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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
CIMA LABS INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box)
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(6) Amount Previously Paid:
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(7) Form, Schedule or Registration Statement No.:
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(8) Filing Party:
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(9) Date Filed:
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[LOGO]
CIMA LABS INC.
10000 Valley View Road
Eden Prairie, Minnesota 55344-9361
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 3, 1998
------------------------
TO THE STOCKHOLDERS OF CIMA LABS INC.:
Notice Is Hereby Given that the Annual Meeting of Stockholders of CIMA LABS
INC., a Delaware corporation (the "Company"), will be held on Wednesday, June 3,
1998 at 2:00 p.m., local time, at the offices of the Company at 10000 Valley
View Road, Eden Prairie, Minnesota 55344, for the following purposes:
1. To elect four directors to serve for the ensuing year and until their
successors are elected.
2. To approve the amendment and restatement of the Company's Equity
Incentive Plan to increase the aggregate number of shares of Common Stock
authorized for issuance under such plan by 400,000 shares to 2,400,000
shares.
3. To ratify the selection of Ernst & Young LLP as independent auditors of
the Company for its fiscal year ending December 31, 1998.
4. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on April 14, 1998, as
the record date for the determination of stockholders entitled to notice of and
to vote at this Annual Meeting and at any adjournment or postponement thereof.
By Order of the Board of Directors
[SIG]
Robert L. Jones
SECRETARY
Eden Prairie, Minnesota
May 1, 1998
ALL STOCKHOLDERS ARE INVITED TO ATTEND THE MEETING IN PERSON. WHETHER OR NOT
YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN THE
ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR REPRESENTATION AT
THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED
STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE GIVEN YOUR PROXY, YOU MAY
STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE NOTE, HOWEVER, THAT IF
YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER NOMINEE AND YOU WISH
TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD HOLDER A PROXY ISSUED IN
YOUR NAME.
<PAGE>
[LOGO]
CIMA LABS INC.
10000 Valley View Road
Eden Prairie, Minnesota 55344-9361
------------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
---------------------
JUNE 3, 1998
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of CIMA
LABS INC., a Delaware corporation (the "Company"), for use at the Annual Meeting
of Stockholders to be held on June 3, 1998, at 2:00 p.m. local time (the "Annual
Meeting"), or at any adjournment or postponement thereof, for the purposes set
forth herein and in the accompanying Notice of Annual Meeting. The Annual
Meeting will be held at the offices of the Company, 10000 Valley View Road, Eden
Prairie, Minnesota 55344. The Company intends to mail this proxy statement and
accompanying proxy card on or about May 1, 1998 to all stockholders entitled to
vote at the Annual Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies, including
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional information furnished to stockholders. Copies of solicitation
materials will be furnished to banks, brokerage houses, fiduciaries and
custodians holding in their names shares of Common Stock beneficially owned by
others to forward to such beneficial owners. The Company may reimburse persons
representing beneficial owners of Common Stock for their costs of forwarding
solicitation materials to such beneficial owners. Original solicitation of
proxies by mail may be supplemented by telephone, telegram or personal
solicitation by directors, officers or other regular employees of the Company.
No additional compensation will be paid to directors, officers or other regular
employees for such services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on April 14,
1998 will be entitled to notice of and to vote at the Annual Meeting. At the
close of business April 14, 1998 the Company had outstanding and entitled to
vote 9,610,394 shares of Common Stock.
Each holder of record of Common Stock on such date will be entitled to one
vote for each share held on all matters to be voted upon at the Annual Meeting.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether a matter has
been approved.
<PAGE>
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive office, 10000
Valley View Road, Eden Prairie, Minnesota 55344-9361, a written notice of
revocation or a duly executed proxy bearing a later date, or it may be revoked
by attending the meeting and voting in person. Attendance at the meeting will
not, by itself, revoke a proxy.
STOCKHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the Company's
1999 Annual Meeting of Stockholders must be received by the Company not later
than January 1, 1999 in order to be included in the proxy statement and proxy
relating to that Annual Meeting. Stockholders are also advised to review the
Company's By-laws, which contain additional requirements with respect to advance
notice of stockholder proposals and director nominations.
PROPOSAL 1
ELECTION OF DIRECTORS
There are currently six Board positions authorized by resolution of the
Board in accordance with the Company's By-laws. Jerry A. Weisbach, Ph.D. and
David B. Musket are not standing for re-election as directors of the Company. By
resolution of the Board in accordance with the Company's By-laws, the Board was
reduced to four Board positions effective upon the Annual Meeting. There are
four nominees for the four Board positions. Each director to be elected will
hold office until the next annual meeting of stockholders and until his
successor is elected and has qualified, or until such director's earlier death,
resignation or removal. Each nominee listed below is currently a director of the
Company, each director having been elected by the stockholders.
Shares represented by executed proxies will be voted, if authority to do so
is not withheld, for the election of the four nominees named below. In the event
that any nominee should be unavailable for election as a result of an unexpected
occurrence, such shares will be voted for the election of such substitute
nominee as management may propose. Each person nominated for election has agreed
to serve if elected, and management has no reason to believe that any nominee
will be unable to serve. Directors are elected by a plurality of the votes
present in person or represented by proxy and entitled to vote.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
NOMINEES
The names of the nominees and certain information about them are set forth
below:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION/
NAME AGE POSITION HELD WITH THE COMPANY
- ------------------------------ --- ----------------------------------------
<S> <C> <C>
John M. Siebert, Ph.D......... 58 President and Chief Executive Officer
Terrence W. Glarner........... 54 Chairman of the Board; President, West
Concord Ventures, Inc.
Steven B. Ratoff.............. 55 Executive Vice President and Chief
Financial Officer, Brown-Forman
Corporation
Joseph R. Robinson, Ph.D...... 59 Professor of Pharmacy, University of
Wisconsin-Madison
</TABLE>
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JOHN M. SIEBERT, PH.D., has been the President and Chief Executive Officer
of the Company since September 1995 and a director of the Company since May
1992. From 1992 to 1995, Dr. Siebert was Vice President, Technical Affairs at
Dey Laboratories, Inc., a pharmaceutical company. From 1988 to 1992, Dr. Siebert
worked at Miles, Inc. Dr. Siebert has also been employed by E.R. Squibb & Sons,
Inc., G.D. Searle & Co. and The Procter & Gamble Company.
TERRENCE W. GLARNER has been a director of the Company since July 1990 and
has served as the Chairman of the Board since April 1995. Mr. Glarner has been
President of West Concord Ventures, Inc. since February 1993. He also consults
with Norwest Venture Capital. Mr. Glarner was President of North Star Ventures,
Inc. from 1988 to February 1993 and held various other positions there since
1976. Mr. Glarner is a Chartered Financial Analyst. He serves as a director of
Aetrium Incorporated, Datakey, Inc., FSI International, Inc., and Premis
Corporation as well as of several privately-held corporations.
STEVEN B. RATOFF has been a director of the Company since March 1995. Mr.
Ratoff has been Executive Vice President and Chief Financial Officer of
Brown-Forman Corporation since December 1994. From February 1992 to November
1994, Mr. Ratoff was a private investor in a number of small privately-held
companies. Mr. Ratoff was Senior Vice President and Chief Financial Officer of
the Pharmaceutical Group of Bristol-Myers Squibb from January 1990 to January
1992. Mr. Ratoff serves as a director of Inkine Pharmaceutical Company.
JOSEPH R. ROBINSON, PH.D. has been a director of the Company since January
1993. Dr. Robinson is Professor of Pharmacy, University of Wisconsin at Madison.
Dr. Robinson is the past President of the Controlled Release Society and of the
American Association of Pharmaceutical Scientists. Dr. Robinson serves as a
director of Emisphere Technologies, Inc. He serves on the scientific advisory
boards of several companies.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended December 31, 1997, the Board of Directors held
twelve meetings. The Board has an Audit Committee and a Compensation Committee.
The Board does not have a standing nominating committee.
The Audit Committee reviews the results and scope of the annual audit and
other services provided by the Company's independent auditors. It also reviews
the Company's accounting principles and its system of internal controls, and
reports the results of these reviews to management and the Board. The Audit
Committee meets with the Company's independent auditors at least once annually
to review the results of the annual audit and discuss the financial statements,
recommends to the Board the independent auditors to be retained and receives and
considers the accountants' comments as to controls, adequacy of staff and
management performance and procedures in connection with audit and financial
controls. The Audit Committee is currently composed of two non-employee
directors: Messrs. Ratoff and Glarner. Mr. Musket and Dr. Weisbach, who are not
standing for re-election as directors of the Company, served on the Audit
Committee with Mr. Ratoff until April 1998. The Audit Committee met once during
the fiscal year ended December 31, 1997.
The Compensation Committee (i) determines the amount of compensation for the
Chief Executive Officer and President of the Company, (ii) reviews
recommendations of the Chief Executive Officer concerning compensation for the
other executive officers and incentive compensation, including stock options,
for the other employees of the Company, subject to ratification by the Board and
(iii) otherwise administers the Company's performance compensation and stock
option plans. The Compensation Committee is currently composed of two
non-employee directors: Messrs. Glarner and Ratoff. Dr. Weisbach, who is not
standing for re-election as a director of the Company, served on the
Compensation Committee
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with Mr. Glarner until April 1998. The Compensation Committee met once and
participated in several committee conference calls during the fiscal year ended
December 31, 1997.
During the fiscal year ended December 31, 1997, each incumbent Board member
other than Mr. Musket and Dr. Robinson attended at least 75% or more of the
aggregate of the meetings of the Board and of the committees on which he served,
held during the period for which he was a director or committee member,
respectively.
PROPOSAL 2
APPROVAL OF AMENDMENT AND RESTATEMENT OF
EQUITY INCENTIVE PLAN
In 1987, the Board of Directors adopted, and the stockholders subsequently
approved, the CIMA LABS INC. Stock Option and Stock Award Plan, later retitled
the Equity Incentive Plan (the "Plan"). As a result of a series of amendments,
as of December 31, 1997 there were 2,000,000 shares of the Company's Common
Stock authorized for issuance under the Plan.
As of March 1, 1998, options (net of canceled or expired awards) covering an
aggregate of 1,889,092 shares of the Company's Common Stock had been granted
under the Plan, and only 166,105 shares (plus any shares that might in the
future be returned to the Plan as a result of cancellations or expiration of
awards) remained available for future grant under the Plan. During the last
fiscal year, under the Plan, the Company has granted to all current executive
officers as a group options to purchase 246,000 shares at exercise prices of
$5.625 to $7.75 per share, and to all employees (excluding current executive
officers) as a group options to purchase 151,700 shares at exercise prices of
$4.937 to $6.75 per share. For further information regarding stock option
grants, see "Stock Option Grants and Exercises."
In August 1996, the Board approved an amendment and restatement of the Plan
to conform the Plan to revisions to the federal securities laws regulations. In
February 1998, the Board approved the amendment and restatement of the Plan,
subject to stockholder approval, to increase the number of shares authorized for
issuance under the Plan from a total of 2,000,000 shares to 2,400,000 shares.
The Board adopted this amendment to ensure that the Company can continue to
grant stock awards to employees at levels determined appropriate by the Board
and the Compensation Committee. In April 1998, the Board amended the Plan to
remove the re-load option provisions from the Plan.
Stockholders are requested in this Proposal 2 to approve the Plan, as
amended and restated. If the stockholders fail to approve this Proposal 2, the
Company may experience difficulty in attracting and retaining employees and
consultants and in motivating them to exert their best efforts for the success
of the Company. The affirmative vote of the holders of a majority of the shares
present in person or represented by proxy and entitled to vote at the meeting
will be required to approve the Plan, as amended. Abstentions will be counted
toward the tabulation of votes cast on proposals presented to the stockholders
and will have the same effect as negative votes. Broker non-votes are counted
towards a quorum, but are not counted for any purpose in determining whether
this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2.
The essential features of the Plan, as amended and restated, are outlined
below.
GENERAL
The Plan provides for the grant or issuance of incentive stock options to
employees and nonstatutory stock options, restricted stock purchase awards,
stock bonuses and stock appreciation rights to consultants, employees, officers
and employee directors. To date only incentive stock options and nonstatutory
stock
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options have been awarded under the Plan. Incentive stock options granted under
the Plan are intended to qualify as "incentive stock options" within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
Nonstatutory stock options granted under the Plan are intended not to qualify as
incentive stock options under the Code. See "Federal Income Tax Information" for
a discussion of the tax treatment of the various awards included in the Plan.
PURPOSE
The Plan was adopted to provide a means by which selected officers and
employees of and consultants to the Company and its affiliates could be given an
opportunity to receive stock in the Company, to assist in retaining the services
of employees holding key positions, to secure and retain the services of persons
capable of filling such positions and to provide incentives for such persons to
exert maximum efforts for the success of the Company. All of the Company's
approximately 64 employees and consultants are eligible to participate in the
Plan.
ADMINISTRATION
The Plan is administered by the Board of Directors of the Company. The Board
has the power to construe and interpret the Plan and, subject to the provisions
of the Plan, to determine the persons to whom and the dates on which awards will
be granted, what type of award will be granted, the number of shares to be
subject to each award, the time or times during the term of each award within
which all or a portion of such award may be exercised, the exercise price, the
type of consideration and other terms of the award. The Board of Directors is
authorized to delegate administration of the Plan to a committee composed of not
fewer than two members of the Board. If administration is delegated to a
committee, the committee will have the powers to administer the Plan which were
originally possessed by the Board, subject to such limitations as the Board
provides.
In order to maximize the Company's ability to recognize a business expense
deduction under Section 162(m) of the Code in connection with compensation
recognized by "covered employees" (defined in Section 162(m) as the chief
executive officer and other four most highly compensated officers), the
regulations under Section 162(m) require that the directors must be "outside
directors" who serve as members of the committee responsible for administering
the Plan with respect to these covered employees. The Plan was amended to
provide that, in the Board's discretion, directors serving on the Committee will
be "outside directors" within the meaning of Section 162(m). As amended, the
Plan maximizes the Board's ability to delegate among various committees the
responsibility for administering the Plan with respect to different groups of
employees without overburdening any single committee.
ELIGIBILITY
Incentive stock options may be granted under the Plan only to employees
(including officers) of the Company and its affiliates. Employees (including
officers) and consultants are eligible to receive awards other than incentive
stock options under the Plan. Directors who are not salaried employees of or
consultants to the Company or to any affiliate of the Company are not eligible
to participate in the Plan. Directors who administer the Plan may not receive
options under the Plan during the period of their service as administrators or
during the one-year period prior to their service as administrators of the Plan.
No incentive stock option may be granted under the Plan to any person who,
at the time of the grant, owns (or is deemed to own) stock possessing more than
10% of the total combined voting power of the Company or any affiliate of the
Company, unless the exercise price of the incentive stock option is at least
110% of the fair market value of the stock subject to the incentive stock option
on the date of grant, and the term of the incentive stock option does not exceed
five years from the date of grant. For incentive stock options granted under the
Plan the aggregate fair market value, determined at the time of grant, of the
shares of Common Stock with respect to which such options are exercisable for
the first time by an
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optionee during any calendar year (under all such plans of the Company and its
affiliates) may not exceed $100,000.
No person is eligible to be granted options or stock appreciation rights
covering more than 500,000 shares of the Company's Common Stock in any period of
three calendar years.
STOCK SUBJECT TO THE PLAN
If awards granted under the Plan expire or otherwise terminate without being
exercised, the Common Stock not purchased pursuant to such awards again becomes
available for issuance under the Plan.
TERMS OF OPTIONS
The following is a description of the permissible terms of options under the
Plan. Individual option grants may be more restrictive as to any or all of the
permissible terms described below.
EXERCISE PRICE; PAYMENT. The exercise price of incentive stock options
under the Plan may not be less than the fair market value of the Common Stock
subject to the option on the date of the option grant, and in some cases (see
"Eligibility" above), may not be less than 110% of such fair market value. The
exercise price of nonstatutory options under the Plan is determined by the
Board. However, if options were granted with exercise prices below market value,
deductions for compensation attributable to the exercise of such options could
be limited by Section 162(m). See "Federal Income Tax Information." On March 31,
1998, the closing price of the Company's Common Stock as reported on the Nasdaq
National Market was $4.97 per share.
In the event of a decline in the value of the Company's Common Stock, the
Board has the authority to offer employees the opportunity to replace
outstanding higher priced options, whether incentive or nonstatutory, with new
lower priced options. To the extent required by Section 162(m), an option
repriced under the Plan is deemed to be canceled and a new option granted. Both
the option deemed to be canceled and the new option deemed to be granted will be
counted against the 500,000 share limitation.
The exercise price of options granted under the Plan must be paid either:
(a) in cash at the time the option is exercised; or (b) at the discretion of the
Board, (i) by delivery of other Common Stock of the Company, (ii) pursuant to a
deferred payment arrangement or (c) in any other form of legal consideration
acceptable to the Board.
OPTION EXERCISE. Options granted under the Plan may become exercisable in
cumulative increments ("vest") as determined by the Board. Shares covered by
currently outstanding options under the Plan typically vest at the rate of 25%
per year during the optionee's employment or services as a consultant. Shares
covered by options granted in the future under the Plan may be subject to
different vesting terms. The Board has the power to accelerate the time during
which an option may be exercised. In addition, options granted under the Plan
may permit exercise prior to vesting, but in such event the optionee may be
required to enter into an early exercise stock purchase agreement that allows
the Company to repurchase shares not yet vested at their exercise price should
the optionee leave the employ of the Company before vesting. To the extent
provided by the terms of an option, an optionee may satisfy any federal, state
or local tax withholding obligation relating to the exercise of such option by a
cash payment upon exercise, by authorizing the Company to withhold a portion of
the stock otherwise issuable to the optionee, by delivering already-owned stock
of the Company or by a combination of these means.
TERM. The maximum term of stock options under the Plan is ten years, except
that in certain cases (see "Eligibility") the maximum term is five years.
Options under the Plan terminate three months after termination of the
optionee's employment or relationship as a consultant or director of the Company
or any affiliate of the Company, unless (a) such termination is due to such
person's permanent and total disability (as defined in the Code), in which case
the option may, but need not, provide that it may be
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exercised at any time within one year of such termination; (b) the optionee dies
while employed by or serving as a consultant or director of the Company or any
affiliate of the Company, or within three months after termination of such
relationship, in which case the option may, but need not, provide that it may be
exercised (to the extent the option was exercisable at the time of the
optionee's death) within eighteen months of the optionee's death by the person
or persons to whom the rights to such option pass by will or by the laws of
descent and distribution; or (c) the option by its terms specifically provides
otherwise. Individual options by their terms may provide for exercise within a
longer period of time following termination of employment or the consulting
relationship. The option term may also be extended in the event that exercise of
the option within these periods is prohibited for specified reasons.
TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK
PURCHASE PRICE; PAYMENT. The purchase price under each stock purchase
agreement will be determined by the Board. The purchase price of stock pursuant
to a stock purchase agreement must be paid either: (i) in cash at the time of
purchase; (ii) at the discretion of the Board, according to a deferred payment
or other arrangement with the person to whom the Common Stock is sold; or (iii)
in any other form of legal consideration that may be acceptable to the Board in
its discretion. Eligible participants may be awarded stock pursuant to a stock
bonus agreement in consideration of past services actually rendered to the
Company or for its benefit.
REPURCHASE. Shares of the Common Stock sold or awarded under the Plan may,
but need not, be subject to a repurchase option in favor of the Company in
accordance with a vesting schedule determined by the Board. In the event a
person ceases to be an employee of or ceases to serve as a director of or
consultant to the Company or an affiliate of the Company, the Company may
repurchase or otherwise reacquire any or all of the shares of the Common Stock
held by that person that have not vested as of the date of termination under the
terms of the stock bonus or restricted stock purchase agreement between the
Company and such person.
STOCK APPRECIATION RIGHTS
The Board may grant stock appreciation rights to employees or directors of,
or consultants to, the Company or its affiliates. The Plan authorizes three
types of stock appreciation rights.
TANDEM STOCK APPRECIATION RIGHTS. Tandem stock appreciation rights are tied
to an underlying option and require the holder to elect whether to exercise the
underlying option or to surrender the option for an appreciation distribution
equal to the market price of the vested shares purchasable under the surrendered
option less the aggregate exercise price payable for such shares. Appreciation
distributions payable upon exercise of tandem stock appreciation rights must be
made in cash.
CONCURRENT STOCK APPRECIATION RIGHTS. Concurrent stock appreciation rights
are tied to an underlying option and are exercised automatically at the same
time the underlying option is exercised. The holder receives an appreciation
distribution equal to the market price of the vested shares purchased under the
option less the aggregate exercise price payable for such shares. Appreciation
distributions payable upon exercise of concurrent stock appreciation rights must
be made in cash.
INDEPENDENT STOCK APPRECIATION RIGHTS. Independent stock appreciation
rights are granted independently of any option and entitle the holder to receive
upon exercise an appreciation distribution equal to the market price of a number
of shares equal to the number of share equivalents to which the holder is vested
under the independent stock appreciation right less than fair market value of
such number of shares of stock on the date of grant of the independent stock
appreciation rights. Appreciation distributions payable upon exercise of
independent stock appreciation rights may, at the Board's discretion, be made in
cash, in shares of the Common Stock or a combination thereof.
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ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the Plan or subject to any
award granted under the Plan (through merger, consolidation, reorganization,
recapitalization, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or otherwise), the Plan and awards outstanding thereunder
will be appropriately adjusted as to the type of security and the maximum number
of shares subject to such plan, the maximum number of shares which may be
granted to an employee during a period of three calendar years, and the type of
security, number of shares and price per share of stock subject to such
outstanding awards.
EFFECT OF CERTAIN CORPORATE EVENTS
The Plan provides that, in the event of a dissolution or liquidation of the
Company, specified type of merger or other corporate reorganization, to the
extent permitted by law, any surviving corporation will be required to either
assume awards outstanding under the Plan or substitute similar awards for those
outstanding under such plan, or such outstanding awards will continue in full
force and effect. In the event that any surviving corporation declines to assume
or continue awards outstanding under the Plan, or to substitute similar awards,
then the time during which such awards may be exercised will be accelerated and
the awards terminated if not exercised during such time. The acceleration of an
award in the event of an acquisition or similar corporate event may be viewed as
an anti-takeover provision, which may have the effect of discouraging a proposal
to acquire or otherwise obtain control of the Company.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the Plan without stockholder approval or
ratification at any time or from time to time. Unless sooner terminated, the
Plan will terminate on May 31, 2004.
The Board may also amend the Plan at any time or from time to time. However,
no amendment will be effective unless approved by the stockholders of the
Company within twelve months before or after its adoption by the Board if the
amendment would: (a) modify the requirements as to eligibility for participation
(to the extent such modification requires stockholder approval in order for the
Plan to satisfy Section 422 of the Code, if applicable, or Rule 16b-3 ("Rule
16b-3") of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")); (b) increase the number of shares reserved for issuance upon exercise of
awards; or (c) change any other provision of the Plan in any other way if such
modification requires stockholder approval in order to comply with Rule 16b-3 or
satisfy the requirements of Section 422 of the Code. The Board may submit any
other amendment to the Plan for stockholder approval, including, but not limited
to, amendments intended to satisfy the requirements of Section 162(m) of the
Code regarding the exclusion of performance-based compensation from the
limitation on the deductibility of compensation paid to certain employees.
RESTRICTIONS ON TRANSFER
Under the Plan, an option may not be transferred by the optionee otherwise
than by will or by the laws of descent and distribution and during the lifetime
of the optionee, may be exercised only by the optionee. An independent stock
appreciation right may not be transferred except by will or by the laws of
descent and distribution. In any case, the optionee or holder of an independent
stock appreciation right may designate in writing a third party who may exercise
the option in the event of the optionee's death. No rights under a stock bonus
or restricted stock purchase agreement are transferable except where required by
law or expressly authorized by the terms of the applicable stock bonus or
restricted stock purchase agreement. A tandem stock appreciation right or
concurrent stock appreciation right may be transferred only by the method(s)
applicable to the underlying option. In addition, shares subject to repurchase
by the Company under an early exercise stock purchase agreement may be subject
to restrictions on transfer which the Board deems appropriate.
8
<PAGE>
FEDERAL INCOME TAX INFORMATION
INCENTIVE STOCK OPTIONS. Incentive stock options under the Plan are
intended to be eligible for the favorable federal income tax treatment accorded
"incentive stock options" under the Code.
There generally are no federal income tax consequences to the optionee or
the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may increase the optionee's
alternative minimum tax liability, if any.
Depending on how long an optionee holds stock acquired through exercise of
an incentive stock option from the date on which the option is granted and from
the date on which the shares are transferred to the optionee upon exercise of
the option, any gain or loss on a disposition of such stock will be capital gain
or loss. Generally, if the optionee disposes of the stock before the expiration
of either of these holding periods (a "disqualifying disposition"), at the time
of disposition, the optionee will realize taxable ordinary income equal to the
lesser of (a) the excess of the stock's fair market value on the date of
exercise over the exercise price, or (b) the optionee's actual gain, if any, on
the purchase and sale. The optionee's additional gain, or any loss, upon the
disqualifying disposition will be a capital gain or loss. Capital gains
currently are generally subject to lower tax rates than ordinary income.
Slightly different rules may apply to optionees who acquire stock subject to
certain repurchase options or who are subject to Section 16(b) of the Exchange
Act.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, the provisions of Section 162(m) of the Code
and the satisfaction of a tax reporting obligation) to a corresponding business
expense deduction in the tax year in which the disqualifying disposition occurs.
NONSTATUTORY STOCK OPTIONS. Nonstatutory stock options granted under the
Plan generally have the following federal income tax consequences:
There are no tax consequences to the optionee or the Company by reason of
the grant of a nonstatutory stock option. Upon exercise of a nonstatutory stock
option, the optionee normally will recognize taxable ordinary income equal to
the excess of the stock's fair market value on the date of exercise over the
option exercise price. Generally, with respect to employees, the Company is
required to withhold from regular wages or supplemental wage payments an amount
based on the ordinary income recognized. Subject to the requirement of
reasonableness, the provisions of Section 162(m) of the Code and the
satisfaction of a tax reporting obligation, the Company will generally be
entitled to a business expense deduction equal to the taxable ordinary income
realized by the optionee. Upon disposition of the stock, the optionee will
recognize a capital gain or loss equal to the difference between the selling
price and the sum of the amount paid for such stock plus any amount recognized
as ordinary income upon exercise of the option. Such gain or loss will be
long-term, mid-term or short-term depending on how long the stock was held.
Slightly different rules may apply to optionees who acquire stock subject to
certain repurchase options or who are subject to Section 16(b) of the Exchange
Act.
RESTRICTED STOCK AND STOCK BONUSES. Restricted stock and stock bonuses
granted under the Incentive Plan generally have the following federal income tax
consequences:
Upon acquisition of stock under a restricted stock or stock bonus award, the
recipient normally will recognize taxable ordinary income equal to the excess of
the stock's fair market value over the purchase price, if any. However, to the
extent the stock is subject to certain types of vesting restrictions, the
taxable event will be delayed until the vesting restrictions lapse unless the
recipient elects to be taxed on receipt of the stock. Generally, with respect to
employees, the Company is required to withhold from regular wages or
supplemental wage payments an amount based on the ordinary income recognized.
Subject to the requirement of reasonableness, Section 162(m) of the Code and the
satisfaction of a tax reporting obligation, the Company will generally be
entitled to a business expense deduction equal to the taxable ordinary income
realized by the recipient. Upon disposition of the stock, the recipient will
recognize a
9
<PAGE>
capital gain or loss equal to the difference between the selling price and the
sum of the amount paid for such stock, if any, plus any amount recognized as
ordinary income upon acquisition (or vesting) of the stock. Such gain or loss
will be long-term, mid-term or short-term depending on how long the stock was
held from the date ordinary income is measured. Slightly different rules may
apply to persons who acquire stock subject to forfeiture under Section 16(b) of
the Exchange Act.
STOCK APPRECIATION RIGHTS. No taxable income is realized upon the receipt
of a stock appreciation right, but upon exercise of the stock appreciation right
the fair market value of the shares (or cash in lieu of shares) received must be
treated as compensation taxable as ordinary income to the recipient in the year
of such exercise. Generally, with respect to employees, the Company is required
to withhold from the payment made on exercise of the stock appreciation right or
from regular wages or supplemental wage payments an amount based on the ordinary
income recognized. Subject to the requirement of reasonableness, Section 162(m)
of the Code and the satisfaction of a reporting obligation, the Company will be
entitled to a business expense deduction equal to the taxable ordinary income
recognized by the recipient.
POTENTIAL LIMITATION ON COMPANY DEDUCTIONS. As part of the Omnibus Budget
Reconciliation Act of 1993, the U.S. Congress amended the Code to add Section
162(m), which denies a deduction to any publicly held corporation for
compensation paid to certain employees in a taxable year to the extent that
compensation exceeds $1,000,000 for a covered employee. It is possible that
compensation attributable to awards under the Plan, when combined with all other
types of compensation received by a covered employee from the Company, may cause
this limitation to be exceeded in any particular year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with Treasury regulations issued under Section 162(m) of the Code,
compensation attributable to stock options and stock appreciation rights will
qualify as performance-based compensation, provided that: (i) the stock award
plan contains a per-employee limitation on the number of shares for which stock
options and stock appreciation rights may be granted during a specified period;
(ii) the per-employee limitation is approved by the stockholders; (iii) the
award is granted by a compensation committee comprised solely of "outside
directors"; and (iv) the exercise price of the award is no less than the fair
market value of the stock on the date of grant. Restricted stock and stock
bonuses qualify as performance-based compensation under these Treasury
regulations only if: (i) the award is granted by a compensation committee
comprised solely of "outside directors"; (ii) the award is granted (or
exercisable) only upon the achievement of an objective performance goal
established in writing by the compensation committee while the outcome is
substantially uncertain; (iii) the compensation committee certifies in writing
prior to the granting (or exercisability) of the award that the performance goal
has been satisfied; and (iv) prior to the granting (or exercisability) of the
award, stockholders have approved the material terms of the award (including the
class of employees eligible for such award, the business criteria on which the
performance goal is based, and the maximum amount (or formula used to calculate
the amount) payable upon attainment of the performance goal).
10
<PAGE>
NEW PLAN BENEFITS
The following table presents certain information as of April 23, 1998, with
respect to options granted under the Plan which are subject to stockholder
approval, to (i) the Named Executive Officers (as defined below under
"Compensation of Executive Officers") and (ii) all executive officers as a
group. No options that are subject to stockholder approval were granted to
non-executive officer employees.
<TABLE>
<CAPTION>
EQUITY INCENTIVE PLAN
----------------------------------
NUMBER OF
DOLLAR SHARES SUBJECT TO
NAME AND POSITION VALUE(1) OPTIONS GRANTED(2)
- ------------------------------------------------------------------------------ -------------- ------------------
<S> <C> <C>
John M. Siebert............................................................... $ 350,000 80,000
President and Chief Executive Officer
John Hontz, Ph.D.............................................................. 546,875 125,000
Vice President, Research and Development
Keith P. Salenger............................................................. 503,125 115,000
Vice President, Finance and Chief Financial Officer
Jack Khatter.................................................................. 656,250 150,000
Vice President, Business Development
All executive officers as a group (4 persons)................................. 2,056,250 470,000
</TABLE>
- ------------------------
(1) Exercise price multipled by the number of shares underlying the option(s).
(2) The above options are exercisable in full in seven years, subject to
accelerated vesting of 25% of such shares upon each achievement of one of
four specified corporate goals.
PROPOSAL 3
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 1998 and has
further directed that management submit the selection of independent auditors
for ratification by the stockholders at the Annual Meeting. Ernst & Young LLP
has audited the Company's financial statements since its inception in 1986.
Representatives of Ernst & Young LLP are expected to be present at the Annual
Meeting, will have an opportunity to make a statement if they so desire and will
be available to respond to appropriate questions.
Stockholder ratification of the selection of Ernst & Young LLP as the
Company's independent auditors is not required by the Company's By-laws or
otherwise. However, the Board is submitting the selection of Ernst & Young LLP
to the stockholders for ratification as a matter of good corporate practice. If
the stockholders fail to ratify the selection, the Audit Committee and the Board
will reconsider whether or not to retain that firm. Even if the selection is
ratified, the Audit Committee and the Board in their discretion may direct the
appointment of different independent auditors at any time during the year if
they determine that such a change would be in the best interests of the Company
and its stockholders.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the Annual Meeting will
be required to ratify the selection of Ernst & Young LLP.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3.
11
<PAGE>
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of the Company's Common Stock as of March 1, 1998 by: (i) each director; (ii)
each of the executive officers of the Company employed by the Company in that
capacity on April 7, 1998; (iii) all executive officers and directors of the
Company as a group; and (iv) all those known by the Company to be beneficial
owners of more than five percent of its Common Stock.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
---------------------------
NUMBER OF
BENEFICIAL OWNER SHARES PERCENT OF TOTAL
- ------------------------------------------------------------ --------- ----------------
<S> <C> <C>
President and Fellows of Harvard College
c/o Harvard Management Company, Inc.
600 Atlantic Avenue Boston, Massachusetts 02210........... 1,472,900 15.3%
Dresdner RCM Capital Management, LLC (2)
4 Embarcadero Center, Suite 2900
San Francisco, California 94111........................... 954,300 9.9%
AMVESCAP PLC (3)
11 Devonshire Square
London England
EC2N 4YR.................................................. 749,999 7.8%
Investment Advisers, Inc.
3700 First Bank Place
Minneapolis, Minnesota 55440.............................. 632,000 6.6%
Franklin Advisors, Inc. (4)
777 Mariners Island Blvd.
San Mateo, California 94403............................... 625,000 6.5%
Capital Group Companies Inc.
333 South Hope Street
Los Angeles, California 90071............................. 565,500 5.9%
John M. Siebert, Ph.D. (5).................................. 240,500 2.4%
Brian M. Jones (6).......................................... 55,625 *
John Hontz, Ph.D. (7)....................................... 15,500 *
Keith P. Salenger (8)....................................... 18,250 *
Terrence W. Glarner (9)..................................... 102,940 1.1%
Jack A. Khattar (10)........................................ 53,750 *
David B. Musket (11)........................................ 117,274 1.2%
Steven B. Ratoff (12)....................................... 48,214 *
Joseph R. Robinson, Ph.D. (13).............................. 58,214 *
Jerry A. Weisbach, Ph.D. (14)............................... 65,000 *
All executive officers and directors as a group (10
persons)(15).............................................. 775,267 7.6%
</TABLE>
- ------------------------
* Less than one percent.
(1) This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G filed with the Securities
and Exchange Commission (the "SEC"). Unless
12
<PAGE>
otherwise indicated in the footnotes to this table and subject to community
property laws where applicable, the Company believes that each of the
stockholders named in this table has sole voting and investment power with
respect to the shares indicated as beneficially owned. Applicable
percentages are based on 9,610,394 shares outstanding on March 1, 1998,
adjusted as required by rules promulgated by the SEC.
(2) Includes 418,600 shares held by Dresdner RCM Capital Funds, Inc. of which
Dresdner RCM Global Investors LLC is the investment manager. RCM General
Corporation is the General Partner of Dresdner RCM Limited which is the
Managing Agent of Dresdner RCM Capital Management LLC.
(3) AMVESCAP PLC has shared voting and investment power with respect to the
shares indicated in the table with the following companies of which it is
the parent holding company: INVESCO Global Health Sciences Fund and INVESCO
Strategic Portfolios, Inc.--Health Sciences.
(4) Franklin Resources, Inc. is the parent holding company of Franklin
Advisors, Inc.
(5) Includes 207,500 shares which may be acquired within 60 days of March 1,
1998, pursuant to outstanding options.
(6) Consists of 55,625 shares which may be acquired within 60 days of March 1,
1998 pursuant to outstanding options. Mr. Jones, Senior Vice President of
Operations, resigned from the Company in February 1998.
(7) Includes of 9,000 shares which may be acquired within 60 days of March 1,
1998 pursuant to outstanding options.
(8) Includes 11,250 shares which may be acquired within 60 days of March 1,
1998 pursuant to outstanding options.
(9) Includes 72,500 shares which may be acquired within 60 days of March 1,
1998 pursuant to outstanding options.
(10) Includes 44,750 shares which may be acquired within 60 days of March 1,
1998 and 9,000 shares Mr. Khattar owns jointly with his wife.
(11) Includes 82,500 shares which may be acquired within 60 days of March 1,
1998 pursuant to outstanding options and 10,000 shares held in an IRA for
Mr. Musket's benefit. Mr. Musket is not standing for re-election as a
director of the Company.
(12) Includes 30,214 shares which may be acquired within 60 days of March 1,
1998 pursuant to outstanding options.
(13) Consists of 58,214 shares which may be acquired within 60 days of March 1,
1998 pursuant to outstanding options.
(14) Consists of 65,000 shares which may be acquired within 60 days of March 1,
1998 pursuant to outstanding options. Dr. Weisbach is not standing for
re-election as a director of the Company.
(15) Includes an aggregate of 636,553 shares issuable upon exercise of options
exercisable within 60 days of March 1, 1998. See footnotes 5 through 14.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act")
requires the Company's directors and executive officers, and persons who own
more than ten percent of a registered class of the Company's equity securities,
to file with the SEC initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Officers,
directors and greater
13
<PAGE>
than ten percent stockholders are required by SEC regulation to furnish the
Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1997, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with, except that Dr.
Siebert failed to timely file one report with respect to the grant of a stock
option to purchase 100,000 shares of Common Stock. Dr. Siebert filed such report
shortly after being notified of this failure to timely file.
EXECUTIVE OFFICERS OF THE COMPANY
Information with respect to the executive officers of the Company as of
April 7, 1998 is set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- ----------------------------------------
<S> <C> <C>
John M. Siebert, Ph.D......... 58 President, Chief Executive Officer and
Director
John Hontz.................... 41 Vice President, Research and Development
Keith P. Salenger............. 47 Vice President, Finance and Chief
Financial Officer
Jack Khattar.................. 36 Vice President, Business Development
</TABLE>
JOHN M. SIEBERT, PH.D., has been the President and Chief Executive Officer
of the Company since September 1995 and a director of the Company since May
1992. From 1992 to 1995, Dr. Siebert was Vice President, Technical Affairs at
Dey Laboratories, Inc., a pharmaceutical company. From 1988 to 1992, Dr. Siebert
worked at Miles, Inc. Dr. Siebert has also been employed by E.R. Squibb & Sons,
Inc., G.D. Searle & Co. and The Procter & Gamble Company.
JOHN HONTZ, PH.D. has served as Vice President of Research and Development
since January 1997. From August 1995 to January 1997, Dr. Hontz was Senior Group
Leader of Product Development at Glaxo-Wellcome. From March 1987 to August 1995,
he was Section Head of Product Development for Burroughs-Wellcome, which was
subsequently acquired by Glaxo in 1995. Dr. Hontz received his B.S. in Pharmacy
from the Philadelphia College of Pharmacy and Science, his M.B.A. from Duke
University and his Masters and Ph.D. in Pharmaceuticals from the University of
Maryland.
KEITH P. SALENGER has served as Vice President, Finance and Chief Financial
Officer since September 1996. From 1994 to 1996, Mr. Salenger was Vice President
Finance, North American Ethicals, at Rhone Poulenc Rorer, Inc. ("RPR"). From
1988 to 1992, Mr. Salenger held other positions with RPR including Finance
Director/CFO for the United Kingdom and Ireland Subsidiary of RPR, and Vice
President for the Research and Development Division RPR. Prior to joining RPR,
he was Manager, Internal Audit at Bristol-Myers Squibb and a Senior
Accountant/CPA at Main Hurdman. Mr. Salenger received his B.S. in Accounting
from Pennsylvania State University and is a Certified Public Accountant.
JACK KHATTAR was designated an executive officer of the Company in April
1998 and has served as Vice President, Business Development since January 1995.
From 1991 through 1994, Mr. Khattar was with Merck & Co., a pharmaceutical
company, where he last served as Director of Marketing. Mr. Khattar received his
M.B.A. in 1985 from the Wharton School of the University of Pennsylvania.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Each non-employee director of the Company is entitled to receive an annual
fee of $5,000, payable quarterly, a per meeting fee of $2,500 for each meeting
(including telephonic meetings) of the Board attended by such non-employee
director and a per meeting fee of $1,250 for each meeting (i) of a committee of
the Board not held in connection with a regular Board meeting or (ii) operating
committee
14
<PAGE>
of the Company, in each case attended by such non-employee director; PROVIDED,
HOWEVER, that the aggregate amount of fees paid shall not exceed $20,000
(excluding expense reimbursement) per director per year. The members of the
Board of Directors are also eligible for reimbursement for their reasonable
expenses incurred in connection with attendance at Board meetings in accordance
with Company policy. In the fiscal year ended December 31, 1997, the total cash
compensation paid to non-employee directors was $27,500. Mr. Musket, who is not
standing for re-election as a director of the Company, and Mr. Glarner
voluntarily chose to forgo the payment of any fees.
In February 1997, the Board adopted, and the stockholders subsequently
approved, the Non-Employee Directors' Fee Option Grant Program (the "Directors'
Program"), to provide a means by which non-employee directors may defer receipt
of cash compensation attributable solely to services as a Board member and
receive future payment of those fees in the form of stock options to acquire
common stock of the Company. Under the Directors' Program, the maximum number of
shares of Common Stock that may be issued pursuant to options currently is
60,000, which may be unissued shares or reacquired shares, bought in the open
market or otherwise. Shares subject to options which expire or otherwise
terminate without having been exercised in full shall again become available for
issuance.
Non-employee directors who deferred Directors' Fees and timely filed a
deferral election were automatically granted an option to purchase common stock
of the Company on the date of 1997 Annual Meeting of Stockholders. In addition,
each non-employee director who has a deferral election in effect as of any
Annual Meeting of the Company shall automatically be granted an option to
purchase common stock of the Company on the date of such Annual Meeting.
The number of shares of Common Stock subject to each option granted under
the Directors' Program shall be equal to A/(B x 66 2/3%), where A is the maximum
amount of the Directors' Fees subject to the Non-Employee Director's deferral
election and applied to the grant of such option under the Directors' Program;
and B is the fair market value per share of Common Stock on the last day of the
month prior to the option grant date. The exercise price of options granted
under the Directors' Program is 33 1/3% of the fair market value of the Common
Stock subject to such option on the last day of the month prior to the date such
option is granted. Options shall become exercisable in installments based on
when Directors' Fees would become payable in cash. The term of options granted
under the Directors' Program is the earlier of ten years from the grant date or
three years following termination of service as a director.
During the year ended December 31, 1997, the Company granted options
covering 18,570 shares to the non-employee directors as a group at an exercise
price per share of $1.75. The fair market value of such Common Stock on the date
of grant was $5.875 per share (based on the closing sales price reported in the
National Market System for the date specified in the Directors' Program). As of
March 1, 1998, no options had been exercised under the Directors' Program.
Each non-employee director of the Company also receives stock option grants
under the 1994 Directors' Stock Option Plan (the "Directors' Plan"). Only
directors of the Company who are not employees of the Company or a subsidiary of
the Company are eligible to receive grants of options under the Directors' Plan.
Options granted under the Directors' Plan are intended by the Company not to
qualify as incentive stock options under the Code.
Option grants under the Directors' Plan are non-discretionary. On the first
business day immediately following the annual stockholders' meeting of each
year, each member of the Company's Board of Directors who is not an employee of
the Company is automatically granted under the Directors' Plan, without further
action by the Company, the Board of Directors or the stockholders of the
Company, an option to purchase 7,500 shares of Common Stock of the Company. In
addition, each new non-employee director will receive an option to purchase
20,000 shares of Common Stock on the first business day following the date such
new director is elected to the Board of Directors. No other options may be
granted at any time under the Directors' Plan. The exercise price of options
granted under the Directors' Plan is 100% of the fair market value of the Common
Stock subject to the option on the date of the option grant.
15
<PAGE>
Options granted pursuant to the initial grant to purchase of 20,000 shares of
Common Stock under the Directors' Plan become exercisable as to 50% of the
option shares on the 12-month anniversary of the date of grant and the remainder
become exercisable on the 24-month anniversary of the date of grant. Options
granted on the business day following the annual meeting of stockholders become
fully exercisable six months subsequent to the date of grant. The term of
options granted under the Directors' Plan is ten years. In the event of a merger
of the Company with or into another corporation or a consolidation,
reorganization, recapitalization, stock dividend, stock split, or other change
in the corporate structure, appropriate adjustments to the Directors' Plan and
the outstanding options will be made so as not to increase or decrease the
option rights outstanding.
During the year ended December 31, 1997, the Company granted options
covering 7,500 shares to each non-employee director of the Company at an
exercise price per share of $5.75. The fair market value of such Common Stock on
the date of grant was $5.75 per share (based on the closing sales price reported
in the National Market System for the date of grant). As of March 1, 1998, no
options had been exercised under the Directors' Plan.
During the fiscal year ended December 31, 1997, each of David B. Musket,
Steven B. Ratoff and Jerry A. Weisbach, non-employee directors of the Company,
was paid $10,000, in cash, for consulting services rendered to the Company. Such
compensation was in addition to any other compensation for service on a
committee of the Board payable in accordance with the policies of the Company
and prior resolutions of the Board of Directors, was not subject to nor counted
towards the $20,000 per annum cap on directors' fees established by such
policies and resolutions, and was not subject to the Company's Directors'
Program.
16
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY OF COMPENSATION
The following table shows for the fiscal years ended December 31, 1997, 1996
and 1995, compensation awarded or paid to, or earned by, the Company's Chief
Executive Officer and its other four most highly compensated executive officers
at December 31, 1997 (1) (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION SECURITIES
---------------------- UNDERLYING ALL OTHER
SALARY BONUS OPTIONS/SARS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($)(2) (#)(3) ($)
- ------------------------------------------------------------ ---- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
John M. Siebert (4) ........................................ 1997 $236,509 $ 75,020 100,000 $ 8,465(5)
President and Chief Executive Officer 1996 223,957 110,000 -- 9,216(6)
1995 105,769 25,000 187,500 49,496(7)
Brian M. Jones (8) ......................................... 1997 174,513 18,600 31,000 934(9)
Former Senior Vice President, Operations 1996 178,019 1,500 2,500 1,451(10)
1995 163,750 50,000 25,000 748(11)
John Hontz, Ph.D. .......................................... 1997 143,093 21,600 72,000
Vice President, Research and Development 1996 -- 36,250(13) -- 30,526(12)
Keith P. Salenger .......................................... 1997 142,488 21,600 36,000 23,761(14)
Vice President, Finance and Chief Financial Officer 1996 43,077 28,000(15) 5,000 22,657(16)
Jack Khattar (1) ........................................... 1997 148,564 22,800 38,000 5,566(17)
Vice President, Business Development 1996 141,754 34,438 4,000 5,256(18)
1995 130,448 78,750(19) 20,000 92,076(20)
</TABLE>
- ------------------------
(1) Mr. Khattar was designated an executive officer of the Company in April
1998; however, the Company has elected to disclose Mr. Khattar's
compensation as if Mr. Khattar had such executive officer status on
December 31, 1997.
(2) Except as otherwise noted, the bonus amounts are comprised of bonuses paid
at the discretion of the Compensation Committee pursuant to the Company's
executive bonus plan.
(3) Although the Company's Equity Incentive Plan (the "Plan") permits awards of
stock options, restricted stock, stock appreciation rights, performance
awards and other long-term incentive awards, no awards other than stock
options have been made to date to any of the Named Executive Officers.
(4) Dr. Siebert has been employed as the Company's President since July 1, 1995
and Chief Executive Officer since September 9, 1995.
(5) Consists of $665 of Company matching contributions under the Company's
401(k) retirement plan and $7,800 of car allowance paid by the Company.
(6) Consists of $900 of Company matching contributions under the Company's
401(k) retirement plan, $516 of life insurance premiums paid by the Company
and $7,800 of car allowance paid by the Company.
(7) Consists of $34,486 of relocation expenses and $1,260 of life insurance
premiums paid by the Company and $13,750 of director fees paid prior to Dr.
Siebert becoming an employee of the Company.
17
<PAGE>
(8) Mr. Jones, former Senior Vice President of Operations, resigned from the
Company in February 1998.
(9) The compensation reported represents Company matching contributions under
the Company's 401(k) retirement plan.
(10) Consists of $935 of Company matching contributions under the Company's
401(k) retirement plan and $516 of life insurance premiums paid by the
Company.
(11) Consists of $546 of Company matching contributions under the Company's
401(k) retirement plan and $202 of life insurance premiums paid by the
Company.
(12) Consists of $675 of Company matching contributions under the Company's
401(k) retirement plan and $29,851 relocation expenses.
(13) The compensation reported represents a signing bonus.
(14) Consists of $22,306 of relocation expenses and $1,455 of Company matching
contributions under the Company's 401(k) retirement plan.
(15) Consists of signing bonus and performance bonus.
(16) Consists of $22, 657 of relocation expenses.
(17) Consists of $2,806 of relocation expenses, $1,200 of life insurance
premiums paid by the Company and $1,506 of Company matching contributions
under the Company's 401(k) retirement plan.
(18) Consist of $3,120 of relocation expenses, $1,200 of life insurance
premiums paid by the Company and $936 of Company matching contributions
under the Company's 401(k) retirement plan.
(19) Consists of signing bonus and performance bonus.
(20) Consists of $90,201 of relocation expenses and $1,200 of life insurance
premiums paid by the Company and $675 of Company matching contributions
under the Company's 401(k) retirement plan.
18
<PAGE>
STOCK OPTION GRANTS AND EXERCISES
The Company grants options to its executive officers under its Equity
Incentive Plan (the "Plan"). As of March 1, 1998, options to purchase a total of
1,115,835 shares were outstanding under the Plan and options to purchase 166,105
shares remained available for grant thereunder.
The following tables show for the fiscal year ended December 31, 1997,
certain information regarding options granted to, exercised by, and held at year
end by, the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
--------------------------------------------------------------- ANNUAL RATES OF
NUMBER OF STOCK PRICE
SECURITIES % OF TOTAL APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OR OPTION TERM(1)
OPTION TO EMPLOYEES IN BASE PRICE ----------------
NAME GRANTED(#) FISCAL YEAR(2) ($/SH)(#)(3) EXPIRATION DATE: 5%($) 10%($)
- --------------------------------------------- ----------- --------------- ------------ ---------------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
John M. Siebert (4).......................... 100,000 25.6% $5.875 10/28/07 370,125 934,125
Brian M. Jones (5)........................... 31,000 7.9% $5.625 12/08/07 109,856 277,256
John Hontz (5)............................... 36,000 9.2% $8.000 12/31/07 181,440 457,920
36,000 9.2% $5.625 12/08/07 127,575 321,975
Keith Salenger (5)........................... 36,000 9.2% $5.625 12/08/07 127,575 321,975
Jack Khattar (5)............................. 38,000 9.7% $5.625 12/08/97 134,663 339,863
</TABLE>
- ------------------------
(1) Reflects the value of the stock option on the date of grant assuming (i) for
the 5% column, a five-percent annual rate of appreciation in the Company's
Common Stock over the ten-year term of the option and (ii) for the 10%
column, a ten-percent annual rate of appreciation in the Company's Common
stock over the ten-year term of the option, in each case without any
discounting to net present value and before income taxes associated with the
exercise. The 5% and 10% assumed rates of appreciation are based on the
rules of the Securities and Exchange Commission and do not represent the
Company's estimate or projection of the future Common Stock price. The
amounts in this table may not necessarily be achieved.
(2) Based on options to purchase 390,700 shares of the Company's Common Stock
granted in 1997.
(3) All options were granted at the fair market value at the date of grant.
(4) Option vests with respect to 1/3 of such shares on each December 31, 1998,
1999 and 2000. The option will fully vest upon change of control as defined
in the option agreement, unless the acquiring company substitutes similar
options.
(5) Options vest over a 4 year period at the rate of 25% per year. The option
will fully vest upon change of control as defined in the option agreement,
unless the acquiring company substitutes similar options.
19
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR, AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT FY-END(#) OPTIONS AT FY-END($)(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------- ----------- --------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John M. Siebert......................... 5,000 18,125 207,500 100,000 70,000 0
Brian M. Jones.......................... 22,000 41,505 43,625 62,875 22,875 13,125
John Hontz.............................. 0 0 0 72,000 0 0
Keith Salenger.......................... 0 0 11,250 69,750 0 0
Jack Khattar............................ 0 0 0 38,000 0 0
</TABLE>
- ------------------------
(1) Fair Market Value of the Company's Common Stock on the date of exercise
minus the exercise price.
(2) Fair Market Value of the Company's Common Stock at December 31, 1997 ($4.25)
minus the exercise price of the options.
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement (the "Agreement") with Dr.
Siebert to employ Dr. Siebert as President and Chief Executive Officer of the
Company for three years until January 1, 2001. Under the terms of the Agreement,
Dr. Siebert receives an annual base salary of $255,000 with annual increases of
5% per year. In addition, the Agreement provides that Dr. Siebert will be paid a
cash incentive bonus of up to 50% of his salary upon the Company's achievement
of certain objectives. In the case of a change of control of the Company, Dr.
Siebert will receive twelve months of compensation or the remainder of his
compensation under the Agreement, whichever is longer (less amounts received in
a subsequent job during such period), and a minimum cash bonus of $100,000 per
year for each year remaining under the Agreement for which he has not already
received a bonus. Dr. Siebert also received a stock option to purchase 100,000
shares of Common Stock which vests in one-third increments at each of December
31, 1998, 1998 and 2000. Pursuant to the Agreement, the Company pays Dr. Siebert
a car allowance of $650 per month. The Agreement contains standard provisions
regarding the protection of confidential information, a one-year covenant not to
compete and a covenant not to recruit.
The Company entered into an employment agreement (the "Employment
Agreement") with Keith P. Salenger to employ Mr. Salenger as Vice President,
Finance and Chief Financial Officer. Under the terms of the Employment
Agreement, Mr. Salenger receives an annual salary of $140,000. In addition, the
Employment Agreement provides that Mr. Salenger will be paid a cash incentive
bonus of up to 40% of his salary upon the Company's achievement of certain
objectives. Mr. Salenger also received a stock option to purchase 40,000 shares
of Common Stock, subject to standard employee stock option requirements.
Pursuant to the Employment Agreement, the Company also paid Mr. Salenger's
relocation expenses, paid him a relocation bonus of $25,000, and paid for six
weeks of temporary housing.
Dr. Hontz has an agreement with the Company pursuant to which Dr. Hontz
receives an annual salary of $135,000. Under the terms of the agreement, Dr.
Hontz will be paid a cash incentive bonus of up to 40% of his salary upon the
Company's achievement of certain objectives. Dr. Hontz also received a stock
option to purchase 36,000 shares of Common Stock, subject to standard employee
stock option requirements. Pursuant to the agreement, the Company paid Dr.
Hontz' relocation expenses, paid him a relocation bonus of $25,000, and paid for
three months of temporary housing. In addition, pursuant to the agreement, he is
entitled to receive six months' salary as severance pay should the Company
terminate his employment without cause within the first year of employment.
Brian M. Jones entered into a Separation and Release Agreement, effective as
of February 8, 1998, (the "Separation Agreement") in connection with his
resignation as Senior Vice President of Operations from the Company. Pursuant to
the Separation Agreement, Mr. Jones will receive nine (9) months' salary as
severance.
20
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF
DIRECTORS ON EXECUTIVE COMPENSATION*
The Compensation Committee of the Board of Directors (the "Committee") is
currently composed of two non-employee directors: Messrs. Glarner and Ratoff.
Dr. Weisbach, who is not standing for re-election as a director of the Company,
served on the Compensation Committee until April 1998.
The Committee is responsible for setting and administering the compensation
policies, annual executive officer compensation, making recommendations on
potential bonus and stock option plans, granting bonuses and recommending to the
board of directors grants of stock options to executive officers.
COMPENSATION PHILOSOPHY
The goals of the compensation program are to align compensation with
business objectives and performance and to ensure the compensation program of
the Company is sufficient to attract, motivate and retain executives of
outstanding ability, potential and drive commensurate with the size and
innovative development requirements of the Company. Key elements of this
philosophy are:
- The Company pays competitively with comparable small companies with which
the Company competes for talent. To ensure that pay is competitive, the
Company compares its pay practices with these companies and sets it pay
parameters based in part on this review.
- The Company maintains annual incentive opportunities sufficient to provide
motivation to achieve specific operating goals and to generate rewards
that bring total compensation to competitive levels.
- The Company provides significant equity-based incentives for executives to
ensure that they are motivated over the long-term to respond to the
Company's business challenges.
The Committee endeavors to balance Company needs and values with the
employees' needs and believes that it is important that the Committee maintain
this relationship.
BASE SALARY
The base salaries of the executive officers are determined initially on the
basis of one or more salary surveys conducted by third parties as well as
surveys of pharmaceutical companies both nationally and more specifically in the
midwest obtained public information such as filings with the Securities and
Exchange Commission and surveys conducted by technical analysts at financial
institutions. Based upon such surveys, the executive officers salaries are set
within the ranges of the surveys targeted at the median; the exact level is
determined after the Committee considers the experience and capability of the
executive officer, the level of responsibility, and the needs of the Company.
PERFORMANCE COMPENSATION
Corporate and individual goals are used to establish the basis for annual
performance compensation awards. During the first quarter of each year, the
President/Chief Executive Officer establishes corporate and individual
objectives and assigns relative weights to each of such goals. At the end of the
year, results are compared to such objectives which are then used to develop
final bonus and stock option recommendations to the Committee for the executive
officers. Recommended awards are reviewed by the Committee generally in the last
quarter of the plan year based on these corporate and individual performance
objectives, and must be approved by the Committee prior to being granted or, in
the case of stock options, recommended to the Board of Directors by the
Committee and subsequently approved by the Board of Directors.
- ------------------------
* This Section is not "soliciting material," is not deemed "filed" with the
SEC and is not to be incorporated by reference in any filing of the Company
under the 1933 Act or the 1934 Act whether, made before or after the date
hereof and irrespective of any general incorporation language contained in
any such filing.
21
<PAGE>
STOCK OPTIONS
The President/Chief Executive Officer makes recommendations to the Committee
regarding grants of stock options to the executive officers based on performance
against individual and corporate objectives as well as surveys conducted by
technical analysts at financial institutions based on public knowledge of other
small development companies. The Committee reviews these recommendations and
performance against corporate objectives, as well as such surveys, and
recommends to the Board of Directors grants of stock options to the executive
officers. Such recommendation of grants may vary from the recommendations of the
President/Chief Executive Officer as the Committee determines based on their
knowledge and experience as well as other factors they deem relevant. The
Committee views grants of stock options as incentives for performance and, as a
result, current holdings are considered in recommending grants of additional
stock options.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
Dr. Siebert's salary, potential bonus and stock option grants are set forth
in an employment agreement between the Company and Dr. Siebert, which was
negotiated on behalf of the Board of Directors by Mr. Glarner at the direction
of the Committee with due regard to Dr. Siebert's knowledge, experience,
competitive salary information and market conditions at the time. The employment
agreement is in the first year of its three-year term. Pursuant to such
employment agreement, Dr. Siebert received an incentive stock option to purchase
100,000 shares of the Company's Common Stock, the option vesting over a three
year period. Dr. Siebert's salary and bonus for 1997 were $236,509 and $75,020,
respectively. Bonuses and stock option grants in future years will be at the
discretion of the Committee, provided that they meet certain minimums
established by the Committee in the case of bonuses.
From the members of the Compensation Committee of CIMA LABS INC.
Terrence W. Glarner
Steven B. Ratoff
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As noted above, the Company's Compensation Committee currently consists of
two non-employee directors: Messrs. Glarner and Ratoff. Dr. Weisbach, who is not
standing for re-election as a director of the Company, served as a non-employee
director on the Compensation Committee until April 1998.
22
<PAGE>
PERFORMANCE MEASUREMENT COMPARISON*
The following graph shows the total stockholder return of an investment of
$100 in cash on July 29, 1994 (the first trading date after the Company's Common
Stock became registered under Section 12 of the Securities Exchange Act of 1934,
as amended) for (i) the Company's Common Stock, (ii) the cumulative total return
on the Total Return Index for The Nasdaq Stock Market (U.S. Companies) (the
"Nasdaq Stock Market--U.S. Index") and (iii) the Total Return Index for Nasdaq
Pharmaceutical Stocks (the "Nasdaq Pharmaceuticals Index"). All values assume
reinvestment of the full amount of all dividends and are calculated as of
December 31 of each year:
COMPARISON OF 41 MONTH CUMULATIVE TOTAL RETURN**
AMONG CIMA LABS INC., THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE NASDAQ PHARMACEUTICAL INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CIMA LABS INC. NASDAQ STOCK MARKET (U.S.) NASDAQ PHARMACEUTICAL
<S> <C> <C> <C>
7/29/94 $100 $100 $100
12/94 114 105 103
12/95 67 148 188
12/96 68 182 188
12/97 47 224 195
</TABLE>
- ------------------------------
* This Section is not "soliciting material," is not deemed "filed" with the
SEC and is not to be incorporated by reference in any filing of the Company
under the 1933 Act or the 1934 Act whether, made before or after the date
hereof and irrespective of any general incorporation language contained in
any such filing.
** $100 invested on 7/29/94 in stock or index--including reinvestment of
dividends. Fiscal year ending December 31.
23
<PAGE>
CERTAIN TRANSACTIONS
The Company entered into an employment agreement (the "Agreement") with Dr.
Siebert to employ Dr. Siebert as President and Chief Executive Officer of the
Company for three years until January 1, 2001. Under the terms of the Agreement,
Dr. Siebert receives an annual base salary of $255,000 with annual increases of
5% per year. In addition, the Agreement provides that Dr. Siebert will be paid a
cash incentive bonus of up to 50% of his salary upon the Company's achievement
of certain objectives. In the case of a change of control of the Company, Dr.
Siebert will receive twelve months of compensation or the remainder of his
compensation under the Agreement, whichever is longer (less amounts received in
a subsequent job during such period), and a minimum cash bonus of $100,000 per
year for each year remaining under the Agreement for which he has not already
received a bonus. Dr. Siebert also received a stock option to purchase 100,000
shares of Common Stock which vests in one-third increments at each of December
31, 1998, 1999 and 2000. Pursuant to the Agreement, the Company pays Dr. Siebert
a car allowance of $650 per month. The Agreement contains standard provisions
regarding the protection of confidential information, a one-year covenant not to
compete and a covenant not to recruit.
Pursuant to a certain Letter Agreement, dated January 28, 1998, by and
between the Company and Joseph R. Robinson, Ph.D., the Company paid the
University of Wisconsin Extension Services in Pharmacy $12,500 in March 1998 as
compensation for the performance of certain research work by Dr. Robinson, a
director of the Company. The Company has agreed to pay Dr. Robinson a royalty
based on the sale of products developed from patents resulting from Dr.
Robinson's research.
The Company has entered into indemnity agreements with certain officers and
directors which provide, among other things, that the Company will indemnify
such officer or director for such liabilities permitted under Delaware Law, to
the full extent permitted under Delaware law, subject to certain limitations.
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters are properly brought
before the meeting, it is the intention of the persons named in the accompanying
proxy to vote on such matters in accordance with their best judgment.
By Order of the Board of Directors
[SIG]
Robert L. Jones
SECRETARY
May 1, 1998
24
<PAGE>
CIMA LABS INC.
EQUITY INCENTIVE PLAN
AMENDED AND RESTATED MARCH 25, 1996
FURTHER AMENDED, EFFECTIVE SEPTEMBER 24, 1996
AMENDED AND RESTATED, EFFECTIVE JUNE __, 1998
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. On February 23, 1998, the Board
of Directors amended and restated the Equity Incentive Plan to increase the
number of shares of Common Stock available for issuance pursuant to the grant
of awards hereunder.
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which selected
Employees and Directors of and Consultants to the Company, and its
Affiliates, may be given an opportunity to benefit from increases in value of
the stock of the Company through the granting of (i) Incentive Stock Options,
(ii) Nonstatutory Stock Options, (iii) stock bonuses, (iv) rights to purchase
restricted stock, and (v) stock appreciation rights, all as defined below.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees or Directors of or Consultants to the Company
or its Affiliates, to secure and retain the services of new Employees,
Directors and Consultants, and to provide incentives for such persons to
exert maximum efforts for the success of the Company and its Affiliates.
(c) The Company intends that the Stock Awards issued under the Plan
shall, in the discretion of the Board or any Committee to which
responsibility for administration of the Plan has been delegated pursuant to
subsection 3(c), be either (i) Options granted pursuant to Section 6 hereof,
including Incentive Stock Options and Nonstatutory Stock Options, (ii) stock
bonuses or rights to purchase restricted stock granted pursuant to Section 7
hereof, or (iii) stock appreciation rights granted pursuant to Section 8
hereof. All Options shall be separately designated Incentive Stock Options
or Nonstatutory Stock Options at the time of grant, and in such form as
issued pursuant to Section 6, and a separate certificate or certificates will
be issued for shares purchased on exercise of each type of Option.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f) respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
<PAGE>
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in accordance
with subsection 3(c) of the Plan.
(e) "COMPANY" means CIMA LABS INC., a Delaware corporation.
(f) "CONCURRENT STOCK APPRECIATION RIGHT" or "CONCURRENT RIGHT" means a
right granted pursuant to subsection 8(b)(2) of the Plan.
(g) "CONSULTANT" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated
for such services, provided that the term "Consultant" shall not include
Directors who are paid only a director's fee by the Company or who are not
compensated by the Company for their services as Directors.
(h) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means
the employment or relationship as a Director or Consultant is not interrupted
or terminated. The Board or the chief executive officer of the Company, in
that party's sole discretion, may determine whether Continuous Status as an
Employee, Director or Consultant shall be considered interrupted in the case
of: (i) any leave of absence approved by the Board or chief executive
officer of the Company, including sick leave, military leave, or any other
personal leave; or (ii) transfers between locations of the Company or between
the Company, Affiliates or their successors.
(i) "COVERED EMPLOYEE" means the chief executive officer and the four
(4) other highest compensated officers of the Company for whom total
compensation is required to be reported to shareholders under the Exchange
Act, as determined for purposes of Section 162(m) of the Code.
(j) "DIRECTOR" means a member of the Board.
(k) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as
a Director nor payment of a director's fee by the Company shall be sufficient
to constitute "employment" by the Company.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(m) "FAIR MARKET VALUE" means, as of any date, the value of the common
stock of the Company determined as follows:
(1) If the common stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market, the Fair Market Value of a share of common stock shall be
the closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such system or exchange (or the exchange with the
greatest volume of trading in common stock) on the last market trading day
prior to the day of determination, as reported in the Wall Street Journal or
such other source as the Board deems reliable;
2
<PAGE>
(2) If the common stock is quoted on the Nasdaq Stock Market (but
not on the National Market thereof) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value
of a share of common stock shall be the mean between the bid and asked prices
for the common stock on the last market trading day prior to the day of
determination, as reported in the Wall Street Journal or such other source as
the Board deems reliable;
(3) In the absence of an established market for the common stock,
the Fair Market Value shall be determined in good faith by the Board.
(n) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(o) "INDEPENDENT STOCK APPRECIATION RIGHT" or "INDEPENDENT RIGHT" means
a right granted pursuant to subsection 8(b)(3) of the Plan.
(p) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does
not receive compensation (directly or indirectly) from the Company or its
parent or subsidiary for services rendered as a consultant or in any capacity
other than as a Director (except for an amount as to which disclosure would
not be required under Item 404(a) of Regulation S-K promulgated pursuant to
the Securities Act of 1933 ("Regulation S-K")), does not possess an interest
in any other transaction as to which disclosure would be required under
Item 404(a) of Regulation S-K, and is not engaged in a business relationship
as to which disclosure would be required under Item 404(b) of Regulation S-K;
or (ii) is otherwise considered a "non-employee director" for purposes of
Rule 16b-3.
(q) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.
(r) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(s) "OPTION" means a stock option granted pursuant to the Plan.
(t) "OPTION AGREEMENT" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of
the Plan.
(u) "OPTIONEE" means an Employee, Director or Consultant who holds an
outstanding Option.
3
<PAGE>
(v) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated
corporation" at any time, and is not currently receiving direct or indirect
remuneration from the Company or an "affiliated corporation" for services in
any capacity other than as a Director, or (ii) is otherwise considered an
"outside director" for purposes of Section 162(m) of the Code.
(w) "PLAN" means this CIMA LABS INC. Equity Incentive Plan.
(x) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any successor
to Rule 16b-3, as in effect with respect to the Company when discretion is
being exercised with respect to the Plan.
(y) "STOCK APPRECIATION RIGHT" means any of the various types of rights
which may be granted under Section 8 of the Plan.
(z) "STOCK AWARD" means any right granted under the Plan, including any
Option, any stock bonus, any right to purchase restricted stock, and any
Stock Appreciation Right.
(aa) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of
an individual Stock Award grant. Each Stock Award Agreement shall be subject
to the terms and conditions of the Plan.
(bb) "TANDEM STOCK APPRECIATION RIGHT" or "TANDEM RIGHT" means a right
granted pursuant to subsection 8(b)(1) of the Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the
Board delegates administration to a Committee, as provided in subsection 3(c).
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(1) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; whether a Stock Award will be an Incentive Stock Option, a
Nonstatutory Stock Option, a stock bonus, a right to purchase restricted
stock, a Stock Appreciation Right, or a combination of the foregoing; the
provisions of each Stock Award granted (which need not be identical),
including the time or times when a person shall be permitted to receive stock
pursuant to a Stock Award; whether a person shall be permitted to receive
stock upon exercise of an Independent Stock Appreciation Right; and the
number of shares with respect to which a Stock Award shall be granted to each
such person.
(2) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the
4
<PAGE>
exercise of this power, may correct any defect, omission or inconsistency in
the Plan or in any Stock Award Agreement, in a manner and to the extent it
shall deem necessary or expedient to make the Plan fully effective.
(3) To amend the Plan or a Stock Award as provided in Section 13.
(4) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.
(c) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members (the "Committee"), all of the
members of which Committee may be, in the discretion of the Board,
Non-Employee Directors and/or Outside Directors. If administration is
delegated to a Committee, the Committee shall have, in connection with the
administration of the Plan, the powers theretofore possessed by the Board,
including the power to delegate to a subcommittee of two (2) or more Outside
Directors any of the administrative powers the Committee is authorized to
exercise (and references in this Plan to the Board shall thereafter be to the
Committee or such subcommittee), subject, however, to such resolutions, not
inconsistent with the provisions of the Plan, as may be adopted from time to
time by the Board. The Board may abolish the Committee at any time and
revest in the Board the administration of the Plan. Notwithstanding anything
in this Section 3 to the contrary, at any time the Board or the Committee may
delegate to a committee of one or more members of the Board the authority to
grant Stock Awards to eligible persons who (1) are not then subject to
Section 16 of the Exchange Act and/or (2) are either (i) not then Covered
Employees and are not expected to be Covered Employees at the time of
recognition of income resulting from such Stock Award, or (ii) not persons
with respect to whom the Company wishes to avoid the application of
Section 162(m) of the Code.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 12 relating to adjustments
upon changes in stock, the stock that may be issued pursuant to Stock Awards
shall not exceed in the aggregate Two Million Four Hundred Thousand
(2,400,000) shares of the Company's common stock. If any Stock Award shall
for any reason expire or otherwise terminate, in whole or in part, without
having been exercised in full, the stock not acquired under such Stock Award
shall revert to and again become available for issuance under the Plan.
Shares subject to Stock Appreciation Rights exercised in accordance with
Section 8 of the Plan shall not be available for subsequent issuance under
the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) Incentive Stock Options and Stock Appreciation Rights appurtenant
thereto may be granted only to Employees. Stock Awards other than Incentive
Stock Options and Stock Appreciation Rights appurtenant thereto may be
granted only to Employees, Directors or Consultants.
5
<PAGE>
(b) No person shall be eligible for the grant of an Incentive Stock
Option or an award to purchase restricted stock if, at the time of grant,
such person owns (or is deemed to own pursuant to Section 424(d) of the Code)
stock possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or of any of its Affiliates
unless the exercise price of such Incentive Stock Option is at least one
hundred ten percent (110%) of the Fair Market Value of such stock at the date
of grant and the Incentive Stock Option is not exercisable after the
expiration of five (5) years from the date of grant.
(c) Subject to the provisions of Section 12 relating to adjustments
upon changes in stock, no person shall be eligible to be granted Options and
Stock Appreciation Rights covering more than five hundred thousand (500,000)
shares of the Company's common stock in any three (3) calendar year period.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise)
the substance of each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.
(b) PRICE. The exercise price of each Incentive Stock Option shall be
not less than one hundred percent (100%) of the Fair Market Value of the
stock subject to the Option on the date the Option is granted; the exercise
price of each Nonstatutory Stock Option shall be determined by the Board.
Notwithstanding the foregoing, an Option (whether an Incentive Stock Option
or a Nonstatutory Stock Option) may be granted with an exercise price lower
than that set forth in the preceding sentence or determined by the Board if
such Option is granted pursuant to an assumption or substitution for another
option in a manner satisfying the provisions of Section 424(a) of the Code.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or
(ii) at the discretion of the Board or the Committee, at the time of the
grant of the Option, (A) by delivery to the Company of other common stock of
the Company, (B) according to a deferred payment or other arrangement (which
may include, without limiting the generality of the foregoing, the use of
other common stock of the Company) with the person to whom the Option is
granted or to whom the Option is transferred pursuant to subsection 6(d), or
(C) in any other form of legal consideration that may be acceptable to the
Board.
In the case of any deferred payment arrangement, interest shall be
payable at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be
interest under the deferred payment arrangement.
(d) TRANSFERABILITY. An Incentive Stock Option shall not be
transferable except by will or by the laws of descent and distribution, and
shall be exercisable during the lifetime of the
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person to whom the Option is granted only by such person. A Nonstatutory
Stock Option shall not be transferable, except by the Optionee upon such
terms and conditions as are set forth in the Option Agreement for such
Nonstatutory Stock Option, as the Board or the Committee shall determine in
its discretion. Notwithstanding the foregoing, the person to whom the Option
is granted may, by delivering written notice to the Company, in a form
satisfactory to the Company, designate a third party who, in the event of the
death of the Optionee, shall thereafter be entitled to exercise the Option.
(e) VESTING. The total number of shares of stock subject to an Option
may, but need not, be allotted in periodic installments (which may, but need
not, be equal). The Option Agreement may provide that from time to time
during each of such installment periods, the Option may become exercisable
("vest") with respect to some or all of the shares allotted to that period,
and may be exercised with respect to some or all of the shares allotted to
such period and/or any prior period as to which the Option became vested but
was not fully exercised. The Option may be subject to such other terms and
conditions on the time or times when it may be exercised (which may be based
on performance or other criteria) as the Board may deem appropriate. The
provisions of this subsection 6(e) are subject to any Option provisions
governing the minimum number of shares as to which an Option may be exercised.
(f) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event an Optionee's Continuous Status as an Employee,
Director or Consultant terminates (other than upon the Optionee's death or
disability), the Optionee may exercise his or her Option (to the extent that
the Optionee was entitled to exercise it at the date of termination) but only
within such period of time ending on the earlier of (i) the date three
(3) months after the termination of the Optionee's Continuous Status as an
Employee, Director or Consultant (or such longer or shorter period specified
in the Option Agreement), or (ii) the expiration of the term of the Option as
set forth in the Option Agreement. If, after termination, the Optionee does
not exercise his or her Option within the time specified in the Option
Agreement, the Option shall terminate, and the shares covered by such Option
shall revert to and again become available for issuance under the Plan.
An Optionee's Option Agreement may also provide that if the exercise of
the Option following the termination of the Optionee's Continuous Status as
an Employee, Director, or Consultant (other than upon the Optionee's death or
disability) would result in liability under Section 16(b) of the Exchange
Act, then the Option shall terminate on the earlier of (i) the expiration of
the term of the Option set forth in the Option Agreement, or (ii) the tenth
(10th) day after the last date on which such exercise would result in such
liability under Section 16(b) of the Exchange Act. Finally, an Optionee's
Option Agreement may also provide that if the exercise of the Option
following the termination of the Optionee's Continuous Status as an Employee,
Director or Consultant (other than upon the Optionee's death or disability)
would be prohibited at any time solely because the issuance of shares would
violate the registration requirements under the Act, then the Option shall
terminate on the earlier of (i) the expiration of the term of the Option set
forth in the first paragraph of this subsection 6(f), or (ii) the expiration
of a period of three (3) months after the termination of the Optionee's
Continuous Status as an Employee, Director or Consultant during which the
exercise of the Option would not be in violation of such registration
requirements.
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(g) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous
Status as an Employee, Director or Consultant terminates as a result of the
Optionee's disability, the Optionee may exercise his or her Option (to the
extent that the Optionee was entitled to exercise it at the date of
termination), but only within such period of time ending on the earlier of
(i) the date twelve (12) months following such termination (or such longer or
shorter period specified in the Option Agreement), or (ii) the expiration of
the term of the Option as set forth in the Option Agreement. If, at the date
of termination, the Optionee is not entitled to exercise his or her entire
Option, the shares covered by the unexercisable portion of the Option shall
revert to and again become available for issuance under the Plan. If, after
termination, the Optionee does not exercise his or her Option within the time
specified herein, the Option shall terminate, and the shares covered by such
Option shall revert to and again become available for issuance under the Plan.
(h) DEATH OF OPTIONEE. In the event of the death of an Optionee
during, or within a period specified in the Option after the termination of,
the Optionee's Continuous Status as an Employee, Director or Consultant, the
Option may be exercised (to the extent the Optionee was entitled to exercise
the Option at the date of death) by the Optionee's estate, by a person who
acquired the right to exercise the Option by bequest or inheritance or by a
person designated to exercise the option upon the Optionee's death pursuant
to subsection 6(d), but only within the period ending on the earlier of
(i) the date eighteen (18) months following the date of death (or such longer
or shorter period specified in the Option Agreement), or (ii) the expiration
of the term of such Option as set forth in the Option Agreement. If, at the
time of death, the Optionee was not entitled to exercise his or her entire
Option, the shares covered by the unexercisable portion of the Option shall
revert to and again become available for issuance under the Plan. If, after
death, the Option is not exercised within the time specified herein, the
Option shall terminate, and the shares covered by such Option shall revert to
and again become available for issuance under the Plan.
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7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.
Each stock bonus or restricted stock purchase agreement shall be in such
form and shall contain such terms and conditions as the Board or the
Committee shall deem appropriate. The terms and conditions of stock bonus or
restricted stock purchase agreements may change from time to time, and the
terms and conditions of separate agreements need not be identical, but each
stock bonus or restricted stock purchase agreement shall include (through
incorporation of provisions hereof by reference in the agreement or
otherwise) the substance of each of the following provisions as appropriate:
(a) PURCHASE PRICE. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board or Committee shall
determine and designate in such agreement. Notwithstanding the foregoing,
the Board or the Committee may determine that eligible participants in the
Plan may be awarded stock pursuant to a stock bonus agreement in
consideration for past services actually rendered to the Company or for its
benefit.
(b) TRANSFERABILITY. No rights under a stock bonus or restricted stock
purchase agreement shall be transferable except by will or the laws of
descent and distribution so long as stock awarded under such agreement
remains subject to the terms of the agreement, except as specifically
provided in the applicable stock bonus or restricted stock purchase agreement.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to a
restricted stock purchase agreement shall be paid either: (i) in cash at the
time of purchase; (ii) at the discretion of the Board or the Committee,
according to a deferred payment or other arrangement with the person to whom
the stock is sold; or (iii) in any other form of legal consideration that may
be acceptable to the Board or the Committee in its discretion.
Notwithstanding the foregoing, the Board or the Committee to which
administration of the Plan has been delegated may award stock pursuant to a
stock bonus agreement in consideration for past services actually rendered to
the Company or for its benefit.
(d) VESTING. Shares of stock sold or awarded under the Plan may, but
need not, be subject to a repurchase option in favor of the Company in
accordance with a vesting schedule to be determined by the Board or the
Committee.
(e) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event a Participant's Continuous Status as an Employee,
Director or Consultant terminates, the Company may repurchase or otherwise
reacquire, subject to the limitations described in subsection 7(d), any or
all of the shares of stock held by that person which have not vested as of
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the date of termination under the terms of the stock bonus or restricted
stock purchase agreement between the Company and such person.
8. STOCK APPRECIATION RIGHTS.
(a) The Board or Committee shall have full power and authority,
exercisable in its sole discretion, to grant Stock Appreciation Rights under
the Plan to Employees or Directors of or Consultants to, the Company or its
Affiliates. To exercise any outstanding Stock Appreciation Right, the holder
must provide written notice of exercise to the Company in compliance with the
provisions of the Stock Award Agreement evidencing such right. Except as
provided in subsection 5(c), no limitation shall exist on the aggregate
amount of cash payments the Company may make under the Plan in connection
with the exercise of a Stock Appreciation Rights.
(b) Three types of Stock Appreciation Rights shall be authorized for
issuance under the Plan:
(1) TANDEM STOCK APPRECIATION RIGHTS. Tandem Stock Appreciation
Rights will be granted appurtenant to an Option, and shall, except as
specifically set forth in this Section 8, be subject to the same terms and
conditions applicable to the particular Option grant to which it pertains.
Tandem Stock Appreciation Rights will require the holder to elect between the
exercise of the underlying Option for shares of stock and the surrender, in
whole or in part, of such Option for an appreciation distribution. The
appreciation distribution payable on the exercised Tandem Right shall be in
cash (or, if so provided, in an equivalent number of shares of stock based on
Fair Market Value on the date of the Option surrender) in an amount up to the
excess of (A) the Fair Market Value (on the date of the Option surrender) of
the number of shares of stock covered by that portion of the surrendered
Option in which the Optionee is vested over (B) the aggregate exercise price
payable for such vested shares.
(2) CONCURRENT STOCK APPRECIATION RIGHTS. Concurrent Rights will
be granted appurtenant to an Option and may apply to all or any portion of
the shares of stock subject to the underlying Option and shall, except as
specifically set forth in this Section 8, be subject to the same terms and
conditions applicable to the particular Option grant to which it pertains. A
Concurrent Right shall be exercised automatically at the same time the
underlying Option is exercised with respect to the particular shares of stock
to which the Concurrent Right pertains. The appreciation distribution
payable on an exercised Concurrent Right shall be in cash (or, if so
provided, in an equivalent number of shares of stock based on Fair Market
Value on the date of the exercise of the Concurrent Right) in an amount equal
to such portion as shall be determined by the Board or the Committee at the
time of the grant of the excess of (A) the aggregate Fair Market Value (on
the date of the exercise of the Concurrent Right) of the vested shares of
stock purchased under the underlying Option which have Concurrent Rights
appurtenant to them over (B) the aggregate exercise price paid for such
shares.
(3) INDEPENDENT STOCK APPRECIATION RIGHTS. Independent Rights
will be granted independently of any Option and shall, except as specifically
set forth in this Section 8, be subject to the same terms and conditions
applicable to Nonstatutory Stock Options as set forth in Section 6. They
shall be denominated in share equivalents. The appreciation distribution
payable on the exercised Independent Right shall be not greater than an
amount equal to the
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excess of (A) the aggregate Fair Market Value (on the date of the exercise of
the Independent Right) of a number of shares of Company stock equal to the
number of share equivalents in which the holder is vested under such
Independent Right, and with respect to which the holder is exercising the
Independent Right on such date, over (B) the aggregate Fair Market Value (on
the date of the grant of the Independent Right) of such number of shares of
Company stock. The appreciation distribution payable on the exercised
Independent Right shall be in cash or, if so provided, in an equivalent
number of shares of stock based on Fair Market Value on the date of the
exercise of the Independent Right.
9. COVENANTS OF THE COMPANY.
(a) During the terms of the Stock Awards, the Company shall keep
available at all times the number of shares of stock required to satisfy such
Stock Awards.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the Stock Award; provided,
however, that this undertaking shall not require the Company to register
under the Securities Act of 1933, as amended (the "Securities Act") either
the Plan, any Stock Award or any stock issued or issuable pursuant to any
such Stock Award. If, after reasonable efforts, the Company is unable to
obtain from any such regulatory commission or agency the authority which
counsel for the Company deems necessary for the lawful issuance and sale of
stock under the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such Stock Awards unless and
until such authority is obtained.
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall
constitute general funds of the Company.
11. MISCELLANEOUS.
(a) The Board shall have the power to accelerate the time at which a
Stock Award may first be exercised or the time during which a Stock Award or
any part thereof will vest pursuant to subsection 6(e), 7(d) or 8(b),
notwithstanding the provisions in the Stock Award stating the time at which
it may first be exercised or the time during which it will vest.
(b) Neither an Employee, Director or Consultant nor any person to whom
a Stock Award is transferred under subsection 6(d), 7(b), or 8(b) shall be
deemed to be the holder of, or to have any of the rights of a holder with
respect to, any shares subject to such Stock Award unless and until such
person has satisfied all requirements for exercise of the Stock Award
pursuant to its terms.
(c) Nothing in the Plan or any instrument executed or Stock Award
granted pursuant thereto shall confer upon any Employee, Director, Consultant
or other holder of Stock Awards any right to continue in the employ of the
Company or any Affiliate (or to continue acting as a Director or Consultant)
or shall affect the right of the Company or any Affiliate to terminate the
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employment of any Employee with or without cause the right of the Company's
Board of Directors and/or the Company's shareholders to remove any Director
pursuant to the terms of the Company's By-Laws and the provisions of the
Delaware General Corporation Law, or the right to terminate the relationship
of any Consultant pursuant to the terms of such Consultant's agreement with
the Company or Affiliate.
(d) To the extent that the aggregate Fair Market Value (determined at
the time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds one hundred thousand
dollars ($100,000), the Options or portions thereof which exceed such limit
(according to the order in which they were granted) shall be treated as
Nonstatutory Stock Options.
(e) The Company may require any person to whom a Stock Award is
granted, or any person to whom a Stock Award is transferred pursuant to
subsection 6(d), 7(b) or 8(b), as a condition of exercising or acquiring
stock under any Stock Award, (1) to give written assurances satisfactory to
the Company as to such person's knowledge and experience in financial and
business matters and/or to employ a purchaser representative reasonably
satisfactory to the Company who is knowledgeable and experienced in financial
and business matters, and that he or she is capable of evaluating, alone or
together with the purchaser representative, the merits and risks of
exercising the Stock Award; and (2) to give written assurances satisfactory
to the Company stating that such person is acquiring the stock subject to the
Stock Award for such person's own account and not with any present intention
of selling or otherwise distributing the stock. The foregoing requirements,
and any assurances given pursuant to such requirements, shall be inoperative
if (i) the issuance of the shares upon the exercise or acquisition of stock
under the Stock Award has been registered under a then currently effective
registration statement under the Securities Act, or (ii) as to any particular
requirement, a determination is made by counsel for the Company that such
requirement need not be met in the circumstances under the then applicable
securities laws. The Company may, upon advice of counsel to the Company,
place legends on stock certificates issued under the Plan as such counsel
deems necessary or appropriate in order to comply with applicable securities
laws, including, but not limited to, legends restricting the transfer of the
stock.
(f) To the extent provided by the terms of a Stock Award Agreement, the
person to whom a Stock Award is granted may satisfy any federal, state or
local tax withholding obligation relating to the exercise or acquisition of
stock under a Stock Award by any of the following means or by a combination
of such means: (1) tendering a cash payment; (2) authorizing the Company to
withhold shares from the shares of the common stock otherwise issuable to the
participant as a result of the exercise or acquisition of stock under the
Stock Award; or (3) delivering to the Company owned and unencumbered shares
of the common stock of the Company.
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any Stock Award, without the receipt of consideration by the Company
(through merger, consolidation, reorganization, recapitalization,
reincorporation, stock dividend, dividend in property other than
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cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan will be appropriately
adjusted in the type(s) and maximum number of securities subject to the Plan
pursuant to subsection 4(a) and the maximum number of securities subject to
award to any person during any three (3) calendar year period pursuant to
subsection 5(c), and the outstanding Stock Awards will be appropriately
adjusted in the type(s) and number of securities and price per share of stock
subject to such outstanding Stock Awards. Such adjustments shall be made by
the Board or the Committee, the determination of which shall be final,
binding and conclusive. (The conversion of any convertible securities of the
Company shall not be treated as a "transaction not involving the receipt of
consideration by the Company".)
(b) In the event of: (1) a dissolution, liquidation or sale of
substantially all of the assets of the Company; (2) a merger or consolidation
in which the Company is not the surviving corporation; (3) a reverse merger
in which the Company is the surviving corporation but the shares of the
Company's common stock outstanding immediately preceding the merger are
converted by virtue of the merger into other property, whether in the form of
securities, cash or otherwise; or (4) the acquisition by any person, entity
or group within the meaning of Section 13(d) or 14(d) of the Exchange Act, or
any comparable successor provisions (excluding any employee benefit plan, or
related trust, sponsored or maintained by the Company or any Affiliate of the
Company) of the beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act, or comparable successor rule) of
securities of the Company representing at least fifty percent (50%) of the
combined voting power entitled to vote in the election of directors, then to
the extent permitted by applicable law: (i) any surviving or acquiring
corporation or an Affiliate of such surviving or acquiring corporation shall
assume any Stock Awards outstanding under the Plan or shall substitute
similar Stock Awards (including a stock award resulting in the acquisition of
the same consideration paid to the stockholders in the transaction described
in this subsection 12(b)) for those outstanding under the Plan, or (ii) such
Stock Awards shall continue in full force and effect. In the event any
surviving or acquiring corporation or its Affiliates refuse to assume or
continue such Stock Awards, or to substitute similar Stock Awards for those
outstanding under the Plan, then, with respect to Stock Awards held by
persons then performing services as Employees, Directors or Consultants, the
time during which such Stock Awards may be exercised shall be accelerated and
the Stock Awards terminated if not exercised after such acceleration and at
or prior to such event.
13. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 12 relating to adjustments upon
changes in stock, no amendment shall be effective unless approved by the
stockholders of the Company within twelve (12) months before or after the
adoption of the amendment, where the amendment will:
(i) Increase the number of shares reserved for Stock Awards under
the Plan;
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(ii) Modify the requirements as to eligibility for participation
in the Plan (to the extent such modification requires stockholder approval in
order for the Plan to satisfy the requirements of Section 422 of the Code); or
(iii) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to satisfy the
requirements of Section 422 of the Code or to comply with the requirements of
Rule 16b-3.
(b) The Board may in its sole discretion submit any other amendment to
the Plan for stockholder approval, including, but not limited to, amendments
to the Plan intended to satisfy the requirements of Section 162(m) of the
Code and the regulations promulgated thereunder regarding the exclusion of
performance-based compensation from the limit on corporate deductibility of
compensation paid to certain executive officers.
(c) It is expressly contemplated that the Board may amend the Plan in
any respect the Board deems necessary or advisable to provide eligible
Employees, Directors or Consultants with the maximum benefits provided or to
be provided under the provisions of the Code and the regulations promulgated
thereunder relating to Incentive Stock Options and/or to bring the Plan
and/or Incentive Stock Options granted under it into compliance therewith.
(d) Rights and obligations under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan
unless (i) the Company requests the consent of the person to whom the Stock
Award was granted and (ii) such person consents in writing.
(e) The Board at any time, and from time to time, may amend the terms
of any one or more Stock Award; provided, however, that the rights and
obligations under any Stock Award shall not be impaired by any such amendment
unless (i) the Company requests the consent of the person to whom the Stock
Award was granted and (ii) such person consents in writing.
14. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on May 31, 2004, which shall be
within ten (10) years from the date the Plan is adopted by the Board or
approved by the stockholders of the Company, whichever is earlier. No Stock
Awards may be granted under the Plan while the Plan is suspended or after it
is terminated.
(b) Rights and obligations under any Stock Award granted while the Plan
is in effect shall not be impaired by suspension or termination of the Plan,
except with the consent of the person to whom the Stock Award was granted.
15. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no Stock
Awards granted under the Plan shall be exercised unless and until the Plan
has been approved by the
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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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<PAGE>
CIMA LABS INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 3, 1998
The undersigned hereby appoints MR. JOHN M. SIEBERT, PH.D. and MR. ROBERT
L. JONES, and each of them, as proxies and attorneys-in-fact of the undersigned,
with full power of substitution, to vote all of the shares of stock of CIMA LABS
INC. which the undersigned may be entitled to vote at the Annual Meeting of
Stockholders of CIMA LABS INC. to be held at the Company's executive offices at
10000 Valley View Road, Eden Prairie, Minnesota 55344 on Wednesday, June 3, 1998
at 2:00 p.m., local time, and at any and all postponements, continuations and
adjournments thereof, with all powers that the undersigned would possess if
personally present, upon and in respect of the following matters and in
accordance with the following instructions, with discretionary authority as to
any and all other matters that may properly come before the meeting.
<TABLE>
<S> <C> <C>
PROPOSAL 1: Election of Directors.
/ / FOR all the nominees listed below. / / WITHHOLD AUTHORITY to vote for all the
nominees listed below.
AUTHORITY TO VOTE FOR ANY NOMINEE MAY BE WITHHELD BY LINING THROUGH SUCH NOMINEE'S NAME
BELOW:
JOHN M. SIEBERT, PH.D., TERRENCE W. GLARNER, STEVEN B. RATOFF, JOSEPH R. ROBINSON, PH.D.
PROPOSAL 2: To approve the amendment and restatement of the Company's Equity Incentive Plan to increase
the aggregate number of shares authorized for issuance under such plan by 400,000 shares to
2,400,000 shares.
/ / FOR / / AGAINST / / ABSTAIN
PROPOSAL 3: To ratify the selection of Ernst & Young LLP as independent auditors of the Company for its
fiscal year ending December 31, 1998.
/ / FOR / / AGAINST / / ABSTAIN
</TABLE>
<PAGE>
(CONTINUED FROM OTHER SIDE)
MANAGEMENT RECOMMENDS A VOTE FOR THE ELECTION OF DIRECTORS AND FOR PROPOSALS 2
AND 3.
Shares represented by this proxy will be voted as directed by the
stockholder. If no such directions are indicated, the proxies will have
authority to vote FOR the Election of Directors and FOR Proposals 2 and 3.
DATED
-----------------------------------
-----------------------------------
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SIGNATURE(S)
Please sign exactly as your name
appears on this proxy. If the stock
is registered in the names of two
or more persons, each should sign.
Executors, administrators,
trustees, guardians and
attorneys-in-fact should add their
titles. If signer is a corporation,
please give full corporate name and
have a duly authorized officer
sign, stating title. If signer is a
partnership, please sign in
partnership name by authorized
person.
PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN ENVELOPE
WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
