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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 0-24424
CIMA LABS INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 41-1569769
- -------------------------------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
10000 Valley View Road, Eden Prairie, Minnesota 55344-9361
(Address of principal executive offices including zip code)
(612) 947-8700
(Registrant's telephone number, including area code)
---------------------------------------------------
(Former name, former address and former fiscal year, if changed since last report)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
COMMON STOCK $.01 PAR VALUE 9,457,051 SHARES
----------------------------- ---------------------------------
(Class) (Outstanding at April 30, 1997)
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CIMA LABS INC.
TABLE OF CONTENTS
PAGE NUMBER
-----------
COVER PAGE 1
TABLE OF CONTENTS 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Condensed Balance Sheets as of March 31, 1997
and December 31, 1996 3
Condensed Statements of Operations for the three
month periods ended March 31, 1997 and 1996
and the period from December 12, 1986 (inception)
to March 31, 1997 4
Condensed Statements of Cash Flows for the three-month
periods ended March 31, 1997 and 1996 and the period
from December 12, 1986 (inception) to March 31, 1997 5
Notes to Condensed Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. 8
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. 13
ITEM 2. CHANGES IN SECURITIES. 13
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. 14
ITEM 5. OTHER INFORMATION. 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. 14
SIGNATURE 15
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CIMA LABS INC.
(A Development Stage Company)
Condensed Balance Sheets
March 31, December 31,
1997 1996 (1)
---------- -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $3,684,338 $2,666,032
Short-term investments 4,400,508 7,597,162
Accounts receivable 253,012 247,578
Inventories--Note B 670,927 534,587
Prepaid expenses 233,121 71,880
----------- ------------
Total current assets 9,241,906 11,117,239
Property, plant and equipment 13,510,131 13,377,085
Less accumulated depreciation (3,096,373) (2,972,474)
----------- ------------
10,413,758 10,404,611
Other assets:
Lease deposits 40,651 290,650
Patents and trademarks, net of amortization 246,640 252,404
----------- ------------
287,291 543,054
----------- ------------
Total assets $19,942,955 $22,064,904
----------- ------------
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $358,291 $264,370
Accrued expenses 464,032 529,402
Advance royalties 250,000 250,000
----------- ----------
Total current liabilities 1,072,323 1,043,772
Commitments and contingencies
Stockholders' equity
Convertible Preferred Stock, $.01 par value:
Authorized shares--5,000,000; issued and
outstanding shares-- none - -
Common Stock, $.01 par value:
Authorized shares--20,000,000; issued and
outstanding shares--9,457,051--March 31, 1997;
9,411,589--December 31, 1996 94,570 94,116
Additional paid-in capital 56,768,338 56,586,958
Deficit accumulated during the development stage (37,992,276) (35,659,942)
------------ -----------
Total stockholders' equity 18,870,632 21,021,132
------------ -----------
Total liabilities and stockholders' equity $19,942,955 $22,064,904
----------- -----------
----------- -----------
(1) The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to condensed financial statements.
3
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CIMA LABS INC.
(A Development Stage Company)
Condensed Statements of Operations (Unaudited)
Period from
December 12,
Three Months Ended 1986
March 31, (Inception) to
---------------------------- March 31,
1997 1996 1997
-------------------------- -------------
Revenues:
Net sales $191,708 $0 $13,942,592
Research and development
fees & licensing revenues 76,548 391,858 5,423,138
-------------------------- ------------
268,256 391,858 19,365,730
Costs and expenses:
Cost of goods sold 580,874 0 18,412,289
Research and product 1,230,499 1,375,946 21,753,347
development
Selling, general and 889,679 783,702 18,533,754
administrative
-------------------------- ------------
2,701,052 2,159,648 58,699,390
Other income (expense):
Interest income, net 128,291 39,385 1,247,691
Other income (expense) 1,193 (5,379) 271,223
-------------------------- ------------
129,484 34,006 1,518,914
-------------------------- ------------
Net loss and deficit
accumulated during the
development stage ($2,303,312) ($1,733,784) ($37,814,746)
--------------------------- -------------
--------------------------- -------------
Net loss per share:
Primary $(0.24) $(0.22) $(13.72)
Fully diluted $(0.24) $(0.22) $(9.26)
Weighted average shares
outstanding:
Primary 9,446,235 7,824,365 2,755,707
Fully diluted 9,446,235 7,824,365 4,085,540
See notes to condensed financial statements.
4
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CIMA LABS INC.
(A Development Stage Company)
Condensed Statements of Cash Flows (Unaudited)
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<CAPTION>
Three Months Ended Period from
March 31, December 12, 1996
----------------------------------- (Inception) to
OPERATING ACTIVITIES 1997 1996 March 31, 1997
----------------------------------- -------------------
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Net loss ($2,303,312) ($1,733,784) ($37,814,746)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 155,385 147,030 4,175,948
Preferred stock issued for accrued interest 0 0 141,448
Gain on sale of property, plant and equipment 0 0 (53,270)
Changes in operating assets and liabilities:
Accounts receivable (5,433) (160,651) (253,011)
Inventories (136,340) 228,832 (670,927)
Other current assets (161,240) 24,648 (233,120)
Accounts payable 93,921 274,138 358,287
Accrued expenses (65,370) 209,955 464,032
Advance royalties 0 0 250,000
---------------------------------- -------------------
Net cash used in operating activities (2,422,389) (1,009,832) (33,635,359)
INVESTING ACTIVITIES
Purchase of and deposits on property, plant and equipment (132,450) (111,759) (14,593,786)
Purchase of short-term investments 0 0 (26,144,302)
Proceeds from sale of property, plant & equipment 0 0 471,883
Proceeds of maturities of short-term investments 3,196,656 0 21,743,796
Patents and trademarks (26,323) (15,572) (641,751)
--------------------------------- -------------------
Net cash provided by (used in) investing activities 3,037,883 (127,331) (19,164,160)
FINANCING ACTIVITIES
Proceeds from issuance of stock:
Common Stock 152,812 95,016 30,984,987
Preferred Stock 0 0 25,458,690
Lease financing of equipment 0 0 2,441,650
Security deposits on leases 250,000 0 (40,651)
Proceeds from issuance of notes payable and warrants 0 0 1,923,951
Payments on notes payable 0 0 (1,823,700)
Payments on capital leases 0 0 (2,441,650)
Organization costs 0 0 (19,420)
--------------------------------- -------------------
Net cash (used in) provided by financing activities 402,812 95,016 56,483,857
--------------------------------- -------------------
Increase (decrease) in cash and cash equivalents 1,018,306 (1,042,147) 3,684,338
Cash and cash equivalents at beginning of period 2,666,032 3,558,743 -
--------------------------------- -------------------
Cash and cash equivalents at end of period $3,684,338 $2,516,596 $3,684,338
--------------------------------- -------------------
--------------------------------- -------------------
Supplemental schedule of noncash
investing and financing activities:
Note payable exchanged for issuance of common stock $1,517,500
Common stock issued for note receivable 50,000
See notes to condensed financial statements.
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5
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CIMA LABS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1997 (UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three-month period ended March 31, 1997 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1997. For further information, refer to the financial
statements and footnotes thereto included in the Company's annual report on Form
10-K for the year ended December 31, 1996.
NOTE B - INVENTORIES
Inventories are stated at the lower of cost (first in, first out) or fair market
value.
March 31, December 31,
1997 1996
-------- --------
Raw materials $424,347 $534,587
Work in process 116,050 --
Finished products 130,530 --
-------- --------
$670,927 $534,587
NOTE C - INITIAL PUBLIC OFFERING
The Company completed its initial public offering ("IPO") of its Common Stock in
August 1994. Outstanding shares of Series A, B, C, D and E Preferred Stock were
automatically converted on a one-for-one basis to shares of Common Stock on the
closing date of August 4, 1994.
NOTE D - NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of common
shares outstanding during the period. Common
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equivalent shares from stock options and warrants are excluded from the
computation as their effect is antidilutive. In February 1997, the Financial
Accounting Standards Board (FASB) issued FASB Statement No. 128,
"EARNINGS PER SHARE." This Statement replaces the presentation of primary
earnings per share (EPS) with basic EPS and also requires dual presentation of
basic and diluted EPS for entities with complex capital structures. This
Statement is effective for the fiscal year ended December 31, 1997. For the
quarter ended March 31, 1997, there is no difference between basic earnings per
share under Statement No. 128 primary net loss per share as reported.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE FOLLOWING
DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. WHEN USED HEREIN, THE WORDS "ANTICIPATE," "EXCEPT," "ESTIMATE"
AND SIMILAR EXPRESSIONS AS THEY RELATE TO THE COMPANY OR ITS MANAGEMENT ARE
INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD
CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THE
SUCCESS OF THE COMPANY IN MANUFACTURING THE COMPANY'S TECHNOLOGY, THE
AVAILABILITY OF ADEQUATE FUNDS FOR THE COMPANY'S OPERATIONS, THE SUCCESS OF THE
COMPANY IN COMMERCIALIZING ITS NEW DRUG DELIVERY PROGRAMS, AND THE COMPANY'S
RELIANCE ON ITS KEY PERSONNEL AND COLLABORATIVE PARTNERS, AS WELL AS THOSE
DISCUSSED IN "BUSINESS RISKS" BELOW.
GENERAL
CIMA, founded in 1986, is a drug delivery company focused primarily on the
development and manufacture of pharmaceutical products based upon its patented
OraSolv-Registered Trademark- technology for marketing by multi-national
pharmaceutical companies. OraSolv is an oral dosage formulation incorporating
microencapsulated active drug ingredients into a tablet which dissolves quickly
in the mouth without chewing or water and which effectively masks the taste of
the medication being delivered. OraSolv's fast-dissolving capability may enable
patients in certain age groups or those with a variety of conditions that limit
their ability to swallow conventional tablets to receive medication in a more
convenient oral dosage form. The Company believes that OraSolv is more
convenient than traditional tablet-based oral dosages as it does not require
water to be ingested, thereby enabling immediate medication at the onset of
symptoms. In addition, OraSolv can provide more accurate administration of
doses than liquid or suspension formulations as no measuring is required. The
Company believes OraSolv's ease of use and effective taste-masking may foster
greater patient compliance with recommended dosage regimens, both for
over-the-counter ("OTC") and prescription products, thereby improving
therapeutic outcomes and reducing costs in the healthcare system.
CIMA's business strategy is to commercialize its OraSolv technology through
collaborations with multi-national pharmaceutical companies with emphasis on
products which command a large market share and/or are in large market segments.
The Company is currently focused on the development and manufacture of OraSolv
products for the OTC market. Product differentiation and brand name identity
are critical to the successful marketing of OTC products. The Company believes
that OraSolv affords pharmaceutical companies a means to significantly
differentiate their products in the competitive OTC marketplace. Because it is
a patented technology, OraSolv affords more enduring product differentiation
than the more traditional approaches of changing product flavor or packaging
innovations, which can be easily replicated. The Company has entered into
agreements with a number of pharmaceutical companies for development,
manufacture and commercialization of OTC or OTC switch products.
The Company also intends to develop OraSolv products for selected
prescription drug applications. The Company believes that such prescription
OraSolv products might result in improved taste acceptance and ease of
administration, and so enhance patient compliance with the recommended dosage
regimen for such prescription pharmaceuticals. The Company has also initiated
the development of new drug
8
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technologies. These technologies include new oral solid delivery systems,
unique sustained-released delivery systems and improved efficacy delivery
systems. The goal is to focus on technologies that improve efficacy.
At March 31, 1997, the Company had accumulated losses of approximately
$37,815,000. The Company recorded its first commercial sales using the
Company's OraSolv technology in the three month period ending March 31, 1997.
Prior to this the Company's revenues have been from sales using the Company's
AutoLution-Registered Trademark- (a liquid effervescent) technology, license
fees paid by corporate partners in consideration of the transfer of rights under
collaboration agreements, and research and development fees paid by corporate
partners to fund the Company's research and development efforts for products
developed under such agreements. To date, such revenues have been derived
primarily from manufacturing agreements with third parties for liquid
effervescent and other products, and to a lesser extent from research and
development fees and licensing arrangements, the latter generated primarily in
the last five years. The Company is not currently manufacturing liquid
effervescent products, and has not recognized any revenues from such products
since 1995. As noted above, the Company began manufacturing OraSolv products in
the first quarter 1997, and the Company expects to continue generating revenue
from manufacturing OraSolv products. In addition to revenues from such
manufacturing, research and development and licensing, the Company has funded
operations from private and public sales of equity securities, realizing net
proceeds of approximately $25,963,000 from private sales of equity securities
and $16,379,000 and $12,038,000 from the Company's July 1994 initial public
offering and May 1996 public offering of its Common Stock, respectively. The
total shares outstanding at March 31, 1997 were 9,457,051.
The Company's ability to generate revenues is dependent upon its ability to
develop new, innovative drug delivery technologies and to enter into and be
successful in collaborative arrangements with pharmaceutical and other
healthcare companies for the development and manufacture of OraSolv products to
be marketed by these corporate partners. The Company is highly dependent upon
the efforts of the corporate partners to successfully market OraSolv products.
Although the Company believes these partners will have an economic motivation to
market these products vigorously, the amount and timing of resources to be
devoted to marketing are not within the control of the Company. These partners
independently could make material marketing and other commercialization
decisions which could adversely affect the Company's future revenues. Moreover,
certain of the Company's products are seasonal in nature and the Company's
revenues could vary materially from quarter to quarter depending on which of
such products, if any, are then being marketed.
The Company expects that losses will continue through at least 1998, even
though CIMA expects to continue generating sales revenue from manufacturing
OraSolv products in 1997. Research and development expenses will increase as
CIMA investigates new drug delivery technologies, including the possibility of
utilizing microencapsulation for the development of controlled release systems,
as well as sublingual systems which could deliver faster absorption of drug
ingredients. Personnel costs for research and development are expected to
remain relatively stable as the majority of the necessary personnel for this
function has already been hired. Personnel costs for administration may
decrease slightly in an effort to reduce corporate overhead. As CIMA continues
production for its first commercial launch of a product incorporating its
OraSolv technology, additional operations personnel may need to be added to meet
a corporate partner's order. Manufacturing infrastructure costs should not need
to increase materially as there is capacity to meet short-term production needs.
9
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In recent years the Company has actively marketed its OraSolv technology
to the pharmaceutical industry. The Company is presently engaged in product
development and manufacturing scale-up efforts and negotiations with several
different pharmaceutical companies regarding a variety of potential products.
In the fourth quarter of 1996, the Company signed a Supply Agreement with an
undisclosed major pharmaceutical company. The Agreement covers full-scale
production of an over-the-counter product in CIMA's OraSolv dosage form. CIMA
began commercial production for this product during the first quarter of 1997.
The retail launch for this product is expected in 1997. Regarding the other
efforts mentioned above, there can be no assurance that these activities or
discussions will result in license agreements or the marketing of products using
the OraSolv technology. The Company believes that mergers and acquisitions in
the pharmaceutical industry in recent years, together with changes in product
plans by potential partners, may have had an adverse effect on the progress of
certain projects, and the eventual marketing of products incorporating the
Company's technology.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
The Company's results of operations for the quarter ended March 31, 1997
reflect the increased emphasis on developing and manufacturing of OraSolv
products with an anticipated commercial launch of an OraSolv product by one of
our corporate partners in 1997. Product sales increased to $192,000 in the
first quarter of 1997 from zero product sales in the first quarter of 1996 due
to the first commercial sales of products using the OraSolv technology, which
began in the first quarter of 1997. Research and development fees and licensing
revenues were $77,000 and $392,000 in the first quarter of 1997 and 1996,
respectively. The decrease in research and development fees and licensing
revenue was primarily due to a $267,000 research and development fee paid by
SmithKline Beecham in the first quarter of 1996 that was not repeated in 1997.
So long as the Company has relatively few agreements with corporate partners,
these revenues will tend to fluctuate on a quarter to quarter basis.
Cost of goods sold increased to $581,000 in the first quarter of 1997 from zero
in the first quarter. The main component of the cost of goods sold in 1997 was
the manufacturing infrastructure costs necessary for future anticipated sales
levels. In 1996, these costs were classified as product development expenses.
Research and development expenses decreased to $1,230,000 from $1,376,000 for
the first quarter of 1997 and 1996, respectively. After the accounting for the
reclassification of manufacturing infrastructure costs, as noted above, research
and development expenses increased on a like to like comparison by approximately
$340,000. This increase was due to expenses related to the hiring of the new
Vice President of research and development, product development expenses related
to the transition to commercial production and expenditures related to
development work on the new technologies, discussed earlier. Selling, general
and administrative expenses increased from $784,000 for the three month period
ending March 31, 1996, to $890,000 for the three month period ending March 31,
1997, resulting from increased spending on consumer marketing studies to support
OraSolv. Net interest income shows an increase from $39,000 to $128,000 for the
three month period ending March 31, 1996, and 1997, respectively. Net interest
income is dependent on the cash position of the Company.
10
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LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations to date primarily through private
and public sales of its equity securities and revenues from manufacturing
agreements. Through March 31, 1997, CIMA had received net offering proceeds
from such private and public sales of approximately $56,444,000 and had net
sales from manufacturing agreements of approximately $13,943,000. Cash, cash
equivalents and short-term investments were approximately $8,085,000 at
March 31, 1997.
The Company's long-term capital requirements will depend upon numerous
factors, including the status of the Company's collaborative arrangements, the
progress of the Company's research and development programs and receipt of
revenues from sales of the Company's products. The Company believes that its
currently available funds, including any license fees and sales revenue
anticipated to be received in the future, will meet its needs through 1997.
Thereafter, or sooner if conditions make it necessary, the Company will need to
raise additional funds through public or private financings, including equity
financing which may be dilutive to stockholders. There can be no assurance that
the Company will be able to raise additional funds if its capital resources are
exhausted, or that funds will be available on terms attractive to the Company.
The Company has not generated taxable income through March 1997. At
December 31, 1996, the net operating losses available to offset taxable income
were approximately $35,247,000. Because the Company has experienced ownership
changes, pursuant to Internal Revenue Code regulations, future utilization of
the operating loss carryforwards will be limited in any one fiscal year. The
carryforwards expire beginning in 2001. As a result of the annual limitation, a
portion of these carryforwards may expire before ultimately becoming available
to reduce potential federal income tax liabilities.
BUSINESS RISKS
The Company has recently initiated commercial production of its first
product in CIMA's OraSolv dosage form, and must be evaluated in light of the
uncertainties and complications present for any such company and, in particular,
a company in the pharmaceutical industry. The Company has accumulated aggregate
net losses from inception through March 31, 1997 of $37,815,000. Losses have
resulted principally from costs incurred in research and development of the
Company's technologies and from general and administrative costs. These costs
have exceeded Company's revenues, which have been derived primarily from the
manufacturing of AutoLution (a liquid effervescent) and other non-OraSolv
products for which the Company no longer manufactures. In more recent years,
the Company has also received revenue from its commercial partners for product
development and licensing of OraSolv, and to a lesser extent, OraSolv for which
commercial production commenced in the first quarter of 1997 for a commercial
partner. The Company expects to continue to incur quarterly losses at least
through the first half of 1998. There can be no assurance that the Company will
ever generate substantial revenues or achieve profitability.
The Company is dependent upon its ability to enter into and perform under
collaborative arrangements with pharmaceutical companies for the development and
commercialization of its products. Failure of these partners to market the
Company's products successfully could have a material adverse effect on the
Company's financial condition and results of operations. The Company's revenues
are also dependent upon ultimate consumer acceptance of the OraSolv drug
delivery system as an alternative to conventional oral dosage forms. The
Company expects that OraSolv products will be priced slightly
11
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higher than conventional swallow tablets. Although the Company believes that
initial consumer research has been encouraging, there can be no assurance that
market acceptance for the Company's OraSolv products will ever develop or be
sustained.
The Company began manufacturing OraSolv products in commercial quantities
in February 1997. Commercial sales have been made and revenue has been
recognized from sales of an OraSolv product. To achieve future desired levels
of production, the Company will be required to increase its manufacturing
capabilities. There can be no assurance that manufacturing can be scaled-up in
a timely manner to allow production in sufficient quantities to meet the needs
of the Company's corporate partners.
The Company intends to increase its research and development expenditures
to enhance its current technologies, and to pursue internal proprietary drug
delivery technologies. Even if these technologies appear promising during
various stages of development, they may not reach the commercialization stage
for a number of reasons. Such reasons include the possibilities of not finding
a partner to market the product, the product being difficult to manufacture on a
large scale or of being uneconomical to market.
The foregoing risks reflect the Company's stage of development and the
nature of the Company's industry and products. Also inherent in the Company's
stage of development and the nature of the Company's industry is a range of
additional risks, including competition, uncertainties regarding the effects of
healthcare reform on the pharmaceutical industry, including pressures exerted on
the prices charged for pharmaceutical products, and uncertainties regarding
protection of patents and proprietary rights.
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CIMA LABS INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None
ITEM 2. CHANGES IN SECURITIES.
On March 13, 1997, the Board of Directors of CIMA LABS INC.
(the "Company") declared a dividend of one preferred share purchase
right (a "Right") for each outstanding share of the Company's
Common Stock (the "Common Shares"). The dividend was effective as
of April 10, 1997 (the "Record Date") and the Rights also attached
to new Common Shares issued after the Record Date. Each Right
entitles the registered holder to purchase from the Company one
one-hundredth of a share of Series A Junior Participating Preferred
Stock, par value $.01 per share (the "Preferred Shares"), subject
to adjustment. Each Preferred Share is designed to be the economic
equivalent of 100 Common Shares. The description and terms of the
Rights are set forth in a Rights Agreement dated as of March 14,
1997 between the Company and Norwest Bank Minnesota, N.A., which is
incorporated by reference as Exhibit 4.2 to this Quarterly Report
on Form 10-Q.
Initially, the Rights are evidenced by the stock certificates
representing Common Shares then outstanding. Upon the occurrence
of certain events resulting in, or which are intended to result in,
a person or group of persons (an "Acquiring Person") acquiring
beneficial ownership of 15% or more of the outstanding Common
Shares, (i) the Rights will be evidenced by Rights Certificates and
(ii) the Rights will become exercisable. In the event that any
person or group of affiliated or associated persons becomes an
Acquiring Person, proper provision shall be made so that each holder
of a Right, other than Rights beneficially owned by the Acquiring
Person (which will thereafter be void), will thereafter have the
right to receive upon exercise that number of Common Shares having
a market value of two times the exercise price of the Right. In
the event that the Company is acquired in a merger or other
business combination transaction or 50% or more of its consolidated
assets or earning power are sold, proper provision will be made so
that each holder of a Right will thereafter have the right to
receive, upon the exercise thereof at the then current exercise
price of the Right, that number of shares of common stock of the
acquiring company which at the time of such transaction will have
a market value of two times the exercise price of the Right.
The Rights are subject to certain redemption provisions (at
$.01 per Right) and exchange provisions (at a rate of one Common
Share or one-hundredth of a Preferred Share per Right), in each
case subject to adjustment, which are exercisable at the sole
discretion of the Board of Directors. In addition, the terms of
the Rights may be amended by the Board of Directors of the Company
without the consent of the holders of the Rights, except that from
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and after such time as any person or group of affiliated or
associated persons becomes an Acquiring Person no such amendment
may adversely affect the interests of the holders of the Rights.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
ITEM DESCRIPTION
4.2* Rights Agreement, dated as of March 14, 1997,
between the Company and Norwest Bank Minnesota,
N.A.
10.11 Equity Incentive Plan, as amended and restated.
10.24 Offer letter between the Company and John Hontz,
Ph.D. dated November 26, 1996.
10.25 Non-Employee Directors' Fee Option Grant Program.
27 Financial Data Schedule.
___________
* Incorporated by reference herein to Exhibit 2 to the
Company's Current Report on Form 8-K filed March 25, 1997.
(b) REPORTS ON FORM 8-K
On March 25, 1997 the Company filed a Current Report on Form
8-K with the Securities and Exchange Commission disclosing
under "Item 5-Other Events" that the Company had adopted a
Shareholder Rights Plan by entering into a Rights Agreement
dated March 14, 1997, with Norwest Bank Minnesota, N.A.
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CIMA LABS INC.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
CIMA LABS INC.
Date: MAY 14, 1997 By: /S/ JOHN M. SIEBERT
--------------------------
John M. Siebert
President and Chief Executive
Officer
Date: MAY 14, 1997 By: /S/ KEITH P. SALENGER
---------------------------
Keith P. Salenger
Vice President, Finance and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
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EXHIBIT INDEX
NO. OF EXHIBIT DESCRIPTION
- -------------- -----------
4.2* Rights Agreement, dated as of March 14, 1997, between the
Company and Norwest Bank Minnesota, N.A.
10.11 Equity Incentive Plan, as amended and restated.
10.24 Offer letter between the Company and John Hontz, Ph.D. dated
November 26, 1996.
10.25 Non-Employee Directors' Fee Option Grant Program.
27 Financial Data Schedule.
___________
* Incorporated by reference herein to Exhibit 2 to the Company's Current
Report on Form 8-K filed March 25, 1997.
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CIMA LABS INC.
EQUITY INCENTIVE PLAN
AMENDED AND RESTATED MARCH 25, 1996
FURTHER AMENDED, EFFECTIVE SEPTEMBER 24, 1996
AS AMENDED BY THE BOARD OF DIRECTORS ON MARCH 13, 1997
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.
PURPOSES.
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.
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.
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.
DEFINITIONS.
"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.
"BOARD" means the Board of Directors of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means a Committee appointed by the Board in accordance
with subsection 3(c) of the Plan.
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"COMPANY" means CIMA LABS INC., a Delaware corporation.
"CONCURRENT STOCK APPRECIATION RIGHT" or "CONCURRENT RIGHT" means a
right granted pursuant to subsection 8(b)(2) of the Plan.
"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.
"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.
"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.
"DIRECTOR" means a member of the Board.
"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.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FAIR MARKET VALUE" means, as of any date, the value of the common
stock of the Company determined as follows:
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;
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;
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In the absence of an established market for the common stock, the
Fair Market Value shall be determined in good faith by the Board.
"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.
"INDEPENDENT STOCK APPRECIATION RIGHT" or "INDEPENDENT RIGHT" means a
right granted pursuant to subsection 8(b)(3) of the Plan.
"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.
"NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as
an Incentive Stock Option.
"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.
"OPTION" means a stock option granted pursuant to the Plan.
"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.
"OPTIONEE" means an Employee, Director or Consultant who holds an
outstanding Option.
"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.
"PLAN" means this CIMA LABS INC. Equity Incentive Plan.
"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.
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"STOCK APPRECIATION RIGHT" means any of the various types of rights
which may be granted under Section 8 of the Plan.
"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.
"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.
"TANDEM STOCK APPRECIATION RIGHT" or "TANDEM RIGHT" means a right
granted pursuant to subsection 8(b)(1) of the Plan.
ADMINISTRATION.
The Plan shall be administered by the Board unless and until the Board
delegates administration to a Committee, as provided in subsection 3(c).
The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
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.
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.
To amend the Plan or a Stock Award as provided in Section 13.
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.
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
20
<PAGE>
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.
SHARES SUBJECT TO THE PLAN.
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 Two Hundred Fifty Thousand (2,250,000)
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.
The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
ELIGIBILITY.
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.
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.
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.
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:
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TERM. No Option shall be exercisable after the expiration of ten (10)
years from the date it was granted.
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.
CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board or the Committee, at the time of the grant of the
Option, (A) by delivery to the Company of other common stock of the Company,
(B) according to a deferred payment or other arrangement (which may include,
without limiting the generality of the foregoing, the use of other common stock
of the Company) with the person to whom the Option is granted or to whom the
Option is transferred pursuant to subsection 6(d), or (C) in any other form of
legal consideration that may be acceptable to the Board.
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.
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.
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.
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
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Optionee's death or disability), the Optionee may exercise his or her Option (to
the extent that the Optionee was entitled to exercise it at the date of
termination) but only within such period of time ending on the earlier of
(i) the date three (3) months after the termination of the Optionee's Continuous
Status as an Employee, Director or Consultant (or such longer or shorter period
specified in the Option Agreement), or (ii) the expiration of the term of the
Option as set forth in the Option Agreement. If, after termination, the
Optionee does not exercise his or her Option within the time specified in the
Option Agreement, the Option shall terminate, and the shares covered by such
Option shall revert to and again become available for issuance under the Plan.
An Optionee's Option Agreement may also provide that if the exercise of the
Option following the termination of the Optionee's Continuous Status as an
Employee, Director, or Consultant (other than upon the Optionee's death or
disability) would result in liability under Section 16(b) of the Exchange Act,
then the Option shall terminate on the earlier of (i) the expiration of the term
of the Option set forth in the Option Agreement, or (ii) the tenth (10th) day
after the last date on which such exercise would result in such liability under
Section 16(b) of the Exchange Act. Finally, an Optionee's Option Agreement may
also provide that if the exercise of the Option following the termination of the
Optionee's Continuous Status as an Employee, Director or Consultant (other than
upon the Optionee's death or disability) would be prohibited at any time solely
because the issuance of shares would violate the registration requirements under
the Act, then the Option shall terminate on the earlier of (i) the expiration of
the term of the Option set forth in the first paragraph of this subsection 6(f),
or (ii) the expiration of a period of three (3) months after the termination of
the Optionee's Continuous Status as an Employee, Director or Consultant during
which the exercise of the Option would not be in violation of such registration
requirements.
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.
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.
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RE-LOAD OPTIONS. Without in any way limiting the authority of the
Board or Committee to make or not to make grants of Options hereunder, the Board
or Committee shall have the authority (but not an obligation) to include as part
of any Option Agreement a provision entitling the Optionee to a further Option
(a "Re-Load Option") in the event the Optionee exercises the Option evidenced by
the Option agreement, in whole or in part, by surrendering other shares of
Common Stock in accordance with this Plan and the terms and conditions of the
Option Agreement. Any such Re-Load Option (i) shall be for a number of shares
equal to the number of shares surrendered as part or all of the exercise price
of such Option; (ii) shall have an expiration date which is the same as the
expiration date of the Option the exercise of which gave rise to such Re-Load
Option; and (iii) shall have an exercise price which is equal to one hundred
percent (100%) of the Fair Market Value of the Common Stock subject to the
Re-Load Option on the date of exercise of the original Option. Notwithstanding
the foregoing, a Re-Load Option which is an Incentive Stock Option and which is
granted to a 10% stockholder (as described in subsection 5(b)), shall have an
exercise price which is equal to one hundred ten percent (110%) of the Fair
Market Value of the stock subject to the Re-Load Option on the date of exercise
of the original Option and shall have a term which is no longer than five (5)
years.
Any such Re-Load Option may be an Incentive Stock Option or a Nonstatutory
Stock Option, as the Board or Committee may designate at the time of the grant
of the original Option; PROVIDED, HOWEVER, that the designation of any Re-Load
Option as an Incentive Stock Option shall be subject to the one hundred thousand
dollar ($100,000) annual limitation on exercisability of Incentive Stock Options
described in subsection 12(d) of the Plan and in Section 422(d) of the Code.
There shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option
shall be subject to the availability of sufficient shares under subsection 4(a)
and the limits on the grant of options under subsection 5(c) and shall be
subject to such other terms and conditions as the Board or Committee may
determine which are not inconsistent with the express provisions of the Plan
regarding the terms of Options.
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.
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(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.
STOCK APPRECIATION RIGHTS.
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.
Three types of Stock Appreciation Rights shall be authorized for
issuance under the Plan:
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.
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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.
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.
COVENANTS OF THE COMPANY.
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.
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.
USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall constitute
general funds of the Company.
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MISCELLANEOUS.
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.
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.
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.
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.
The Company may require any person to whom a Stock Award is granted,
or any person to whom a Stock Award is transferred pursuant to subsection 6(d),
7(b) or 8(b), as a condition of exercising or acquiring stock under any Stock
Award, (1) to give written assurances satisfactory to the Company as to such
person's knowledge and experience in financial and business matters and/or to
employ a purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters, and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (2) to
give written assurances satisfactory to the Company stating that such person is
acquiring the stock subject to the Stock Award for such person's own account and
not with any present intention of selling or otherwise distributing the stock.
The foregoing requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the shares upon the
exercise or acquisition of stock under the Stock Award has been registered under
a then currently effective registration statement under the Securities Act, or
(ii) as to any particular requirement, a determination is made by counsel for
the Company that such requirement need not be met in the circumstances under the
then applicable securities laws. The Company may, upon advice of counsel to the
Company, place legends on stock certificates issued under the Plan as such
counsel deems necessary or appropriate in order to comply with applicable
securities laws, including, but not limited to, legends restricting the transfer
of the stock.
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
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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.
ADJUSTMENTS UPON CHANGES IN STOCK.
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".)
In the event of: (1) a dissolution, liquidation or sale of
substantially all of the assets of the Company; (2) a merger or consolidation in
which the Company is not the surviving corporation; (3) a reverse merger in
which the Company is the surviving corporation but the shares of the Company's
common stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise; or (4) the acquisition by any person, entity or group within
the meaning of Section 13(d) or 14(d) of the Exchange Act, or any comparable
successor provisions (excluding any employee benefit plan, or related trust,
sponsored or maintained by the Company or any Affiliate of the Company) of the
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act, or comparable successor rule) of securities of the Company
representing at least fifty percent (50%) of the combined voting power entitled
to vote in the election of directors, then to the extent permitted by applicable
law: (i) any surviving or acquiring corporation or an Affiliate of such
surviving or acquiring corporation shall assume any Stock Awards outstanding
under the Plan or shall substitute similar Stock Awards (including a stock award
resulting in the acquisition of the same consideration paid to the stockholders
in the transaction described in this subsection 12(b)) for those outstanding
under the Plan, or (ii) such Stock Awards shall continue in full force and
effect. In the event any surviving or acquiring corporation or its Affiliates
refuse to assume or continue such Stock Awards, or to substitute similar Stock
Awards for those outstanding under the Plan, then, with respect to Stock Awards
held by persons then performing services as Employees, Directors or Consultants,
the time during which such Stock Awards may be exercised shall be accelerated
and the Stock Awards terminated if not exercised after such acceleration and at
or prior to such event.
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AMENDMENT OF THE PLAN AND STOCK AWARDS.
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:
Increase the number of shares reserved for Stock Awards under the
Plan;
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
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.
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.
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.
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.
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.
TERMINATION OR SUSPENSION OF THE PLAN.
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.
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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.
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.
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November 26,1996
John Hontz, Ph.D.
210 Woodhaven Road
Greenville, NC 27834
Dear John:
It is a pleasure to offer you the position of Vice President, Research and
Development at CIMA LABS INC. You will report directly to me. The details of
your offer are as follows:
1. Base Salary: $5192.31 per pay period (bi-weekly) which is the equivalent
of $135,000 annually.
2. Executive Bonus: Eligible to receive up to 40% of your salary as
additional compensation in some combination of cash and stock options based
on the performance of the company meeting objectives and your performance
meeting objectives.
3. Executive Severance: If within the first year of employment you are
terminated without cause by the company, you will receive six months
salary.
4. Stock Options: 36,000 shares of stock at an option price of $X.XX per
share subject to standard employee stock option requirements. The option
price will be determined by the closing price on the first day of your
employment.
5. Vacation: You will receive 4 weeks of vacation on an annual basis.
6. Moving Expenses. Relocation to the Minneapolis/St. Paul area according to
the enclosed CIMA moving policy. In addition, you will receive a one-time
moving bonus of $25,000. As an exception to the moving policy we will
reimburse you for temporary living expenses for three months and will
reimburse you for flights home every other weekend. You will also be
reimbursed for two house hunting trips.
This offer is contingent upon passing a physical at a medical clinic of our
choice as well as agreeing to and completion of drug testing. CIMA is a drug
free environment.
Enclosed is a summary of company provided benefits and the medical and dental
employee benefits costs. I am also providing you with a packet of information
outlining the Medica medical insurance and the Guardian dental/life/AD&D/LTD/STD
insurance.
Also enclosed is a copy of the CIMA LABS INC., employment agreement for your
signature.
John, we are very excited about your joining CIMA. The development of new
technology is the lifeblood of a company like ours. We believe you can help us
be more innovative in that area. I look forward to hearing of your acceptance
soon. Please sign and date in the space provided and fax back to me at (612)
947-8770.
Sincerely,
John M. Siebert, Ph.D.
JMS:rjg
Enclosures
cc: Ronald Gay
SIGNED AND ACCEPTED
____________________________________________ Date_____________________________
John Hontz, Ph.D.
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CIMA LABS INC.
NON-EMPLOYEE DIRECTORS' FEE OPTION GRANT PROGRAM
ADOPTED ON FEBRUARY 26, 1997
APPROVED BY STOCKHOLDERS
ON MAY ___, 1997
PURPOSE.
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.
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.
EFFECTIVE DATE.
The Program shall become effective on March 12, 1997 (the "Effective
Date").
ADMINISTRATION.
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).
The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Program:
(1) 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.
(2) To amend the Program or an option as provided in Section 13.
(3) 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.
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(b) 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 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 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);
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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.
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 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.
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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), 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.
(1) 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.
(2) The exercise price must be paid in full upon exercise of the
option using one of the following alternatives:
(I) in cash (including by check); or
(II) 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
(III) 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 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.
VESTING. Each option shall vest (become exercisable) as follows:
Options granted pursuant to Section 7(a) shall be fully vested
and exercisable on the date of grant.
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 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.
(a) The Company may require any Non-Employee Director, or any person to
whom an option is transferred
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<PAGE>
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.
(b) 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 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.
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.
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.
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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.
(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:
(1) 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, 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
(2) In the absence of such markets for the Common Stock, the fair
market value shall be determined in good faith by the Board.
37
<PAGE>
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 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:
(1) Increase the number of shares which may be issued under the
Program;
(2) 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
(3) 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
38
<PAGE>
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. 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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<PAGE>
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,684,338
<SECURITIES> 4,400,508
<RECEIVABLES> 253,012
<ALLOWANCES> 0
<INVENTORY> 670,927
<CURRENT-ASSETS> 9,241,906
<PP&E> 13,510,131
<DEPRECIATION> 3,096,373
<TOTAL-ASSETS> 19,942,955
<CURRENT-LIABILITIES> 1,072,323
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0
0
<COMMON> 94,570
<OTHER-SE> 56,768,338
<TOTAL-LIABILITY-AND-EQUITY> 19,942,955
<SALES> 191,708
<TOTAL-REVENUES> 268,256
<CGS> 580,872
<TOTAL-COSTS> 2,701,052
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,303,312)
<INCOME-TAX> 0
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<EPS-PRIMARY> (.24)
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