incentive Stock Option shall be not
less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted; the exercise price of
each Nonstatutory Stock Option shall be determined by the Board.
Notwithstanding the foregoing, an Option (whether an Incentive Stock Option or a
Nonstatutory Stock Option) may be granted with an exercise price lower than that
set forth in the preceding sentence or determined by the Board if such Option is
granted pursuant to an assumption or substitution for another option in a manner
satisfying the provisions of Section 424(a) of the Code.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board or the Committee, at the time of the grant of the
Option, (A) by delivery to the Company of other common stock of the Company,
(B) according to a deferred payment or other arrangement (which may include,
without limiting the generality of the foregoing, the use of other common stock
of the Company) with the person to whom the Option is granted or to whom the
Option is transferred pursuant to subsection 6(d), or (C) in any other form of
legal consideration that may be acceptable to the Board.
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In the case of any deferred payment arrangement, interest shall be payable
at least annually and shall be charged at the minimum rate of interest necessary
to avoid the treatment as interest, under any applicable provisions of the Code,
of any amounts other than amounts stated to be interest under the deferred
payment arrangement.
(d) TRANSFERABILITY. An Incentive Stock Option shall not be transferable
except by will or by the laws of descent and distribution, and shall be
exercisable during the lifetime of the person to whom the Option is granted only
by such person. A Nonstatutory Stock Option shall not be transferable, except
by the Optionee upon such terms and conditions as are set forth in the Option
Agreement for such Nonstatutory Stock Option, as the Board or the Committee
shall determine in its discretion. Notwithstanding the foregoing, the person to
whom the Option is granted may, by delivering written notice to the Company, in
a form satisfactory to the Company, designate a third party who, in the event of
the death of the Optionee, shall thereafter be entitled to exercise the Option.
(e) VESTING. The total number of shares of stock subject to an Option
may, but need not, be allotted in periodic installments (which may, but need
not, be equal). The Option Agreement may provide that from time to time during
each of such installment periods, the Option may become exercisable ("vest")
with respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such period
and/or any prior period as to which the Option became vested but was not fully
exercised. The Option may be subject to such other terms and conditions on the
time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem appropriate. The provisions of this
subsection 6(e) are subject to any Option provisions governing the minimum
number of shares as to which an Option may be exercised.
(f) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR CONSULTANT.
In the event an Optionee's Continuous Status as an Employee, Director or
Consultant terminates (other than upon the Optionee's death or disability), the
Optionee may exercise his or her Option (to the extent that the Optionee was
entitled to exercise it at the date of termination) but only within such period
of time ending on the earlier of (i) the date three (3) months after the
termination of the Optionee's Continuous Status as an Employee, Director or
Consultant (or such longer or shorter period specified in the Option Agreement),
or (ii) the expiration of the term of the Option as set forth in the Option
Agreement. If, after termination, the Optionee does not exercise his or her
Option within the time specified in the Option Agreement, the Option shall
terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.
An Optionee's Option Agreement may also provide that if the exercise of the
Option following the termination of the Optionee's Continuous Status as an
Employee, Director, or Consultant (other than upon the Optionee's death or
disability) would result in liability under Section 16(b) of the Exchange Act,
then the Option shall terminate on the earlier of (i) the expiration of the term
of the Option set forth in the Option Agreement, or (ii) the tenth (10th) day
after the last date on which such exercise would result in such liability under
Section 16(b) of the Exchange Act. Finally, an Optionee's Option Agreement may
also provide that if the exercise of the Option following the termination of the
Optionee's Continuous Status as an Employee, Director or Consultant (other than
upon the Optionee's death or disability) would be prohibited at any time solely
because the issuance of shares would violate the registration requirements under
the Act, then the Option shall terminate on the earlier of (i) the expiration of
the term of the Option set forth in the first paragraph of this subsection 6(f),
or (ii) the expiration of a period of three (3) months after the termination of
the Optionee's Continuous Status as an Employee, Director or Consultant during
which the exercise of the Option would not be in violation of such registration
requirements.
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(g) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous Status
as an Employee, Director or Consultant terminates as a result of the Optionee's
disability, the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it at the date of termination), but only
within such period of time ending on the earlier of (i) the date twelve (12)
months following such termination (or such longer or shorter period specified in
the Option Agreement), or (ii) the expiration of the term of the Option as set
forth in the Option Agreement. If, at the date of termination, the Optionee is
not entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become available
for issuance under the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.
(h) DEATH OF OPTIONEE. In the event of the death of an Optionee during,
or within a period specified in the Option after the termination of, the
Optionee's Continuous Status as an Employee, Director or Consultant, the Option
may be exercised (to the extent the Optionee was entitled to exercise the Option
at the date of death) by the Optionee's estate, by a person who acquired the
right to exercise the Option by bequest or inheritance or by a person designated
to exercise the option upon the Optionee's death pursuant to subsection 6(d),
but only within the period ending on the earlier of (i) the date eighteen (18)
months following the date of death (or such longer or shorter period specified
in the Option Agreement), or (ii) the expiration of the term of such Option as
set forth in the Option Agreement. If, at the time of death, the Optionee was
not entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become available
for issuance under the Plan. If, after death, the Option is not exercised
within the time specified herein, the Option shall terminate, and the shares
covered by such Option shall revert to and again become available for issuance
under the Plan.
(i) RE-LOAD OPTIONS. Without in any way limiting the authority of the
Board or Committee to make or not to make grants of Options hereunder, the Board
or Committee shall have the authority (but not an obligation) to include as part
of any Option Agreement a provision entitling the Optionee to a further Option
(a "Re-Load Option") in the event the Optionee exercises the Option evidenced by
the Option agreement, in whole or in part, by surrendering other shares of
Common Stock in accordance with this Plan and the terms and conditions of the
Option Agreement. Any such Re-Load Option (i) shall be for a number of shares
equal to the number of shares surrendered as part or all of the exercise price
of such Option; (ii) shall have an expiration date which is the same as the
expiration date of the Option the exercise of which gave rise to such Re-Load
Option; and (iii) shall have an exercise price which is equal to one hundred
percent (100%) of the Fair Market Value of the Common Stock subject to the Re-
Load Option on the date of exercise of the original Option. Notwithstanding the
foregoing, a Re-Load Option which is an Incentive Stock Option and which is
granted to a 10% stockholder (as described in subsection 5(b)), shall have an
exercise price which is equal to one hundred ten percent (110%) of the Fair
Market Value of the stock subject to the Re-Load Option on the date of exercise
of the original Option and shall have a term which is no longer than five (5)
years.
Any such Re-Load Option may be an Incentive Stock Option or a Nonstatutory
Stock Option, as the Board or Committee may designate at the time of the grant
of the original Option; PROVIDED, HOWEVER, that the designation of any Re-Load
Option as an Incentive Stock Option shall be subject to the one hundred thousand
dollar ($100,000) annual limitation on exercisability of Incentive Stock Options
described in subsection 12(d) of the Plan and in Section 422(d) of the Code.
There shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option
shall be subject to the availability of sufficient shares under subsection 4(a)
and the limits on the grant of options under subsection 5(c) and shall be
subject to such other terms and conditions as the Board or Committee may
determine which are not inconsistent with the express provisions of the Plan
regarding the terms of Options.
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7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.
Each stock bonus or restricted stock purchase agreement shall be in such
form and shall contain such terms and conditions as the Board or the Committee
shall deem appropriate. The terms and conditions of stock bonus or restricted
stock purchase agreements may change from time to time, and the terms and
conditions of separate agreements need not be identical, but each stock bonus or
restricted stock purchase agreement shall include (through incorporation of
provisions hereof by reference in the agreement or otherwise) the substance of
each of the following provisions as appropriate:
(a) PURCHASE PRICE. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board or Committee shall
determine and designate in such agreement. Notwithstanding the foregoing, the
Board or the Committee may determine that eligible participants in the Plan may
be awarded stock pursuant to a stock bonus agreement in consideration for past
services actually rendered to the Company or for its benefit.
(b) TRANSFERABILITY. No rights under a stock bonus or restricted stock
purchase agreement shall be transferable except by will or the laws of descent
and distribution so long as stock awarded under such agreement remains subject
to the terms of the agreement, except as specifically provided in the applicable
stock bonus or restricted stock purchase agreement.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to a
restricted stock purchase agreement shall be paid either: (i) in cash at the
time of purchase; (ii) at the discretion of the Board or the Committee,
according to a deferred payment or other arrangement with the person to whom the
stock is sold; or (iii) in any other form of legal consideration that may be
acceptable to the Board or the Committee in its discretion. Notwithstanding the
foregoing, the Board or the Committee to which administration of the Plan has
been delegated may award stock pursuant to a stock bonus agreement in
consideration for past services actually rendered to the Company or for its
benefit.
(d) VESTING. Shares of stock sold or awarded under the Plan may, but need
not, be subject to a repurchase option in favor of the Company in accordance
with a vesting schedule to be determined by the Board or the Committee.
(e) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR CONSULTANT.
In the event a Participant's Continuous Status as an Employee, Director or
Consultant terminates, the Company may repurchase or otherwise reacquire,
subject to the limitations described in subsection 7(d), any or all of the
shares of stock held by that person which have not vested as of the date of
termination under the terms of the stock bonus or restricted stock purchase
agreement between the Company and such person.
8. STOCK APPRECIATION RIGHTS.
(a) The Board or Committee shall have full power and authority,
exercisable in its sole discretion, to grant Stock Appreciation Rights under the
Plan to Employees or Directors of or Consultants to, the Company or its
Affiliates. To exercise any outstanding Stock Appreciation Right, the holder
must provide written notice of exercise to the Company in compliance with the
provisions of the Stock Award Agreement evidencing such right. Except as
provided in subsection 5(c), no limitation shall exist on the aggregate amount
of cash payments the Company may make under the Plan in connection with the
exercise of a Stock Appreciation Rights.
(b) Three types of Stock Appreciation Rights shall be authorized for
issuance under the Plan:
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(1) TANDEM STOCK APPRECIATION RIGHTS. Tandem Stock Appreciation
Rights will be granted appurtenant to an Option, and shall, except as
specifically set forth in this Section 8, be subject to the same terms and
conditions applicable to the particular Option grant to which it pertains.
Tandem Stock Appreciation Rights will require the holder to elect between the
exercise of the underlying Option for shares of stock and the surrender, in
whole or in part, of such Option for an appreciation distribution. The
appreciation distribution payable on the exercised Tandem Right shall be in cash
(or, if so provided, in an equivalent number of shares of stock based on Fair
Market Value on the date of the Option surrender) in an amount up to the excess
of (A) the Fair Market Value (on the date of the Option surrender) of the number
of shares of stock covered by that portion of the surrendered Option in which
the Optionee is vested over (B) the aggregate exercise price payable for such
vested shares.
(2) CONCURRENT STOCK APPRECIATION RIGHTS. Concurrent Rights will be
granted appurtenant to an Option and may apply to all or any portion of the
shares of stock subject to the underlying Option and shall, except as
specifically set forth in this Section 8, be subject to the same terms and
conditions applicable to the particular Option grant to which it pertains. A
Concurrent Right shall be exercised automatically at the same time the
underlying Option is exercised with respect to the particular shares of stock to
which the Concurrent Right pertains. The appreciation distribution payable on
an exercised Concurrent Right shall be in cash (or, if so provided, in an
equivalent number of shares of stock based on Fair Market Value on the date of
the exercise of the Concurrent Right) in an amount equal to such portion as
shall be determined by the Board or the Committee at the time of the grant of
the excess of (A) the aggregate Fair Market Value (on the date of the exercise
of the Concurrent Right) of the vested shares of stock purchased under the
underlying Option which have Concurrent Rights appurtenant to them over (B) the
aggregate exercise price paid for such shares.
(3) INDEPENDENT STOCK APPRECIATION RIGHTS. Independent Rights will
be granted independently of any Option and shall, except as specifically set
forth in this Section 8, be subject to the same terms and conditions applicable
to Nonstatutory Stock Options as set forth in Section 6. They shall be
denominated in share equivalents. The appreciation distribution payable on the
exercised Independent Right shall be not greater than an amount equal to the
excess of (A) the aggregate Fair Market Value (on the date of the exercise of
the Independent Right) of a number of shares of Company stock equal to the
number of share equivalents in which the holder is vested under such Independent
Right, and with respect to which the holder is exercising the Independent Right
on such date, over (B) the aggregate Fair Market Value (on the date of the grant
of the Independent Right) of such number of shares of Company stock. The
appreciation distribution payable on the exercised Independent Right shall be in
cash or, if so provided, in an equivalent number of shares of stock based on
Fair Market Value on the date of the exercise of the Independent Right.
9. COVENANTS OF THE COMPANY.
(a) During the terms of the Stock Awards, the Company shall keep available
at all times the number of shares of stock required to satisfy such Stock
Awards.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the Stock Award; provided,
however, that this undertaking shall not require the Company to register under
the Securities Act of 1933, as amended (the "Securities Act") either the Plan,
any Stock Award or any stock issued or issuable pursuant to any such Stock
Award. If, after reasonable efforts, the Company is unable to obtain from any
such regulatory commission or agency the authority which counsel for the Company
deems necessary for the lawful issuance and sale of stock under the Plan, the
Company shall be relieved from any liability for failure to issue and sell stock
upon exercise of such Stock Awards unless and until such authority is obtained.
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10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall constitute
general funds of the Company.
11. MISCELLANEOUS.
(a) The Board shall have the power to accelerate the time at which a Stock
Award may first be exercised or the time during which a Stock Award or any part
thereof will vest pursuant to subsection 6(e), 7(d) or 8(b), notwithstanding the
provisions in the Stock Award stating the time at which it may first be
exercised or the time during which it will vest.
(b) Neither an Employee, Director or Consultant nor any person to whom a
Stock Award is transferred under subsection 6(d), 7(b), or 8(b) shall be deemed
to be the holder of, or to have any of the rights of a holder with respect to,
any shares subject to such Stock Award unless and until such person has
satisfied all requirements for exercise of the Stock Award pursuant to its
terms.
(c) Nothing in the Plan or any instrument executed or Stock Award granted
pursuant thereto shall confer upon any Employee, Director, Consultant or other
holder of Stock Awards any right to continue in the employ of the Company or any
Affiliate (or to continue acting as a Director or Consultant) or shall affect
the right of the Company or any Affiliate to terminate the employment of any
Employee with or without cause the right of the Company's Board of Directors
and/or the Company's shareholders to remove any Director pursuant to the terms
of the Company's By-Laws and the provisions of the Delaware General Corporation
Law, or the right to terminate the relationship of any Consultant pursuant to
the terms of such Consultant's agreement with the Company or Affiliate.
(d) To the extent that the aggregate Fair Market Value (determined at the
time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds one hundred thousand dollars
($100,000), the Options or portions thereof which exceed such limit (according
to the order in which they were granted) shall be treated as Nonstatutory Stock
Options.
(e) The Company may require any person to whom a Stock Award is granted,
or any person to whom a Stock Award is transferred pursuant to subsection 6(d),
7(b) or 8(b), as a condition of exercising or acquiring stock under any Stock
Award, (1) to give written assurances satisfactory to the Company as to such
person's knowledge and experience in financial and business matters and/or to
employ a purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters, and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (2) to
give written assurances satisfactory to the Company stating that such person is
acquiring the stock subject to the Stock Award for such person's own account and
not with any present intention of selling or otherwise distributing the stock.
The foregoing requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the shares upon the
exercise or acquisition of stock under the Stock Award has been registered under
a then currently effective registration statement under the Securities Act, or
(ii) as to any particular requirement, a determination is made by counsel for
the Company that such requirement need not be met in the circumstances under the
then applicable securities laws. The Company may, upon advice of counsel to the
Company, place legends on stock certificates issued under the Plan as such
counsel deems necessary or appropriate in order to comply with applicable
securities laws, including, but not limited to, legends restricting the transfer
of the stock.
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(f) To the extent provided by the terms of a Stock Award Agreement, the
person to whom a Stock Award is granted may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of stock
under a Stock Award by any of the following means or by a combination of such
means: (1) tendering a cash payment; (2) authorizing the Company to withhold
shares from the shares of the common stock otherwise issuable to the participant
as a result of the exercise or acquisition of stock under the Stock Award; or
(3) delivering to the Company owned and unencumbered shares of the common stock
of the Company.
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject to
any Stock Award, without the receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company), the Plan will be appropriately adjusted in the type(s) and maximum
number of securities subject to the Plan pursuant to subsection 4(a) and the
maximum number of securities subject to award to any person during any three (3)
calendar year period pursuant to subsection 5(c), and the outstanding Stock
Awards will be appropriately adjusted in the type(s) and number of securities
and price per share of stock subject to such outstanding Stock Awards. Such
adjustments shall be made by the Board or the Committee, the determination of
which shall be final, binding and conclusive. (The conversion of any
convertible securities of the Company shall not be treated as a "transaction not
involving the receipt of consideration by the Company".)
(b) In the event of: (1) a dissolution, liquidation or sale of
substantially all of the assets of the Company; (2) a merger or consolidation in
which the Company is not the surviving corporation; (3) a reverse merger in
which the Company is the surviving corporation but the shares of the Company's
common stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise; or (4) the acquisition by any person, entity or group within
the meaning of Section 13(d) or 14(d) of the Exchange Act, or any comparable
successor provisions (excluding any employee benefit plan, or related trust,
sponsored or maintained by the Company or any Affiliate of the Company) of the
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act, or comparable successor rule) of securities of the Company
representing at least fifty percent (50%) of the combined voting power entitled
to vote in the election of directors, then to the extent permitted by applicable
law: (i) any surviving or acquiring corporation or an Affiliate of such
surviving or acquiring corporation shall assume any Stock Awards outstanding
under the Plan or shall substitute similar Stock Awards (including a stock award
resulting in the acquisition of the same consideration paid to the stockholders
in the transaction described in this subsection 12(b)) for those outstanding
under the Plan, or (ii) such Stock Awards shall continue in full force and
effect. In the event any surviving or acquiring corporation or its Affiliates
refuse to assume or continue such Stock Awards, or to substitute similar Stock
Awards for those outstanding under the Plan, then, with respect to Stock Awards
held by persons then performing services as Employees, Directors or Consultants,
the time during which such Stock Awards may be exercised shall be accelerated
and the Stock Awards terminated if not exercised after such acceleration and at
or prior to such event.
13. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 12 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
(i) Increase the number of shares reserved for Stock Awards
under the Plan;
27
<PAGE>
(ii) Modify the requirements as to eligibility for participation
in the Plan (to the extent such modification requires stockholder approval in
order for the Plan to satisfy the requirements of Section 422 of the Code); or
(iii) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to satisfy the requirements
of Section 422 of the Code or to comply with the requirements of Rule 16b-3.
(b) The Board may in its sole discretion submit any other amendment to the
Plan for stockholder approval, including, but not limited to, amendments to the
Plan intended to satisfy the requirements of Section 162(m) of the Code and the
regulations promulgated thereunder regarding the exclusion of performance-based
compensation from the limit on corporate deductibility of compensation paid to
certain executive officers.
(c) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide eligible Employees,
Directors or Consultants with the maximum benefits provided or to be provided
under the provisions of the Code and the regulations promulgated thereunder
relating to Incentive Stock Options and/or to bring the Plan and/or Incentive
Stock Options granted under it into compliance therewith.
(d) Rights and obligations under any Stock Award granted before amendment
of the Plan shall not be impaired by any amendment of the Plan unless (i) the
Company requests the consent of the person to whom the Stock Award was granted
and (ii) such person consents in writing.
(e) The Board at any time, and from time to time, may amend the terms of
any one or more Stock Award; provided, however, that the rights and obligations
under any Stock Award shall not be impaired by any such amendment unless (i) the
Company requests the consent of the person to whom the Stock Award was granted
and (ii) such person consents in writing.
14. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on May 31, 2004, which shall be
within ten (10) years from the date the Plan is adopted by the Board or approved
by the stockholders of the Company, whichever is earlier. No Stock Awards may
be granted under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any Stock Award granted while the Plan is
in effect shall not be impaired by suspension or termination of the Plan, except
with the consent of the person to whom the Stock Award was granted.
15. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no Stock
Awards granted under the Plan shall be exercised unless and until the Plan has
been approved by the stockholders of the Company, which approval shall be within
twelve (12) months before or after the date the Plan is adopted by the Board.
28
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*** TEXT OMITTED AND FILED SEPARATELY
CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. Sections 200.80 (B)(4),
200.83 AND 240.24B-2
Bristol-Myers Squibb Company
345 Park Avenue
New York, New York 10154
June 26, 1997
Mr. Jack Khattar
Vice President
Business Development
CIMA LABS, INC.
10,000 Valley View Road
Eden Prairie, MN 55344-9361
RE: AMENDMENT TO THE SUPPLY AGREEMENT, DATED OCTOBER 10, 1996, BY AND AMONG
CIMA LABS, INC. AND BRISTOL-MYERS SQUIBB COMPANY (THE "SUPPLY AGREEMENT")
Dear Jack:
This letter, when signed by both parties, will amend the Base Purchase Prices in
Exhibit A to the above Supply Agreement as follows:
ACTIVE MG. PER BASE PURCHASE PRICE
PRODUCT FLAVOR INGREDIENT TABLET PER CARTON
[...*...] [...*...] [...*...] [...*...] [...*...]
[...*...] [...*...] [...*...] [...*...] [...*...]
This Amendment will be effective as to product shipped and invoiced on or after
the date of final execution hereof.
* CONFIDENTIAL TREATMENT REQUESTED
29
<PAGE>
Each of CIMA and BMS agree that the original Base Purchase Price reflected in
the Supply Agreement included a royalty component and the purpose of this
Amendment is to acknowledge that such royalty is being paid pursuant to the
License Agreement dated the date hereof, between BMS and CIMA (the "License
Agreement"). Accordingly, in the event that the aggregate amount paid by BMS to
CIMA (i) for product purchased pursuant to the Supply Agreement as amended
hereby plus (ii) royalties paid pursuant to the License Agreement on products
purchased from CIMA pursuant to the Supply Agreement as amended hereby is less
than the aggregate BMS would have paid for product purchased pursuant to the
Supply Agreement without this Amendment, BMS shall make a supplemental quarterly
payment to CIMA in the amount of such difference. Notwithstanding the
generality of the foregoing, in computing the amount CIMA would have received
under the Supply Agreement without giving effect to this Amendment, the U.S.
Producer Price Index adjustment mechanism specified in paragraph 3(d) of the
Supply Agreement shall be applied only to the Base Purchase Price as specified
in this Amendment.
To indicate your acceptance of this amendment to the Supply Agreement, please
sign and date your acceptance below. This should be done on both copies of this
Amendment. Please execute both copies of the letter and return one fully
executed copy to Bristol-Myers Products.
BRISTOL-MYERS PRODUCTS
a division of Bristol-Myers
Squibb Company
By: /s/ Louis M. De Amicis
------------------------------
Name: Louis M. De Amicis
------------------------------
Title: Vice President
------------------------------
Date: June 26, 1997
------------------------------
ACCEPTED AND AGREED:
CIMA LABS, INC.
By: /s/ Jack Khattar
------------------------------
Name: Jack Khattar
------------------------------
Title: VP Business Development
------------------------------
Date: June 26, 1997
------------------------------
30
<PAGE>
*** TEXT OMITTED AND FILED SEPARATELY
CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. Sections 200.80(B)(4),
200.83 AND 240.24B-2
LICENSE AGREEMENT
BETWEEN
BRISTOL-MYERS SQUIBB COMPANY
AND
CIMA LABS, INC.
______________
JUNE 26, 1997
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<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I - DEFINED TERMS ............................................... 1
1.1 Defined Terms ........................................... 1
ARTICLE II - GRANT OF LICENSES ......................................... 4
2.1 BMS Licenses ............................................ 4
2.2 License Term ............................................ 4
ARTICLE III - INTELLECTUAL PROPERTY RIGHTS ............................. 4
3.1 Improvements ............................................ 4
3.2 Patent Prosecution and Maintenance ...................... 5
3.3 Third Party Infringers .................................. 5
ARTICLE IV - PAYMENTS ................................................... 6
4.1 Royalty Payments ........................................ 6
4.2 Permissible Royalty Rate ................................ 7
4.3 Payment ................................................. 7
4.4 Reduction in Royalty Due to Payments to Third-Party ..... 7
4.5 Books and Records ....................................... 7
4.6 Exchange Conversion ..................................... 7
4.7 Exchange Control ........................................ 7
4.8 Commencement of Royalty Payments ........................ 8
4.9 Reduction in Royalty Rate ............................... 8
ARTICLE V - ADDITIONAL COVENANTS ........................................ 8
5.1 General ................................................. 8
5.2 Obligations of BMS ...................................... 8
ARTICLE VI - REPRESENTATIONS AND WARRANTIES ............................. 9
6.1 CIMA Representations .................................... 9
6.2 BMS Representations ..................................... 11
6.3 Limitation .............................................. 11
ARTICLE VII - INDEMNIFICATION ........................................... 11
7.1 Losses .................................................. 11
7.2 Indemnification by CIMA ................................. 11
7.3 Indemnification by BMS .................................. 12
7.4 Procedure ............................................... 12
7.5 Survival ................................................ 12
7.6 Limitation .............................................. 13
32
<PAGE>
Table of Contents
(continued)
PAGE
ARTICLE VIII - EVENTS IF FORCE MAJEURE ................................. 13
8.1 Meaning ................................................. 13
8.2 Excused Performance ..................................... 13
8.3 Limitations ............................................. 13
ARTICLE IX - TERM AND TERMINATION .................................... 13
9.1 Termination by BMS ...................................... 13
9.2 Termination Due to a Material Breach .................... 14
9.3 Insolvency .............................................. 14
ARTICLE X - CONFIDENTIALITY ............................................. 14
10.1 Confidential Information ................................ 14
10.2 Non-Disclosure .......................................... 15
10.3 Non-Confidential Information ............................ 15
10.4 Additional Measures ..................................... 15
ARTICLE XI - GENERAL .................................................... 15
11.1 Remedies ................................................ 15
11.2 Assignment .............................................. 15
11.3 Governing Law ........................................... 16
11.4 Notice .................................................. 16
11.5 Waiver .................................................. 17
11.6 Entire Agreement ........................................ 17
11.7 Severability ............................................ 17
11.8 Titles to Sections for Convenience Only ................. 17
11.9 Counterparts ............................................ 17
11.10 Publicity ............................................... 17
11.11 Further Assurances ...................................... 18
11.12 No Third Party Beneficiaries ............................ 18
33
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LICENSE AGREEMENT (this "Agreement"), dated as of June 26, 1997, by and
between CIMA LABS, INC., a corporation organized under the laws of the State of
Delaware and having its principal place of business at 10000 Valley View Road,
Eden Prairie MN 55344-9361 ("CIMA"), and the WORLDWIDE CONSUMER MEDICINES
DIVISION OF BRISTOL-MYERS SQUIBB COMPANY, a corporation organized under the
laws of the State of Delaware having its principal place of business at 345
Park Avenue, New York, New York 10154 ("BMS") .
RECITALS
WHEREAS, CIMA is the owner or licensee of certain patent rights pertaining
to an effervescent, fast-dissolving, oral drug-delivery tablet technology; and
WHEREAS, BMS is interested in obtaining and licensing the rights to make,
have made, use and sell products including such technology.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereby agree as
follows, for themselves and their respective successors and assigns:
ARTICLE I
DEFINED TERMS
1.1 DEFINED TERMS. For purposes of this Agreement, the following terms
shall have the meanings indicated:
1.1.1 "[...*...] MARKET" means indicated, labelled, packaged
and/or marketed other than specifically for the [...*...] Market.
1.1.2 "AFFILIATE" means a company or corporation, more than 50%
of the voting stock of which is owned or controlled, directly, by any party
hereto; any company or corporation directly or indirectly owning or controlling
more than 50% of the voting stock of either party hereto; or any majority-owned
subsidiary of such company or corporation, other than a party hereto.
1.1.3 "AGREEMENT" is defined in the opening paragraph.
1.1.4 "BMS" is defined in the opening paragraph.
1.1.5 "CIMA" is defined in the opening paragraph.
1.1.6 "CONFIDENTIAL INFORMATION" is defined in Section 10.
1.1.6 "DISCLOSER" Is defined in Section 10.1.
1.1.7 "EFFECTIVE DATE" shall be the date specified in the opening
paragraph.
1.1.8 "FORCE MAJEURE" is defined in Section 8.1.
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<PAGE>
1.1.9 "IMPROVEMENTS" means any change, modification or
enhancement to any Licensed Product disclosed in the Licensed Patents as they
existed as of the Effective Date; provided such change, modification or
enhancement is based to a material extent upon the Licensed Patents as they
exist as of the Effective Date.
1.1.10 "IMPROVEMENT CUTOFF DATE" means the earlier to occur of (i)
the date which is [...*...] after the Effective Date or (ii) the end of the
Licensed Term, with respect to each country in the Territory.
1.1.11 "INDEMNITEE" is defined in Section 7.1.
1.1.12 "INDEMNITOR" is defined in Section 7.4.
1.1.13 "INTELLECTUAL PROPERTY" refers collectively to all
proprietary information including, patents, copyrights, trade secrets, trade or
service marks, know-how, test methods, data, studies, reports, process and
manufacturing information, including improvements thereon, marketing strategies
and tactics and all other proprietary rights.
1.1.14 "LICENSED FIELD" means the [...*...] market for sale of any
Licensed Product in the [...*...] Market or the [...*...] Market, as the case
may be, as set forth in Schedule 1.1.17 in each applicable country or region
set forth in Schedule 1.1.17.
1.1.15 "LICENSED PATENTS" means those patents and patent
applications (and any and all patents issued in connection therewith) listed on
Schedule 1.1.16 hereto, and all divisions, continuations, continuations-in-
part, reexaminations, reissues, additions, substitutions. registrations,
confirmations, renewals and patent term extensions thereof, and any foreign
counterparts thereof in the Territory. Licensed Patents shall also include any
additional patent applications and patents which: (i) are owned or controlled
by CIMA so that CIMA has the right to grant licenses without payment or
accounting to others, (ii) have an effective filing date or priority date
before the Improvement Cutoff Date and (iii) claim any Improvement.
1.1.16 "LICENSED PRODUCTS" means a product comprised of an
effervescent agent together with microparticles of either:
(i) where a Licensed Product is listed on Schedule 1.1.17 by
active ingredient, any active ingredient listed for the relevant country or
region in the Territory which, as of the Effective Date, is approved by the
appropriate regulatory agency for sale in the [...*...] market in such country
or region of the Territory; and
(ii) where a Licensed Product is listed on Schedule 1.1.17 by
product category (e.g. "[...*...]"), one or more active ingredients used or
useful in such product category (e.g. [...*...]), provided that, as of the
Effective Date, all such active ingredients are approved by the appropriate
regulatory agency for sale in the [...*...] market in the relevant country or
region of the Territory, coated by a rupturable or non-rupturable coating
material, such product being adapted to dissolve in the mouth of a human being
and to provide a distinct sensation of effervescence on dissolution, the
manufacture, use or sale of which would, but for this Agreement, constitute
infringement of Licensed Patents.
1.1.17 "LICENSE TERM" is defined in Section 2.2.
1.1.18 "LITIGATION" is defined in Section 7.4.
1.1.19 "LOSS" is defined in Section 7.1.
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1.1.20 "MINIMUM ROYALTY PAYMENT AMOUNT" is defined in
Section 4.1.3.
1.1.21 "NET SALES" means the gross proceeds on sales of Licensed
Products to independent customers of BMS who are not its Affiliates or
sublicensees, expressed in U.S. dollars and recorded in accordance with U.S.
generally accepted accounting principles, less (i) [...*...] actually paid or
credited by BMS, (ii) [...*...] paid by BMS, (iii) [...*...] paid or credited
by BMS, (iv) [...*...] paid or credited by BMS, (v) [...*...] paid by BMS on
shipments to customers and (vi) [...*...] days or more during the applicable
reporting period, less such [...*...] days or more which are received or
recovered during such reporting period.
1.1.22 "NOTICE" is defined in Section 7.4.
1.1.23 "[...*...]" means [...*...] use [...*...] for the same from
a physician or other professional (including products offered through [...*...]
distribution channels).
1.1.24 "[...*...] MARKET" means suitable for, and specifically
indicated, labelled, packaged and/or marketed, for use [...*...].
1.1.25 "RECIPIENT" is defined in Section 10.1.
1.1.26 "TERRITORY" shall mean, with respect to each Licensed
Product, all countries (including territories and possessions, unless otherwise
specified) and/or, as the case may be, all countries in any continent or region
specified on Schedule 1.1.17 for such Licensed Product.
ARTICLE II
GRANT OF LICENSES
2.1 BMS LICENSES. CIMA hereby grants to BMS under the Licensed
Patents, the non-exclusive (except as provided below), license and right to
make, have made, use and sell each Licensed Product in the Licensed Field and
in the Territory set forth for such Licensed Product in Schedule 1.1.17.
Such license to BMS shall also include the right to: (i) subject to the
confidentiality provisions of Article X, allow access to any information or
technology relating to the Licensed Products known to BMS by third party
consultants who have been engaged by BMS in connection with the rights
granted to BMS hereunder, (ii) subcontract the manufacture, marketing,
distribution and/or sale of Licensed Products through BMS's normal
distribution channels and (iii) sublicense the right to make, have made, use
and sell Licensed Products in the Licensed Field in the Territory to any
Affiliate of BMS for so long as such entity remains an Affiliate of BMS.
2.1.1 [...*...] EXCLUSIVITY. Notwithstanding anything contained
herein to the contrary, until [...*...], the license granted by Section 2.1
hereof shall be an exclusive license with respect to Licensed Products in the
[...*...] Market in the [...*...] and [...*...] (including any territories or
possessions thereof other than [...*...]).
2.2 LICENSE TERM. The term of the licenses granted hereunder (the
"License Term") with respect to Licensed Patents shall begin upon the date
hereof and shall extend in each country in the Territory until the earlier of
(i) expiration of the last-to-expire of the Licensed Patents in each such
country (ii) an acknowledgement by CIMA of the invalidity of the last
Licensed Patent in effect in such country or (iii) a determination of
invalidity (which cannot be further appealed or reviewed) with respect to the
last Licensed Patent in effect in such country.
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ARTICLE III
INTELLECTUAL PROPERTY RIGHTS
3.1 IMPROVEMENTS.
3.1.1 CIMA IMPROVEMENTS. CIMA shall own all Improvements, as
well as any Intellectual Property rights in and to any Improvements invented
solely by CIMA.
3.1.2 BMS IMPROVEMENTS. BMS shall own all Improvements, as well
as all Intellectual Property rights in and to any Improvements, invented solely
by BMS.
3.2 PATENT PROSECUTION AND MAINTENANCE.
3.2.1 APPLICATION INITIATED BY BMS. If requested by BMS, BMS and
CIMA shall consult from time-to-time with regard to utility of CIMA filing a
patent application with respect to an invention disclosed in the Licensed
Patents or any CIMA Improvements in any country in the Territory in which
patent protection has not previously been obtained or for additional patent
protection in any country in the Territory with any effective Licensed Patents.
Any patents allowed pursuant to an application filed pursuant to this
Section 3.2.1 shall be Licensed Patents for purposes of this Agreement.
3.2.2 APPLICATIONS INITIATED BY CIMA. CIMA shall promptly
deliver to BMS a copy of any filings it has made to obtain patent protection
with respect to the invention disclosed in the Licensed Patents or any
Improvements in any country in the Territory or to obtain additional patent
protection in any country in the Territory in which any Licensed Patents have
been filed.
3.2.3 COMMENT BY BMS. CIMA shall supply BMS with copies of
patent office actions in the [...*...] and [...*...] with respect to filings
made pursuant to this Section 3.2 in sufficient time to enable BMS to comment
on and advise CIMA with respect thereto prior to any response by CIMA. In the
event BMS elects to so comment and advise, BMS shall reimburse CIMA for any
incremental additional out of pocket expenses incurred by CIMA solely as the
result of such commentary or advice.
2.3 THIRD PARTY INFRINGERS.
3.3.1 PROSECUTION BY CIMA. In the event that, in the judgment of
BMS, a third party appears to be infringing one or more Licensed Patents, BMS
shall notify CIMA of the same, and CIMA shall, at its own expense, take
whatever steps in its sole discretion it deems advisable, including, but not
limited to, settlement or the filing of a suit for damages or to enjoin such
sales or offers for sale by such third party. BMS agrees, upon reasonable
notice, to cooperate with and, to the extent deemed necessary or desirable by
CIMA and at CIMA's expense, participate in any suit to enjoin such
infringement.
3.3.2 REDUCTION IN ROYALTY. If (i) a third party is making,
having made, using or selling, in any country in the Territory, any product
that is competitive with a Licensed Product and which infringes any rights
embodied in the Licensed Patents and (ii) the dollar value of sales of such
infringing product in such country constitutes more than [...*...] of sales of
Licensed Products in such country, then subsequent royalties payable to CIMA
with respect to sales of Licensed Products in such country shall be reduced by
[...*...] for as long as such third party continues to make, have made, use or
sell such infringing product in such country and CIMA does not
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diligently seek to enforce its rights by prosecuting an infringement suit in
such country against such third party. Notwithstanding the provisions of
this Section 3.3.2, while CIMA is pursuing the enforcement of the Licensed
Patents by prosecuting an infringement suit, BMS agrees to pay full royalties
to CIMA in accordance with Section 4.1.
ARTICLE IV
PAYMENTS
4.1 ROYALTY PAYMENTS.
4.1.1 ROYALTIES. BMS shall pay CIMA a royalty in the amount set
forth in this Section 4.1 with respect to the aggregate of all "Net Sales" of
Licensed Products sold by BMS or a BMS Affiliate (or any other sublicensee) in
each country in the Territory set forth for such Licensed Product in Schedule
1.1.17 (including Licensed Products purchased from CIMA pursuant to the Supply
Agreement, made and entered into as of the 10th day of October, 1996 by and
between BMS and CIMA). For purposes of this Agreement, Licensed Products shall
be considered "sold" upon the issuance by BMS or its Affiliate (or any
sublicensee), as the case may be of an invoice to a non-Affiliated third party
with respect to such Licensed Products including, without limitation, sales to
any third party distributor in any portion of the Territory in which BMS uses a
distributor to market a Licensed Product. Notwithstanding anything contained
herein to the contrary, samples of Licensed Products distributed without charge
for promotional purposes shall not be considered "sold" for purposes of this
Agreement and no royalty shall be payable in respect thereof.
4.1.2 ROYALTY RATES. The applicable marginal royalty rate shall
be:
[...*...] of annual Net Sales of Licensed
Products not in excess of [...*...];
[...*...] of annual Net Sales of Licensed
Products in excess of [...*...], but not in excess of
[...*...]; and
[...*...] of annual Net Sales of Licensed
Products in excess of [...*...].
4.1.3 MINIMUM ROYALTY AMOUNTS. In each of the years specified
below, the Minimum Royalty Payment Amount payable pursuant to this Section 4.1
shall be the amount specified below with respect to each such year:
Year Minimum Royalty Payment Amount
[...*...] $ [...*...]
[...*...] $ [...*...]
[...*...] $ [...*...]
[...*...] $ [...*...]
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4.1.4 ADVANCE ROYALTY PAYMENT. Simultaneously with the execution
of this Agreement, BMS shall pay CIMA an advance Royalty Payment in the amount
of [...*...]. Any payment amounts due and owing pursuant to Sections 4.1.1,
4.1.2 and 4.1.3 hereof shall be reduced by [...*...] until such time as the
advance Royalty Payment made pursuant to this Section 4.1.4 shall have been
fully recovered.
4.2 PERMISSIBLE ROYALTY RATE. Notwithstanding anything contained herein
to the contrary, if the Royalty Rate specified in this Agreement should
exceed the permissible rate established in any country in the Territory, the
Royalty Rate for Net Sales in such country shall be adjusted to the highest
legally permissible or government-approved rate.
4.3 PAYMENT. BMS shall make the applicable royalty payments required
pursuant to Section 4.1 hereof not later than sixty (60) business days after
the end of each calendar quarter during the License Term.
4.4 REDUCTION IN ROYALTY DUE TO PAYMENTS TO THIRD-PARTY. If, the
manufacture, use or sale of any Licensed Product results in the infringement
of any patent owned or controlled by any third party that dominates any
Licensed Patent (other than U.S. Patent No. 5,225,197) and, solely as a
result thereof, BMS shall be required to pay to such third party any
royalties or other fees, the amount of royalties payable to CIMA pursuant to
Section 4.1 hereof shall be reduced by (i) the amount of BMS's [...*...] and
(ii) [...*...] of the amount of such third party payments. Without limiting
the generality of the foregoing, the reduction specified in the immediately
preceding sentence shall not reduce any quarterly royalty payment by more
than [...*...]; any reduction not given effect due to this limitation shall
be carried forward to succeeding quarters. As used in this Section 4.4 a
third party patent shall be deemed to "dominate" a Licensed Patent only if
BMS cannot practice the rights granted to it by CIMA pursuant to this
Agreement without infringement of such patent.
4.5 BOOKS AND RECORDS. BMS shall maintain accurate books and records
with respect to its Net Sales of Licensed Products and all amounts to be
shared between the parties or reimbursable to BMS by CIMA pursuant to this
Agreement. Upon request, BMS shall permit CIMA or its independent certified
public accountants (at CIMA's sole cost and expense) access, not more than
once each year during the License Term, during regular business hours and
upon reasonable advance prior notice to inspect and copy such records, to the
extent necessary to verify the information contained in royalty reports
provided by BMS to CIMA.
4.6 EXCHANGE CONVERSION. All payments of royalties shall be made in
U.S. dollars. Royalties shall based on Net Sales converted to U.S. dollars
in accordance with internal BMS reporting policies applied on a company-wide
basis.
4.7 EXCHANGE CONTROL. Notwithstanding the foregoing, if applicable
governmental regulations in any country in the Territory prevent prompt
remittances from such country with respect to sales made in that country
(including, without limitation, remittance of royalty payment amounts or
purchase price of Licensed Product), BMS shall have the right, in its sole
discretion to make payment in such country by depositing the amount thereof
in the local currency in an account established by CIMA in a bank or other
depository institution in such country. Any amounts required under the laws
of any governmental authority to be withheld by BMS will be paid by BMS to
such authorities, as appropriate, (for and on behalf of CIMA, if applicable)
and BMS will furnish CIMA with copies of appropriate evidence of payment
thereof.
4.8 COMMENCEMENT OF ROYALTY PAYMENTS. Notwithstanding anything
contained herein to the contrary, no payment shall be required under this
Article IV in respect of Net Sales of any product in any country in the
Territory unless and until a Licensed Patent shall have issued in such
country; and, no amount shall be payable
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pursuant to this Article IV in respect of Net Sales of any product in any
country in the Territory after the last of any Licensed Patents covering such
product shall have expired in such country.
4.9 REDUCTION IN ROYALTY RATE. Notwithstanding anything contained
herein to the contrary, in the event that CIMA shall license to any third
party (not an Affiliate of CIMA) the right to make, have made, use, market or
sell any product substantially identical to any Licensed Product in the same
region or country in the Territory as is Licensed to BMS, but at a royalty
rate that is less than the royalty rates specified in Section 4.1.2 hereof,
the royalty rates specified in Section 4.1.2 shall [...*...]. The provisions
of this Section 4.9(a) shall not be applicable to any transaction or series
of related transactions in which CIMA derives substantial revenue other than
(or in addition to) the receipt of royalties or similar payments (e.g. profit
by CIMA on the manufacture and sale of products to any such third party).
ARTICLE V
ADDITIONAL COVENANTS
5.1 GENERAL. In addition to the agreements, covenants and obligations
contained elsewhere in this Agreement, the parties shall have the additional
obligations contained in this Article V.
5.2 OBLIGATIONS OF BMS. BMS shall have the following obligations:
5.2.1 COMMERCIALIZATION. BMS will use its reasonable efforts to
commercialize or cause to be commercialized the Licensed Products in the
Territory, in a manner consistent with standard industry practices. BMS will
advertise and promote the Licensed Products in a commercially reasonable manner
consistent with industry practices. Notwithstanding anything contained herein
to the contrary, BMS shall have [...*...] of Licensed Products in any country
in the Territory. BMS will provide CIMA written notice of any new launch of
any Licensed Product in any country or region of the Territory within thirty
(30) days following such launch.
5.2.2 MANUFACTURING.
(a) In the event that BMS elects not to manufacture (either
directly or through any Affiliate) any Licensed Product utilizing a formulation
owned or controlled by BMS or any Affiliate of BMS, CIMA shall have the right
to manufacture BMS's requirements of such Licensed Product for sale to BMS;
provided that BMS shall determine that (i) CIMA has the capability to
manufacture the requirements of BMS for such Licensed Product in accordance
with such timing, quantity, quality control and other requirements as BMS, in
its sole discretion, shall deem appropriate and (ii) the proposed terms of sale
(including, without limitation, pricing, packaging and delivery dates), are
acceptable to BMS in its sole discretion.
(b) In the event BMS elects not to manufacture a Licensed
Product as described above, BMS shall notify CIMA thereof. CIMA shall
thereafter have [...*...] to provide BMS with a written proposal containing all
of the material terms pursuant to which CIMA proposes to manufacture such
Licensed Product for sale to BMS. Nothing contained herein shall be construed
to require either BMS or CIMA to negotiate with respect to any such agreement
for a period greater than [...*...]. If CIMA fails to submit a manufacturing
proposal within the [...*...] period specified above, or BMS and CIMA are
unable for any reason to reach an agreement with respect to such manufacture
within the [...*...] period specified above on terms acceptable to BMS in its
sole discretion, BMS may contract with any other party for such manufacture.
5.2.3 PATENT MARKING. BMS shall mark the Licensed Products
sold in the United States with the United States patent numbers of all
applicable Licensed Patents in a manner provided by 35 U.S.C. Section 287, as
CIMA shall specify from time-to-time in written notice provided to BMS. BMS
shall mark all Licensed Products sold in countries outside of the United
States in such manner as to conform with applicable patent laws of such
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country of sale as CIMA shall specify from time-to-time in written notice
provided to BMS. BMS shall provide CIMA with sufficient formulation
information with respect to Licensed Products, sufficiently in advance of
BMS's finalization of applicable packaging and labeling, to enable CIMA to
provide BMS with notice required by this Section 5.2.3.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
6.1 CIMA REPRESENTATIONS. For the purposes of this Section 6.1, "to
the best of CIMA's knowledge" means current or prior actual knowledge of any
of CIMA's officers and/or senior scientists. CIMA hereby represents, warrants
and covenants to BMS as of the Effective Date that:
6.1.1 CIMA is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware and has the
requisite corporate power and authority to carry on its business as now being
conducted and has the requisite corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated hereby.
6.1.2 Neither CIMA nor any of its Affiliates is a party to,
subject to, or bound by any agreement or judgment, award, order writ,
injunction or decree of any court, governmental body or arbitrator which would
prevent the carrying out of this Agreement, and that there is (i) no action,
suit, dispute or governmental, administrative, arbitration or regulatory
proceeding pending or, to CIMA's best knowledge, threatened nor (ii) to CIMA's
best knowledge, any investigation pending or threatened against or relating to
CIMA which, in each case, could prevent CIMA from carrying out its obligations
under this Agreement.
6.1.3 Neither CIMA nor any of its Affiliates is a party to any
material agreement or understanding which would conflict with or be breached by
the execution, delivery or performance of this Agreement by CIMA.
6.1.4 CIMA is the sole and exclusive owner of the Licensed
Patents other than U.S. Patent No. 5,225,197. To the best of CIMA's knowledge,
having undertaken no investigation, SmithKline Beecham is the sole and
exclusive owner of U.S. Patent No. 5,225,197. CIMA has all the necessary
rights and authority to grant the licenses granted pursuant to this Agreement
and extend to BMS immunity from any Losses predicated upon any infringement of
any Licensed Patent and U.S. Patent No. 5,225,197 and its foreign counterparts.
6.1.5 To the best of CIMA's knowledge, the Licensed Patents
(other than U.S. Patent No. 5,225,197) are valid and enforceable and CIMA or,
to the best of CIMA's knowledge, having undertaken no investigation, SmithKline
Beecham, as the case may be, has taken all necessary actions to maintain the
registration thereof.
6.1.6 CIMA has no knowledge of any "prior art" which CIMA
believes would render any of the Licensed Patents invalid in whole or in part.
6.1.7 No consent, approval or authorization of, or filing,
registration or qualification with, any governmental authority or any other
person is required on the part of CIMA in connection with the execution,
delivery and performance of this Agreement.
6.1.8 The patents and patent applications listed on Schedule
1.1.16 hereto are all of the patents or patent applications relating to the
technology described in the Licensed Patents.
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6.1.9 The practice of the inventions and know-how embodied in the
Licensed Patents do not presently (to the best of CIMA's knowledge) infringe
any valid patents or other proprietary rights owned by any third party.
6.1.10 CIMA has no knowledge of any infringement by any third
party of any Licensed Patents, and CIMA is not subject to any outstanding
order, judgment or decree of any court or administrative agency, and each has
not entered into any stipulation or agreement restricting its use of the
technology embodied in the Licensed Patents.
6.1.11 None of the know-how embodied in the Licensed Patents was,
and none of the know-how embodied in any Improvements developed by CIMA, will
be, obtained by CIMA in violation of any contractual or fiduciary obligation to
which CIMA or any of its Affiliates, employees, contractors or agents is or was
a party, or by misappropriation of the trade secrets of any third party.
6.2 BMS REPRESENTATIONS. BMS hereby represents, warrants and covenants
to CIMA that:
6.2.1 BMS is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has full power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby.
6.2.2 Neither BMS nor any of its Affiliates is a party to,
subject to, or bound by any agreement or any judgment, award, order, writ,
injunction or decree of any court, governmental body or arbitrator which could
prevent the carrying out of this Agreement, and that there is (i) no action,
suit, dispute or governmental, administrative, arbitration or regulatory
proceeding pending or, to BMS's best knowledge, threatened nor (ii) to BMS's
best knowledge, any investigation pending or threatened against or relating to
BMS which, in either case, could prevent BMS from carrying out obligations
under this Agreement.
6.2.3 No consent, approval or authorization of, or filing,
registration or qualification with, any governmental authority or any other
person is required on the part of BMS in connection with the execution,
delivery and performance of this Agreement.
6.3 LIMITATION. EXCEPT AS SPECIFICALLY SET FORTH IN THIS AGREEMENT,
CIMA MAKES NO WARRANTIES TO BMS OF ANY KIND CONCERNING THE LICENSED PATENTS
OR LICENSED PRODUCTS, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
ARTICLE VII
INDEMNIFICATION
7.1 LOSSES. For purposes of this Agreement, the terms "Loss" or
"Losses" shall mean each and all of the following items, namely, claims,
losses, liabilities, damages, fines, penalties, costs and expenses
(including, without limitation, interest which may be imposed in connection
therewith), reasonable fees and disbursements of counsel and other experts,
and the cost to the person seeking indemnification (the "Indemnitee") or any
funds expended by reason of the occurrence of any of the events enumerated in
Section 7.2 hereof or Section 7.3 hereof, as the case may be, or incurred in
investigating or attempting to avoid the same or to oppose the imposition
thereof or in enforcing the provisions of this Agreement, without giving
effect to any insurance reimbursement which may inure to the Indemnitee.
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7.2 INDEMNIFICATION BY CIMA. CIMA shall indemnify and hold harmless
BMS, its affiliates, their respective officers, directors, employees, agents
and representatives from and against any and all Losses arising out of or
resulting from: (i) any breach of any of the representations or warranties
made by CIMA in this Agreement; (ii) any failure by CIMA to perform any of
its covenants or agreements contained in this Agreement; and (iii)
misappropriation or infringement of the trade secrets of any third party as
the result of information conveyed by CIMA to BMS or employed by CIMA in
development of the invention described in any of the Licensed Patents.
7.3 INDEMNIFICATION BY BMS. BMS shall indemnify and hold harmless
CIMA, its affiliates, their respective officers, directors, employees, agents
and representatives from and against any and all Losses arising out of or
resulting from: (i) any breach of any of the representations or warranties
made by BMS in this Agreement; (ii) any failure by BMS to perform any of its
covenants or agreements contained in this Agreement and (iii) the making,
manufacture or sale of Licensed Products by BMS or its Affiliates, excluding,
however, Losses arising from any claim of infringement for which BMS is
entitled to indemnification by CIMA pursuant to this Agreement or otherwise.
7.4 PROCEDURE.
(a) In the event that an Indemnitee shall suffer a Loss which is not
the subject of a claim, demand, action, suit, proceeding, arbitration,
investigation or inquiry (each and all of the foregoing items being herein
referred to as "Litigation"), the Indemnitee shall give written notice thereof
to the party from whom such indemnification is being sought (the "Indemnitor").
(b) (i) Promptly after receipt by an Indemnitee of written notice
of the assertion or the commencement of any Litigation with respect to any
matter referred to in Section 7.2 or 7.3 hereof, the Indemnitee shall give
written notice thereof (the "Notice") to the Indemnitor and shall thereafter
keep the Indemnitor reasonably informed with respect thereto, provided that
failure of the Indemnitee to give the Indemnitor prompt notice as provided
herein shall not relieve the Indemnitor of any of its obligations hereunder
unless such failure to give prompt notice results in material prejudice to
Indemnitor. In case any such Litigation is brought against any Indemnitee, the
Indemnitor shall be entitled to assume and control the defense thereof, by
written notice to the Indemnitee within 30 calendar days after receipt of the
Notice of its intention to do so, with counsel reasonably satisfactory to the
Indemnitee at the Indemnitor's own expense. If the Indemnitor shall assume the
defense of such Litigation, it shall not settle such Litigation unless such
settlement includes as an unconditional term thereof the giving by the claimant
or the plaintiff of a release of the Indemnitee, to the reasonable satisfaction
of the Indemnitee, from all liability with respect to such Litigation.
(ii) If the Indemnitor shall fail to notify the Indemnitee of
its desire to assume the defense of any such Litigation within the prescribed
period of time, or shall notify the Indemnitee that it will not assume the
defense of any such Litigation, then the Indemnitee shall be entitled to assume
and control the defense of any such Litigation, in which event it may do so in
such manner as it may deem appropriate, and the Indemnitor shall be bound by
any determinations made in such Litigation or any settlement thereof effected
by the Indemnitee.
7.5 SURVIVAL. The provisions of this Article VII shall survive the
termination of this Agreement, without limitation as to time.
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7.6 LIMITATION. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY
INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, INCLUDING LOSS OF
PROFITS, REVENUE OR USE, INCURRED BY THE OTHER PARTY, WHETHER IN CONTRACT OR
TORT OR BASED ON A WARRANTY, EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES. SOME STATES AND JURISDICTIONS OUTSIDE THE UNITED
STATES DO NOT ALLOW THE LIMITATION OF LIABILITY FOR INCIDENTAL OR
CONSEQUENTIAL DAMAGES, SO THE ABOVE LIMITATION MAY NOT APPLY. BMS
ACKNOWLEDGES THAT THE ALLOCATION OF RISKS AND BENEFITS UNDER THIS AGREEMENT
IS BASED ON AND THE AMOUNTS PAID UNDER THIS AGREEMENT WOULD BE GREATER IN THE
ABSENCE OF, THE LIMITATIONS DESCRIBED ABOVE.
ARTICLE VIII
EVENTS IF FORCE MAJEURE
8.1 MEANING. "Force Majeure" shall mean any cause which is beyond the
reasonable control of the party invoking Force Majeure and which, by the
exercise of reasonable diligence, such party is unable to prevent, including
but not limited to, and whether or not of the same class or kind as, the
following: any law, decree, regulation, order, or request of any governmental
authority (national, state, or regional), nationalization, expropriation,
confiscation, requisition, riot, war, hostilities, public disturbance, act of
the public enemy, act of terrorism, strike, lockout or other labor dispute,
fire, flood, earthquake, storm, tidal wave, explosion, Act of God, accident
of navigation, breakdown or failure of transportation or transportation
facilities.
8.2 EXCUSED PERFORMANCE. If either party is prevented from or delayed
in carrying out any provision of this Agreement by reason of Force Majeure,
the party whose performance is so prevented, delayed, interfered with or
restricted, upon prompt written notice thereof to the other party, shall be
excused from such performance to the extent and during the period of such
prevention, delay, interference or restriction.
8.3 LIMITATIONS. The provisions of this
Article VIII shall not be available to a party if such party fails to use
reasonable diligence to remedy the applicable situation described in Section
8.1 above in an adequate manner and with all reasonable dispatch or if such
applicable situation is caused by such party, except that this Section 8.3
shall not require the settlement of strikes or labor controversies by
acceding to the demand of the opposing party or parties.
ARTICLE IX
TERM AND TERMINATION
9.1 TERMINATION BY BMS. BMS, at its sole discretion, may terminate
this Agreement with respect to one or more Licensed Products and/or with
respect to any or all applicable countries in the Territory at any time, with
or without cause, upon [...*...] written notice.
9.1.1 In the event of the termination of this Agreement by BMS
with respect to all, but not less than all, of the Licensed Products and
Territory pursuant to the terms of this Section 9.1 during any year in which a
Minimum Royalty Payment Amount shall be payable, BMS shall pay CIMA a
termination fee in an amount equal to [...*...] hereof during such year.
Notwithstanding anything contained herein to the contrary, no termination fee
shall be payable pursuant to this Section 9.1.1, in the event of any
termination of this Agreement (i) by BMS pursuant to Section 9.2 or (ii)
pursuant to Section 9.3.
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9.2 TERMINATION DUE TO A MATERIAL BREACH. Either CIMA or BMS may
terminate this Agreement upon a material breach of the terms of this
Agreement by the other, provided that (i) the non-breaching party provides
written notice to the breaching party detailing the nature of the breach; and
(ii) the breaching party fails to remedy the breach within [...*...] calendar
days of receipt of notice from the non-breaching party and, further provided,
that in the event a breach by BMS relates to less than the entire Territory,
CIMA shall have the right to terminate this Agreement only with respect to
such country of the Territory to which such breach relates. Upon the
termination of this Agreement neither party shall have continuing obligations
to the other, except for payment obligations accrued prior to the date of
such termination and as otherwise expressly provided for herein.
9.3 INSOLVENCY. This Agreement may be terminated by either BMS or CIMA
(a) in the event that a case or proceeding shall be commenced and continue
undismissed or unstayed for a period of [...*...] calendar days against the
other (the "Insolvent Party") or such Insolvent Party shall commence a
voluntary case, in either case seeking relief under the bankruptcy laws or
any other law relating to bankruptcy, insolvency, reorganization, winding up
or composition or adjustment of debts, in each case as now or hereafter in
effect, or (b) the Insolvent Party shall apply for, consent to, or fail to
contest, the appointment of a receiver, liquidator, custodian, trustee or the
like for such party or for all or any part of its property, or (c) the
Insolvent Party shall make a general assignment for the benefit of its
creditors, or (d) either party shall fail to, or admit in writing its
inability to, pay, or generally not be paying, its debts as they become due.
9.3.1 In the event of the termination of this Agreement pursuant
to the terms of this Section 9.3, the non-Insolvent Party may, in its sole
discretion, decide whether to terminate this Agreement. If the non-Insolvent
Party terminates this Agreement, the license granted herein shall terminate and
neither party shall have any obligations to the other, except for payment
obligations which had accrued prior to the termination or as otherwise
expressly set forth in this Agreement.
ARTICLE X
CONFIDENTIALITY
10.1 CONFIDENTIAL INFORMATION. Except as provided below, each party to
this Agreement shall keep secret and confidential the information, data and
materials of the others disclosed to it prior to and during the term of this
Agreement (collectively, the "Confidential Information"). In addition, the
Confidential Information shall include the terms and conditions of this
Agreement. For purposes of this Article X, a party or parties receiving
Confidential Information shall be termed the "Recipient" and the party
providing the Confidential Information to the Recipient shall be termed the
"Discloser." The obligations of the parties hereunder shall survive for a
period of [...*...] years following termination or expiration of this
Agreement.
10.2 NON-DISCLOSURE. Recipient shall safeguard and hold confidential
the Confidential Information with the same degree of care (but not less than
a reasonable standard of care) it customarily employs with its own
proprietary information, and shall not cause or permit the disclosure to, or
use by, any person of such information, except as expressly permitted in
writing by the Discloser or as specifically permitted in this Section 10.2.
Recipient shall limit disclosure of the Discloser's Confidential Information
to those of its officers, employees, agents and representatives who shall
have a need to know such information and have, directly or indirectly, agreed
to safeguard and maintain such Confidential Information of the other and not
to disclose or use such Confidential Information of the other.
45
<PAGE>
10.3 NON-CONFIDENTIAL INFORMATION. The obligations of this Article X
shall not apply to information that: (a) is publicly known prior to or after
disclosure hereunder other than through acts or omissions attributable to the
Recipient or its employees or representatives; (b) as demonstrated by prior
written records, is already known to Recipient or any of its Affiliates at
the time of disclosure hereunder; (c) is disclosed in good faith to Recipient
or any of its Affiliates (without obligation as to confidentiality) by a
third party having a lawful right to do so; (d) is independently developed by
Recipient or any of its Affiliates which independent development can be
documented by Recipient; (e) is required to be disclosed pursuant to a court
order, or order of other governmental authority; or (f) is disclosed
verbally, unless such information is reduced to writing and identified as
Confidential Information within 30 days of its initial disclosure.
10.4 ADDITIONAL MEASURES. Recipient shall take such actions as
Discloser may reasonably request from time to time to safeguard the
confidentiality of any information subject to the terms of this Article X.
ARTICLE X
GENERAL
11.1 REMEDIES. Each of the parties hereto acknowledges and agrees that
in the event of a breach or threatened breach of Sections 2.1 and 10 of this
Agreement, the other party has no adequate remedy at law and, accordingly
shall be entitled to injunctive and other equitable remedies against such
breach or threatened breach in addition to any remedy it might have at law or
in equity.
11.2 ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective assigns and successors in
interest; provided, however, that no party shall assign or otherwise transfer
its interest or any part thereof under this Agreement to any other person or
entity without the written consent of the other parties, which consent shall
not be unreasonably withheld, except (a) in connection with the transfer of
all or substantially all of the assets of the transferring party or the
transfer of the line of business of the transferring party through which
Licensed Products are sold, to any other person or entity, whether by means
of a merger, asset or stock sale or otherwise, or (b) to a wholly-owned
subsidiary or Affiliate, provided that the transferring party shall guarantee
its transferee-subsidiary's or transferee-Affiliate's performance and
compliance hereunder and shall notify the other party in writing of such
transfer.
11.3 GOVERNING LAW. The validity, interpretation and construction of
this Agreement shall be governed by the laws of the State of New York. THE
PARTIES ALSO HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING TO WHICH
THEY ARE BOTH PARTIES, INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY
WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT. Each of the
parties agrees that, prior to initiating litigation in connection with any
dispute arising under this agreement or the subject matter hereof, such
parties shall meet to attempt to negotiate resolution of any such dispute.
46
<PAGE>
11.4 NOTICE. All notices required or permitted hereunder shall be in
writing and shall be sufficiently given if: (a) hand delivered (in which case
the notice shall be effective upon delivery); (b) telecopied, provided that
in such case a copy of such notice shall be concurrently sent by registered
or certified mail, return receipt requested, postage prepaid (in which case
the notice shall be effective two calendar days following dispatch); (c)
delivered by Express Mail, FedEx or other nationally recognized overnight
courier service (in which case the notice shall be effective one business day
following dispatch); or (d) delivered or mailed by registered or certified
mail, return receipt requested, postage prepaid (in which case the notice
shall be effective three calendar days following dispatch), to the parties at
the following addresses and/or telecopier numbers, or to such other address
or number as a party shall specify by written notice to the others in
accordance with this Section.
If to CIMA:
CIMA Labs, Inc.
10000 Valley View Road
Eden Prairie, MN 55344-9361
Jack Khattar Vice President Business Development
Telecopier No.: (612) 947-8770
with a copy to:
Barbara A. Kosacz, Esq.
Cooley Godward LLP
5 Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306-2155
Telecopier No.: (415) 857-0663
If to BMS:
Bristol-Myers Squibb Company
345 Park Avenue
New York, NY 10154
Attention: Louis M. DeAmicis
Telecopier No.: (212) 605-9490
with a copy to:
Peter N. Stevens, Esq.
Bristol-Myers Squibb Company
345 Park Avenue
New York, NY 10154
Telecopier No.: (212) 605-9494
11.5 WAIVER. No failure or delay of any party hereto to exercise any
power or right granted hereunder, and no custom or practice of the parties
with regard to the terms of performance hereof, shall constitute a waiver of
the rights of such party to demand full and exact compliance with the terms
of this Agreement.
11.6 ENTIRE AGREEMENT. This Agreement, including the Schedules and
Exhibits hereto, sets forth the entire understanding of the parties with
respect to the transactions contemplated thereby, and supersedes any prior
oral or written agreements or understandings relating to the subject matter
hereof. This Agreement shall not be
47
<PAGE>
amended, modified or changed except by the written agreement of each party
whose rights or responsibilities are being affected thereby.
11.7 SEVERABILITY. In the event that any provision of this Agreement
shall be found in violation of public policy or illegal or unenforceable in
law or equity, the balance of such provision and this Agreement shall
continue in full force and effect, as if such provision or portion thereof
had been deleted or rendered inapplicable to the situations to which such
provision cannot be legally applied.
11.8 TITLES TO SECTIONS FOR CONVENIENCE ONLY. The titles to Sections of
this Agreement are used solely for the convenience of the parties and do not
constitute part of the agreement of the parties hereunder.
11.9 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute the same agreement.
11.10 PUBLICITY. CIMA and BMS agree that upon execution of this
Agreement, CIMA shall issue a press release in the form attached hereto as
Annex A. Except as provided in the immediately preceding sentence or as may
be otherwise required by applicable law, each party agrees that it will not
disclose to the press or any third party or otherwise advertise to the
communications media the terms of this Agreement including the existence
hereof, or the consummation of the transactions contemplated hereby. In the
event CIMA is the party required by law to disclose, it shall give BMS no
less than five (5) days' advance written notice of its intent to disclose and
the contents of such proposed disclosure which contents shall be subject to
the prior written approval of BMS (which approval shall not be unreasonably
withheld or delayed).
11.11 FURTHER ASSURANCES. At any time and from time-to-time, upon
reasonable request, each party hereto shall promptly execute and deliver, or
cause to be executed and delivered, all such documents as either party may
reasonably request in order to carry out or evidence the terms of this
Agreement.
11.12 NO THIRD PARTY BENEFICIARIES. Nothing contained in this
Agreement shall be construed to create any third party beneficiaries hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
BRISTOL-MYERS SQUIBB COMPANY CIMA LABS, INC.
By: /s/ STEPHEN E. BEAR By: /s/ JACK KHATTAR
----------------------------- ----------------------------
Stephen E. Bear Jack Khattar
President-Worldwide Vice President-
Consumer Medicines Business Development
48
<PAGE>
SCHEDULE 1.1.16
LICENSED PATENTS
[...*...]
49
<PAGE>
SCHEDULE 1.1.17
TERRITORY/PRODUCT CATEGORIES
COUNTRY/REGION MARKET PRODUCT INGREDIENT AND/OR CATEGORY
- -------------- --------- ----------------------------------
[...*...]* [...*...] [...*...]
[...*...] [...*...]
[...*...] [...*...]
[...*...] [...*...]
[...*...] [...*...]
[...*...] [...*...]
[...*...] [...*...]
[...*...] [...*...]
[...*...] [...*...]
[...*...] [...*...]
[...*...] [...*...]
[...*...] [...*...]
[...*...] [...*...]
[...*...] [...*...]***
[...*...] [...*...]
[...*...]** [...*...] [...*...]
[...*...] [...*...]***
[...*...] [...*...]
[...*...] [...*...]
[...*...] [...*...]
[...*...] [...*...]
[...*...] [...*...]
[...*...] [...*...]
[...*...] [...*...]
[...*...] [...*...] [...*...]
[...*...] [...*...]
* For purposes of this Agreement, [...*...] shall consist of the area
bordered in black on Annex 1.1.17A attached to this Schedule 1.1.17.
** The Territory shall not include [...*...] with respect to [...*...] in the
[...*...].
*** [...*...], and any combination of the foregoing.
50
<PAGE>
ANNEX 1.1.17A
[...*...]PRESS RELEASE ANNEX A
11201/00050
CIMA LABS INC. (NASDAQ: CIMA) today announced the signing of a global,
non-exclusive license agreement with Bristol-Myers Squibb (NYSE: BMY). The
agreement covers multiple products to be developed by Bristol-Myers Squibb,
applying or utilizing 0raSolv-Registered Trademark-, CIMA's patented oral
dosage technology which incorporates microencapsulated drug ingredients into
tablets that dissolve quickly in the mouth. In exchange for the license,
CIMA will receive royalties on the sale of licensed products.
In May of this year, CIMA announced the U.S. introduction of an
OraSolv-Registered Trademark- dosage form of Tempra, Bristol-Myers Squibb's
pediatric analgesic. OraSolv is designed to improve taste acceptance, while
offering a convenient oral dosage form that can be taken without water,
thereby increasing patient compliance.
"We believe this alliance offer" both CIMA LABS and Bristol-Myers Squibb
an excellent opportunity to pursue the development of innovative new drug
delivery technologies," commented John M. Siebert, Ph.D., President and Chief
Executive Officer of CIMA LABS, INC.
CIMA LABS INC. is a drug delivery company that develops and manufactures
products based upon its OraSolv-Registered Trademark- technology for
marketing by multinational pharmaceutical companies. CIMA was founded in
1986 and has been publicly held since July 1994. The Company's corporate
headquarters and manufacturing facility is located in Eden Prairie, MN and
its Research and Development facility is located in Brooklyn Park, MN.
51
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