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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
CIMA LABS INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[LOGO]
CIMA LABS INC.
10000 Valley View Road
Eden Prairie, Minnesota 55344-9361
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 14, 1997
---------------------
TO THE STOCKHOLDERS OF CIMA LABS INC.:
Notice Is Hereby Given that the Annual Meeting of Stockholders of CIMA LABS
INC., a Delaware corporation (the "Company"), will be held on Wednesday, May 14,
1997 at 3:00 p.m. local time at the offices of the Company, 10000 Valley View
Road, Eden Prairie, Minnesota 55344, for the following purposes:
1. To elect six directors to serve for the ensuing year and until their
successors are elected.
2. To approve 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.
3. To approve the Company's Directors' Fee Option Grant Program.
4. To ratify the selection of Ernst & Young LLP as independent auditors of
the Company for its fiscal year ending December 31, 1997.
5. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on March 19, 1997, as
the record date for the determination of stockholders entitled to notice of and
to vote at this Annual Meeting and at any adjournment or postponement thereof.
By Order of the Board of Directors
[SIGNATURE]
Robert L. Jones
SECRETARY
Eden Prairie, Minnesota
April 10, 1997
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
<PAGE>
[LOGO]
CIMA LABS INC.
10000 Valley View Road
Eden Prairie, Minnesota 55344-9361
------------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
---------------------
May 14, 1997
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of CIMA
LABS INC., a Delaware corporation (the "Company"), for use at the Annual Meeting
of Stockholders to be held on May 14, 1997, at 3:00 p.m. local time (the "Annual
Meeting"), or at any adjournment or postponement thereof, for the purposes set
forth herein and in the accompanying Notice of Annual Meeting. The Annual
Meeting will be held at the offices of the Company, 10000 Valley View Road, Eden
Prairie, Minnesota 55344. The Company intends to mail this proxy statement and
accompanying proxy card on or about April 10, 1997, to all stockholders entitled
to vote at the Annual Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies, including
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional information furnished to stockholders. Copies of solicitation
materials will be furnished to banks, brokerage houses, fiduciaries and
custodians holding in their names shares of Common Stock beneficially owned by
others to forward to such beneficial owners. The Company may reimburse persons
representing beneficial owners of Common Stock for their costs of forwarding
solicitation materials to such beneficial owners. Original solicitation of
proxies by mail may be supplemented by telephone, telegram or personal
solicitation by directors, officers or other regular employees of the Company
or, at the Company's request Norwest Bank Minnesota, N.A. No additional
compensation will be paid to directors, officers or other regular employees for
such services, but Norwest Bank Minnesota, N.A. will be paid its customary fee,
estimated to be about $2,000, if it renders solicitation services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on March 19,
1997 will be entitled to notice of and to vote at the Annual Meeting. At the
close of business on March 19, 1997 the Company had outstanding and entitled to
vote 9,452,051 shares of Common Stock.
Each holder of record of Common Stock on such date will be entitled to one
vote for each share held on all matters to be voted upon at the Annual Meeting.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether a matter has
been approved.
<PAGE>
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive office, 10000
Valley View Road, Eden Prairie, Minnesota 55344-9361, a written notice of
revocation or a duly executed proxy bearing a later date, or it may be revoked
by attending the meeting and voting in person. Attendance at the meeting will
not, by itself, revoke a proxy.
SHAREHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the Company's
1998 Annual Meeting of Stockholders must be received by the Company not later
than December 11, 1997 in order to be included in the proxy statement and proxy
relating to that Annual Meeting. Stockholders are also advised to review the
Company's By-laws, which contain additional requirements with respect to advance
notice of stockholder proposals and director nominations.
PROPOSAL 1
ELECTION OF DIRECTORS
There are six nominees for the six Board positions presently authorized by
resolution of the Board in accordance with the Company's By-laws. Each director
to be elected will hold office until the next annual meeting of stockholders and
until his successor is elected and has qualified, or until such director's
earlier death, resignation or removal. Each nominee listed below is currently a
director of the Company, each director having been elected by the stockholders.
Shares represented by executed proxies will be voted, if authority to do so
is not withheld, for the election of the six nominees named below. In the event
that any nominee should be unavailable for election as a result of an unexpected
occurrence, such shares will be voted for the election of such substitute
nominee as management may propose. Each person nominated for election has agreed
to serve if elected and management has no reason to believe that any nominee
will be unable to serve. Directors are elected by a plurality of the votes
present in person or represented by proxy and entitled to vote.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
NOMINEES
The names of the nominees and certain information about them are set forth
below:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION/
NAME AGE POSITION HELD WITH THE COMPANY
- --------------------------------- --- ----------------------------------------------------
<S> <C> <C>
John M. Siebert, Ph.D............ 57 President and Chief Executive Officer
Terrence W. Glarner.............. 53 Chairman of the Board; President, West Concord
Ventures, Inc.
David B. Musket.................. 39 President, Musket Research Associates, Inc.
Steven B. Ratoff................. 54 Executive Vice President and Chief Financial
Officer, Brown-Forman Corporation
Joseph R. Robinson, Ph.D......... 58 Professor of Pharmacy, University of Wisconsin -
Madison
Jerry A. Weisbach, Ph.D.......... 63 Private Consultant
</TABLE>
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JOHN M. SIEBERT, PH.D., has been the President and Chief Executive Officer
of the Company since September 1995 and a director of the Company since May
1992. From 1992 to 1995, Dr. Siebert was Vice President, Technical Affairs at
Dey Laboratories, Inc., a pharmaceutical company. From 1988 to 1992, Dr. Siebert
worked at Bayer, Inc. Dr. Siebert has also been employed by E.R. Squibb & Sons,
Inc., G.D. Searle & Co. and The Procter & Gamble Company.
TERRENCE W. GLARNER has been a director of the Company since July 1990 and
has served as the Chairman of the Board since April 1995. Mr. Glarner has been
President of West Concord Ventures, Inc. since February 1993. He also consults
with Norwest Venture Capital. Mr. Glarner was President of North Star Ventures,
Inc. from 1988 to February 1993 and held various other positions there since
1976. Mr. Glarner is a Chartered Financial Analyst. He serves as a director of
Aetrium Incorporated, Datakey, Inc. and FSI International, Inc., as well as of
several privately-held corporations.
DAVID B. MUSKET has been a director of the Company since May 1992. Since
September 1991, Mr. Musket has been the President of Musket Research Associates,
Inc., an investment banking firm that specializes in financing smaller
capitalization health care companies. Mr. Musket is also a managing member of
ProMed Asset Management, LLC, a money management firm focusing on both private
and public healthcare investments. From May 1989 to August 1991, he was employed
by EGS Partners and prior to that time by Goldman Sachs & Co. Mr. Musket also
has been President of DBM Corporate Consulting Group since 1991, and is the
Managing Director of ProMed Asset Management LLC and ProMed Management LLC, each
of which he formed. Mr. Musket is a director of Cardiometrics, Inc.
STEVEN B. RATOFF has been a director of the Company since March 1995. Mr.
Ratoff has been Executive Vice President and Chief Financial Officer of
Brown-Forman Corporation since December 1994. From February 1992 to November
1994, Mr. Ratoff was a private investor in a number of small privately-held
companies. Mr. Ratoff was Senior Vice President and Chief Financial Officer of
the Pharmaceutical Group of Bristol-Myers Squibb from January 1990 to January
1992 and has held various other positions at Bristol-Myers Squibb since 1975.
JOSEPH R. ROBINSON, PH.D. has been a director of the Company since January
1993. Dr. Robinson is Professor of Pharmacy, University of Wisconsin at Madison,
and has been employed in such capacity since 1966. Dr. Robinson is the past
President of the Controlled Release Society and of the American Association of
Pharmaceutical Scientists. He serves on the scientific advisory boards of
several companies.
JERRY A. WEISBACH, PH.D. has been a director of the Company since January
1993. From 1988 to 1994, Dr. Weisbach served as the Director of Technology
Transfer and Adjunct Professor at Rockefeller University, and from 1994 to 1997
served as a consultant to Rockefeller University. Prior to that time, Dr.
Weisbach was a Vice President of Warner-Lambert Company and the President of its
Pharmaceutical Research Division, and also held positions at SmithKline French
Laboratories. In addition, Dr. Weisbach serves as a director of Hybridon
Incorporated, Neose Technologies, Inc. and Xytronics, Inc. and consults for and
serves on the clinical advisory boards and the scientific advisory boards of
several other companies.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended December 31, 1996 the Board of Directors held
ten meetings. The Board has an Audit Committee and a Compensation Committee. The
Board does not have a standing nominating committee.
The Audit Committee reviews the results and scope of the annual audit and
other services provided by the Company's independent auditors. It also reviews
the Company's accounting principles and its system of internal controls, and
reports the results of these reviews to management and the Board. The Audit
Committee meets with the Company's independent auditors at least once annually
to review the results of the annual audit and discusses the financial
statements, recommends to the Board the independent auditors to be retained and
receives and considers the accountants' comments as to controls, adequacy of
3
<PAGE>
staff and management performance and procedures in connection with audit and
financial controls. The Audit Committee is composed of three non-employee
directors: Messrs. Ratoff, Musket and Dr. Weisbach. It met once during the
fiscal year ended December 31, 1996.
The Compensation Committee (i) determines the amount of compensation for the
Chief Executive Officer and President of the Company, (ii) reviews
recommendations of the Chief Executive Officer concerning compensation for the
other executive officers and incentive compensation, including stock options,
for the other employees of the Company, subject to ratification by the Board and
(iii) otherwise administers the Company's stock option plans. The Compensation
Committee is currently composed of two non-employee directors: Mr. Glarner and
Dr. Weisbach. It met once during the fiscal year ended December 31, 1996.
During the fiscal year ended December 31, 1996, each incumbent Board member
other than Joseph R. Robinson, Ph.D. attended at least 75% or more of the
aggregate of the meetings of the Board and of the committees on which he served,
held during the period for which he was a director or committee member,
respectively.
PROPOSAL 2
APPROVAL OF AMENDMENT AND RESTATEMENT OF
EQUITY INCENTIVE PLAN
In 1987, the Board of Directors adopted, and the stockholders subsequently
approved, the CIMA LABS INC. Stock Option and Stock Award Plan, later retitled
the Equity Incentive Plan (the "Plan"). As a result of a series of amendments,
as of December 31, 1996 there were 2,000,000 shares of the Company's Common
Stock authorized for issuance under the Plan.
As of March 21, 1997, options (net of canceled or expired awards) covering
an aggregate of 1,664,124 shares of the Company's Common Stock had been granted
under the Plan, and only 335,876 shares (plus any shares that might in the
future be returned to the Plan as a result of cancellations or expiration of
awards) remained available for future grant under the Plan. During the last
fiscal year, under the Plan, the Company has granted to all current executive
officers as a group options to purchase 50,500 shares at exercise prices of
$5.625 to $6.375 per share, to all employees (excluding current executive
officers) as a group options to purchase 89,800 shares at exercise prices of
$5.625 to $8.00 per share and options to purchase 60,000 shares at an exercise
price of $8.00 per share to current directors who are not officers. For further
information regarding stock option grants, see "Stock Option Grants and
Exercises."
In August, 1996, the board approved an amendment and restatement of the Plan
to conform the Plan to the recent revisions to the federal securities laws
regulations. In March, 1997, the Board approved the amendment and restatement of
the Plan, subject to stockholder approval, to increase the number of shares
authorized for issuance under the Plan from a total of 2,000,000 shares to
2,250,000 shares. The Board adopted this amendment to ensure that the Company
can continue to grant stock awards to employees at levels determined appropriate
by the Board and the Compensation Committee.
Stockholders are requested in this Proposal 2 to approve the Plan, as
amended and restated. If the stockholders fail to approve this Proposal 2, the
Company may experience difficulty in attracting and retaining employees and
consultants and in motivating them to exert their best efforts for the success
of the Company. The affirmative vote of the holders of a majority of the shares
present in person or represented by proxy and entitled to vote at the meeting
will be required to approve the Plan, as amended. Abstentions will be counted
toward the tabulation of votes cast on proposals presented to the stockholders
and will have the same effect as negative votes. Broker non-votes are counted
towards a quorum, but are not counted for any purpose in determining whether
this matter has been approved.
4
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2.
The essential features of the Plan, as amended and restated, are outlined
below.
GENERAL
The Plan provides for the grant or issuance of incentive stock options to
employees and nonstatutory stock options, restricted stock purchase awards,
stock bonuses and stock appreciation rights to consultants, employees, officers
and employee directors. To date only incentive stock options and nonstatutory
stock options have been awarded under the Plan. Incentive stock options granted
under the Plan are intended to qualify as "incentive stock options" within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"). Nonstatutory stock options granted under the Plan are intended not to
qualify as incentive stock options under the Code. See "Federal Income Tax
Information" for a discussion of the tax treatment of the various awards
included in the Plan.
PURPOSE
The Plan was adopted to provide a means by which selected officers and
employees of and consultants to the Company and its affiliates could be given an
opportunity to receive stock in the Company, to assist in retaining the services
of employees holding key positions, to secure and retain the services of persons
capable of filling such positions and to provide incentives for such persons to
exert maximum efforts for the success of the Company. All of the Company's
approximately 64 employees and consultants are eligible to participate in the
Plan.
ADMINISTRATION
The Plan is administered by the Board of Directors of the Company. The Board
has the power to construe and interpret the Plan and, subject to the provisions
of the Plan, to determine the persons to whom and the dates on which awards will
be granted, what type of award will be granted, the number of shares to be
subject to each award, the time or times during the term of each award within
which all or a portion of such award may be exercised, the exercise price, the
type of consideration and other terms of the award. The Board of Directors is
authorized to delegate administration of the Plan to a committee composed of not
fewer than two members of the Board. If administration is delegated to a
committee, the committee will have the powers to administer the Plan which were
originally possessed by the Board, subject to such limitations as the Board
provides.
In order to maximize the Company's ability to recognize a business expense
deduction under Section 162(m) of the Code in connection with compensation
recognized by "covered employees" (defined in Section 162(m) as the chief
executive officer and other four most highly compensated officers), the
regulations under Section 162(m) require that the directors must be "outside
directors" who serve as members of the committee responsible for administering
the Plan with respect to these covered employees. The Plan was amended to
provide that, in the Board's discretion, directors serving on the Committee will
be "outside directors" within the meaning of Section 162(m). As amended, the
Plan maximizes the Board's ability to delegate among various committees the
responsibility for administering the Plan with respect to different groups of
employees without overburdening any single committee.
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ELIGIBILITY
Incentive stock options may be granted under the Plan to employees
(including officers) of the Company and its affiliates. Employees (including
officers) and consultants are eligible to receive awards other than incentive
stock options under the Plan. Directors who are not salaried employees of or
consultants to the Company or to any affiliate of the Company are not eligible
to participate in the Plan. Directors who administer the Plan may not receive
options under the Plan during the period of their service as administrators or
during the one-year period prior to their service as administrators of the Plan.
No incentive stock option may be granted under the Plan to any person who,
at the time of the grant, owns (or is deemed to own) stock possessing more than
10% of the total combined voting power of the Company or any affiliate of the
Company, unless the exercise price of the incentive stock option is at least
110% of the fair market value of the stock subject to the incentive stock option
on the date of grant, and the term of the incentive stock option does not exceed
five years from the date of grant. For incentive stock options granted under the
Plan the aggregate fair market value, determined at the time of grant, of the
shares of Common Stock with respect to which such options are exercisable for
the first time by an optionee during any calendar year (under all such plans of
the Company and its affiliates) may not exceed $100,000.
No person is eligible to be granted options or stock appreciation rights
covering more than 500,000 shares of the Company's Common Stock in any period of
three consecutive calendar years.
STOCK SUBJECT TO THE PLAN
If awards granted under the Plan expire or otherwise terminate without being
exercised, the Common Stock not purchased pursuant to such awards again becomes
available for issuance under the Plan.
TERMS OF OPTIONS
The following is a description of the permissible terms of options under the
Plan. Individual option grants may be more restrictive as to any or all of the
permissible terms described below.
EXERCISE PRICE; PAYMENT. The exercise price of incentive stock options
under the Plan may not be less than the fair market value of the Common Stock
subject to the option on the date of the option grant, and in some cases (see
"Eligibility" above), may not be less than 110% of such fair market value. The
exercise price of nonstatutory options under the Plan is determined by the
Board. However, if options were granted with exercise prices below market value,
deductions for compensation attributable to the exercise of such options could
be limited by Section 162(m). See "Federal Income Tax Information." On March 21,
1997, the closing price of the Company's Common Stock as reported on the Nasdaq
National Market was $6.625 per share.
In the event of a decline in the value of the Company's Common Stock, the
Board has the authority to offer employees the opportunity to replace
outstanding higher priced options, whether incentive or nonstatutory, with new
lower priced options. To the extent required by Section 162(m), an option
repriced under the Plan is deemed to be canceled and a new option granted. Both
the option deemed to be canceled and the new option deemed to be granted will be
counted against the 500,000 share limitation.
The exercise price of options granted under the Plan must be paid either:
(a) in cash at the time the option is exercised; or (b) at the discretion of the
Board, (i) by delivery of other Common Stock of the Company, (ii) pursuant to a
deferred payment arrangement or (c) in any other form of legal consideration
acceptable to the Board.
OPTION EXERCISE. Options granted under the Plan may become exercisable in
cumulative increments ("vest") as determined by the Board. Shares covered by
currently outstanding options under the Plan typically vest at the rate of 25%
per year during the optionee's employment or services as a consultant.
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Shares covered by options granted in the future under the Plan may be subject to
different vesting terms. The Board has the power to accelerate the time during
which an option may be exercised. In addition, options granted under the Plan
may permit exercise prior to vesting, but in such event the optionee may be
required to enter into an early exercise stock purchase agreement that allows
the Company to repurchase shares not yet vested at their exercise price should
the optionee leave the employ of the Company before vesting. To the extent
provided by the terms of an option, an optionee may satisfy any federal, state
or local tax withholding obligation relating to the exercise of such option by a
cash payment upon exercise, by authorizing the Company to withhold a portion of
the stock otherwise issuable to the optionee, by delivering already-owned stock
of the Company or by a combination of these means.
TERM. The maximum term of stock options under the Plan is 10 years, except
that in certain cases (see "Eligibility") the maximum term is five years.
Options under the Plan terminate three months after termination of the
optionee's employment or relationship as a consultant or director of the Company
or any affiliate of the Company, unless (a) such termination is due to such
person's permanent and total disability (as defined in the Code), in which case
the option may, but need not, provide that it may be exercised at any time
within one year of such termination; (b) the optionee dies while employed by or
serving as a consultant or director of the Company or any affiliate of the
Company, or within three months after termination of such relationship, in which
case the option may, but need not, provide that it may be exercised (to the
extent the option was exercisable at the time of the optionee's death) within
eighteen months of the optionee's death by the person or persons to whom the
rights to such option pass by will or by the laws of descent and distribution;
or (c) the option by its terms specifically provides otherwise. Individual
options by their terms may provide for exercise within a longer period of time
following termination of employment or the consulting relationship. The option
term may also be extended in the event that exercise of the option within these
periods is prohibited for specified reasons.
TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK
PURCHASE PRICE; PAYMENT. The purchase price under each stock purchase
agreement will be determined by the Board. The purchase price of stock pursuant
to a stock purchase agreement must be paid either: (i) in cash at the time of
purchase; (ii) at the discretion of the Board, according to a deferred payment
or other arrangement with the person to whom the Common Stock is sold; or (iii)
in any other form of legal consideration that may be acceptable to the Board in
its discretion. Eligible participants may be awarded stock pursuant to a stock
bonus agreement in consideration of past services actually rendered to the
Company or for its benefit.
REPURCHASE. Shares of the Common 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 determined by the Board. In the event a
person ceases to be an employee of or ceases to serve as a director of or
consultant to the Company or an affiliate of the Company, the Company may
repurchase or otherwise reacquire any or all of the shares of the Common Stock
held by that person that 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.
STOCK APPRECIATION RIGHTS
The Board may grant stock appreciation rights to employees or directors of,
or consultants to, the Company or its affiliates. The Plan authorizes three
types of stock appreciation rights.
TANDEM STOCK APPRECIATION RIGHTS. Tandem stock appreciation rights are tied
to an underlying option and require the holder to elect whether to exercise the
underlying option or to surrender the option for an appreciation distribution
equal to the market price of the vested shares purchasable under the surrendered
option less the aggregate exercise price payable for such shares. Appreciation
distributions payable upon exercise of tandem stock appreciation rights must be
made in cash.
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CONCURRENT STOCK APPRECIATION RIGHTS. Concurrent stock appreciation rights
are tied to an underlying option and are exercised automatically at the same
time the underlying option is exercised. The holder receives an appreciation
distribution equal to the market price of the vested shares purchased under the
option less the aggregate exercise price payable for such shares. Appreciation
distributions payable upon exercise of concurrent stock appreciation rights must
be made in cash.
INDEPENDENT STOCK APPRECIATION RIGHTS. Independent stock appreciation
rights are granted independently of any option and entitle the holder to receive
upon exercise an appreciation distribution equal to the market price of a number
of shares equal to the number of share equivalents to which the holder is vested
under the independent stock appreciation right less than fair market value of
such number of shares of stock on the date of grant of the independent stock
appreciation rights. Appreciation distributions payable upon exercise of
independent stock appreciation rights may, at the Board's discretion, be made in
cash, in shares of the Common Stock or a combination thereof.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the Plan or subject to any
award granted under the Plan (through merger, consolidation, reorganization,
recapitalization, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or otherwise), the Plan and awards outstanding thereunder
will be appropriately adjusted as to the type of security and the maximum number
of shares subject to such plan, the maximum number of shares which may be
granted to an employee during a period of three consecutive calendar years, and
the type of security, number of shares and price per share of stock subject to
such outstanding awards.
EFFECT OF CERTAIN CORPORATE EVENTS
The Plan provides that, in the event of a dissolution or liquidation of the
Company, specified type of merger or other corporate reorganization, to the
extent permitted by law, any surviving corporation will be required to either
assume awards outstanding under the Plan or substitute similar awards for those
outstanding under such plan, or such outstanding awards will continue in full
force and effect. In the event that any surviving corporation declines to assume
or continue awards outstanding under the Plan, or to substitute similar awards,
then the time during which such awards may be exercised will be accelerated and
the awards terminated if not exercised during such time. The acceleration of an
award in the event of an acquisition or similar corporate event may be viewed as
an anti-takeover provision, which may have the effect of discouraging a proposal
to acquire or otherwise obtain control of the Company.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the Plan without stockholder approval or
ratification at any time or from time to time. Unless sooner terminated, the
Plan will terminate on May 31, 2004.
The Board may also amend the Plan at any time or from time to time. However,
no amendment will be effective unless approved by the stockholders of the
Company within twelve months before or after its adoption by the Board if the
amendment would: (a) modify the requirements as to eligibility for participation
(to the extent such modification requires stockholder approval in order for the
Plan to satisfy Section 422 of the Code, if applicable, or Rule 16b-3 ("Rule
16b-3") of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")); (b) increase the number of shares reserved for issuance upon exercise of
awards; or (c) change any other provision of the Plan in any other way if such
modification requires stockholder approval in order to comply with Rule 16b-3 or
satisfy the requirements of Section 422 of the Code. The Board may submit any
other amendment to the Plan for stockholder approval, including, but not limited
to, amendments intended to satisfy the requirements of Section 162(m) of the
Code regarding the exclusion of performance-based compensation from the
limitation on the deductibility of compensation paid to certain employees.
8
<PAGE>
RESTRICTIONS ON TRANSFER
Under the Plan, an option may not be transferred by the optionee otherwise
than by will or by the laws of descent and distribution and during the lifetime
of the optionee, may be exercised only by the optionee. An independent stock
appreciation right may not be transferred except by will or by the laws of
descent and distribution. In any case, the optionee or holder of an independent
stock appreciation right may designate in writing a third party who may exercise
the option in the event of the optionee's death. No rights under a stock bonus
or restricted stock purchase agreement are transferable except where required by
law or expressly authorized by the terms of the applicable stock bonus or
restricted stock purchase agreement. A tandem stock appreciation right or
concurrent stock appreciation right may be transferred only by the method(s)
applicable to the underlying option. In addition, shares subject to repurchase
by the Company under an early exercise stock purchase agreement may be subject
to restrictions on transfer which the Board deems appropriate.
FEDERAL INCOME TAX INFORMATION
INCENTIVE STOCK OPTIONS. Incentive stock options under the Plan are
intended to be eligible for the favorable federal income tax treatment accorded
"incentive stock options" under the Code.
There generally are no federal income tax consequences to the optionee or
the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may increase the optionee's
alternative minimum tax liability, if any.
If an optionee holds stock acquired through exercise of an incentive stock
option for at least two years from the date on which the option is granted and
at least one year from the date on which the shares are transferred to the
optionee upon exercise of the option, any gain or loss on a disposition of such
stock will be long-term capital gain or loss. Generally, if the optionee
disposes of the stock before the expiration of either of these holding periods
(a "disqualifying disposition"), at the time of disposition, the optionee will
realize taxable ordinary income equal to the lesser of (a) the excess of the
stock's fair market value on the date of exercise over the exercise price, or
(b) the optionee's actual gain, if any, on the purchase and sale. The optionee's
additional gain, or any loss, upon the disqualifying disposition will be a
capital gain or loss, which will be long-term or short-term depending on whether
the stock was held for more than one year. Long-term capital gains currently are
generally subject to lower tax rates than ordinary income. The maximum capital
gains rate for federal income tax purposes is currently 28% while the maximum
ordinary income and employment rate is effectively 41.05% at the present time.
Slightly different rules may apply to optionees who acquire stock subject to
certain repurchase options or who are subject to Section 16(b) of the Exchange
Act.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, the provisions of Section 162(m) of the Code
and the satisfaction of a tax reporting obligation) to a corresponding business
expense deduction in the tax year in which the disqualifying disposition occurs.
NONSTATUTORY STOCK OPTIONS. Nonstatutory stock options granted under the
Plan generally have the following federal income tax consequences:
There are no tax consequences to the optionee or the Company by reason of
the grant of a nonstatutory stock option. Upon exercise of a nonstatutory stock
option, the optionee normally will recognize taxable ordinary income equal to
the excess of the stock's fair market value on the date of exercise over the
option exercise price. Generally, with respect to employees, the Company is
required to withhold from regular wages or supplemental wage payments an amount
based on the ordinary income recognized. Subject to the requirement of
reasonableness, the provisions of Section 162(m) of the Code and the
satisfaction of a tax reporting obligation, the Company will generally be
entitled to a business expense deduction equal to the taxable ordinary income
realized by the optionee. Upon disposition of the
9
<PAGE>
stock, the optionee will recognize a capital gain or loss equal to the
difference between the selling price and the sum of the amount paid for such
stock plus any amount recognized as ordinary income upon exercise of the option.
Such gain or loss will be long or short-term depending on whether the stock was
held for more than one year. Slightly different rules may apply to optionees who
acquire stock subject to certain repurchase options or who are subject to
Section 16(b) of the Exchange Act.
RESTRICTED STOCK AND STOCK BONUSES. Restricted stock and stock bonuses
granted under the Incentive Plan generally have the following federal income tax
consequences:
Upon acquisition of stock under a restricted stock or stock bonus award, the
recipient normally will recognize taxable ordinary income equal to the excess of
the stock's fair market value over the purchase price, if any. However, to the
extent the stock is subject to certain types of vesting restrictions, the
taxable event will be delayed until the vesting restrictions lapse unless the
recipient elects to be taxed on receipt of the stock. Generally, with respect to
employees, the Company is required to withhold from regular wages or
supplemental wage payments an amount based on the ordinary income recognized.
Subject to the requirement of reasonableness, Section 162(m) of the Code and the
satisfaction of a tax reporting obligation, the Company will generally be
entitled to a business expense deduction equal to the taxable ordinary income
realized by the recipient. Upon disposition of the stock, the recipient will
recognize a capital gain or loss equal to the difference between the selling
price and the sum of the amount paid for such stock, if any, plus any amount
recognized as ordinary income upon acquisition (or vesting) of the stock. Such
gain or loss will be long or short-term depending on whether the stock was held
for more than one year from the date ordinary income is measured. Slightly
different rules may apply to persons who acquire stock subject to forfeiture
under Section 16(b) of the Exchange Act.
STOCK APPRECIATION RIGHTS. No taxable income is realized upon the receipt
of a stock appreciation right, but upon exercise of the stock appreciation right
the fair market value of the shares (or cash in lieu of shares) received must be
treated as compensation taxable as ordinary income to the recipient in the year
of such exercise. Generally, with respect to employees, the Company is required
to withhold from the payment made on exercise of the stock appreciation right or
from regular wages or supplemental wage payments an amount based on the ordinary
income recognized. Subject to the requirement of reasonableness, Section 162(m)
of the Code and the satisfaction of a reporting obligation, the Company will be
entitled to a business expense deduction equal to the taxable ordinary income
recognized by the recipient.
POTENTIAL LIMITATION ON COMPANY DEDUCTIONS. As part of the Omnibus Budget
Reconciliation Act of 1993, the U.S. Congress amended the Code to add Section
162(m), which denies a deduction to any publicly held corporation for
compensation paid to certain employees in a taxable year to the extent that
compensation exceeds $1,000,000 for a covered employee. It is possible that
compensation attributable to awards under the Plan, when combined with all other
types of compensation received by a covered employee from the Company, may cause
this limitation to be exceeded in any particular year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with Treasury regulations issued under Section 162(m) of the Code,
compensation attributable to stock options and stock appreciation rights will
qualify as performance-based compensation, provided that: (i) the stock award
plan contains a per-employee limitation on the number of shares for which stock
options and stock appreciation rights may be granted during a specified period;
(ii) the per-employee limitation is approved by the stockholders; (iii) the
award is granted by a compensation committee comprised solely of "outside
directors"; and (iv) the exercise price of the award is no less than the fair
market value of the stock on the date of grant. Restricted stock and stock
bonuses qualify as performance-based compensation under these Treasury
regulations only if: (i) the award is granted by a compensation committee
comprised solely of "outside directors"; (ii) the award is granted (or
exercisable) only upon the achievement of an objective performance goal
established
10
<PAGE>
in writing by the compensation committee while the outcome is substantially
uncertain; (iii) the compensation committee certifies in writing prior to the
granting (or exercisability) of the award that the performance goal has been
satisfied; and (iv) prior to the granting (or exercisability) of the award,
stockholders have approved the material terms of the award (including the class
of employees eligible for such award, the business criteria on which the
performance goal is based, and the maximum amount (or formula used to calculate
the amount) payable upon attainment of the performance goal).
PROPOSAL 3
APPROVAL OF DIRECTORS' FEE OPTION GRANT PROGRAM
In February 1997, the Board of Directors adopted the Non-Employee Directors'
Fee Option Grant Program (the "Directors' Program"), and authorized and reserved
60,000 shares of the Company's Common Stock for issuance under the Directors'
Program, subject to stockholder approval. The Directors' Program permits members
of the Company's Board of Directors (the "Board") who are not employees of the
Company ("Non-Employee Directors") to defer receipt of cash compensation
attributable solely to services as a Board member, including, but not limited
to, annual retainer fees and board and committee meeting fees (collectively,
"Directors' Fees"), and receive future payment of those fees in the form of
stock options to acquire the Company's Common Stock. The Board adopted the
Directors' Program to provide its current Non-Employee Directors, together with
any Non-Employee Directors who may in the future serve on the Board, with an
additional incentive to exert maximum efforts for the success of the Company.
Stockholders are requested in this Proposal 3 to approve the Directors'
Program. The affirmative vote of the holders of a majority of the shares present
in person or represented by proxy and entitled to vote at the meeting will be
required to approve the Directors' Program. Abstentions will be counted toward
the tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether this matter
has been approved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3.
The essential features of the Directors' Program are outlined below.
GENERAL
The Directors' Program permits Non-Employee Directors to defer receipt of
Directors' Fees in cash, and receive future payment of those fees in the form of
stock options to acquire the Company's Common Stock. Options received under the
Directors' Program are intended not to qualify as incentive stock options within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"). See "Federal Income Tax Information" below for a discussion of the tax
treatment of nonstatutory stock options. The maximum number of shares of Common
Stock that may be issued pursuant to options granted under the Directors'
Program currently is 60,000, which may be unissued shares or reacquired shares,
bought in the open market or otherwise. Shares subject to options which expire
or otherwise terminate without having been exercised in full shall again become
available for issuance.
PURPOSE
The Company, by means of the Directors' Program, seeks to retain the
services of persons now serving as Non-Employee Directors of the Company, to
secure and retain the services of persons capable of serving in such capacity,
and to provide incentives for such persons to exert maximum efforts for the
success of the Company.
11
<PAGE>
ADMINISTRATION
The Directors' Program is administered by the Board, unless the Board
delegates administration to a committee composed of not fewer than two members
of the Board who may be, in the discretion of the Board, Non-Employee Directors
within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934. Any
committee to which the Board delegates administrative authority with respect to
the Directors' Program will have the powers to administer the Directors' Program
that were originally possessed by the Board. Subject to the provisions of the
Directors' Program, the Board has the power to construe and interpret the
Directors' Program and options granted under it, to establish, amend and revoke
rules and regulations for its administration, to amend the Directors' Program or
options under it, and 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 Directors' Program.
ELIGIBILITY
Options may be granted under the Directors' Program only to Non-Employee
Directors of the Company. A "Non-Employee Director" is defined in the Directors'
Program as a director of the Company who is not otherwise an employee of the
Company. Five of the Company's six current directors (all except Dr. Siebert)
are eligible to participate in the Directors' Program.
DEFERRAL ELECTIONS
Under the program, Non-Employee Directors may defer Directors' Fees
otherwise payable and in lieu thereof receive special option grants.
Persons serving as Non-Employee Directors on March 12, 1997, the effective
date of the program (the "Effective Date"), may elect, before the Effective
Date, to defer Directors' Fees otherwise payable for services after the
Effective Date through the 1997 Annual Meeting. The elected deferral amount
shall be irrevocable until the 1997 Annual Meeting and shall remain in effect
thereafter until the Non-Employee Director submits a replacement election. Later
elections must be submitted at or prior to the next Annual Meeting in order to
be effective for Directors' Fees otherwise payable after such Annual Meeting.
Beginning on the date of the 1997 Annual Meeting, deferral elections in effect
must remain irrevocably in effect for Directors' Fees otherwise payable until
and including the date of the next Annual Meeting.
Persons first named to serve as Non-Employee Directors on or after the
Effective Date may elect to defer Directors' Fees by submitting an election to
the Company's Chief Financial Officer within thirty (30) days of becoming a
Non-Employee Director. The election shall apply only to amounts which the Non-
Employee Director was not yet entitled to receive at the time of submission of
the election. The elected deferral amount shall be irrevocable until and
including the Annual Meeting first following submission, and shall remain in
effect until the Non-Employee Director submits a replacement election. A Non-
Employee Director who does not make a deferral election when first eligible may
make such an election effective as of any future Annual Meeting.
OPTIONS
Non-Employee Directors who, prior to the Effective Date defer Directors'
Fees payable for services between the Effective Date and the 1997 Annual
Meeting, or who timely file a deferral election within thirty (30) days of first
becoming a Non-Employee Director, shall automatically be granted an option to
purchase common stock of the Company on the date of the 1997 Annual Meeting of
Stockholders. Each Non-Employee Director who has a deferral election in effect
as of any Annual Meeting of the Company shall automatically be granted an option
to purchase common stock of the Company on the date of such Annual Meeting for
Directors' Fees otherwise payable after such Annual Meeting, subject to vesting
(as described below).
12
<PAGE>
Each option under the Directors' Program is subject to the following terms
and conditions:
NUMBER OF OPTION SHARES. The number of shares of Common Stock subject to
the option shall be rounded down to the nearest whole number equal to A / (B x
66 2/3%), where: A is the maximum amount of the Director's Fees subject to the
Non-Employee Director's deferral election and applied to the grant of such
option under the Directors' Program; and B is the fair market value per share of
Common Stock on the last day of the month prior to the option grant date.
EXERCISE PRICE; PAYMENT. The exercise price of each option granted under
the Directors' Program shall be 33 1/3% of the fair market value of the Common
Stock subject to such option on the last day of the month prior to the date such
option is granted. The exercise price of options granted under the Directors'
Program must be paid either: (i) in cash at the time the option is exercised,
(ii) by delivery to the Company of shares of Common Stock that have been held
for the requisite period necessary to avoid a charge to the Company's reported
earnings and valued at the fair market value on the date of exercise, or (iii)
by a combination of such methods of payment.
OPTION VESTING. Options granted pursuant to a deferral election made prior
to the Effective Date shall be fully vested and exercisable on the date of
grant. Other options shall become exercisable in installments on each date that
Directors' Fees would have been payable in cash had no deferral election been in
effect with respect to the number of shares equal to (1) the aggregate shares
subject to the option multiplied by (2) the fraction obtained where the
numerator is the cash Directors' Fees that the Non-Employee Director otherwise
would have received on such date and the denominator is the aggregate Directors'
Fees that the Non-Employee Director would have received in cash absent a
deferral election following the date of the option's grant through and including
the Board meeting held at the time of the next Annual Meeting.
TERMINATION OF OPTIONS. Options granted under the Directors' Program
terminate on the earlier of (i) ten years from the date the option was granted
or (ii) three years following termination of service as a member of the Board.
NONTRANSFERABILITY OF OPTIONS. Options granted under the Directors' Program
are not transferable except by will or by the laws of descent and distribution
by written designation which take effect upon the Non-Employee Director's death,
by written instruction, in a form accepted by the Company, to the Non-Employee
Director's spouse, children, stepchildren, or grandchildren (whether adopted or
natural), to a trust created solely for the benefit of the Non-Employee Director
and the foregoing persons, or to the Non-Employee Director's former spouse (if
transfer is pursuant to a judicial decree dissolving the Non-Employee Director's
marriage).
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the Directors' Program or
subject to any option granted under the Directors' Program (through merger,
consolidation, reorganization, recapitalization, stock dividend, dividend in
property other than cash, stock split, liquidating dividend, combination of
shares, exchange of shares, change in corporate structure or otherwise), the
Directors' Program and options outstanding will be adjusted appropriately as to
the class and maximum number of shares subject to the Directors' Program and the
class, number of shares and price per share of stock subject to such outstanding
options.
EFFECT OF CERTAIN CORPORATE EVENTS
In the event of a dissolution or liquidation of the Company or sale of all
or substantially all of the assets of the Company; a merger or consolidation in
which the Company is not the surviving corporation; 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
13
<PAGE>
other property, whether in the form of securities, cash or otherwise; or the
acquisition by any person of at least fifty percent (50%) of the combined voting
power entitled to vote in the election of directors, then in each case to the
extent not prohibited by applicable law, the time during which options
outstanding under the Directors' Program vest and may be exercised shall be
accelerated prior to the occurrence of such event, and any options not exercised
after such acceleration prior to the occurrence of such event shall be
terminated.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the Directors' Program at any time.
Unless sooner terminated, the Directors' Program shall terminate upon the
issuance of all shares of Common Stock reserved for issuance under the
Directors' Program.
The Board also may amend the Directors' Program at any time and from time to
time, provided that no amendment will be effective unless approved by the
stockholders of the Company within twelve months before or after the adoption of
the amendment, where the amendment would: (i) increase the number of shares
reserved for options under the Directors' Program; (ii) modify the requirements
as to eligibility for participation in the Directors' Program (to the extent
such modification requires stockholder approval in order for the Directors'
Program to comply with the requirements of Rule 16b-3); or (iii) modify the
Directors' Program in any other way if such modification requires stockholder
approval in order for the Directors' Program to comply with the requirements of
Rule 16b-3.
FEDERAL INCOME TAX INFORMATION
Stock options granted under the Directors' Program are subject to federal
income tax treatment pursuant to rules governing options that are not incentive
stock options.
The following is only a summary of the effect of federal income taxation
upon the optionee and the Company with respect to the grant and exercise of
options under the Directors' Program, does not purport to be complete, and does
not discuss the income tax laws of any state or foreign country in which an
optionee may reside.
Options granted under the Directors' Program are nonstatutory options. There
are no tax consequences to the optionee or the Company by reason of the grant of
a nonstatutory stock option. Upon exercise of a nonstatutory stock option, the
optionee generally will recognize ordinary income for tax purposes measured by
the excess of the then fair market value of the shares over the option price.
Because the optionee is a director of the Company, under existing laws the date
of taxation (and the date of measurement of taxable ordinary income) may in some
instances be deferred unless the optionee files an election under Section 83(b)
of the Code. The filing of a Section 83(b) election with respect to the exercise
of an option may affect the time of taxation and the amount of income recognized
at each such time. At the time the optionee recognizes ordinary income due to
the exercise of the option, the Company generally will be entitled to a business
expense deduction equal to the taxable ordinary income realized by the optionee.
Upon resale of such shares by the optionee, any difference between the sales
price and the exercise price, to the extent not recognized as ordinary income as
provided above, generally will be treated as capital gain or loss, and will
qualify for long-term capital gain or loss treatment if the shares have been
held for more than one year.
ELECTIONS FOR DIRECTORS' FEES PRIOR TO THE 1997 ANNUAL MEETING
Non-Employee Directors Steven B. Ratoff, Joseph R. Robinson, Ph.D., and
Jerry A. Weisbach, Ph.D., have each elected to receive 100% of their respective
Director's Fees earned from March 12, 1997 to the Annual Meeting in the form of
stock option grants under the Directors' Program. Such option grants will be
made on the date of the 1997 Annual Meeting. Mr. Ratoff and Drs. Robinson and
Weisbach have each earned but not received $2,500 in Directors' Fees from March
12, 1997 to April 10, 1997 and are each
14
<PAGE>
entitled to receive $2,500 per additional Board meeting and $1,250 per
additional committee meeting that they attend between April 10, 1997 and the
Annual Meeting. The number of shares of Common Stock subject to options granted
under the Directors' Program shall be rounded down to the nearest whole number
equal to A / (B X 66 2/3%), where A = the amount of Director's Fees subject to
the Non-Employee Director's deferral election and B = the fair market value per
share of Common Stock as determined by the closing sale price of the Common
Stock on April 30, 1997. The exercise price shall be 33 1/3% of the fair market
value of the Common Stock as determined by the closing sale price of the Common
Stock on April 30, 1997. See "Deferral Elections" and "Options" above.
PROPOSAL 4
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 1997 and has
further directed that management submit the selection of independent auditors
for ratification by the stockholders at the Annual Meeting. Ernst & Young LLP
has audited the Company's financial statements since its inception in 1986.
Representatives of Ernst & Young LLP are expected to be present at the Annual
Meeting, will have an opportunity to make a statement if they so desire and will
be available to respond to appropriate questions.
Stockholder ratification of the selection of Ernst & Young LLP as the
Company's independent auditors is not required by the Company's By-laws or
otherwise. However, the Board is submitting the selection of Ernst & Young LLP
to the stockholders for ratification as a matter of good corporate practice. If
the stockholders fail to ratify the selection, the Audit Committee and the Board
will reconsider whether or not to retain that firm. Even if the selection is
ratified, the Audit Committee and the Board in their discretion may direct the
appointment of different independent auditors at any time during the year if
they determine that such a change would be in the best interests of the Company
and its stockholders.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the Annual Meeting will
be required to ratify the selection of Ernst & Young LLP.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 4.
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<PAGE>
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of the Company's Common Stock as of March 21, 1997 by: (i) each director; (ii)
each of the executive officers named in the Summary Compensation Table employed
by the Company in that capacity on March 21, 1997; (iii) all executive officers
and directors of the Company as a group; and (iv) all those known by the Company
to be beneficial owners of more than five percent of its Common Stock.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP (1)
-------------------------
NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES TOTAL
- -------------------------------------------------------------------- ---------- -------------
<S> <C> <C>
President and Fellows of Harvard College
c/o Harvard Management Company, Inc.
600 Atlantic Avenue
Boston, Massachusetts 02210....................................... 1,382,900 14.6%
RCM Capital Management, LLC (2)
4 Embarcadero Center, Suite 3000
San Francisco, California 94111................................... 940,500 9.9%
S-E-Banken Fonder AB
Regeringsgatan
ST R2
S-106 40 Stockholm, Sweden........................................ 902,000 9.5%
INVESCO PLC (3)
11 Devonshire Square
London EC2M 4YR
England........................................................... 749,999 7.9%
Investment Advisers Inc.
3700 First Bank Place
Minneapolis, Minnesota 55440...................................... 632,000 6.7%
Capital Group Companies Inc.
333 South Hope Street
Los Angeles, California 90071..................................... 565,500 6.0%
Franklin Advisers, Inc. (4)
777 Mariners Island Blvd.
San Mateo, California 94403....................................... 525,000 5.6%
John M. Siebert, Ph.D. (5).......................................... 162,500 1.7%
Robert Z. Arnold (6)................................................ 90,000 *
Brian M. Jones (7).................................................. 58,750 *
Keith P. Salenger................................................... 700 *
Terrence W. Glarner (8)............................................. 95,440 1.0%
David B. Musket (9)................................................. 99,774 1.1%
Steven B. Ratoff (10)............................................... 45,000 *
Joseph R. Robinson, Ph.D. (11)...................................... 50,000 *
Jerry A. Weisbach, Ph.D. (12)....................................... 57,500 *
All executive officers and directors
as a group (9 persons)(13)........................................ 659,664 6.9%
</TABLE>
- ------------------------
* Less than one percent.
(1) This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G filed with the Securities
and Exchange Commission (the "SEC"). Unless
16
<PAGE>
otherwise indicated in the footnotes to this table and subject to community
property laws where applicable, the Company believes that each of the
stockholders named in this table has sole voting and investment power with
respect to the shares indicated as beneficially owned. Applicable
percentages are based on 9,457,051 shares outstanding on March 21, 1997,
adjusted as required by rules promulgated by the SEC.
(2) Includes 524,000 shares held by RCM Capital Funds, Inc. of which RCM
Capital Management LLC is the investment manager. RCM General Corporation is
the General Partner of RCM Limited which is the Managing Agent of RCM
Capital Management LLC.
(3) INVESCO PLC has shared voting and investment power with respect to the
shares indicated in the table with the following companies of which it is
the parent holding company: INVESCO North American Group, Ltd.; INVESCO,
Inc.; INVESCO North American Holdings, Inc.; INVESCO Funds Group, Inc.; and
INVESCO Asset Management Limited.
(4) Franklin Resources, Inc. is the parent holding company of Franklin
Advisers, Inc.
(5) Includes 147,500 shares which may be acquired within 60 days of March 21,
1997 pursuant to outstanding options.
(6) Consists of 90,000 shares which may be acquired within 60 days of March 21,
1997 pursuant to outstanding options.
(7) Consists of 58,750 shares which may be acquired within 60 days of March 21,
1997 pursuant to outstanding options.
(8) Includes of 65,000 shares which may be acquired within 60 days of March 21,
1997 pursuant to outstanding options.
(9) Includes 75,000 shares which may be acquired within 60 days of March 21,
1997 pursuant to outstanding options and 10,000 shares held in an IRA for
Mr. Musket's benefit.
(10) Includes 35,000 shares which may be acquired within 60 days of March 21,
1997 pursuant to outstanding options.
(11) Consists of 50,000 shares which may be acquired within 60 days of March 21,
1997 pursuant to outstanding options.
(12) Consists of 57,500 shares which may be acquired within 60 days of March 21,
1997 pursuant to outstanding options.
(13) Includes an aggregate of 578,750 shares issuable upon exercise of options
exercisable within 60 days of March 21, 1997. See footnotes 5 through 12.
17
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act")
requires the Company's directors and executive officers, and persons who own
more than ten percent of a registered class of the Company's equity securities,
to file with the SEC initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Officers,
directors and greater than ten percent stockholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1996, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with, except that Dr.
Siebert failed to timely file a report with respect to the exercise of a stock
option to purchase 10,000 shares of Common Stock. Dr. Siebert filed such report
one day late.
EXECUTIVE OFFICERS OF THE COMPANY
Information with respect to the executive officers of the Company as of
March 21, 1997 is set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------- --- -----------------------------------------------------------------------------
<S> <C> <C>
John M. Siebert, Ph.D. 57 President, Chief Executive Officer and Director
Robert Z. Arnold 47 Senior Vice President, Business Development
Brian M. Jones 44 Senior Vice President, Operations
John Hontz, Ph.D. 40 Vice President, Research and Development
Keith P. Salenger 46 Vice President, Finance and Chief Financial Officer
</TABLE>
JOHN M. SIEBERT, PH.D., has been the President and Chief Executive Officer
of the Company since September 1995 and a director of the Company since May
1992. From 1992 to 1995, Dr. Siebert was Vice President, Technical Affairs at
Dey Laboratories, Inc., a pharmaceutical company. From 1988 to 1992, Dr. Siebert
worked at Bayer, Inc. Dr. Siebert has also been employed by E.R. Squibb & Sons,
Inc., G.D. Searle & Co. and The Procter & Gamble Company.
ROBERT Z. ARNOLD has served as Senior Vice President, Business Development
since January 1994 and as Vice President of Business Development since July
1989. He is currently responsible for strategic planning, marketing and
corporate partnering. Mr. Arnold has played a significant role in signing
partnering agreements with five pharmaceutical companies for
OraSolv-Registered Trademark- products. Prior to joining CIMA, Mr. Arnold held
various marketing acquisition, ventures and management positions at The
Pillsbury Company.
BRIAN M. JONES has served as Senior Vice President, Operations since joining
CIMA in February 1994. His responsibilities include
OraSolv-Registered Trademark- manufacturing. Mr. Jones oversaw the buildout of
CIMA's manufacturing facility and corporate headquarters in Eden Prairie. From
1990 to 1994, Mr. Jones worked for International Medication Systems, Ltd. as
Vice President, Pharmaceutical Manufacturing responsible for all aseptic filling
and packaging. Prior to that time, he was employed at Kendall McGaw
Pharmaceuticals and The Procter & Gamble Company.
JOHN HONTZ, PH.D. has served as Vice President of Research and Development
since January 1997. From August 1995 to January 1997, Dr. Hontz was Senior Group
Leader of Product Development at Glaxo-Wellcome. From March 1987 to August 1995,
he was Section Head of Product Development for Burroughs-Wellcome, which was
subsequently acquired by Glaxo in 1995. Dr. Hontz received his B.S. in
18
<PAGE>
Pharmacy from The Philadelphia College of Pharmacy and Science, his M.B.A. from
Duke University and his Masters and Ph.D. in Pharmaceutics from the University
of Maryland.
KEITH P. SALENGER has served as Vice President, Finance and Chief Financial
Officer since September 1996. From 1994 to 1996, Mr. Salenger was Vice President
Finance, North American Ethicals, at Rhone Poulenc Rorer, Inc. ("RPR"). From
1988 to 1992, Mr. Salenger held other positions with RPR including Finance
Director/CFO for the United Kingdom and Ireland Subsidiary of RPR, and Vice
President Finance for the Research and Development Division RPR. Prior to
joining RPR, he was a Manager, Internal Audit at Bristol-Myers Squibb and a
Senior Accountant/CPA at Main Hurdman. Mr. Salenger received his B.S. in
Accounting from Pennsylvania State University and is C.P.A.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Each non-employee director of the Company is entitled to receive an annual
fee of $5,000, payable quarterly, a per meeting fee of $2,500 for each meeting
(including telephonic meetings) of the Board attended by such non-employee
director and a per meeting fee of $1,250 for each meeting (i) of a committee of
the Board not held in connection with a regular Board meeting or (ii) operating
committee of the Company, in each case attended by such non-employee director;
PROVIDED, HOWEVER, that the aggregate amount of fees paid shall not exceed
$20,000 (excluding expense reimbursement) per director per year. In the fiscal
year ended December 31, 1996, the total compensation paid to non-employee
directors was $57,500. The members of the Board of Directors are also eligible
for reimbursement for their reasonable expenses incurred in connection with
attendance at Board meetings in accordance with Company policy. Messrs. Glarner
and Musket are currently voluntarily foregoing the payment of any fees.
In February 1997, the Board adopted the Non-Employee Directors' Fee Option
Grant Program (the "Directors' Program"), subject to stockholder approval, to
provide a means by which non-employee directors may defer receipt of cash
compensation attributable solely to services as a Board member and receive
future payment of those fees in the form of stock options to acquire common
stock of the Company. Under the Directors' Program, as more fully described
under "Proposal 3 -- Approval of Directors' Fee Option Grant Program," the
maximum number of shares of Common Stock that may be issued pursuant to options
currently is 60,000, which may be unissued shares or reacquired shares, bought
in the open market or otherwise. Shares subject to options which expire or
otherwise terminate without having been exercised in full shall again become
available for issuance.
Non-employee directors who defer Directors' Fees and timely file a deferral
election will automatically be granted an option to purchase common stock of the
Company on the date of the 1997 Annual Meeting of Stockholders. In addition,
each non-employee director who has a deferral election in effect as of any
Annual Meeting of the Company shall automatically be granted an option to
purchase common stock of the Company on the date of such Annual Meeting.
The number of shares of Common Stock subject to each option granted under
the Directors' Program shall be equal to A/(B x 66 2/3%), where A is the maximum
amount of the Directors' Fees subject to the Non-Employee Director's deferral
election and applied to the grant of such option under the Directors' Program;
and B is the fair market value per share of Common Stock on the last day of the
month prior to the option grant date. The exercise price of options granted
under the Directors' Program is 33 1/3% of the fair market value of the Common
Stock subject to such option on the last day of the month prior to the date such
option is granted. Options granted pursuant to a deferral election made prior to
March 12, 1997 shall be fully vested and exercisable on the date of grant. Other
options shall become exercisable in installments based on when Directors' Fees
would become payable in cash. The term of options granted under the Directors'
Program is the earlier of ten years from the grant date or three years following
termination of service as a director.
19
<PAGE>
Each non-employee director of the Company also receives stock option grants
under the 1994 Directors' Stock Option Plan (the "Directors' Plan"). Only
directors of the Company who are not employees of the Company or a subsidiary of
the Company are eligible to receive grants of options under the Directors' Plan.
Options granted under the Directors' Plan are intended by the Company not to
qualify as incentive stock options under the Code.
Option grants under the Directors' Plan are non-discretionary. On the first
business day immediately following the annual stockholders' meeting of each
year, each member of the Company's Board of Directors who is not an employee of
the Company is automatically granted under the Directors' Plan, without further
action by the Company, the Board of Directors or the stockholders of the
Company, an option to purchase 7,500 shares of Common Stock of the Company. In
addition, each new non-employee director will receive an option to purchase
20,000 shares of Common Stock of the Company on the first business day following
the date such new director is elected to the Board of Directors. No other
options may be granted at any time under the Directors' Plan. The exercise price
of options granted under the Directors' Plan is 100% of the fair market value of
the Common Stock subject to the option on the date of the option grant. Options
granted pursuant to the initial grant to purchase of 20,000 shares of Common
Stock under the Directors' Plan become exercisable as to 50% of the option
shares on the 12-month anniversary of the date of grant and the remainder become
exercisable on the 24-month anniversary of the date of Grant. Options granted on
the business day following the annual meeting of stockholders become fully
exercisable six months subsequent to the date of grant. The term of options
granted under the Directors' Plan is ten years. In the event of a merger of the
Company with or into another corporation or a consolidation, reorganization,
recapitalization, stock dividend, stock split, or other change in the corporate
structure, appropriate adjustments to the Directors' Plan and the outstanding
options will be made so as not to increase or decrease the option rights
outstanding.
During the year ended December 31, 1996, the Company granted options
covering 7,500 shares to each non-employee director of the Company at an
exercise price per share of $10.625. The fair market value of such Common Stock
on the date of grant was $10.625 per share (based on the closing sales price
reported in the National Market System for the date of grant). As of March 21,
1997, no options had been exercised under the Directors' Plan.
The Company entered into a Technology and Sponsored Research Agreement (the
"Research Agreement") with Joseph R. Robinson, Ph.D. and James McGinity, Ph.D.
on December 9, 1996. Under the terms of the Research Agreement, Dr. Robinson
received an initial payment of $15,000 and a second payment of $30,000 in
consideration for Drs. Robinson and McGinity performing certain research work
and granting the Company certain rights to patents and technology developed
during the course of such research. In addition, the Research Agreement provides
that the Company shall further compensate Drs. Robinson and McGinity upon the
achievement of certain milestones and the Company shall reimburse Drs. Robinson
and McGinity for legal fees, travel and other expenses associated with the
preparation of patent applications.
On June 19, 1996, the Stock Option Committee of the Board of Directors
granted non-statutory stock options to purchase 30,000 shares of the Company's
Common Stock at an exercise price of $8.00 per share under the Equity Incentive
Plan to each of Messrs. Glarner and Musket as compensation for their work in
connection with the Company's 1996 public offering.
20
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY OF COMPENSATION
The following table shows for the fiscal years ended December 31, 1996, 1995
and 1994, compensation awarded or paid to, or earned by, the Company's Chief
Executive Officer and its other three most highly compensated executive officers
at December 31, 1996 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION SECURITIES
---------------------- UNDERLYING ALL OTHER
SALARY BONUS OPTIONS/ COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($)(1) SARS(#)(2) ($)
- ----------------------------------------------------- --------- ---------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
John M. Siebert (3) 1996 $ 223,957 $ 110,000 0 $ 1,416(4)
President and Chief Executive Officer 1995 105,769 25,000 187,500 49,496(5)
Robert Z. Arnold 1996 149,663 3,000 5,000 2,076(6)
Senior Vice President, Business 1995 149,975 10,000 25,000 1,927(7)
Development Officer 1994 126,633 41,325 52,500 1,346(8)
Brian M. Jones 1996 178,019 1,500 2,500 1,451(9)
Senior Vice President, Operations 1995 163,750 50,000 25,000 748(10)
1994 130,977 50,000 70,000 3,648(11)
Rafael E. Sarabia 1996 137,696 1,500 3,000 1,552(12)
Former Vice President, Research and Development 1995 140,000 7,000 20,000 1,768(13)
1994 97,500 8,500 25,000 1,277(8)
</TABLE>
- ------------------------
(1) Except as otherwise noted, the bonus amounts are comprised of bonuses paid
at the discretion of the Compensation Committee pursuant to the Company's
executive bonus plan.
(2) Although the Company's Equity Incentive Plan (the "Plan") permits awards of
stock options, restricted stock, stock appreciation rights, performance
awards and other long-term incentive awards, no awards other than stock
options have been made to date to any of the Named Executive Officers.
(3) Dr. Siebert has been employed as the Company's President since July 1, 1995
and Chief Executive Officer since September 9, 1995.
(4) Consists of $900 of Company matching contributions under the Company's
401(k) retirement plan and $516 of life insurance premiums paid by the
Company.
(5) Consists of $34,486 of relocation expenses, $1,260 of life insurance
premiums paid by the Company, and $13,750 of director fees paid prior to Dr.
Siebert becoming an employee of the Company.
(6) Consists of $1,560 of Company matching contributions under the Company's
401(k) retirement plan and $516 of life insurance premiums paid by the
Company.
(7) Consists of $1,635 of Company matching contributions under the Company's
410(k) retirement plan and $292 of life insurance premiums paid by the
Company.
(8) The compensation reported represents Company matching contributions under
the Company's 401(k) retirement plan.
(9) Consists of $935 of Company matching contributions under the Company's
410(k) retirement plan and $516 of life insurance premiums paid by the
Company.
21
<PAGE>
(10) Consists of $546 of Company matching contributions under the Company's
401(k) retirement plan and $202 of life insurance premiums paid by the
Company.
(11) Consists of relocation expenses.
(12) Consists of $1,036 of Company matching contributions under the Company's
401(k) retirement plan and $516 of life insurance premiums paid by the
Company.
(13) Consists of $1,486 of Company matching contributions under the Company's
401(k) retirement plan and $282 of life insurance premiums paid by the
Company.
22
<PAGE>
STOCK OPTION GRANTS AND EXERCISES
The Company grants options to its executive officers under its Equity
Incentive Plan (the "Stock Plan"). As of March 21, 1997, options to purchase a
total of 1,292,407 shares were outstanding under the Plan and options to
purchase 335,876 shares remained available for grant thereunder.
The following tables show for the fiscal year ended December 31, 1996,
certain information regarding options granted to, exercised by, and held at year
end by, the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------------------------------ ANNUAL RATES OF
NUMBER OF STOCK PRICE
SECURITIES % OF TOTAL APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OR OPTION TERM(1)
OPTIONS TO EMPLOYEES IN BASE PRICE --------------------
NAME GRANTED (#) FISCAL YEAR(2) ($/SH)(3) EXPIRATION DATE 5%($) 10%($)
- ----------------------------------- ------------- ------------------- ------------- --------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
John M. Siebert(4)................. -- -- -- -- -- --
Robert Z. Arnold(4)................ 5,000 2.5% 6.375 12/9/2006 20,046 50,801
Brian M. Jones(4).................. 2,500 1.2% 6.375 12/9/2006 10,023 25,400
Rafael E. Sarabia(4)............... 3,000 1.5% 6.375 12/9/2006 12,028 30,480
</TABLE>
- ------------------------
(1) Reflects the value of the stock option on the date of grant assuming (i) for
the 5% column, a five-percent annual rate of appreciation in the Company's
Common Stock over the ten-year term of the option and (ii) for the 10%
column, a ten-percent annual rate of appreciation in the Company's Common
stock over the ten-year term of the option, in each case without any
discounting to net present value and before income taxes associated with the
exercise. Actual gains, if any, on stock option exercises depend on the
future performance of the Company's Common Stock and the continued
employment of the Named Executive Officer through the vesting period and
exercise period. These amounts represent assumed rates of appreciation only,
based on Securities and Exchange Commission Rules, and may not necessarily
be indicative of a results obtained.
(2) Based on options to purchase 200,300 shares of the Company's Common Stock
granted in 1996.
(3) All options were granted at the fair market value at the date of grant.
(4) Options vest over a 4 year period at the rate of 25% per year. The option
will fully vest upon change of control as defined in the option agreement,
unless the acquiring company substitutes similar options.
23
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR, AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT FY-END(#) OPTIONS AT FY-END ($)(2)
ACQUIRED ON VALUE -------------------------- --------------------------
NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------- ------------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John M. Siebert.............. 10,000 $ 30,000 152,500 60,000 $ 280,938 $ 127,500
Robert Z. Arnold............. -- -- 90,000 52,500 189,688 7,813
Brian M. Jones............... -- -- 41,250 56,250 91,875 91,875
Rafael E. Sarabia............ -- -- 32,500 35,500 79,688 48,438
</TABLE>
- ------------------------
(1) Fair Market Value of the Company's Common Stock on the date of exercise
minus the exercise price.
(2) Fair Market Value of the Company's Common Stock at December 31, 1996
($6.125) minus the exercise price of the options.
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement (the "Agreement") with Dr.
Siebert to employ Dr. Siebert as President and Chief Operating Officer of the
Company for three years beginning July 1, 1995. Under the terms of the
Agreement, Dr. Siebert receives an annual salary of $220,000 with annual
increases of 5% per year. In addition, the Agreement provides that Dr. Siebert
will be paid a cash incentive bonus of up to 50% of his salary upon the
Company's achievement of certain objectives. In the case of a change of control
of the Company, Dr. Siebert will receive a minimum cash bonus of $100,000 per
year for each year remaining under the Agreement for which he has not already
received a bonus. Dr. Siebert also received a stock option to purchase 180,000
shares of Common Stock with one-third vesting upon the execution of the
Agreement and the remaining amounts vesting in one-third increments at each
anniversary date of the Agreement. Pursuant to the Agreement the Company also
paid Dr. Siebert's relocation expenses, paid him a relocation bonus of $25,000,
and pays Dr. Siebert a car allowance of $650 per month. The Agreement contains
standard provisions regarding the protection of confidential information, a one-
year covenant not to compete and a covenant not to recruit.
The Company entered into an employment agreement (the "Employment
Agreement") with Keith P. Salenger to employ Mr. Salenger as Vice President,
Finance and Chief Financial Officer. Under the terms of the Employment
Agreement, Mr. Salenger receives an annual salary of $140,000. In addition, the
Employment Agreement provides that Mr. Salenger will be paid a cash incentive
bonus of up to 40% of his salary upon the Company's achievement of certain
objectives. Mr. Salenger also received a stock option to purchase 40,000 shares
of Common Stock, subject to standard employee stock option requirements.
Pursuant to the Employment Agreement, the Company also paid Mr. Salenger's
relocation expenses, paid him a relocation bonus of $25,000, and paid for six
weeks of temporary housing. Mr. Salenger has an agreement with the Company
pursuant to which he is entitled to receive six months' salary as severance pay
should the Company terminate his employment without cause within the first year
of employment.
Mr. Jones has an agreement with the Company pursuant to which he is entitled
to receive three months' salary as severance pay should the Company terminate
his employment without cause.
Dr. Hontz has an agreement with the Company pursuant to which he is entitled
to receive six months' salary as severance pay should the Company terminate his
employment without cause within the first year of employment.
24
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION*
The Compensation Committee of the Board of Directors (the "Committee") is
composed of a minimum of two non-employee directors. The Committee is composed
of Mr. Glarner and Dr. Weisbach.
The Committee is responsible for setting and administering the compensation
policies, annual executive officer compensation, making recommendations on
potential bonus and stock option plans, granting bonuses and recommending to the
Board of Directors grants of stock options to executive officers.
COMPENSATION PHILOSOPHY
The goals of the compensation program are to align compensation with
business objectives and performance and to enable the Company to attract,
motivate and retain executives of outstanding ability, potential and drive
commensurate with the size and innovative development requirements of the
Company. Key elements of this philosophy are:
- The Company pays competitively with comparable small companies with which
the Company competes for talent. To ensure that pay is competitive, the
Company compares its pay practices with these companies and sets it pay
parameters based in part on this review.
- The Company maintains annual incentive opportunities sufficient to provide
motivation to achieve specific operating goals and to generate rewards
that bring total compensation to competitive levels.
- The Company provides significant equity-based incentives for executives to
ensure that they are motivated over the long-term to respond to the
Company's business challenges.
The Committee endeavors to balance Company needs and values with the
employees' needs and believes that it is important that the Committee maintain
this relationship.
BASE SALARY
The base salaries of the executive officers are determined initially on the
basis of one or more salary surveys conducted by third parties as well as
surveys of pharmaceutical companies both nationally and more specifically in the
midwest obtained from public information such as filings with the Securities and
Exchange Commission and surveys conducted by technical analysts at financial
institutions. Based upon such surveys, the executive officer salaries are set
within the ranges of the surveys targeted at the median; the exact level is
determined after the Committee considers the experience and capability of the
executive officer, the level of responsibility, and the needs of the Company.
PERFORMANCE COMPENSATION
Corporate and individual goals are used to establish the basis for annual
performance compensation awards. During the last quarter of each year, the
President/Chief Executive Officer establishes corporate and individual
objectives for the next year and assigns relative weights to each of such goals.
At the end of the year results are compared to such objectives which are then
used to develop final bonus and stock option recommendations to the Committee
for the executive officers. Recommended awards are reviewed by the Committee
generally in the last quarter of the plan year based on these corporate and
individual performance objectives, and must be approved by the Committee prior
to being granted or, in the case of
- ------------------------
* "The material in this report is not "soliciting material," is not deemed
"filed" with the SEC, and is not to be incorporated by reference into any
filing of the Company under the 1933 Act or 1934 Act, whether made before or
after the date hereof and irrespective of any general incorporation language
contained in such filing."
25
<PAGE>
stock options, recommended to the Board of Directors by the Committee and
subsequently approved by the Board of Directors. The corporate objectives for
fiscal year 1996 were:
- Achieve introductory launch of one product in
Orasolv-Registered Trademark- technology.
- Achieve budgeted sales and licensing and royalty fees for the year.
- Achieve targeted earnings per share by December 31, 1996.
- Sign three additional license option and development agreements and turn
one of those agreements into a license and supply agreement by December
31, 1997.
STOCK OPTIONS
The President/Chief Executive Officer makes recommendations to the Committee
regarding grants of stock options to the executive officers based on performance
against individual and corporate objectives as well as surveys conducted by
technical analysts at financial institutions based on public knowledge of other
small development companies. The corporate objectives for the fiscal year 1996
are described above under the description of performance compensation. The
Committee reviews these recommendations and performance against corporate
objectives, as well as such surveys, and recommends to the Board of Directors
grants of stock options to the executive officers. Such recommendation of grants
may vary from the recommendations of the President/Chief Executive Officer as
the Committee determines based on their knowledge and experience as well as
other factors they deem relevant. The Committee views grants of stock options as
incentives for performance and, as a result, current holdings are considered in
recommending grants of additional stock options.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
Dr. Siebert's salary, potential bonus and stock option grants are set forth
in an employment agreement between the Company and Dr. Siebert, which was
negotiated on behalf of the Board of Directors by Mr. Glarner at the direction
of the Committee with due regard to Dr. Siebert's knowledge, experience,
competitive salary information and market conditions at the time. The employment
agreement is in the second year of its three-year term. Dr. Siebert's salary and
bonus for 1996 were $223,957 and $110,000, respectively. Bonuses and stock
option grants in future years will be at the discretion of the Committee,
provided that they meet certain minimums set forth in the employment agreement
in the case of bonuses.
From the members of the Compensation Committee of CIMA LABS INC.
Terrence W. Glarner
Jerry A. Weisbach, Ph.D.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As noted above, the Company's compensation committee consists of Mr. Glarner
and Dr. Weisbach.
26
<PAGE>
PERFORMANCE MEASUREMENT COMPARISON*
The following graph shows the total stockholder return of an investment of
$100 in cash on July 29, 1994 (the first trading date after the Company's Common
Stock became registered under Section 12 of the Securities Exchange Act of 1934,
as amended) for (i) the Company's Common Stock, (ii) the cumulative total return
on the Total Return Index for The Nasdaq Stock Market (U.S. Companies) (the
"Nasdaq Stock Market--U.S. Index") and (iii) the Total Return Index for Nasdaq
Pharmaceutical Stocks (the "Nasdaq Pharmaceuticals Index"). All values assume
reinvestment of the full amount of all dividends and are calculated as of
December 31 of each year:
COMPARISON OF 29 MONTH CUMULATIVE TOTAL RETURN ON INVESTMENT**
AMONG CIMA LABS INC., THE NASDAQ STOCK MARKET -- U.S. INDEX
AND THE NASDAQ PHARMACEUTICAL STOCK INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CIMA LABS INC. NASDAQ STOCK MARKET-US NASDAQ PHARMACEUTICAL
<S> <C> <C> <C>
7/29/94 $100 $100 $100
12/94 114 105 103
12/95 67 148 188
12/96 68 182 188
</TABLE>
- ------------------------
* This Section is not "soliciting material," is not deemed "filed" with the
SEC, and is not to be incorporated by reference into any filing of the
Company under the 1933 Act or 1934 Act, whether made before or after the
date hereof and irrespective of any general incorporation language contained
in such filing.
** $100 invested on 7/29/94 in stock or index--including reinvestment of
dividends. Fiscal year ending December 31.
27
<PAGE>
CERTAIN TRANSACTIONS
Keith P. Salenger became the Company's Vice President, Finance and Chief
Financial Officer in September 1996 and, in connection therewith, entered into
an employment agreement with the Company as more fully described under
"Compensation of Executive Officers -- Employment Agreements." Mr. Salenger has
an agreement with the Company pursuant to which he is entitled to receive six
months' salary as severance pay should the Company terminate his employment
without cause in the first year of employment.
Dr. Hontz has an agreement with the Company pursuant to which he is entitled
to receive six months' salary as severance pay should the Company terminate his
employment without cause within the first year of employment.
Joseph R. Robinson, Ph.D. entered into a Technology and Sponsored Research
Agreement with the Company as more fully described under "Executive Compensation
- -- Compensation of Directors." Dr. Robinson received an initial payment of
$15,000 and a second payment of $30,000 as compensation for the performance of
certain research work and granting the Company certain rights to patents and
technology developed during the course of such research. In addition, the
Research Agreement provides that the Company shall further compensate Dr.
Robinson up to $80,000 upon the achievement of certain milestones as well as
reimburse Dr. Robinson for legal fees, travel and other expenses associated with
the preparation of patent applications.
On June 19, 1996, the Stock Option Committee of the Board of Directors
granted non-statutory stock options to purchase 30,000 shares of the Company's
Common Stock at an exercise price of $8.00 per share under the Equity Incentive
Plan to each of Messrs. Glarner and Musket as compensation for their work in
connection with the Company's 1996 public offering.
The Company has entered into indemnity agreements with certain officers and
directors which provide, among other things, that the Company will indemnify
such officer or director for such liabilities permitted under Delaware Law, to
the full extent permitted under Delaware law, subject to certain limitations.
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters are properly brought
before the meeting, it is the intention of the persons named in the accompanying
proxy to vote on such matters in accordance with their best judgment.
By Order of the Board of Directors
[SIGNATURE]
Robert L. Jones
SECRETARY
April 10, 1997
28
<PAGE>
CIMA LABS INC.
NON-EMPLOYEE DIRECTORS' FEE OPTION GRANT PROGRAM
ADOPTED ON FEBRUARY 26, 1997
APPROVED BY STOCKHOLDERS
ON MAY ___, 1997
1. PURPOSE.
(a) The purpose of the Non-Employee Directors' Fee Option Grant Program
(the "Program") is to provide a means by which each member of the Board of
Directors of CIMA LABS INC. (the "Company") who is not an employee of the
Company (a "Non-Employee Director") will be given an opportunity to defer
receipt of cash compensation attributable solely to service as a member of
the Board of Directors of the Company (a "Director"), including, but not
limited to, annual retainer fees and board and committee meeting fees
(collectively, "Directors' Fees"), in the form of stock options to acquire
common stock of the Company.
(b) The Company, by means of the Program, seeks to retain the services
of persons now serving as Non-Employee Directors of the Company, to secure
and retain the services of persons capable of serving in such capacity, and
to provide incentives for such persons to exert maximum efforts for the
success of the Company.
2. EFFECTIVE DATE.
The Program shall become effective on March 12, 1997 (the "Effective
Date").
3. ADMINISTRATION.
(a) The Program shall be administered by the Board of Directors of the
Company (the "Board") unless and until the Board delegates administration to
a committee, as provided in subparagraph 3(c).
1.
<PAGE>
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Program:
(i) To construe and interpret the Program and options 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 Program or in any option, in a
manner and to the extent it shall deem necessary or expedient to make the
Program effective.
(ii) To amend the Program or an option as provided in Section 13.
(iii) 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 Program.
(c) The Board may delegate administration of the Program to a committee
composed of not fewer than two (2) members of the Board (the "Committee") who
may be, in the discretion of the Board, "Non-Employee Directors" within the
meaning of Rule 16b-3 promulgated under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), or any applicable successor thereto. If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Program, the powers theretofore
possessed by the Board, subject, however, to such resolutions, not
inconsistent with the provisions of the Program, 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 Program.
4. SHARES SUBJECT TO THE PROGRAM.
(a) Subject to the provisions of Section 10 relating to adjustments upon
changes in stock, the stock that may be sold pursuant to options granted under
the Program shall not exceed
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in the aggregate Sixty Thousand (60,000) shares of the Company's common stock
("Common Stock"). If any option granted under the Program shall for any
reason expire or otherwise terminate without having been exercised in full,
the stock not purchased under such option shall again become available for
the Program.
(b) The stock subject to the Program may be unissued shares or reacquired
shares, bought on the market or otherwise.
5. ELIGIBILITY.
Options may be granted only to Non-Employee Directors.
6. PARTICIPATION.
Each Non-Employee Director may elect to defer and apply all or any
portion of the Directors' Fees otherwise payable in cash for his or her
service on the Board to the acquisition of a special option grant under the
Program, as follows:
(a) ELECTIONS BY PERSONS SERVING AS NON-EMPLOYEE DIRECTORS ON THE
EFFECTIVE DATE. Persons serving as Non-Employee Directors on the Effective
Date may elect to defer Directors' Fees otherwise payable for services after
the Effective Date and until and including the 1997 Annual Meeting of
Stockholders of the Company ("1997 Annual Meeting"). Such election shall be
submitted to the Company's Chief Financial Officer no later than the
Effective Date. The deferral amount so elected (i) shall be irrevocable
until such 1997 Annual Meeting, and (ii) shall remain in effect with respect
to Directors' Fees otherwise payable after the 1997 Annual Meeting until the
Non-Employee Director affirmatively submits a replacement election (including
an election to cease all such deferrals), which replacement election may only
affect prospectively Directors' Fees not yet earned as of the date of the
replacement election. A replacement election (or an initial election, in the
case of a Non-Employee Director who chooses
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not to submit a deferral election by the Effective Date) must be submitted at
or prior to the 1997 Annual Meeting in order to be effective for Directors'
Fees otherwise payable after the 1997 Annual Meeting. Beginning on the date
of the 1997 Annual Meeting, deferral elections in effect must remain
irrevocably in effect for Directors' Fees otherwise payable until and
including the date of the next Annual Meeting.
(b) ELECTIONS BY PERSONS NAMED TO SERVE AS NON-EMPLOYEE DIRECTORS ON OR
AFTER THE EFFECTIVE DATE. Persons named to serve as Non-Employee Directors
on or after the Effective Date may elect to defer Directors' Fees otherwise
payable for services on or after becoming a Non-Employee Director by
submitting an election to the Company's Chief Financial Officer within thirty
(30) days of becoming a Non-Employee Director. Such election shall apply
only as to amounts which the Non-Employee Director was not yet entitled to
receive at the time of submission of the election. The deferral amount so
elected (i) shall be irrevocable until and including the Annual Meeting first
following submission, and (ii) shall remain in effect with respect to
Directors' Fees otherwise payable after that first following Annual Meeting
until the Non-Employee Director affirmatively submits a replacement election
(including an election to cease all such deferrals); which replacement
election may only affect prospectively Directors' Fees not yet earned as of
the date of the replacement election. A replacement election (or an initial
election, in the case of a Non-Employee Director who chooses not to submit a
deferral election within thirty (30) days of first becoming a Non-Employee
Director) must be submitted at or prior to the date of an Annual Meeting in
order to be effective for Directors' Fees otherwise payable after such Annual
Meeting. Deferral elections in effect as of any Annual Meeting must remain
in effect for Directors' Fees otherwise payable until and including the date
of the next Annual Meeting.
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7. NON-DISCRETIONARY GRANTS.
(a) Each Non-Employee Director who timely files a deferral election as
to Directors' Fees otherwise payable for services between the Effective Date
and the 1997 Annual Meeting (as described in Section 6(a) hereof) shall
automatically be granted an option to purchase common stock of the Company on
the date of the 1997 Annual Meeting, on the terms and conditions set forth
herein.
(b) Each Non-Employee Director who timely files a deferral election
within thirty (30) days of first becoming a Non-Employee Director as to
Directors' Fees payable until and including the first Annual Meeting during
such Non-Employee Director's service on the Board (as described in Section
6(b) hereof) shall automatically be granted an option to purchase common
stock of the Company on the date on which the Non-Employee Director files the
deferral election, on the terms and conditions set forth herein.
(c) Each Non-Employee Director who has a deferral election in effect (or
is deemed to have such an election in continuing effect, in accordance with
Section 6) as of any Annual Meeting of the Stockholders of the Company
occurring after the Effective Date shall automatically be granted an option
to purchase common stock of the Company on the date of such Annual Meeting,
on the terms and conditions set forth herein.
8. OPTION PROVISIONS.
Each option shall be a nonstatutory stock option (not intended to meet the
requirements of Section 422 of the Internal Revenue Code (the "Code")), subject
to the following terms and conditions:
(a) TERM. The term of each option commences on the date it is granted
and, unless sooner terminated as set forth herein, expires on the date
("Expiration Date") ten (10) years from
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the date of grant. If the Non-Employee Director's service as a Director
terminates for any reason or for no reason, the option shall terminate on the
earlier of the Expiration Date or the date three (3) years following the date
of termination of such service. Except as provided in Section 8(b) hereof,
an option may be exercised following termination of service as a Director
only as to that number of shares as to which it was exercisable as of the
date of termination of such service under the provisions of Section 8(e).
Each option held by a Director under the Program at the time of his or
her cessation of service as a Director shall immediately terminate and cease
to remain outstanding with respect to any and all shares of Common Stock for
which the option is not otherwise at that time exercisable.
(b) DEATH OR PERMANENT DISABILITY. Should the Non-Employee Director's
service as a Director cease by reason of death or permanent disability, then
each option held by that Non-Employee Director under the Program shall
immediately become exercisable for all the shares of Common Stock at the time
subject to that option, and the option may be exercised for any or all of
those shares as fully vested shares. For purposes of this plan, "permanent
disability" shall mean an inability to engage in any substantial gainful
activity by reason of any medically determinable physical or mental
impairment which can be expected to result in death or which has lasted or
can be expected to last for a continuous period of not less than twelve (12)
months.
Should the Non-Employee Director die while holding one or more options
under the Program, then each such option may be exercised, for any or all of
the shares for which the option is exercisable at the time of the
Non-Employee Director's cessation of service as a Director (less any shares
subsequently purchased by the Non-Employee Director prior to death),
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by the personal representative of the Non-Employee Director's estate or by
the person or persons to whom the option is transferred pursuant to the
Non-Employee Director's will or in accordance with the laws of descent and
distribution. Such right of exercise under this Section 8(b) shall lapse,
and the option shall terminate, upon the earlier of (i) the expiration of the
ten (10)-year option term described in Section 8(a), or (ii) the three
(3)-year period measured from the date of the Non-Employee Director's
cessation of service as a Director.
(c) EXERCISE PRICE.
(i) The exercise price per share shall be thirty-three and
one-third percent (33-1/3%) of the fair market value (as defined in Section
11(e) hereof) of a share of Common Stock on the last day of the month prior
to the option grant date.
(ii) The exercise price must be paid in full upon exercise of the
option using one of the following alternatives:
(1) in cash (including by check); or
(2) by delivery of shares of Common Stock already owned by the
Non-Employee Director, held for the period required to avoid a charge to the
Company's reported earnings, and owned free and clear of any liens, claims,
encumbrances or security interest, which Common Stock shall be valued at its
fair market value (as defined in Section 11(e) hereof) on the date of
exercise; or
(3) by a combination of the methods of payment specified in
Section 8(c)(ii)(1) or 8(c)(ii)(2) hereof.
Notwithstanding the foregoing, this option may be exercised pursuant to a
program developed under Regulation T as promulgated by the Federal Reserve Board
which results in the receipt of cash (or check) by the Company either prior to
the issuance of shares of the
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Company's common stock or pursuant to the terms of irrevocable instructions
issued by the Non-Employee Director prior to the issuance of shares of the
Company's common stock.
(d) NUMBER OF OPTION SHARES. The number of shares of Common Stock
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):
X = A / (B x 66-2/3%), where
X is the number of option shares,
A is the maximum amount of the Director's Fees subject to the
Non-Employee Director's deferral election and applied to the grant of
such option under the Program, and
B is the fair market value per share of Common Stock on the last day
of the month prior to the option grant date.
(e) VESTING. Each option shall vest (become exercisable) as follows:
(i) Options granted pursuant to Section 7(a) shall be fully vested
and exercisable on the date of grant.
(ii) Options granted pursuant to Sections 7(b) and 7(c) shall become
exercisable in installments on each date that Directors' Fees would have been
payable in cash had no deferral election been in effect under the Program
with respect to the number of shares equal to (1) the aggregate shares
subject to the option multiplied by (2) the fraction obtained where the
numerator is the cash Directors' Fees that the Non-Employee Director
otherwise would have received on such date and the denominator is the
aggregate Directors' Fees that the Non-Employee Director would have received
in cash absent a deferral election under this Program
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following the date of the option's grant through and including that Board
meeting held at the time of the next Annual Meeting of Stockholders of the
Company.
(f) The Company may require any Non-Employee Director, or any person to
whom an option is transferred under Section 8(b) or 8(h), as a condition of
exercising any such option: (i) to give written assurances satisfactory to
the Company as to the optionee's knowledge and experience in financial and
business matters; and (ii) to give written assurances satisfactory to the
Company stating that such person is acquiring the Common Stock subject to the
option for such person's own account and not with any present intention of
selling or otherwise distributing the Common Stock. These requirements, and
any assurances given pursuant to such requirements, shall be inoperative if
(i) the issuance of shares of Common Stock upon the exercise of the option
has been registered under a then-currently-effective registration statement
under the Securities Act of 1933, as amended (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 require any optionee to
provide such other representations, written assurances or information which
the Company shall determine is necessary, desirable or appropriate to comply
with applicable securities laws as a condition of granting an option to the
optionee or permitting the optionee to exercise the option. The Company may,
upon advice of counsel to the Company, place legends on stock certificates
issued under the Program 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 Common Stock.
(g) Notwithstanding anything to the contrary contained herein, an option
may not be exercised unless the shares of Common Stock issuable upon exercise of
such option are then
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registered under the Securities Act or, if such shares are not then so
registered, the Company has determined that such exercise and issuance would
be exempt from the registration requirements of the Securities Act.
(h) Options granted under the Program shall not be transferable, except
(i) by will or by the laws of descent and distribution, (ii) by written
designation which takes effect upon the Non-Employee Director's death, (iii)
by written instruction, in a form accepted by the Company, to the
Non-Employee Director's spouse, children, stepchildren, or grandchildren
(whether adopted or natural), to a trust created solely for the benefit of
the Non-Employee Director and the foregoing persons, or (iv) to the
Non-Employee Director's former spouse (if transfer is pursuant to a judicial
decree dissolving the Non-Employee Director's marriage). During a
Non-Employee Director's life the Non-Employee Director's option is
exercisable only by the Non-Employee Director or a transferee satisfying the
above conditions. The right of a transferee to exercise the transferred
portion of an option after the Non-Employee Director's termination of service
as a Director shall terminate in accordance with the Non-Employee Director's
right of exercise under Sections 8(a) or 8(b) hereof (after the Non-Employee
Director's death, treating the transferee as a person who acquired the right
to exercise the Non-Employee Director's option by bequest or inheritance).
The terms of the Non-Employee Director's option shall be binding upon the
transferees, executors, administrators, heirs, successors, and assigns of the
Non-Employee Director.
10.
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9. COVENANTS OF THE COMPANY.
(a) During the terms of the options granted under the Program, the
Company shall keep available at all times the number of shares of Common
Stock required to satisfy such options.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Program such authority as may be required
to issue and sell shares of Common Stock upon exercise of the options granted
under the Program; PROVIDED, HOWEVER, that this undertaking shall not require
the Company to register under the Securities Act either the Program, any
option granted under the Program, or any Common Stock issued or issuable
pursuant to any such option. 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 Common Stock under the Program, the Company shall be relieved from
any liability for failure to issue and sell Common Stock upon exercise of
such options.
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of Common Stock pursuant to the exercise of options
granted under the Program shall constitute general funds of the Company.
11. MISCELLANEOUS.
(a) Neither a Non-Employee Director nor any person to whom an option is
transferred under Section 8(b) or 8(h) 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 option unless and until such person has satisfied all requirements for
exercise of the option pursuant to its terms.
11.
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(b) Nothing in the Program or in any instrument executed pursuant
thereto shall confer upon any Director any right to continue in the service
of the Company in any capacity or shall affect any right of the Company, its
Board or stockholders to remove any Director pursuant to the Company's
By-Laws and the provisions of the Delaware General Corporation Law (or the
applicable laws of the Company's state of incorporation if the Company's
state of incorporation should change in the future).
(c) No Director, individually or as a member of a group, and no
beneficiary, transferee or other person claiming under or through him or her,
shall have any right, title or interest in or to any option reserved for the
purposes of the Program except as to such shares of Common Stock, if any, as
shall have been reserved for such person pursuant to an option granted (or
transferred) to such person.
(d) In connection with each option made pursuant to the Program, it
shall be a condition precedent to the Company's obligation to issue or
transfer shares to any person, or to evidence the removal of any restrictions
on transfer, that such person make arrangements satisfactory to the Company
to insure that the amount of any federal or other withholding tax required to
be withheld with respect to such sale or transfer, or such removal or lapse,
is made available to the Company for timely payment of such tax.
(e) As used in this Program, "fair market value" means, as of any date,
the value of the Common Stock of the Company determined as follows:
(i) If the Common Stock is listed on any established stock exchange
or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the
fair market value of a share of Common Stock shall be the closing sales price
for such Common Stock (or the closing bid,
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if no sales were reported) as quoted on such exchange or market (or the
exchange or market with the greatest volume of trading in the Company's
Common Stock in the event that the Company's Common Stock is traded on more
than one such exchange or market) 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; or
(ii) In the absence of such markets for the Common Stock, the fair
market value shall be determined in good faith by the Board.
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Program, or
subject to any option granted under the Program (through merger,
consolidation, reorganization, recapitalization, 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
Program and outstanding options will be appropriately adjusted in the
class(es) and maximum number of shares subject to the Program and the
class(es) and number of shares and price per share of stock subject to
outstanding options. Such adjustments shall be made by the Board, 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 all or
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
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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 not prohibited by applicable
law, the time during which options outstanding under the Program vest and may
be exercised shall be accelerated prior to the occurrence of such event and
the options terminated if not exercised after such acceleration and at or
prior to the occurrence of such event.
13. AMENDMENT OF THE PROGRAM.
(a) The Board at any time, and from time to time, may amend the Program
and/or some or all of the outstanding options granted under the Program.
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 which may be issued under the
Program;
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(ii) Modify the requirements as to eligibility for
participation in the Program (to the extent such modification requires
stockholder approval in order for the Program to comply with the requirements
of Rule 16b-3 promulgated under the Exchange Act); or
(iii) Modify the Program in any other way if such modification
requires stockholder approval in order for the Program to comply with the
requirements of Rule 16b-3 promulgated under the Exchange Act.
(b) Rights and obligations under any option granted before any amendment
of the Program shall not be impaired by such amendment unless (i) the Company
requests the consent of the person to whom the option was granted and (ii)
such person consents in writing.
14. TERMINATION OR SUSPENSION OF THE PROGRAM.
(a) The Board may suspend or terminate the Program at any time. Unless
sooner terminated, the Program upon the issuance of all of the shares of
Common Stock reserved for issuance hereunder. No options may be granted
under the Program while the Program is suspended or after it is terminated.
(b) Rights and obligations under any option granted while the Program is
in effect shall not be impaired by suspension or termination of the Program,
except with the consent of the person to whom the option was granted.
(c) The Program shall terminate upon the occurrence of any of the events
described in Section 12(b) above.
15.
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15. EFFECTIVE DATE OF PROGRAM; CONDITIONS OF EXERCISE.
(a) The Program shall become effective on the date specified in Section
2, subject to the condition subsequent that the Program is approved by the
stockholders of the Company. In the event that the stockholders of the
Company do not approve the Program at the 1997 Annual Meeting, then any
Non-Employee Director's election to defer Directors' Fees hereunder shall be
void, and such deferred Directors' Fees shall be paid in cash to such
Non-Employee Director as soon as reasonably practicable following the 1997
Annual Meeting.
(b) No option granted under the Program shall be exercised or
exercisable unless and until the conditions of Section 9(b) or Section 15(a)
hereof has been met.
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APPENDIX B
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.
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(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.
(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.
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(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.
(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.
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(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.
(ab) "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.
4.
<PAGE>
(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
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.
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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)
6.
<PAGE>
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.
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
7.
<PAGE>
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.
(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
8.
<PAGE>
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.
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.
9.
<PAGE>
(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:
(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.
10.
<PAGE>
(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.
11.
<PAGE>
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
12.
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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.
(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
13.
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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;
(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.
14.
<PAGE>
(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.
15.
<PAGE>
CIMA LABS INC.
PROXY SOLICITED BY BOARD OF DIRECTORS
FOR THE ANNUAL MEETING MAY 14, 1997
John M. Siebert, Ph.D. and Robert L. Jones, or either of them, each with
power of substitution, hereby are authorized to represent and vote as designated
on the reverse side the shares of the undersigned at the Annual Meeting of
Stockholders of CIMA LABS INC. to be held Wednesday, May 14, 1997, at 3:00 p.m.
local time, at the Company's offices located at 10000 Valley View Road, Eden
Prairie, Minnesota 55344, or at any adjournment of the Annual Meeting.
<TABLE>
<S> <C> <C>
1. Election of Directors
q FOR all nominees listed below.
AUTHORITY TO VOTE FOR ANY NOMINEE MAY BE WITHHELD BY LINING
THROUGH SUCH NOMINEE'S NAME BELOW.
JOHN M. SIEBERT, PH.D., TERRENCE W. GLARNER, DAVID B.
MUSKET,
STEVEN B. RATOFF, JOSEPH R. ROBINSON, PH.D., JERRY A.
WEISBACH, PH.D.
To approve the amendment and restatement of the Company's
2. 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.
q FOR q AGAINST q ABSTAIN
3. To approve the Company's Directors' Fee Option Grant
Program.
q FOR q AGAINST q ABSTAIN
<CAPTION>
1.
<S> <C>
q WITHHOLD AUTHORITY to vote for all nominees listed below.
2.
3.
</TABLE>
<PAGE>
(CONTINUED FROM OTHER SIDE)
<TABLE>
<S> <C> <C>
4. To ratify the selection of Ernst & Young LLP as independent
auditors of the Company for its fiscal year ending December
31, 1997.
q FOR q AGAINST q ABSTAIN
<CAPTION>
4.
<CAPTION>
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF DIRECTORS AND FOR
PROPOSALS 2 THROUGH 4
Shares represented by this proxy will be voted as directed by the
stockholder. If no such directions are indicated, the proxies will have
authority to vote FOR the Election of Directors and FOR Proposals 2 through 4.
DATED: _____________________ , 1997
___________________________________
Signature
___________________________________
Additional signature, if held
jointly
Please sign exactly as your name
appears on this proxy. If signing
for estates, trusts or
corporations, title or capacity
should be stated. If shares are
held jointly, each holder should be
stated. If shares are held jointly,
each holder should sign.
PLEASE MARK, DATE, SIGN AND RETURN.
