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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
Commission File No. 0-24424
CIMA LABS INC.
(Exact name of Registrant as specified in its charter)
_______________________________
DELAWARE 41-1569769
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10000 VALLEY VIEW ROAD, EDEN PRAIRIE, MINNESOTA 55344-9361
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (612) 947-8700
SECURITIES REGISTERED PURSUANT TO Section 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO Section 12(g) OF THE ACT:
COMMON STOCK $.01 PAR VALUE
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The approximate aggregate market value of the voting stock held by
nonaffiliates of the Registrant as of March 13, 1998, based upon the last trade
price of the Common Stock reported on the Nasdaq National Market on March 13,
1998, was $17,951,433.*
The number of shares of Common Stock outstanding as of March 13, 1998 was
9,610,394.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Definitive Proxy Statement which will be filed with
the Commission pursuant to Regulation 14A in connection with the 1997 Annual
Meeting of Stockholders are incorporated herein by reference in Part III of
this Report.
______________________
* Excludes approximately 4,481,413 shares of common stock held by Directors,
Officers and holders of 5% or more of the Registrant's outstanding Common
Stock at February 28, 1998. Exclusion of shares held by any person should
not be construed to indicate that such person possesses the power, direct
or indirect, to direct or cause the direction of the management or
policies of the Registrant, or that such person is controlled by or under
common control with the Registrant.
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PART I.
Unless the context otherwise indicates, all references to the
"Registrant," the "Company," or "CIMA" in this Annual Report on Form 10-K
relate to CIMA LABS INC., a Delaware corporation.
The following trademarks of the Company are used in this Annual Report
on Form 10-K: "CIMA-Registered Trademark-," "CIMA LABS INC.-Registered
Trademark-," "OraSolv-Registered Trademark-," "OraSolv-Registered
Trademark-SR", DuraSolv-TM-, PakSolv-TM- and "AutoLution-Registered
Trademark-."
ITEM 1. BUSINESS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE FOLLOWING
DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. WHEN USED HEREIN, THE WORDS "BELIEVE," "ANTICIPATE,"
"EXPECT," "ESTIMATE" AND SIMILAR EXPRESSIONS AS THEY RELATE TO THE COMPANY OR
ITS MANAGEMENT ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THE
COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN.
FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE
NOT LIMITED TO, THE SUCCESS OF THE COMPANY IN MANUFACTURING THE COMPANY'S
TECHNOLOGY, THE AVAILABILITY OF ADEQUATE FUNDS FOR THE COMPANY'S OPERATIONS,
THE SUCCESS OF THE COMPANY IN COMMERCIALIZING ITS NEW DRUG DELIVERY PROGRAMS,
AND THE COMPANY'S RELIANCE ON ITS KEY PERSONNEL AND PARTNERS, WHICH ARE
DISCUSSED IN THIS SECTION, AND IN GREATER DETAIL UNDER THE CAPTION "BUSINESS
RISKS," AND "IN ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS."
OVERVIEW
CIMA is a drug delivery company focused primarily on the development and
manufacture of pharmaceutical products based upon its patented OraSolv-
Registered Trademark- technology for marketing by multinational pharmaceutical
companies. OraSolv is an oral dosage formulation incorporating
microencapsulated active drug ingredients into a tablet which dissolves quickly
in the mouth without chewing or water and which effectively masks the taste of
the medication being delivered. OraSolv's fast-dissolving capability may enable
patients in certain age groups or those with a variety of conditions that limit
their ability to swallow conventional tablets to receive medication in a more
convenient oral dosage form. The Company believes that OraSolv is more
convenient than traditional tablet-based oral dosages as it dissolves quickly
in the mouth and does not require water to be ingested, thereby enabling
immediate medication at the onset of symptoms. In addition, OraSolv can
provide more accurate administration of doses than liquid or suspension
formulations as no measuring is required. The Company believes OraSolv's ease
of use and effective taste-masking may foster greater patient compliance with
recommended dosage regimens, both for over-the-counter ("OTC") and prescription
products, thereby improving therapeutic outcomes and reducing costs in the
healthcare system.
CIMA's business focus has evolved over the last several years. From
inception until 1992, the Company focused on the development of liquid
effervescent products and technologies. In 1993, the U.S. patent covering
OraSolv was issued and the Company, perceiving a greater commercial
opportunity, shifted its focus to the development of OraSolv products. Since
the issuance of the OraSolv patent in 1993, the Company completed construction
on its current manufacturing facility and produced numerous full-scale trial
and validation batches, entered into various license and development agreements
with pharmaceutical companies, and launched the first commercial product using
the OraSolv dosage form in the first-half of 1997. These product sales in the
OraSolv dosage form have resulted in significant revenues for the Company in
1997.
The Company's business strategy is to commercialize its OraSolv technology
through collaborations with multi-national pharmaceutical companies with
emphasis on products which command a
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large market share and/or are in large market segments. The Company's
current focus is primarily on the development and manufacture of OraSolv
products for the prescription market. Product differentiation and brand name
identity are becoming more critical than ever to the successful marketing of
pharmaceutical products. Increasingly pharmaceutical companies are
emphasizing the development of strong prescription franchises through
branding and direct-to-consumer promotional efforts. The Company believes
that OraSolv affords pharmaceutical companies a means to significantly
differentiate their products in the competitive marketplace. Because it is a
patented technology, OraSolv allows extended market life to products that may
go off-patent and become subject to generic competition. OraSolv also affords
more enduring product differentiation than the more traditional approaches of
changing product flavor or packaging innovations, which can be easily
replicated. The Company believes that this has allowed it to enter into
agreements with a number of pharmaceutical companies for development,
manufacture and commercialization of Rx and OTC products.
The Company has also initiated the development of new drug technologies.
These technologies include new oral solid delivery systems, unique sustained-
released delivery systems and improved efficacy delivery systems. The goal is
to focus on technologies that improve efficacy.
Major events that affected the Company in 1997 included:
- - Bristol-Myers Squibb, one of our commercial partners, launched the first
commercial product using CIMA's OraSolv dosage form. The product, Tempra-
Registered Trademark-, was first launched in the United States and then in
Canada.
- - The Company established manufacturing credibility by producing
approximately 100 million tablets in 1997 under GMP conditions.
- - The Company entered into a prescription agreement with Schering-Plough to
use our new OraSolv-Registered Trademark-SR technology in an undisclosed
prescription product.
- - The Company entered into a prescription agreement with Zeneca to develop
and manufacture a quick-dissolving line extension for Zomig-Registered
Trademark-, one of their major new prescription drugs used to treat
migraines.
- - The Company entered into a global non-exclusive license agreement with
Bristol-Myers Squibb for several potential OTC products which would
provide royalties to the Company.
- - The Company announced the mutual intention to terminate the collaboration
with Glaxo Wellcome to produce an OraSolv version of Zantac for both the
OTC and prescription markets.
- - The Company entered into an exclusive development and license option
agreement with Novartis Consumer Health for an undisclosed over-the-
counter product in CIMA's OraSolv dosage form.
- - The Company initiated in-house taste-masking and drug coating activities.
CIMA is a Delaware corporation incorporated in 1986.
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BACKGROUND
DRUG DELIVERY TECHNOLOGY
Patient medications are available in a variety of delivery forms,
including solid dosage forms, liquids, effervescents, transdermal delivery
methods, inhalation devices and products, and intramuscular and intravenous
injections. Enteral medication delivery includes those medications delivered
through the stomach, including tablets, liquids and effervescents. Enteral
medications are most frequently patient-administered, because of their
non-invasive delivery method. Parental medications are those delivered by
injection. Parenteral medications are most often administered by a healthcare
provider.
The Company believes the convenience of patient administration has made
enteral medications in general, and tablets in particular, popular with
patients, providers and payors. Industry sources estimate that patients most
frequently receive medications in an oral tablet form. However, children and
the elderly, as well as those with certain physiological or medical conditions,
frequently experience difficulty in swallowing tablets. These patients often
receive medications in liquid or effervescent form, or through parenteral
methods as an alternative to tablets. The Company believes that tablets are a
more convenient, accurate and effective medication form than are liquids or
effervescents (which may spill in the process of administering the medication,
especially to children) and are easier for patients to self-administer than
parenteral therapeutics.
RECENT TRENDS IN THE HEALTHCARE AND PHARMACEUTICAL INDUSTRIES
The healthcare industry has experienced significant change in the past and
the Company expects this change to continue for the foreseeable future. The
emergence of managed care organizations has focused providers and payors on the
efficient utilization of healthcare resources. In addition, the trend towards
the "capitation" of fees, or management of a patient's health requirements for
a pre-determined, regular payment, has created an awareness among providers of
the cost-effectiveness of various medical treatments. Healthcare providers and
payors have implemented a variety of strategies to reduce the cost of medical
care, including the use of generic versions of prescription and
non-prescription drugs, the use of non-prescription remedies and the use of
therapies that have improved patient compliance. The Company believes that
patient non-compliance with medicinal dosing regimens is widespread, and that
such non-compliance results in unnecessary costs to the healthcare system.
These changes in the healthcare industry have also had an impact on
participants in the pharmaceutical industry. In particular, a greater emphasis
on cost effectiveness by providers and payors has resulted in pharmaceutical
companies developing products that reduce the cost of therapy. These
pharmaceutical companies have responded by developing treatments with improved
efficacy, reduced complications and side effects, easier delivery and lower
costs. The focus on cost-effectiveness has also led to the development of
generic versions of off-patent prescription drugs. Increasingly, healthcare
payors and providers have embraced generic equivalents of branded drugs because
generic drugs provide a substantial cost savings. In addition, many
pharmaceutical companies are extending their presence in a particular
therapeutic area with the introduction of a non-prescription, or OTC, version
of a prescription drug. Many patients and providers have indicated a
preference for OTC versions of prescription formulations because of the
convenience that patient-administration of OTC therapies provides as well as
the cost savings. In addition, healthcare providers and payors have indicated
a continuing interest in therapies that improve patient compliance which
ultimately leads to significant healthcare cost savings.
As these pharmaceutical companies adjust to the evolving healthcare
industry, they must differentiate their products in an increasingly crowded
therapeutic market. To do this effectively, they must develop products or
product extensions that can successfully compete in the prescription, generic
and
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OTC market for drugs, develop products or product extensions that enhance
patient compliance, and do all of this within a highly regulated and
cost-constrained environment.
Another change affecting the healthcare industry has been the number and
size of business combinations, strategic alliances, and mergers in both the
pharmaceutical and the managed care industries. In the pharmaceutical industry
these changes are driving the major pharmaceutical companies to focus more and
more on major new chemical entities (NCE's) which might be block-buster drugs.
The significant revenue and profit from these drugs present the major growth
area for these companies. Drug delivery product development is increasingly
being given to specialty drug delivery companies to provide unique development
products that contribute important sales revenue and profit, but not at the
level of block-buster drugs. The new managed care business environment
provides even greater focus on patient benefits which, in most cases, are
derived from a combination of blockbuster drugs and drug delivery development.
There is proposed U.S. federal legislation which would grant
pharmaceutical manufacturers who conduct pediatric research an additional six
months of market exclusivity. This serves to highlight the growing regulatory
pressure to encourage the development of drugs formulated specifically for
children. The Company sees this as a potential benefit as pharmaceutical
companies explore various drug delivery systems.
MARKET OPPORTUNITY
The Company believes that its OraSolv drug delivery system will provide
benefits to patients as well as healthcare industry providers and payors.
These benefits, in turn, should provide marketing advantages to CIMA's
pharmaceutical partners. The benefit to patients is convenience, which the
Company believes will result in improved compliance with dosing regimens. The
benefits to providers and payors are lower costs resulting from such improved
compliance with dosing regimens. The benefits to pharmaceutical partners are
the capabilities to leverage their drug delivery development programs by going
to specialty drug delivery companies, like CIMA, for brand differentiation and
the ability to retain brand integrity.
ADVANTAGES FOR PATIENTS, PROVIDERS AND PAYORS
The Company believes a broad group of patients could benefit from the
OraSolv rapid dissolve technologies because it enables immediate medication at
symptom emergence and facilitates conformance to dosing regimens. Patient
non-compliance with dosing regimens has been associated with increased costs of
medical therapies by prolonging treatment duration, increasing the likelihood
of secondary or tertiary disease manifestation and contributing to
over-utilization of medical personnel and facilities. By improving patient
compliance, providers and payors may reduce unnecessary expenditures and
improve therapeutic outcomes. Reduction of expenditures is an increasingly
important issue to providers as capitated payment plans become more prevalent
in the healthcare industry.
In addition to the general market applications, the Company believes the
OraSolv technologies provides benefits to certain patient groups which
experience significant difficulty in swallowing tablets. Such patient groups
include children, the elderly and patients with certain anatomical or
physiological deformities, certain disease indications or medication-associated
dysphagia. The Company has completed quantitative consumer testing with
children and qualitative testing with physicians, nurses and managed care
administrators for the elderly which indicate the potential for these
demographic groups to better comply with dosing regimens and thus to benefit
from the OraSolv technology.
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ADVANTAGES FOR PHARMACEUTICAL PARTNERS
The Company believes that pharmaceutical companies are facing challenges
to adjust to the evolving healthcare industry. These challenges include: the
impact of generic competition, which generally results in lower pricing as well
as a loss of market share; the impact of the increased role of managed care
organizations, forcing increased economic considerations in patient care, the
results of which can include shorter therapies and therapeutic substitution
(including less expensive products); and the need to maintain brand integrity
with its inherent economic benefits.
Pharmaceutical companies are addressing these issues in several ways.
They are attempting to develop new product forms which will demonstrate a
medical and economic benefit to the patient. For the most part, they use
specialty drug delivery companies to do that. They are also trying to develop
products which will help to improve patient compliance, which should result in
a patient's more rapid return to health. Finally, they are attempting to use
approaches which can be patented or provide a technological differentiation in
order to reduce the threat of competition. The Company believes that the
OraSolv technologies provides a means for its pharmaceutical partners to meet
each of these challenges.
TECHNOLOGY
ORASOLV
The Company's OraSolv technology is an oral dosage form which combines
taste-masked drug ingredients with a quick dissolving effervescent excipient
system. Taste-masking is achieved through a process of microencapsulation,
which coats or entraps the active compound in an immediate release matrix. The
effervescent excipient system aids in rapid dissolution of the tablet,
permitting swallowing of the pharmaceutical ingredients before they come in
contact with the taste buds. The OraSolv tablet dissolves quickly without
chewing or water and allows for effective taste-masking of a wide variety of
active drug ingredients, both prescription and OTC.
Microencapsulation
The microencapsulation of the drug ingredients used in OraSolv products
is accomplished using a variety of coating techniques, including spray
coating, spray drying, spray congealing, melt dispersion, phase
separation or solvent evaporation methods. The Company typically
contracts for the supply of microencapsulated drug ingredients with a
number of different suppliers. These coating techniques have generally
been developed by the Company's scientists in collaboration with its
suppliers and are protected by patents or proprietary know how. Coating
materials are designed to prevent the active drug ingredient in the
OraSolv tablet from coming in contact with the taste buds, but provide
for immediate release or sustained release of the active ingredients in
the stomach. In 1997, the Company established its own, in-house taste-
masking capabilities. The Company is using these capabilities to
develop its own new products and support development of its partner's
development programs.
Quick Dissolve
The microencapsulated drug is combined with fast dissolving tablet
materials, which can include a variety of flavoring, coloring and
sweetening agents all materials Generally Recognized As Safe
materials (GRAS) and commonly used tablet excipients, such as binding
agents and lubricants. In addition, an effervescent system composed of
a dry acid and a dry base is added to the tablet excipient to facilitate
a mild effervescent reaction when the tablet contacts
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saliva. This effervescent reaction accelerates the disintegration of
the tablet through the release of the carbon dioxide. As the OraSolv
tablet dissolves, it releases the microparticles of drug into the
saliva, forming a micro-suspension of the drug in the saliva. This
microencapsulated drug suspension enters the stomach through the
normal swallowing process.
NEW TECHNOLOGIES
DuraSolv-TM-, an oral dosage system designed to improve manufacturing
efficiency. Currently, a significant component of OraSolv's manufacturing cost
is a consequence of the sophisticated packaging systems necessary to protect
the softer, more friable OraSolv tablets. DuraSolv is a higher compaction
solid oral dosage system formulated to achieve all the benefits of a quick
dissolve dosage system, such as OraSolv, but capable of being packaged in
traditional packaging systems such as foil pouches or bottles at much higher
production rates and lower packaging costs. The key advantages of a harder
tablet are a more robust tablet leading to lower manufacturing costs, and
simpler, faster and more cost effective packaging.
The Company has successfully developed prototypes in this dosage system,
filed a patent application, and conducted stability tests. Consumer testing
has demonstrated high acceptability of this technology, comparable to that of
OraSolv. To date, the Company has no agreements with corporate partners
related to this technology.
OraSolv-Registered Trademark-SR is a sustained or controlled release,
quick dissolve system designed to improve convenience and compliance. This
system incorporates time release beads, providing the traditional benefits of a
sustained or controlled release of active ingredients with quick dissolve's
improved convenience. The two key advantages are: 1) use of the sustained
release systems of our partners which has already been approved by the FDA; and
2) unique formulations that allow easy swallowing of the sustained release
active. The Company's agreement with Schering-Plough utilizes this new
technology.
An improved efficacy system utilizing effervescent tablets, granules and
films. CIMA is developing effervescent systems to target buccal and sublingual
systemic and site specific drug delivery. Systemic delivery of active drug
ingredients through the oral mucosal membrane has the advantage of improving
bioavailability, advancing the onset of therapeutic action and avoiding first
pass metabolism effects. There is physiological and pharmacokinetic evidence
that effervescent agents can enhance the absorption rate of active ingredients
across mucosal membranes.
PATENTS AND PROPRIETARY RIGHTS
The Company actively seeks, when appropriate, protection for its products
and proprietary information by means of U.S. and foreign patents, trademarks
and contractual arrangements. In addition, the Company relies upon trade
secrets and contractual arrangements to protect certain of its proprietary
information and products.
CIMA holds six issued U.S. patents and several foreign patents covering
its technologies. The core patent relating to the OraSolv technology relates
to the taste masking, microencapsulation and quick dissolving excipient
technology incorporated in products utilizing the OraSolv technology. A
corresponding European patent has been issued. The OraSolv U.S. patent was
issued in 1993 and expires in 2010. Two of the issued U.S. patents relate to
the production of compressed effervescent and non-effervescent tablets using a
particular lubricant developed by the Company.
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In 1994, the Company entered into a licensing agreement with SmithKline
Beecham, under which CIMA acquired a non-exclusive, worldwide license to make,
have made, use and sell products covered by a particular U.S. patent issued to
SmithKline Beecham which may cover certain OraSolv products. In consideration,
CIMA is obligated to pay SmithKline Beecham a royalty of 2% of amounts received
by the Company in respect of OraSolv products. The license extends for the
life of SmithKline Beecham's patent, which expires in 2010.
Issued U.S. patents held by CIMA and their dates of expiration are set
out in the table below. As with any patent, the actual scope of coverage
afforded by each of CIMA's patents is governed by the language of the patent
claims themselves. The descriptions set forth in the table below are
intended solely for ease of identifying patents relevant to various
technologies. They are not intended as a representation regarding the scope
of patents.
<TABLE>
<CAPTION>
PATENT TECHNOLOGY COVERED DATE ISSUED DATE EXPIRES
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
5,178,878 Certain OraSolv technology. 1993 2010
- -----------------------------------------------------------------------------------------------------
5,219,574 The production of compressed effervescent and non- 1993 and 1995 2010 and 2012
5,401,513 effervescent tablets using a particular lubricant
developed by the Company (two patents).
- -----------------------------------------------------------------------------------------------------
5,223,264 Effervescent pediatric vitamin and mineral supplement. 1993 2010
- -----------------------------------------------------------------------------------------------------
5,503,846 The formulation of a base coated, acid effervescent 1996 2013
mixture manufactured by controlled acid base reaction.
The obtained mixture can be used in the formulation of
acid sensitive compounds with OraSolv technology or
other effervescent based products.
- -----------------------------------------------------------------------------------------------------
5,607,697 Taste masking of microparticles for oral dosage forms. 1997 2015
- -----------------------------------------------------------------------------------------------------
</TABLE>
As a consequence of the Company's patent position, an off-patent or near
off-patent drug active can be combined with the Company's technology in a new,
competitively differentiated and patent-protected dosage form.
The Company holds two patents in Australia, which issued in 1990, and one
Euro Patent, which issued in 1997. The Company also has a total of 11 U.S. and
foreign patent applications, including two European Patent Office filings.
The Company's success will depend in part on its ability to obtain and
maintain patent protection for its products, its new technology and to preserve
its trade secrets. No assurance can be given, however, that the Company's
patent applications will be approved or that any issued patents will provide
competitive advantages for its products or will not be challenged or
circumvented by competitors.
The Company's ability to commercialize its products will depend on not
infringing the patents of others, and protecting the Company's own proprietary
technology, which may involve litigation. Whether or not the outcome of any
litigation concerning patents and proprietary technologies is favorable to the
Company, the cost of such litigation and the diversion of the Company's
resources during such litigation could have a material adverse effect on the
Company. See "Item 3. Legal Proceedings."
Much of the Company's technology is dependent upon the knowledge,
experience and skills of key scientific and technical personnel. To protect
rights to its proprietary know-how and technology, Company policy requires all
employees and consultants to execute confidentiality agreements that prohibit
the disclosure of confidential information to anyone outside the Company.
These agreements also require disclosure and assignment to the Company of
discoveries and inventions made by such persons while devoted to Company
activities. There can be no assurance that these agreements will not be
breached,
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that the Company will have adequate remedies for any such breach or that the
Company's trade secrets will not otherwise become known or be independently
developed by competitors. In addition, it is possible others may infringe
the patent rights of the Company.
The Company may desire or be required to obtain licenses from others with
respect to materials used in the Company's products or manufacturing processes,
including drug coating techniques. There can be no assurance that such
licenses will be obtainable on commercially reasonable terms, if at all, or
that any licensed patents or proprietary rights will be valid and enforceable.
STRATEGY
The Company's goal is to have its proprietary drug delivery technology
incorporated into as many pharmaceutical products as possible with an emphasis
on pharmaceutical products which command a large market segment.
Initially the Company focused its efforts on OTC marketed products which
benefit from quicker time to regulatory approval and marketing which has served
to establish CIMA and its technology in the market and provide near term
revenue. The Company's longer term strategy is to build on this base and
expand into the prescription market. The prescription market offers
significantly more attractive royalty rates and higher manufacturing margins.
CIMA's priority is to focus on developing OraSolv formulations of prescription
branded pharmaceuticals as well as generics and, in particular, those products
which have application to pediatric and geriatric markets.
Product therapeutic classes to which the Company believes its OraSolv
technology potentially can be applied are highlighted in the table below,
together with the target patient population.
Prescription Markets
Potential Areas of OraSolv Application
--------------------------------------
Therapeutic Area Patient Population
---------------- ------------------
Antibiotics Pediatric
Anti-asthmatics Pediatric
Anti-epileptics Pediatric
Cough/Cold/Allergy All
Cardiovascular Adult/Geriatric
Anti-migraine Adult/Geriatric
Anti-emetics All
Anti-depressants Pediatric/Geriatric
Anti-psychotics Pediatric/Geriatric
Anti-anxiety Pediatric/Geriatric
Cancer Geriatric
AIDS Adult/Pediatric
Parkinson's/Alzheimer's Geriatric
The Company's primary strategies are to:
- - COLLABORATE WITH CORPORATE PARTNERS FOR MARKETING OF PRODUCTS. The
Company has entered into and intends to continue to enter into agreements
with pharmaceutical and other healthcare companies for the development and
marketing of products
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that incorporate the OraSolv technologies. The Company will refine the
OraSolv formulation of a particular oral therapeutic and manufacture it
for its partners. These partners will market and sell the OraSolv
versions of the therapeutic. The Company believes this strategy will
reduce the time required to market products, extend patent life for
certain actives and take advantage of the industry knowledge and presence
of its partners.
- - DEVELOP PROPRIETARY TECHNOLOGIES. The Company continues to develop
proprietary technology and obtain patents thereon. To date, the Company
has six U.S. and two Australian patents, one Europatent and eleven patent
applications. The Company believes that patented products and
technologies provide attractive marketing features for use by its
corporate partners. In 1996, the Company initiated the development of
three new technologies: DuraSolv-TM-, OraSolv-Registered Trademark-SR and
improved efficacy systems. Consumer use testing has already been
completed on DuraSolv demonstrating its feasibility and acceptance by
patients. OraSolv SR has also passed the feasibility stage and is the
technology being utilized in the Schering-Plough partnership.
- - RETAIN MANUFACTURING RIGHTS. The Company intends to continue to develop
OraSolv formulations of oral therapeutics for its partners, to manufacture
commercial quantities of these products in its facility in Eden Prairie,
and to rely on its partners to market and sell the OraSolv formulations.
The Company believes this strategy enables it to better and more
effectively manage increasing manufacturing volumes, control quality of
the products it manufactures and manufacture in small or varying batch
sizes, each of which provide it with a competitive business advantage.
- - RETAIN OWNERSHIP OF PRODUCTS DEVELOPED IN COLLABORATIONS. The Company has
retained and intends to continue to retain ownership of its OraSolv
technologies developed for its partners. The Company believes this
practice, in the case of generic and OTC monographed products, will
provide it with the flexibility of entering into collaborations with other
potential partners should the initial partner decide not to pursue the
commercialization of a particular OraSolv product.
AGREEMENTS WITH CORPORATE PARTNERS
The Company's business development efforts are focused on entering into
development, licensing and manufacturing agreements with pharmaceutical and
other healthcare companies. Under these agreements, the corporate partner will
be responsible for marketing and distributing the developed products either
worldwide, or in specified markets or territories. The collaborative
arrangements typically begin with a research and development phase which, if
successful, may be followed by a development and license option agreement for
development of product prototypes and then license and manufacturing agreements
for commercialization of such products. Alternatively, the Company may develop
product prototypes internally and enter directly into a development,
manufacturing or license agreement for commercialization of those products.
The Company's future ability to generate revenue is dependent upon the
Company's ability to enter into collaborative arrangements with pharmaceutical
and other corporate partners to develop products that meet the requirements of
its corporate partners, and upon the marketing efforts of these corporate
partners. The Company believes these partners will have an economic motivation
to market the Company's products; however, the amount and timing of resources
to be devoted to marketing are not within the control of the Company. Certain
of the Company's OTC products are seasonal in nature and the Company's revenues
could vary materially from one financial period to another depending on which
of such products, if any, are then being marketed. In an attempt to alleviate
such risk, the Company is focused on developing for its partners a mix of OTC
and prescription products. There can be no
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assurance that the Company will be able to enter into additional
collaborative arrangements in the future or that any current or future
collaborative arrangements will result in successful product
commercialization. To the extent that agreements with corporate partners
cover products to be sold internationally, such sales could be adversely
affected by governmental, political and economic conditions in other
countries, including tariff regulations, taxes, import quotas and other
factors.
The table below sets forth the partners, market segments and CIMA
technology for the Company's major collaborative arrangements.
PHARMACEUTICAL COLLABORATIONS
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<CAPTION>
Partner Market Segment Technology
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<S> <C> <C>
Bristol-Myers Squibb Pediatric Analgesics OraSolv-Registered Trademark-
Bristol-Myers Squibb Multiple Products OraSolv-Registered Trademark-
Novartis UNDISCLOSED(1) OraSolv-Registered Trademark-
SmithKline Beecham plc UNDISCLOSED(1) OraSolv-Registered Trademark-
Schering-Plough UNDISCLOSED(1) OraSolv-Registered Trademark-SR
Zeneca Anti-migraine OraSolv-Registered Trademark-
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(1) Further information is confidential as disclosure of the product category
may force the collaborative partner to alter its marketing plans, which could
have a material effect on the eventual marketing of the product.
BRISTOL-MYERS SQUIBB
The Company started manufacturing commercial quantities in 1997 of an
OraSolv dosage form of Tempra-Registered Trademark-, Bristol-Myers Squibb's
pediatric analgesic. Tempra Quicklets-TM-, launched in the United States,
competes directly against children's Tylenol-Registered Trademark- and
contains the drug active common to these products: acetaminophen. The
product was also introduced in Canada as Tempra-Registered Trademark-
FirstTabs-TM- by Mead Johnson, a subsidiary of Bristol-Myers Squibb. The
Company has received milestone payments for the development of this product,
manufacturing fees, and royalty payments on end market sales.
In addition, the Company announced in 1997 the signing of a global
non-exclusive license agreement with Bristol-Myers Squibb, which covers
multiple products to be developed by Bristol-Myers Squibb applying or
utilizing the OraSolv technology to be sold in various territories. This
agreement makes provision for advanced royalty payments, minimum royalty
payments over a four-year period and royalties at market rates on total end
market sales.
NOVARTIS CONSUMER HEALTH
In December 1997, the Company announced that Novartis entered into a
Development and License Option Agreement which covers the application of
OraSolv to Novartis' product line. Similar to the above agreements, the
Company will receive option and development fees in exchange for the license
option and development work.
SMITHKLINE BEECHAM
In April 1996, the Company entered into a License Agreement with
SmithKline Beecham to develop and commercialize an OraSolv dosage form of one
of SmithKline Beecham's major OTC products. Under this agreement, CIMA
received a license fee and has and will receive milestone payments and
royalties on end market sales in countries where the Company holds patents on
its OraSolv technology and half the base royalty rate on end market sales in
other countries. This product was covered by the original license and
development option agreement, which was between CIMA and Sterling Winthrop,
Inc., which has now expired. The Company is currently negotiating a supply
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agreement to manufacture the product covered by the license agreement. If
the Company is successful in negotiations, it is anticipated that the Company
could start manufacturing this product as early as 1998.
SCHERING-PLOUGH
The Company entered into a Development and Option Agreement with
Schering-Plough in August 1997. The Agreement calls for the development of
an OraSolv SR version of an undisclosed, currently marketed prescription
product. In exchange for the development work and license option, the
Company will receive an option fee and development fees.
ZENECA
In September 1997, the Company entered into a Development and License
Option Agreement with Zeneca to develop an OraSolv version of Zeneca's
anti-migraine drug, Zomig-Registered Trademark-. The Agreement entitles the
company to development and option fees.
GLAXO WELLCOME PLC
The Company entered into a development and license agreement with Glaxo
Wellcome for the development of an OraSolv formulation of Zantac, Glaxo
Wellcome's OTC switch product for heartburn. In 1997, the Company and Glaxo
Wellcome announced their intention to end this collaboration. This will
allow CIMA to focus its resources on prescription collaborations and
strategic OTC opportunities which the Company believes are of greater
economic values.
RESEARCH AND DEVELOPMENT
The Research and Development ("R&D") department at CIMA is focused on
the development of oral dosage forms based on CIMA proprietary technologies
and new proprietary oral dosage forms focused on improving both compliance
and efficacy. The R&D department includes scientists recruited from the R&D
groups of major U.S. pharmaceutical companies. Currently R&D personnel and
support systems and facilities are organized in a way to effectively develop
formulations from bench scale through full scale/commercial size under GMP
conditions. Such development is carried out at the R&D facilities in
Brooklyn Park, Minnesota and in the full scale manufacturing facility in Eden
Prairie, Minnesota. The Company believes that its R&D facilities are in
compliance with cGMP. In both facilities, small cGMP batches are
manufactured, packaged and released to support initial studies in humans,
including both consumer studies for OTC products and clinical studies for
prescription products.
These efforts are conducted to support the Company's strategic and
business goals. The Company's R&D department is devoted to the development
of drug delivery technologies and dosage forms for pharmaceutical
applications. The key goals for the R&D team are: develop innovative drug
delivery systems that fulfill the pharmaceutical partners' needs and meet the
strategy of the Company; develop, expand and support systems required to
fulfill cGMP production at commercial levels necessary to meet the
requirements of major pharmaceutical companies; recruit and train high
quality technical and scientific personnel; and support the Company's
intellectual property process.
In 1997, the Company submitted a provisional patent filing on DuraSolv,
a more robust rapidly dissolving tablet technology that can be packaged using
traditional pharmaceutical packaging equipment. Accelerated stability data
has been collected on product packaged in bottles and foil packets for
several prototype formulations. These efforts have not only resulted in a new
potential technology but significant enhancements which were incorporated in
the base OraSolv technology as a result of these efforts.
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Another accomplishment in 1997 was the signing of CIMA's first agreement
to develop an OraSolv SR product. The current agreement calls for the use of
a partner's existing sustained release particles in a rapidly dissolving
dosage form. The next step in the development of this technology will be the
internal development of sustained or controlled release coated actives for
inclusion into OraSolv SR. The first internally developed OraSolv SR product
is expected to be on stability by the end of 1998.
Due to a significant increase in partner related development activity
during the second half of 1997, the timeline for submission of an IND for an
enhanced efficacy dosage form was delayed. Prototype formulations have been
developed and placed on stability. The first dosing of human subjects is
expected during the third quarter of 1998. Additional resources have been
hired to focus exclusively on the research and development of new drug
delivery systems.
At the early stage of development, the feasibility of these technologies
appears promising. However, there are numerous risks and uncertainties
inherent in any R&D program. Factors that could cause these programs not to
reach the commercialization stage include, but are not limited to, the
possibilities that the research will not be able to be patented or the patent
enforced, the inability to scale-up and manufacture these new technologies in
a cost-effective manner, the ability to find a partner to market the product,
and the eventual market acceptance of this new technology.
For the years ended December 31, 1997, 1996 and 1995, CIMA's total
expenditures for R&D were $3,364,000, $5,403,000 and $6,505,000,
respectively, of which amounts R&D fees from the Company's collaborative
partners were $1,557,000, $1,197,000 and $497,000, respectively.
MANUFACTURING
A key component of the Company's strategy is to be the primary
manufacturer of OraSolv and its other future drug delivery products.
Advantages of this strategy include the ability to:
- retain control of its technology;
- increase production quickly;
- refine the production process as necessary to bring OraSolv and other
future products to market rapidly and successfully; and
- generate a revenue stream from manufacturing.
The Company's OraSolv production facility, which also houses the
Company's headquarters is located in Eden Prairie, Minnesota. The Company
began occupying and making leasehold improvements to the new facility in late
June 1994 and the facility was completed in December 1994. The Company has
operated one production line at this facility which is capable of producing
200 to 300 million tablets a year. The facility is designed to be
expandable to six production lines and efforts are underway to design and
select a second production line as warranted. The Company expects six
production lines to be more than sufficient capacity to meet the Company's
long-term manufacturing needs. The production equipment consists of
state-of-the-art material transfer and blending systems and integrated high
speed tableting and packaging operations. The configuration of the facility,
the production flow layout and the equipment has been designed by the
Company's personnel and consultants. Most of the equipment consists of high
quality components commonly used in pharmaceutical manufacturing, selected
for ease of operation, cleaning, changeover and cost effectiveness. The
production line is capable of packaging a variety of package designs with
rapid conversion between sizes. Modern technology is also utilized for 24
hour environmental control and monitoring of air quality, temperature,
humidity and pressure differentials in all production areas.
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Although the OraSolv process uses many standard pharmaceutical
production components, some equipment was specifically developed to meet the
unique requirements of OraSolv products. The Company has developed a
manufacturing process that allows high speed packing of soft, friable tablets
without breakage into specially designed protective, child resistant packages
in a controlled, low humidity environment. To date, CIMA is the only
company that has proven it has this capability in a production mode. After
conducting over 60 full scale developmental runs and making production
equipment refinements, the manufacturing facility, equipment and process have
all been successfully validated. Additionally, extensive package transit
testing and consumer testing confirmed the integrity of the package through
all modes of transport to the final customer without product damage. After
completion of validation, the quality of the manufacturing facility,
equipment and procedures were confirmed through the successful inspection by
the State of Minnesota, the FDA and Medicines Control Agency authorities. In
addition, there have been numerous successful site audits conducted by major
pharmaceutical companies. The production facility complies with current Good
Manufacturing Practice (cGMP) requirements.
The active ingredients used by the Company are readily available from
suppliers. In certain cases, the active ingredients are shipped to coating
material suppliers where appropriate coating materials are applied to
microencapsulate the ingredients. In other cases, the Company may purchase
the microencapsulated active ingredient from a supplier. The pharmaceutical
ingredients and other supplies to be used in manufacturing OraSolv products
are standard pharmaceutical products available from numerous suppliers. Most
coating materials are also available from numerous suppliers. In some
instances, however, certain coating materials or techniques may be available
only from a single supplier. If any such coating materials or techniques
were to become unavailable, the Company believes that satisfactory
alternative materials or techniques could be substituted. However, there can
be no assurance that the Company's manufacturing operations would not be
disrupted. Any such disruption could have an adverse effect on the Company's
business and potentially damage relations with its corporate partners.
In February 1997, CIMA began commercial production for the first
commercial launch by Bristol-Myers Squibb of a product incorporating the
OraSolv technology. Since then, the Company has been producing commercial
OraSolv product utilizing multiple shifts. It has gained valuable knowledge
to make improvements in production efficiencies and operating speed and to
reduce wastage.
MARKETING
The Company's marketing strategy is to rely on its corporate partners
for the marketing and sale of its products. The Company believes this
strategy will enable it to respond quickly to market demands, while avoiding
the effort and expense associated with the establishment of an end-user
marketing capability. The Company's marketing department has focused on
promoting the benefits of OraSolv to its corporate pharmaceutical partners
and with conducting consumer surveys and physician research of various
OraSolv formulations. The Company believes that its rapid dissolving tablet
technology competes favorably to its competition. In a recent quantitative
consumer study conducted by a major independent market research company and
sponsored by the Company, significantly more consumers liked the OraSolv
formulation versus the Zydis-Registered Trademark- formulation (R.P. Scherer
Corporation) of the same drug. Currently, the Company has corporate
collaborations with Bristol-Myers Squibb, Schering-Plough, Zeneca, Novartis
Consumer Health and SmithKline Beecham.
COMPETITION
Competition in the areas of pharmaceutical products and drug delivery
systems is intense. The Company's primary competitors in the business of
developing and applying drug delivery systems include companies which have
substantially greater financial, technological, marketing, personnel and
research and development resources than the Company. The Company's products
will compete not only with
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products employing advanced drug delivery systems but also with products
employing conventional dosage forms. New drugs or future developments in
alternative drug delivery technologies may provide therapeutic or cost
advantages over the Company's potential products.
Among the technologies expected to provide competition for the Company's
OraSolv technology is the Zydis technology developed by R.P. Scherer
Corporation ("Scherer") and the Shearform Matrix technology developed by
Fuisz Technologies, Ltd. ("Fuisz"). The Zydis technology is a
fast-dissolving oral drug delivery system based on a freeze-dried gelatin
tablet. The Shearform Matrix technology has application to two tablet
formats, one of which involves waterless, fast dissolving oral delivery which
Fuisz calls "FlashDose-Registered Trademark-."
The principal competitive factors in the market for rapid dissolving
tablet technologies are compatibility with taste-masking techniques, dosage
capacity, drug compatibility, cost and ease of manufacture, patient
acceptance and required capital investment for manufacturing. The Company
believes that its rapid dissolving tablet technology competes favorably with
respect to these factors. In a recent quantitative consumer study conducted
by the Company, significantly more consumers liked the OraSolv formulation
versus the Zydis formulation of the same drug. Both Scherer and Fuisz have
been successful in licensing their technologies to a number of pharmaceutical
companies. The Company also believes that certain pharmaceutical companies
may be developing other rapid dissolving tablet technologies which might be
competitive with the Company's technology.
GOVERNMENT REGULATION
All pharmaceutical manufacturers are subject to extensive regulation of
their activities, including research and development and production and
marketing, by numerous governmental authorities in the U.S. and other
countries. In the U.S., pharmaceutical products are subject to rigorous
regulation by the FDA. The federal Food, Drug, and Cosmetic Act, as amended,
and the regulations promulgated thereunder, and other federal and state
statutes and regulations, govern, among other things, the research,
development, testing, manufacture, storage, record keeping, labeling,
advertising and promotion, and marketing and distribution of pharmaceutical
products. If a company fails to comply with applicable requirements, it may
be subject to administrative or judicially imposed sanctions such as civil
penalties, criminal prosecution of the company, its officers and employees,
injunctions, product seizure or detention, product recalls, total or partial
suspension of production and FDA refusal to approve pending premarket
approval applications or supplements to approved applications.
In general, FDA approval is required before a new drug product may be
marketed in the U.S. However, most OTC drug products are exempt from the
FDA's premarketing approval requirements. In 1972, the FDA instituted the
ongoing OTC Drug Review in order to evaluate the safety and effectiveness of
all OTC drugs then on the market. Through the OTC Drug Review process, the
FDA issues monographs that set forth the specific active ingredients,
dosages, indications, and labeling statements for OTC drugs that the FDA will
consider generally recognized as safe and effective and therefore not subject
to premarket approval. For certain categories of OTC drug products not yet
subject to a final monograph, the FDA usually will not take regulatory action
against such a product unless failure to do so poses a potential health
hazard to consumers. The Company's initial product launch was an OTC drug
product that did not require FDA approval. Products subject to final
monographs, however, are subject to various FDA regulations such as those
outlining cGMP requirements, general and specific OTC labeling requirements
(including warning statements), the restriction against advertising for
conditions other than those stated in product labeling, and the requirement
that OTC drugs contain only suitable inactive ingredients. OTC products and
manufacturing facilities are subject to FDA inspection, and failure to comply
with applicable regulatory requirements may lead to administrative or
judicially imposed penalties.
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Future marketing of products not formulated in compliance with final OTC
drug monographs typically will require a formal submission to the FDA, such
as a New Drug Application ("NDA") or Supplement to existing New Drug
Application ("sNDA"), and ultimate approval by the FDA. This application and
approval process can be expensive and time consuming, typically taking from
six months to several years to complete. Further, there can be no assurance
that approvals can be obtained, or that any such approvals will be on the
terms or have the scope necessary for successful commercialization of these
products. The Company expects that any required FDA approvals in connection
with the introduction of new, non-monographed products would be sought by the
Company's corporate partners. Marketing of such products could be delayed or
prevented because of this process. Even after a NDA or sNDA has been
approved, existing FDA procedures may delay initial product shipment. Delays
caused by the FDA approval process may materially reduce the period during
which there is an exclusive right to exploit patented products or
technologies. Even if any required FDA approval has been obtained with
respect to a product, foreign regulatory approval of a product must be
obtained prior to marketing the product internationally. Foreign approval
procedures vary from country to country and the time required for approval
may result in delays in or ultimately prevent marketing. The Company expects
to rely on its pharmaceutical company partners to obtain any necessary
government approvals in foreign countries. However, considerable amounts of
company time and resources may be required to support the approvals of these
foreign filings.
Prescription drug products with proven safety and efficacy profiles may
be "switched" to OTC status through the submission to and approval by the FDA
of a supplement to an existing NDA. The information and data required to
support a switch application vary with individual drugs. In some cases, the
manufacturer may be required to conduct clinical investigations or other
scientific studies to assess the safety and effectiveness of the drug for OTC
use. In evaluating an OTC switch, the FDA considers whether the drug product
is safe for use by consumers without the supervision of an appropriate
licensed healthcare professional. As prescription drug products are switched
to the OTC market, pharmaceutical companies face the same challenges to
establish brand identification and product differentiation as they face with
current OTC drug products. Although switched products in certain cases may
be eligible for a three-year period of market exclusivity (during which time
the FDA will not consider any ANDAs for the same drug), the Company believes
that its OraSolv drug delivery system can help its corporate partners
differentiate their products during any exclusivity period and maintain a
competitive advantage thereafter.
If a generic version of a drug already approved under an NDA and no
longer subject to any FDA marketing exclusivity, is bioequivalent to the
approved product, preparation and submission of an ANDA will be the most time
and cost-effective approach to FDA approval. The methodology for
establishing bioequivalence through in vitro or in vivo methods is viewed to
be straightforward. Because CIMA's taste-masking systems are used in
immediate release dosage forms, this approach is generally the most
expeditious.
Certain drugs may raise distinctive issues, such as a need for a unique
approach to proving bioequivalence. In those cases, premarket approval under
Section 505(b)(2) of the Food, Drug, and Cosmetic Act would be more
appropriate. Section 505(b)(2) allows the FDA to approve an NDA using
shortened procedures, usually for drugs that have proven safety profiles
because of their marketplace performance among a large population group. In
a 505(b)(2) application, a company may rely on clinical investigations
conducted by others to which it does not hold a right of reference. In
general, a 505(b)(2) application is supported by two or three clinical
studies among the target population group designed to verify the safety and
efficacy of the drug product in that population using the target dose and
dose sequence. The cost of this approach, which is generally used when a new
delivery system or indication is added to an existing drug product, is
typically much less than a standard NDA. The time to approve may also be
shorter than a traditional NDA and, in some cases, an ANDA.
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Each domestic drug product manufacturing facility must be registered
with the FDA. Each manufacturer must inform the FDA of every drug product it
has in commercial distribution and keep such list updated. Domestic
manufacturing facilities are also subject to at least biennial inspection by
the FDA for compliance with cGMP regulations. Compliance with cGMP is
required at all times during the manufacture and processing of drug products.
CIMA's existing manufacturing facilities have been inspected periodically by
the FDA. The FDA last inspected the Eden Prairie facility in November 1996,
and the Brooklyn Park facility in January 1997. No observations were cited
during either inspection. While the Company's new OraSolv manufacturing
facility is required to be registered with the FDA and to comply with cGMP
regulations at all times, FDA approval was not required prior to commencement
of manufacturing OTC drug products. Even though the Company has worked
diligently to assure compliance with FDA regulations and has been audited by
the quality control/compliance groups of several of its current and potential
corporate partners, there can be no guarantee that FDA inspections will
proceed without any compliance issues requiring the expenditure of money and
resources to resolve. The Company's facilities have been inspected by and
the Company has received a license from the Minnesota Board of Pharmacy to
manufacture drug products in its facilities.
The Company is also subject to regulation under various federal and
state laws regarding, among other things, occupational safety, environmental
protection, hazardous substance control and product advertising and
promotion. In connection with its research and development activities and its
manufacturing, the Company is subject to federal, state and local laws,
rules, regulations and policies governing the use, generation, manufacture,
storage, air emission, effluent discharge, handling and disposal of certain
materials and wastes. The Company believes that it has complied with these
laws and regulations in all material respects and it has not been required to
take any action to correct any material noncompliance. The Company does not
currently anticipate that any material capital expenditures will be required
in order to comply with federal, state and local environmental laws or that
compliance with such laws will have a material effect on the earnings or
competitive position of the Company. The Company is unable to predict,
however, the impact on the Company's business of any changes in such
environmental laws or of any new laws or regulations that may be imposed in
the future and there can be no assurance that the Company will not be
required to incur significant compliance costs or be held liable for damages
resulting from violations of these laws and regulations.
BUSINESS RISKS
The Company considered itself a development stage company until the
fourth quarter of 1997 and must be evaluated in light of the uncertainties
and complications present for any such company and, in particular, one in the
pharmaceutical industry. The Company has accumulated aggregate net losses
from inception through December 31, 1997 of $41,527,000. Losses have
resulted principally from costs incurred in research and development of the
Company's technologies and from general and administrative costs. These
costs have exceeded the Company's revenues . In early 1997, the Company
recorded the first commercial sales using it's OraSolv technology. Prior to
this the Company's revenues had been derived primarily from the manufacturing
of AutoLution and other non-OraSolv products under agreements with third
parties. The Company no longer manufactures such products and no longer
derives revenues from their manufacture. In more recent years, revenues have
been generated from research and development fees, and licensing
arrangements. The Company expects to continue to incur losses through 1998.
There can be no assurance that the Company will ever generate substantial
revenues or achieve profitability.
The Company believes that its currently available funds, together with
any license fees and sales revenue anticipated to be received in the future,
will meet its needs at least through 1998. Thereafter, or sooner if
conditions make it necessary, the Company will need to raise additional funds
through public or private financings, including equity financings which may
be dilutive to stockholders. There can be no
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assurance that the Company will be able to raise additional funds if its
capital resources are exhausted, or that funds will be available on terms
attractive to the Company or at all.
The Company is dependent upon its ability to enter into and perform
under collaborative arrangements with pharmaceutical companies for the
development and commercialization of its products. Failure of these partners
to market the Company's products successfully could have a material adverse
effect on the Company's financial condition and results of operations. The
Company's revenues are also dependent upon ultimate consumer acceptance of
the OraSolv drug delivery system and/or its new drug delivery technologies as
an alternative to conventional oral dosage forms. The Company expects that
OraSolv products will be priced slightly higher than conventional swallow or
chewable tablets. Although the Company believes that initial consumer
research has been encouraging, there can be no assurance that market
acceptance of the Company's OraSolv products will ever develop or be
sustained.
The Company began manufacturing OraSolv products in commercial
quantities in February 1997. Commercial sales have been made and revenue has
been recognized from sales of OraSolv products. To achieve future desired
levels of production, the Company will be required to increase its
manufacturing capabilities. There can be no assurance that manufacturing can
be scaled-up in a timely manner to allow production in sufficient quantities
to meet the needs of the Company's corporate partners. Furthermore, the
Company has only one manufacturing line and one facility capable of
manufacturing products. If this production line and/or facility becomes
damaged or becomes incapable of manufacturing products due to natural
disaster, governmental regulatory issues or otherwise, the Company would have
no other means of producing OraSolv products.
The Company intends to increase its research and development
expenditures to enhance its current technologies, and pursue internal
proprietary drug delivery technologies. Even if these technologies appear
promising during various stages of development, they may not reach the
commercialization stage for a number of reasons. Such reasons include the
possibilities of not finding a partner to market the product, of being
difficult to manufacture on a large scale or be uneconomical to market.
The quick dissolve drug delivery field is fairly new and rapidly
evolving and it is expected to continue to undergo improvements and rapid
technological changes. There can be no assurance that current or new
competitors will not succeed in developing technologies and products that are
more effective than any which are being developed by the Company or which
could render the Company's technology and products non-competitive or that
any technology developed by the Company will be preferred to any existing or
newly developed technologies.
The Company has conducted an initial review regarding the effect the
upcoming year 2000 will have on its computer applications. The Company has
determined that the year 2000 issue will not have a material impact on it's
business, operations nor its financial condition. It is anticipated that
minimal financial and human resources will be utilized to address that issue.
The company computer support is provided by a server-supported, PC-based LAN
system. Software vendors for the software used by the Company are aware of
the issue and the Company has been informed that they have taken necessary
steps to address the date-field issue. However, the conversion is an
uncertainty and there can be no assurance that unforeseen problems will not
arise in connection with this issue.
EMPLOYEES
As of March 6, 1998, the Company had 63 full-time employee, of whom 10
hold degrees at the doctorate level. Of these employees 21 are engaged in
research and development, 18 in manufacturing, 5 in compliance, 8 in quality
control and 11 in administration, business development, finance and human
resources. Most of the Company's scientific and engineering employees have
prior experience with
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pharmaceutical or medical products companies. No employee is represented by
a union, and the Company has never experienced a work stoppage. The Company
believes its employee relations are good.
The success of the Company and of its business strategy is dependent in
large part on the ability of the Company to attract and retain key management
and operating personnel. Such individuals are in high demand and are often
subject to competing offers. In particular, the Company's success will
depend, in part, on its ability to attract and retain the services of its
executive officers and scientific and technical personnel. The loss of the
services of one or more members of management or key employees or the
inability to hire additional personnel as needed may have a material adverse
effect on the Company.
LIABILITY INSURANCE
The Company's business involves exposure to potential product liability
risks that are inherent in the production and manufacture of pharmaceutical
products. Although the Company has not experienced any product liability
claims to date, any such claims could have a material adverse impact on the
Company. The Company currently has product liability insurance with coverage
limits of $5,000,000 per occurrence and $5,000,000 on an annual aggregate
basis. The Company's insurance policies provide coverage on a claims made
basis and are subject to annual renewal. There can be no assurance, however,
that the Company will be able to maintain such insurance on acceptable terms
or that the Company will be able to secure increased coverage as the
commercialization of its products proceeds or that any insurance will provide
adequate protection against potential liabilities.
ITEM 2. PROPERTIES
The Company has leased a 75,000 square foot facility in Eden Prairie,
Minnesota, a suburb of Minneapolis, which houses its corporate headquarters
and has been prepared for use as an OraSolv production facility. This lease
has an initial term expiring on June 1, 2009 with minimum annual base rent
payments (exclusive of real estate taxes) of approximately $373,000 through
June 1, 2001. The rent payments will be recalculated on June 1, 2001, and
June 1, 2006 based on an index rate. The rent may increase, but will not
decrease. The Company has the option to extend the lease term one period of
ten years with a minimum annual base rent payment (exclusive of real estate
taxes and maintenance fees) of $500,000 for the first five years, and
$550,000 for the second five years of the ten year term.
The Company also leases 32,000 square feet of office, research and
development and manufacturing space in Brooklyn Park, Minnesota. The lease
on the Brooklyn Park facility expires in September 1998, but is renewable at
the Company's option for an additional three-year period and two additional
five-year periods. The Company currently pays approximately $144,600 in
annual base rent (exclusive of real estate taxes and maintenance fees).
The Company's existing facilities are believed to be adequate to meet
its present and future requirements, and the Company currently believes that
suitable additional space will be available to it, when needed, on
commercially reasonable terms.
ITEM 3. LEGAL PROCEEDINGS
On October 29, 1997, the Company instituted an opposition proceeding in
the European Patent Office seeking cancellation of a patent owned by
Laboratories Prographarm of Chateauneuf, France ("Prographarm"). The Company
has alleged in the opposition proceeding that publications exist which are
prior art against the European patent, including an international patent,
application owned by the Company which was published prior to the priority date
of the European patent.
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On February 27, 1997, the United States Patent and Trademark Office
("USPTO") suspended prosecution of a U.S. patent application owned by the
Company to consider the Company's request that an interference proceeding be
declared between a pending U.S. patent application owned by the Company and a
U.S. patent owned by Prographarm. The Company is seeking a determination by
the USPTO that either (i) the Company's personnel are the prior inventors of
the invention encompassed by the Prographarm U.S. patent and accordingly that
the Company is entitled to claims directed to the same invention in a new
patent to be owned by the Company, or (ii) in the alternative, a
determination that the claims are unpatentable to the Company or Prographarm.
Either holding would result in cancellation of the Prographarm U.S. patent.
The Company's factual allegations are the same as in the European opposition,
and further include the Company's pending U.S. patent application itself and
the priority date of such pending application.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock trades on the Nasdaq National Market under the
symbol "CIMA". The following table sets forth, for the periods indicated, the
high and low sales prices of the Common Stock reported on the Nasdaq National
Market.
<TABLE>
<CAPTION>
HIGH LOW
1996 ------- ------
<S> <C> <C>
First Quarter $ 7.25 $ 4.25
Second Quarter 11.75 6.13
Third Quarter 8.38 5.25
Fourth Quarter 8.38 5.50
1997
First Quarter $ 8.25 $ 6.00
Second Quarter 6.13 3.88
Third Quarter 6.88 3.88
Fourth Quarter 7.19 3.94
</TABLE>
On March 13, 1998, the last sale price reported on the Nasdaq National
Market for the Company's Common Stock was $3.50 per share.
HOLDERS
As of March 13, 1998 there were approximately 85 stockholders of record of
the Company's Common Stock.
DIVIDENDS
The Company has not paid dividends on its Common Stock and currently does
not plan to pay any cash dividends in the foreseeable future.
21
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
CIMA LABS INC.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------------------------------------
1997 1996 1995 1994 1993
---------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Net sales $ 2,628 $ -- $ 151 $ 1,451 $ 1,857
R&D fees and licensing revenues 2,282 1,472 684 1,168 368
-------- --------- -------- -------- --------
Total revenues 4,910 1,472 835 2,619 2,225
Costs and expenses:
Costs of goods sold 4,376 240 2,799 2,844
Research and product development 3,364 5,403 6,505 3,550 1,857
Selling, general and administrative 3,847 2,909 3,658 2,972 1,208
-------- --------- -------- -------- --------
Total costs and expenses 11,227 8,312 10,403 9,321 5,909
Other income (expense):
Interest income, net 337 498 448 452 6
Other income (expense), net 142 (4) 13 38 (2)
-------- --------- -------- -------- --------
Total other income 479 494 461 490 4
-------- --------- -------- -------- --------
Net loss: $ (5,838) $ (6,346) $ (9,107) $ (6,212) $ (3,680)
-------- --------- -------- -------- --------
-------- --------- -------- -------- --------
Net loss per share:
Basic $ (.61) $ (.72) $ (1.16) $ (1.82) $ (2.07)
Diluted (.61) (.72) (1.16) (0.95) (0.78)
Weighted average number of shares
outstanding:
Basic 9,519 8,827 7,822 3,413 1,778
Diluted 9,519 8,827 7,822 5,505 4,727
DECEMBER 31
---------------------------------------------------------------------
BALANCE SHEET DATA: 1997 1996 1995 1994 1993
---------------------------------------------------------------------
(IN THOUSANDS)
Cash and investments $ 4,423 $ 10,263 $ 3,559 $ 2,912 $ 1,178
Total assets 17,328 22,065 15,519 25,122 4,927
Retained earnings (deficit) (41,527) (35,660) (29,259) (20,058) (13,846)
Total stockholders' equity 15,837 21,021 14,282 22,554 4,093
</TABLE>
22
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE FOLLOWING
DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. WHEN USED HEREIN, THE WORDS "BELIEVE", "ANTICIPATE",
"EXPECT", "ESTIMATE" AND SIMILAR EXPRESSIONS AS THEY RELATE TO THE COMPANY
OR ITS MANAGEMENT ARE INTENDED TO IDENTIFY SUCH FORWARD LOOKING STATEMENTS.
THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED
HEREIN. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE ,
BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN THIS SECTION AS WELL AS THOSE
DISCUSSED IN "ITEM 1. BUSINESS-BUSINESS RISKS."
GENERAL
The Company was founded in 1986, and focused initially on contract
manufacturing liquid effervescent products. In September 1992, patent claims
were allowed on the Company's OraSolv-Registered Trademark- technology.
Following issuance of the OraSolv-Registered Trademark- patent, CIMA changed
its focus and emerged as a drug delivery company emphasizing primarily
developing and manufacturing pharmaceutical products based upon
OraSolv-Registered Trademark-. OraSolv-Registered Trademark- is an oral
dosage form which incorporates mircoencapsulated drug ingredients into a
tablet that dissolves quickly in the mouth without chewing or water and which
effectively masks the taste of the medication being delivered. Additional
drug delivery technologies are also under development by the Company.
In early-1997, the Company recorded its first commercial sales using the
Company's OraSolv-Registered Trademark- technology. Prior to this, the
Company's revenues had been from sales using the Company's
AutoLution-Registered Trademark- (a liquid effervescent) technology, license
fees paid by corporate partners in consideration of the transfer of rights
under collaboration agreements, and research and development fees paid by
corporate partners to fund the Company's research and development efforts for
products developed under such agreements. In 1997, commercial sales of
OraSolv-Registered Trademark- accounted for over half of the Company's
revenues, with the balance generated from research and development fees and
licensing arrangements. In the two prior years, the Company's revenues were
generated primarily from research and development fees and licensing
arrangements, and minor revenues were generated from manufacture of liquid
effervescent products. The Company no longer manufactures liquid effervescent
products, and has not recognized any revenues from such products since 1995.
In addition to revenues from manufacturing products, research and development
and licensing, the Company has funded operations from private and public
sales of equity securities, realizing net proceeds of approximately
$25,963,000 from private sales of equity securities and $16,379,000 and
$12,038,000 from the Company's July 1994 and May 1996 public offerings of its
Common Stock, respectively. The total shares outstanding at December 31,
1997 were 9,608,394.
The Company expects that losses will continue through at least 1998,
even though CIMA expects to be generating revenues from manufacturing,
licensing arrangements, and research and development fee related to
OraSolv-Registered Trademark- products. At December 31, 1997, the Company
had accumulated net losses of approximately $41,527,000. Research and
development expenses will increase as CIMA investigates new drug
technologies, including the possibility of utilizing sublingual systems.
Personnel costs for research and development are expected to increase as
personnel will be needed to support the development programs for our new
corporate partners and if efforts investigating new technologies prove to be
successful. As CIMA continues production, additional operations personnel
may need to be added to meet corporate partners' orders. Management
anticipates administrative support to remain stable. Manufacturing
infrastructure should not increase as there is capacity to meet short-term
production needs.
23
<PAGE>
The Company's ability to generate revenues is dependent upon its ability
to develop new, innovative drug delivery technologies and to enter into and
be successful in collaborative arrangements with pharmaceutical and other
healthcare companies for the development and manufacture of
OraSolv-Registered Trademark- products to be marketed by these corporate
partners. The Company is highly dependent upon the efforts of the corporate
partners to successfully market OraSolv-Registered Trademark- products.
Although the Company believes these partners have and will have an economic
motivation to market these products vigorously, the amount and timing of
resources to be devoted to marketing are not within the control of the
Company. These partners independently could make material marketing and
other commercialization decisions which could adversely affect the Company's
future revenue. The Company's revenues could vary materially from quarter to
quarter due to the Company having relatively few agreements with corporate
partners, causing research and development fees to fluctuate, and the fact
that certain of the Company's products are seasonal in nature and revenues
could vary depending on corporate partners' ordering patterns.
In recent years, the Company has actively marketed its
OraSolv-Registered Trademark- technology to the pharmaceutical industry. The
Company is presently engaged in product development and manufacturing
scale-up efforts with several different pharmaceutical companies regarding a
variety of potential products. In the first quarter of 1997, CIMA began
commercial production for Bristol-Myers Squibb of the first product in CIMA's
OraSolv-Registered Trademark-dosage form, which was officially launched in
September 1997. In the second quarter of 1997, the Company expanded its
relationship with Bristol-Myers Squibb and signed a global non-exclusive
license agreement which covers multiple products. In the third quarter of
1997, the first two prescription product license and development agreements
were signed. Each agreement is for a product which is currently marketed by
the Company's partners, Schering-Plough and Zeneca. In the fourth quarter of
1997, a development and license option agreement was signed with Novartis
Consumer Health, Inc. There can be no assurance that any of these activities
or discussions will result in the eventual marketing of products using
OraSolv-Registered Trademark- or the Company's other technologies. The
Company believes that mergers and acquisitions in the pharmaceutical industry
in recent years, together with changes in product plans by potential
partners, may have had an adverse effect on the progress of certain projects,
and the eventual marketing of products incorporating the Company's
technologies.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
The Company's results of operations for the year ended December 31, 1997
reflect the initial sales of two product launches utilizing the Company's
OraSolv-Registered Trademark- technology and the signing of new agreements
with major multinational pharmaceutical companies. In 1997, product sales
were $2,628,000. In 1996, product sales were zero as the Company ceased to
manufacture liquid effervescent products. In 1995, liquid effervescent
product sales were $151,000 as contract manufacturing was de-emphasized.
Research and development fees and licensing revenues were $2,282,000,
$1,472,000, and $684,000 in 1997, 1996, and 1995 respectively. This increase
in fees and revenues is a reflection of the progress of the development
agreements and development of relationships in the prescription
pharmaceutical marketplace. The Company continues to have relatively few
agreements with corporate partners and, therefore, it expects that these
revenues will tend to fluctuate on a quarter-to-quarter basis.
In 1997, cost of goods sold were $4,376,000. These costs include the
costs of entering into production and sale of products utilizing the
OraSolv-Registered Trademark- technology. In 1996, cost of goods sold
decreased to zero from $240,000 in 1995, resulting from the discontinuation
of liquid effervescent contract manufacturing. Research and development
expenses were $3,364,000, $5,403,000, and $6,505,000 in 1997, 1996, and 1995,
respectively, reflecting the move to commercial production in
24
<PAGE>
1997. The decrease in 1996 from 1995 was the result of a one-time product
development/optimization charge in 1995 of $1,385,000 from an independent
consultant for improving product taste and packaging of OraSolv-Registered
Trademark- products. Selling, general and administrative expenses were
$3,487,000 in 1997 compared to $2,909,000 in 1996, and $3,658,000 in 1995.
Selling, general and administrative costs increased in 1997 from 1996,
primarily due to increased bonus payouts to management and spending on
consumer studies to support OraSolv-Registered Trademark- marketing claims,
but were still below 1995 levels. Expenses decreased in 1996 from 1995 due to
downsizing and reduced executive bonus payouts.
Net interest income was $337,000 in 1997 compared to $498,000 in 1996,
and $448,000 in 1995. Net interest income is dependent upon the cash
position of the Company and the decrease in 1997 is due to the reduced cash
position.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations to date primarily through
private and public sales of its equity securities and revenues from
manufacturing agreements. Through December 31, 1997, CIMA has received net
offering proceeds from such private and public sales of $57,268,000 and had
net sales of approximately $16,400,000. Among other things, these funds were
used to purchase approximately $15,233,000 of capital equipment, including
approximately $7,500,000 in the last two quarters of 1994 in connection with
completing the Company's new Eden Prairie manufacturing facility. In July
1994 the Company completed an initial public offering of shares of its common
stock, realizing net proceeds of approximately $16,379,000; and in May 1996
the Company completed another public offering of shares of its Common Stock,
realizing net proceeds of approximately $12,038,000. The funds raised in
CIMA's initial public offering have been used to build out the manufacturing
facility, purchase and validate the appropriate production equipment,
complete the research and development facilities, and purchase the necessary
equipment for that facility. In 1996, CIMA successfully completed an FDA
establishment inspection, a Minnesota state inspection, and was granted a
Drug Enforcement Agency license. The Company has used the funds raised in
its May 1996 public offering primarily to prepare for commercial production
in its new manufacturing facility, which began in the first quarter of 1997,
and to fund research and development for the application of the
OraSolv-Registered Trademark- technology and new technologies to
pharmaceutical products. The balance of such funds will be used for working
capital and other general corporate purposes.
The Company's long-term capital requirements will depend upon numerous
factors, including the status of the Company's collaborative arrangements,
the progress of the Company's research and development programs, receipt of
revenues from the collaborative agreements, sales of the Company's products,
and the need to expand production capacity. Cash, cash equivalents, and
short-term investments were approximately $4,423,000 at December 31, 1997.
The Company believes that its currently available funds, together with any
license fees, product development fees, and sales revenue anticipated to be
received in the future, will meet its needs through 1998. Thereafter, or
sooner if conditions make it necessary, the Company will need to raise
additional funds through public or private financings, including equity
financing which may be dilutive to shareholders. There can be no assurance
that the Company will be able to raise additional funds if its capital
resources are exhausted, or that funds will be available on terms attractive
to the Company.
The Company has not generated taxable income through December 1997. At
December 31, 1997, the net operating losses available to offset taxable
income were approximately $42,259,000. Because the Company has experienced
ownership changes, pursuant to Internal Revenue Code regulations, future
utilization of the operating loss carry-forwards will be limited in any one
fiscal year. The carryforwards expire beginning in 2001. As a result of
the annual limitations, a portion of these
25
<PAGE>
carryforwards may expire before ultimately becoming available to reduce
potential federal income tax liabilities.
YEAR 2000 ISSUE
The Company has conducted an initial review regarding the effect the
upcoming year 2000 will have on its computer applications. The Company has
determined that it will not have a material impact on CIMA's business,
operations nor its financial condition. It is anticipated that minimal
financial and human resources will be utilized to address this issue. The
Company computer support is provided by a server-supported, PC-based LAN
system. Software vendors for the software used by the Company are aware of
the issue and the Company has been informed that they have taken necessary
steps to address the date-field issue. However, the conversion is an
uncertainty and there can be no assurance that unforeseen problems will not
arise in connection with this issue.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Financial Statements and notes thereto appear on pages F-1
to F-17 of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES
Not applicable.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference from
the information under the captions "Election of Directors", "Executive
Officers of the Company" and "Compliance with the Reporting Requirements of
Section 16(a)" contained in the Company's definitive proxy statement to be
filed no later than April 30, 1998 in connection with the solicitation of
proxies for the Company's Annual Meeting of Stockholders to be held June 3,
1998 (the "Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from
the information under the caption "Compensation of Executive Officers"
contained in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item is incorporated by reference from
the information under the caption "Security Ownership of Certain Beneficial
Owners and Management" contained in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from
the information under the caption "Certain Transactions" contained in the Proxy
Statement.
26
<PAGE>
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Index to Financial Statements
The Financial Statements required by this item are submitted in a separate
section beginning on page F-1 of this report
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors. F-3
Balance Sheets at December 31, 1997 and 1996 F-4
Statements of Operations for the three years ended December 31, 1997 F-6
Statements of Changes in Stockholders' Equity for the three years ended
December 31, 1997 F-7
Statements of Cash Flows for the three years ended December 31, 1997 F-8
Notes to Financial Statements F-9
(2) Index to Financial Statement Schedules
Schedule II: Valuation and Qualifying Accounts F-17
</TABLE>
(3) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<S> <C>
3.1 Fifth Restated Certificate of Incorporation of the Company. (1)
3.2 Second Restated Bylaws of the Company. (1)
4.1 Form of Certificate for Common Stock. (2)
4.2 Rights Agreement, dated March 14, 1997, between the Company and Norwest
Bank Minnesota, N.A. (3)
10.1 Technology and Sponsored Research Agreement, dated December 9, 1996,
between the Company and Joseph R. Robinson, Ph.D., and James McGinity. (4)(5)
10.2 Letter Agreement, dated January 28, 1998, between the Company and Joseph
R. Robinson, Ph.D. (4)(7)
10.3 Development and License Option Agreement, dated November 18, 1997,
between Novartis Consumer Health, Inc. and the Company. (7)
10.4 Real Property Lease, dated July 2, 1987, between Stuebner Properties and
the Company, as amended. (2)
10.5 License Agreement, dated April 22, 1996, between the Company and
SmithKline Beecham Plc. (8)
10.6 Employment Agreement, dated October 29, 1997, between the Company and
John M. Siebert, Ph.D. (4)(9)
10.7 Supply Agreement, dated October 10, 1996, between the Company and Bristol-
Myers Squibb Company. (6)
10.8 Real Property Lease, dated March 6, 1998, between Braun-Kaiser & Company
and the Company.
10.9 Offer Letter between the Company and Keith P. Salenger, dated August 8, 1996. (4)(10)
10.10 Equity Incentive Plan, as amended. (4)(11)
10.11 1994 Directors' Stock Option Plan, as amended. (4)(10)
10.12 Form of Director and Officer Indemnification Agreement. (2)(4)
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.13 Form of Employment Agreement. (2)(4)
10.14 Form of Confidentiality Agreement (for discussions with other companies). (2)
10.15 License Agreement, dated January 28, 1994, between the Company and SRI
International. (2)
10.16 Agreement, dated April 8, 1994, between the Company and Beecham Group plc. (2)
10.17 Supply Agreement, dated February 13, 1992, between the Company and
Northhampton Medical, Inc. (2)
10.18 Option and Development Agreement, dated May 19, 1994, between the Company
and Sterling Winthrop, Inc. (2)
10.19 Offer letter between the Company and John Hontz, Ph.D. dated November 26, 1996. (12)
10.20 Non-Employee Directors' Fee Option Grant Program.
10.21 Amendment to Supply Agreement between Bristol-Myers Squibb Company and
the Company, dated June 26, 1997. (11)
10.22 License Agreement between Bristol-Myers Squibb Company and the Company,
dated June 26, 1997. (11)
10.23 Development and Option Agreement between Schering Corporation and the
Company, dated August 11, 1997. (9)
10.24 Development and License Option Agreement between IPR PHARMACEUTICALS,INC.
and the Company, dated September 10, 1997. (9)
23.1 Consent of Ernst & Young LLP.
24.1 Powers of Attorney. (See page [30].)
27.1 Financial Data Schedule.
</TABLE>
- ------------------------------------
(1) Incorporated herein by reference to the correspondingly numbered exhibit
to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994.
(2) Filed as an exhibit to the Company's Registration Statement on Form S-1,
File No. 33-80194, and incorporated herein by reference.
(3) Incorporated by reference herein to Exhibit 2 to the Company's Current
Report on Form 8-K, filed March 25, 1997.
(4) Items that are management contracts or compensatory plans or arrangements
required to be filed as exhibits pursuant to Item 14(c) of Form 10-K.
(5) Incorporated by reference from Exhibit 10.1 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996, File No. 0-
24424.
(6) Incorporated by reference from Exhibit 10.8 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996, File No. 0-
24424.
(7) Confidential treatment has been requested for this exhibit.
(8) Incorporated by reference from Exhibit 10.28 to the Company's
Registration Statement on Form S-1 Registration No. 333-4174.
(9) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997, File No. 0-24424, and incorporated
herein by reference.
(10) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996, File No. 0-24424, and incorporated
herein by reference.
28
<PAGE>
(11) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1997, File No. 0-24424, and incorporated
herein by reference.
(12) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1997, File No. 0-24424, and incorporated
herein by reference.
(b) The Registrant filed no reports on Form 8-K during the last three
months of the fiscal year ended December 31, 1997.
(c) See Exhibits listed under Item 14(a)(3).
(d) The financial statement schedules required by this Item are listed
under 14(a)(2).
29
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized on the 26th day
of March, 1998.
CIMA LABS INC.
By: /s/ John M. Siebert
-----------------------
John M. Siebert
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
on the following page constitutes and appoints John M. Siebert and Keith P.
Salenger, his attorney-in-fact, each with the power of substitution, for him in
any and all capacities, to sign any amendments to this Report on Form 10-K, and
to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that the said attorney-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ John M. Siebert Chief Executive Officer and Director March 26, 1998
- ------------------------ (PRINCIPAL EXECUTIVE OFFICER)
John M. Siebert
/s/ Keith P. Salenger Vice President, Finance and March 26, 1998
- ------------------------ Chief Financial Officer
Keith P. Salenger (PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
/s/ Terrence W. Glarner Director March 26, 1998
- ------------------------
Terrence W. Glarner
/s/ David B. Musket Director March 26, 1998
- ------------------------
David B. Musket
/s/ Steven B. Ratoff Director March 26, 1998
- ------------------------
Steven B. Ratoff
/s/ Joseph R. Robinson Director March 26, 1998
- ------------------------
Joseph R. Robinson
/s/ Jerry A. Weisbach Director March 26, 1998
- ------------------------
Jerry A. Weisbach
</TABLE>
30
<PAGE>
FINANCIAL STATEMENTS
CIMA LABS INC.
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
F-1
<PAGE>
CIMA LABS INC.
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
CONTENTS
Report of Independent Auditors F-3
AUDITED FINANCIAL STATEMENTS :
Balance Sheets F-4
Statements of Operations F-6
Statements of Changes in Stockholders' Equity F-7
Statements of Cash Flows F-8
Notes to Financial Statements F-9
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
CIMA LABS INC.
We have audited the accompanying balance sheets of CIMA LABS INC. as of
December 31, 1997 and 1996 and the related statements of operations, changes
in stockholders' equity and cash flows for each of the three years in the
period ended December 31, 1997. Our audits also included the financial
statement schedule listed in the index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CIMA LABS INC. at December
31, 1997 and 1996 and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
Minneapolis, Minnesota
February 5, 1998 /s/ Ernst & Young
F-3
<PAGE>
CIMA LABS INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------
1997 1996
---------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,145,760 $ 2,666,032
Short-term investments 3,277,300 7,597,162
Accounts receivable:
Net of allowance for doubtful accounts $32,150-1997; 1,597,814 247,578
0-1996
Inventories, net 630,619 534,587
Prepaid expenses 146,805 71,880
------------ ------------
Total current assets 6,798,298 11,117,239
Other assets:
Lease deposits 40,651 290,650
Patents and trademarks, net 230,889 252,404
------------ ------------
Total other assets 271,540 543,054
Property, plant and equipment:
Construction in progress 174,565 469,513
Equipment 8,657,885 7,754,097
Leasehold improvements 4,712,691 4,600,960
Furniture and fixtures 604,204 552,515
------------ ------------
14,149,345 13,377,085
Less accumulated depreciation (3,891,167) (2,972,474)
------------ ------------
10,258,178 10,404,611
------------ ------------
Total assets $ 17,328,016 $ 22,064,904
---------------------------
---------------------------
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 128,712 $ 264,370
Accrued expenses 620,580 529,402
Advance royalties 741,405 250,000
------------ ------------
Total current liabilities 1,490,697 1,043,772
Commitments and contingencies
Stockholders' equity:
Convertible preferred stock, $0.01 par value
Authorized shares -- 5,000,000
Issued and outstanding shares -- -0-
Common stock, $0.01 par value:
Authorized shares -- 20,000,000
Issued and outstanding shares --
9,608,394--1997
9,411,589--1996 96,084 94,116
Additional paid-in capital 57,268,594 56,586,958
Retained earnings (deficit) (41,527,359) (35,659,942)
------------ ------------
Total stockholders' equity 15,837,319 21,021,132
------------ ------------
Total liabilities and stockholders' equity $ 17,328,016 $ 22,064,904
---------------------------
---------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
CIMA LABS INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------
1997 1996 1995
------------------------------------------
<S> <C> <C> <C>
REVENUES:
Net sales $ 2,628,069 $ - $ 151,074
R&D fees and licensing revenue 2,282,166 1,471,859 684,137
------------ ------------ ------------
4,910,235 1,471,859 835,211
COSTS AND EXPENSES:
Cost of goods sold 4,376,412 - 240,038
Research and product development 3,363,544 5,402,557 6,504,528
Selling, general and administrative 3,487,239 2,909,041 3,658,572
------------ ------------ ------------
11,227,195 8,311,598 10,403,138
OTHER INCOME (EXPENSE)
Interest income, net 336,310 497,534 447,748
Other income (expense) 142,255 (3,738) 13,084
------------ ------------ ------------
478,565 493,796 460,832
------------ ------------ ------------
NET LOSS: $ (5,838,395) $ (6,345,943) $ (9,107,095)
-------------------------------------------
-------------------------------------------
Net loss per share:
Basic and diluted $ (.61) $ (.72) $ (1.16)
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic and diluted 9,518,679 8,827,177 7,821,974
</TABLE>
SEE ACCOMPANYING NOTES
F-6
<PAGE>
CIMA LABS INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
----------------------- PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at Dec. 31, 1994 7,527,788 75,278 42,537,340 (20,058,396) 22,554,222
Stock options exercised 278,487 2,766 831,763 - 834,529
Exercise of stock warrants 15,699 157 93,818 (93,981) (6)
Net loss - - - (9,107,095) (9,107,095)
--------- ------ ---------- ----------- ----------
Balance at Dec. 31, 1995 7,821,974 78,201 43,462,921 (29,259,472) 14,281,650
Issuance of common stock
at $9.50 per share in May
1996, net of offering costs
of $1,405,794 1,415,096 14,151 12,023,467 - 12,037,618
Stock options exercised 109,787 1,117 712,824 - 713,941
Exercise of stock warrants 64,732 647 387,746 (54,527) 333,866
Net loss - - - (6,345,943) (6,345,943)
--------- ------ ---------- ----------- ----------
Balance at Dec. 31, 1996 9,411,589 94,116 56,586,958 (35,659,942) 21,021,132
Stock options exercised 191,968 1,920 652,662 - 654,582
Exercise of stock warrants 4,837 48 28,974 (29,022) -
Net loss - - - (5,838,395) (5,838,395)
--------- ------ ---------- ----------- ----------
Balance at Dec. 31, 1997 9,608,394 96,084 57,268,594 (41,527,359) 15,837,319
--------------------------------------------------------------------
--------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-7
<PAGE>
CIMA LABS INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
-------------------------------------------
1997 1996 1995
-------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (5,838,395) $ (6,345,943) $ (9,107,095)
Adjustment to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,047,228 606,339 582,760
Gain on sale of property, plant and
equipment - - 44,028
Changes in operating assets and
liabilities:
Accounts receivable (1,350,236) (34,607) 324,895
Inventories (96,032) (209,977) (2,363)
Prepaid expenses (74,925) 215,399 (76,103)
Accounts payable (135,658) (27,497) (1,115,115)
Accrued expenses 91,178 (165,725) (215,839)
Advance royalties 491,405 - -
------------ ------------ ------------
Net cash used in operating activities (5,865,435) (5,962,011) (9,652,888)
------------ ------------ ------------
INVESTING ACTIVITIES
Purchases of property, plant and equipment (771,655) (315,276) (1,620,518)
Purchases of short-term investments (29,469,496) (7,597,162) (6,819,276)
Proceeds from maturities of short-term investments 33,789,358 - 17,562,458
Proceeds from sale of property, plant and equipment - - 434,383
Patents and trademarks (107,626) (103,685) (92,089)
------------ ------------ ------------
Net cash provided by (used in) investing activities 3,440,581 (8,016,123) 9,464,958
------------ ------------ ------------
FINANCING ACTIVITIES
Proceeds from issuance of common stock 654,582 13,085,423 834,523
Security deposits on leases 250,000 - -
------------ ------------ ------------
Net cash provided by financing activities 904,582 13,085,423 834,523
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents (1,520,272) (892,711) 646,593
Cash and cash equivalents at beginning of period 2,666,032 3,558,743 2,912,150
Cash and cash equivalents at end of period 1,145,760 2,666,032 3,558,743
------------------------------------------
------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-8
<PAGE>
CIMA LABS INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. BUSINESS ACTIVITY
CIMA LABS INC., a Delaware corporation, was incorporated on December 12,
1986. CIMA is a drug delivery company that develops and manufactures products
based primarily upon its OraSolv-Registered Trademark- technology for
marketing by multinational pharmaceutical companies. OraSolv-Registered
Trademark- is an oral dosage form which combines taste-masked,
microencapsulated drug ingredients with an effervescent disintegration agent.
The effervescent disintegration agent aids in rapid dissolution of the
tablet, permitting swallowing before the pharmaceutical ingredients are
released. The OraSolv-Registered Trademark- tablet dissolves quickly without
chewing or water and allows for effective taste-masking of a wide variety of
both prescription and OTC active drug ingredients to improve patient
compliance and drug efficacy.
The Company's strategy is to enter into collaborative arrangements with
multinational pharmaceutical companies to have OraSolv-Registered
Trademark-technology incorporated into pharmaceutical products with an
emphasis on products which command a large market share and/or are in large
market segments. The company will refine the OraSolv-Registered
Trademark-formulation of a particular oral therapeutic and manufacture it for
its corporate partner. The corporate partner will then market and sell the
product. The Company's future profitability will be dependent upon the
Company's ability to develop new, innovative drug delivery technologies that
meet the requirements of its corporate partners and upon the marketing
efforts of these corporate partners. Although the Company believes these
partners will have an economic motivation to market these products
vigorously, the amount and timing of resources to be devoted to marketing are
not within the control of the Company. These partners independently could
make material marketing and other commercialization decisions which could
adversely affect the Company's future revenues. Failure of these partners to
market the Company's products successfully could have a material adverse
effect on the Company's financial condition and result of operations. During
the fourth quarter of 1997, the Company no longer considered itself a
development stage company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
The Company considers highly liquid investments with maturities of ninety
days or less when purchased to be cash equivalents. Cash equivalents are
carried at cost which approximates fair market value.
F-9
<PAGE>
CIMA LABS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SHORT-TERM INVESTMENTS
The Company's investments are primarily certificates of deposit and U.S.
Government obligations and are classified as available for sale. Realized
gains and losses and declines in value judged to be other than temporary are
included in other income.
PATENTS AND TRADEMARKS
Costs incurred in obtaining patents and trademarks are amortized on a
straight-line basis over sixty months. Accumulated amortization was
approximately $510,000 at December 31, 1997 and $377,000 at December 31,
1996. The Company periodically reviews its patents and trademarks for
impairment in value. Any adjustment from the analysis is charged to
operations.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation is provided
using the straight-line method over the estimated useful lives ranging from
three to twelve years. Depreciation expense was approximately $919,000 in
1997, $493,000 in 1996 and $490,000 in 1995.
INVENTORIES
Inventories, consisting of materials and packaging, are valued at cost under
the first-in, first-out (FIFO) method which is not in excess of market.
Inventories are shown net of reserves for obsolescence of approximately
$46,000 at December 31, 1997 and $141,000 at December 31, 1996.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company will record impairment losses on long-lived assets used in
operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the
assets' carrying amount.
STOCK-BASED COMPENSATION
The Company follows Accounting Principles Board Opinion No. 25, ACCOUNTING
FOR STOCK ISSUED TO EMPLOYEES ("APB 25"), and related interpretations in
accounting for its stock options. Under APB 25, when the exercise price of
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized.
F-10
<PAGE>
CIMA LABS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
INCOME TAXES
Income taxes are accounted for under the liability method. Deferred income
taxes are provided for temporary differences between financial reporting and
tax bases of assets and liabilities.
REVENUE RECOGNITION
Sales of product are recorded upon shipment. Research and development fees
are recognized as the services are provided. Revenues from license
agreements are recorded when obligations under the agreement have been
substantially completed. Royalties are recorded when earned.
RESEARCH AND DEVELOPMENT COSTS
For financial reporting purposes, all costs of research and development
activities are expensed as incurred.
EARNINGS (LOSS) PER SHARE
The Company has adopted Financial Accounting Standards Board Statement No.
128, "Earnings Per Share." This Statement replaces previously reported
primary and fully diluted earnings per share with basic and diluted earnings
per share. Unlike primary EPS, basic EPS excludes any dilutive effects of
options, warrants and convertible securities. Diluted earnings per share is
very similar to previously reported fully diluted earnings per share. All
earnings per share amounts for all periods have been presented and, where
appropriate, restated to conform to Statement 128 requirements.
RECLASSIFICATIONS
Certain amounts presented in the 1996 and 1995 financial statements have been
reclassified to conform with the 1997 presentation.
F-11
<PAGE>
CIMA LABS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. SHORT-TERM INVESTMENTS
At December 31, 1997, short-term investments, including $1,036,000 classified
as cash equivalents, consisted of U.S. Treasury securities and obligations of
U.S. Government agencies. The investments are carried at cost which
approximates market.
4. INCOME TAXES
Deferred income taxes are due to temporary differences between the carrying
values of certain assets and liabilities for financial reporting and income tax
purposes. Significant components of deferred income taxes as of December 31,
1997 and 1996 are as follows:
<TABLE>
<CAPTION>
-------------------------
1997 1996
(IN 000'S) (IN 000'S)
-------------------------
<S> <C> <C>
Deferred Assets:
Net operating loss $ 15,213 $ 14,099
Accrued vacation 61 67
Inventory reserve 17 56
Other 11 -
-------- --------
15,302 14,222
Deferred Liability:
Depreciation and amortization 448 633
-------- --------
Net deferred income tax asset 14,854 13,589
Valuation allowance (14,854) (13,589)
-------- --------
Net deferred income taxes $ - $ -
-------- --------
-------- --------
</TABLE>
The Company may be subject to federal income taxes when operations become
profitable. The Company's tax operating loss carryforwards of approximately
$42,259,000 may be carried forward to offset future taxable income, limited
due to changes in ownership under the net operating loss limitation rules,
and begin to expire in the year 2001.
F-12
<PAGE>
CIMA LABS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. LEASES
The Company leases office, research and development and manufacturing
facilities in Brooklyn Park and Eden Prairie, Minnesota. The 75,000 square
foot Eden Prairie facility houses the general and administrative offices and
the manufacturing operation. The lease has an initial term expiring on June 1,
2009. The rent payments will be recalculated on June 1, 2001 and 2006 based on
a market index. The Company has an option to extend the lease for one ten-year
period. The research and development facility in Brooklyn Park is`` leased
under a non-cancelable lease expiring in September 1998. The Company has the
option to renew this lease for one additional three-year term, and two
additional five-year terms.
Future minimum lease commitments for all operating leases with initial or
remaining terms of one year or more are as follows:
Year ending December 31:
1998 $ 502,600
1999 388,800
2000 380,900
2001 372,800
2002 372,800
Thereafter 2,392,300
Rent expense of operating leases, excluding operating expenses, for the years
ended December 31, 1997, 1996, and 1995 was $517,000, $494,000, and $415,000,
respectively.
6. STOCK OPTIONS
The Company has an Equity Incentive Plan ("the Plan") under which options to
purchase up to 2,000,000 shares of Common Stock may be granted to employees,
consultants and others. The Compensation Committee, established by the Board
of Directors, establishes the terms and conditions of all stock option grants,
subject to the Plan and applicable provisions of the Internal Revenue Code.
The options expire ten years from the date of grant and are usually
exercisable in annual increments ranging from 25% to 33% beginning one year
from the date of grant.
F-13
<PAGE>
CIMA LABS INC.
NOTES TO FINANCIAL STATEMENT (CONTINUED)
6. STOCK OPTIONS (CONTINUED)
Shares available and options granted are as follows:
<TABLE>
<CAPTION>
NON-
SHARES INCENTIVE QUALIFIED WEIGHTED
AVAILABLE STOCK STOCK AVERAGE
FOR GRANT OPTIONS OPTIONS TOTAL EXERCISE PRICE
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 497,262 1,015,685 128,571 1,144,256 $ 6.47
Granted (477,750) 477,750 - 477,750 5.70
Forfeited 180,724 (175,061) (34,999) (210,060) 7.15
Exercised - (269,915) (8,572) (278,487) 3.00
-------- --------- ------- ---------
Balance December 31, 1995 200,236 1,048,459 85,000 1,133,459 5.36
Reserved 250,000 - - - -
Granted (199,300) 129,300 70,000 199,300 6.33
Forfeited 91,293 (85,320) (5,973) (91,293) 6.24
Exercised - (91,314) (18,473) (109,787) 6.31
-------- --------- ------- ---------
Balance at December 31, 1996 342,229 1,001,125 130,554 1,131,679 6.27
Granted (390,700) 292,604 98,096 390,700 5.89
Forfeited 203,038 (166,575) (36,463) (203,038) 7.32
Exercised - (149,217) (42,751) (191,968) 3.24
-------- --------- ------- ---------
-------- --------- ------- ---------
Balance at December 31, 1997 154,567 977,937 149,436 1,127,373 5.71
Exercisable
December 31, 1995 253,152 $ 5.23
December 31, 1996 548,221 6.47
December 31, 1997 506,460 5.27
</TABLE>
The following table summarizes information about stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE NUMBER AVERAGE
NUMBER CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE AT 12/31/97 PRICE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 2.00 - $ 3.00 52,528 4.9 years $ 2.98 52,528 $ 2.98
$ 3.01 - $ 5.00 299,000 7.0 years 3.86 259,875 3.88
$ 5.01 - $ 8.00 670,975 9.1 years 6.26 114,065 6.93
$ 8.01 - $ 10.125 104,870 4.0 years 8.87 79,992 8.91
--------- -------
$ 2.00 - $ 10.125 1,127,373 7.9 years $ 5.71 506,460 $ 5.27
--------- -------
--------- -------
</TABLE>
F-14
<PAGE>
CIMA LABS INC.
NOTES TO FINANCIAL STATEMENT (CONTINUED)
6. STOCK OPTIONS (CONTINUED)
Options outstanding under the plan expire at various dates during the period
from March 1998 through December 2007. Exercise prices for options
outstanding as of December 31, 1997 range from $2.80 to $10.125 per share.
The weighted average fair values of options granted during the years ended
December 31, 1997 and 1996 were $5.89 and $3.96, respectively.
The Company also has a Directors' Stock Option Plan ("the Plan") which
provides for the granting to non-management directors of the Company options
to purchase shares of Common Stock. The maximum number of shares with
respect to which options may be granted under this Plan is 350,000 shares.
As of December 31, 1997, options to purchase 258,570 shares of Common Stock
have been granted at prices ranging from $1.75 to $10.125 per share. To
date, none of these options have been exercised.
In connection with $950,000 of bridge financing in 1991 and $467,500 of
bridge financing in 1992, the Company issued warrants to purchase 189,801
shares of its Common Stock at $6.00 per share. Of these warrants, 77,506
were exercised during 1996 and 4,837 during 1997. The remaining 107,458
warrants have expired.
The Company has elected to follow Accounting Principles Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("APB 25") and related
interpretations in accounting for employee stock options because, as
discussed below, the alternative fair value accounting provided for under
FASB Statement No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION ("Statement
123"), requires use of option valuation models that were not developed for
use in valuing employee stock options. Under APB 25, because the exercise
price of the Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
Pro forma information regarding net loss and loss per share is required by
Statement 123, and has been determined as if the Company had accounted for
its employee stock options under the fair value method of Statement 123. The
fair value for these options was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions for 1997 and 1996, respectively: risk-free interest rates of
5.70% and 5.29%; volatility factor of the expected market price of the
Company's common stock of .649 and .641; and a weighted-average expected life
of the option of 5 years.
In management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock options
because the Company's employee stock options have characteristics
significantly different from those of traded options and have vesting
restrictions and because changes in the subjective input assumptions can
materially affect the fair value estimates. The Black-Scholes option
valuation model was developed for use in estimating the fair value of traded
options which have no vesting restrictions and are fully transferable. In
addition, option valuation models require input of highly subjective
assumptions.
F-15
<PAGE>
CIMA LABS INC.
NOTES TO FINANCIAL STATEMENT (CONTINUED)
6. STOCK OPTIONS (CONTINUED)
During the initial phase-in period, the effects of applying Statement 123 for
recognizing compensation cost may not be representative of the effects on
reported net loss or income for future years because the options in the Stock
Option Plans vest over several years and additional awards will be made in the
future.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information is as follows:
----------- -----------
1997 1996
----------- -----------
Pro forma net loss $(6,476,902) $(6,812,761)
Pro forma net loss per common share,
basic and diluted $ (0.68) $ (0.77)
7. DEFINED CONTRIBUTION PLAN
The Company has a 401(k) plan (the "Plan") which covers substantially all
employees of the Company. Contributions to the Plan are made through
employee wage deferrals and employer matching contributions. The employer
matching contribution percentage is discretionary and determined each year.
In addition, the Company may contribute two discretionary amounts; one to
non-highly compensated individuals and another to all employees. To qualify
for the discretionary amounts, an employee must be employed by the Company on
the last day of the Plan year or have been credited with a minimum of 500
hours of service during the Plan year.
The 401(k) expense for the years ended December 31, 1997, 1996, and 1995 was
$29,000, $25,000, and $28,000 respectively.
8. EMPLOYMENT AGREEMENT
The Company has entered into a new employment agreement with the current
President and Chief Executive Officer to continue in said position. The
agreement includes provisions for compensation, stock options and bonuses
based upon the achievement of certain performance targets. The agreement
expires on December 31, 2000.
9. NEW ACCOUNTING PRONOUNCEMENTS
In 1997, the FASB issued Statements No. 130, REPORTING COMPREHENSIVE INCOME and
No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION,
effective for fiscal years beginning after December 15, 1997. The adoption by
the Company of these statements in January 1998 is not expected to have a
material impact on the Company's financial statements.
F-16
<PAGE>
CIMA LABS INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS CHARGED
BEGINNING OF TO COSTS AND LESS BALANCE AT
DESCRIPTION YEAR EXPENSES DEDUCTIONS END OF YEAR
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended December 31, 1997:
Reserves and allowances deducted from
asset accounts:
Allowance for doubtful accounts $ -- $ 32,150 $ -- $ 32,150
Obsolescence reserve 140,795 -- $ (94,407) 46,388
--------- --------- --------- ---------
TOTAL $ 140,795 $ 32,150 $ (94,407) $ 78,538
Year ended December 31, 1996:
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts $ -- $ -- $ -- $ --
Obsolescence reserve 332,207 -- (191,412) 140,795
--------- --------- --------- ---------
TOTAL $ 332,207 $ -- $(191,412) $ 140,795
Year ended December 31, 1995:
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts $ 100,000 $(100,000) $ -- $ --
Obsolescence reserve -- 332,207 -- 332,207
--------- --------- --------- ---------
TOTAL $ 100,000 $ 232,207 $ -- $ 332,207
</TABLE>
F-17
<PAGE>
JOHN M. SIEBERT, PH.D. ***TEXT OMITTED AND FILED SEPARATELY
President and Chief CONFIDENTIAL TREATMENT REQUESTED
Executive Officer UNDER 17 C.F.R. SECTIONS 200.80(B)(4),
200.83 AND 240.24B-2
January 28, 1998
Joseph R. Robinson, Ph.D.
41 Chequamegon Bay
Madison, Wisconsin 53719
RE: New Technology of Drug Delivery Systems
Joe,
Per our discussions, any patents covering inventions created individually by
you or jointly with members of CIMA staff during our interaction to develop
new enabling drug delivery technology are to be assigned to CIMA LABS INC.
Once the patent applications are on file, we would then develop and sign an
agreement which would provide you a royalty equal to [...***...] of all CIMA
sales of products developed covered by patents issuing from such patent
applications and marketed either by one of our partners or by CIMA itself for
the life of the patent.
It is CIMA's understanding that all such inventions described above will be
owned by you and not the University of Wisconsin. If this arrangement is
acceptable to you, please signify your acceptance by signing and dating
below. Please return the original to me and keep a copy for yourself.
Sincerely,
/s/ John M. Siebert
- ------------------------
John M. Siebert, Ph.D.
JMS/cjm
/s/ Joseph R. Robinson
- ------------------------------ ---------------
Joseph R. Robinson, Ph.D. Date
<PAGE>
***TEXT OMITTED AND FILED SEPARATELY
CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(B)(4),
200.83 AND 240.24B-2
CIMA LABS INC.
DEVELOPMENT AND LICENSE OPTION AGREEMENT
WITH
NOVARTIS CONSUMER HEALTH, INC.
THIS DEVELOPMENT AND LICENSE OPTION AGREEMENT (the "Agreement") is
entered into by and between CIMA LABS INC., a Delaware corporation ("CIMA")
and Novartis Consumer Health, Inc., a Delaware corporation ("Novartis"), on
this 18th day of November, 1997 (the "EFFECTIVE DATE").
RECITALS
WHEREAS, CIMA owns or has rights to certain patented oral drug-delivery
technology referred to as ORASOLV-Registered Trademark-, which has
applications in the field of pharmaceutical product formulation; and
WHEREAS, Novartis has substantial expertise and experience in the
development, commercialization and marketing of human pharmaceutical
products; and
WHEREAS, the parties desire to explore the possibility of entering into
future agreements regarding the development and commercialization of
Orasolv-Registered Trademark- formulations of a certain pharmaceutical
product for sale [...***...] markets in [...***...]; and
WHEREAS, Novartis wishes to sponsor the development by CIMA of a
prototype of a certain pharmaceutical product formulation for Novartis'
evaluation, subject to the granting by CIMA to Novartis of an option to enter
into a license agreement with CIMA on terms further described herein.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants set forth below, the parties hereby agree as follows:
<PAGE>
ARTICLE 1
DEFINITIONS
1.1 "AFFILIATE" shall mean any entity which directly or indirectly
Owns, is Owned by or is under common Ownership with, a party to this
Agreement, where Own or Ownership means direct or indirect possession of at
least fifty percent (50%) of the outstanding voting securities of a
corporation or a comparable equity interest in any other type of entity.
1.2 "ACTIVE INGREDIENT" shall mean compounds useful for the treatment
of [...***...], including [...***...] in combination with any of the
foregoing.
1.3 "DEVELOPMENT PLAN" shall mean the initial plan set forth on Exhibit
A for the development of the Prototypes, as may be amended from time to time.
1.4 "FIELD" shall mean [...***...] approved for [...***...] as of the
Effective Date, for the treatment of [...***...] or conditions and having as
active ingredients only the Active Ingredients, in any formulation or dosage.
1.5 "OPTION" shall have the meaning assigned thereto in Section 3.1.
1.6 "ORASOLV-Registered Trademark- TECHNOLOGY" shall mean CIMA's
effervescent, fast-dissolving, oral drug-delivery tablet technology, which
technology includes, to the extent applicable to the formulation of a
product, the active ingredients of which are Active Ingredients, (i) the
inventions disclosed in patents and patent applications owned, controlled or
licensed (with the right to sublicense) by CIMA during the term of this
Agreement, including but not limited to those listed on Exhibit B, and (ii)
all know-how, technology, trade secrets, data, processes and methods, or
other information owned, controlled or licensed (with the right to
sublicense) by CIMA during the term of this Agreement.
1.7 [...***...] shall mean suitable for, and specifically labeled,
packaged, marketed or indicated for, [...***...].
1.8 "PRODUCT" shall mean the pharmaceutical products which are
formulated using OraSolv-Registered Trademark- technology [...***...] and
which contain, as their only active ingredients, any of the Active
Ingredients, PROVIDED THAT as of the Effective Date, all such active
ingredients are approved by the appropriate regulatory agency for sale
[...***...] in the relevant country of the Territory.
1.9 "PROTOTYPES" shall mean the prototype of each Product containing
the active ingredients set forth on Exhibit D, to be developed by CIMA
pursuant to the Development Plan and in accordance with the general
specifications set forth on Exhibit C and any further specifications agreed
to by the parties.
1.10 "RESULTS" shall mean information, data and results obtained or
developed from conduct of evaluations under this Agreement relating to the
Prototypes.
1.11 "TERRITORY" shall mean [...***...].
<PAGE>
ARTICLE 2
PROTOTYPE DEVELOPMENT
2.1 DEVELOPMENT SCHEDULE. During the term of this Agreement CIMA will
continue with development of the Prototypes delineated in the Development
Plan and shall use commercially responsible best efforts to meet the
deadlines specified in the Development Plan. CIMA will develop the
Prototypes in such flavors as are determined by mutual agreement of the
parties consistent with the criteria set forth in Exhibit C.
CIMA and Novartis each acknowledge and agree that the Development Plan is
expected to be completed by [...***...]. To that end, during the
implementation of the Development Plan, Novartis agrees to evaluate promptly
each iteration of each Prototype and/or report of results delivered by CIMA
and respond to CIMA as agreed upon in the Development Plan. Novartis'
response will indicate the acceptability of such proposed Prototype and/or
the need, if any, for modification of the specifications in light of the
results of Novartis' evaluation.
2.2 DEVELOPMENT FEES. In consideration for CIMA's development and
production of the Prototypes in accordance with this Agreement, Novartis
shall make non-refundable payments to CIMA as specified in the Development
Plan. Such payments will be made [...***...] from CIMA.
ARTICLE 3
OPTION; EXCLUSIVITY; LICENSE
3.1 OPTION. Effective upon delivery of the Option Fee described in
Section 3.3 below, CIMA hereby grants to Novartis an option to enter into
[...***...] to utilize the OraSolv-Registered Trademark- Technology for the
development, marketing, distribution and sale of the Product in the Territory
(the "OPTION"). The term of such Option shall extend from the Effective Date
until [...***...]. Novartis may exercise the Option by (i) providing CIMA
with written notice thereof, and (ii) negotiating and entering into a
mutually agreed upon license agreement with CIMA (the "License Agreement")
prior to the end of the Option term, PROVIDED, HOWEVER, that if Novartis does
not exercise the Option, it shall pay to CIMA [...***...] as set forth in
Section 3.4, unless any of the events set forth in Section 4.2.3 occur. If
Novartis fails to enter into the License Agreement by the end of the Option
term [...***...], on any terms CIMA may, in its sole discretion, deem
appropriate.
3.2 [...***...]. In consideration for the Option Fee, CIMA hereby
agrees that from the Effective Date until [...***...], CIMA [...***...] of
the Products in the Field and in the Territory.
3.3 OPTION FEE. In consideration for the [...***...] set forth in
Section 3.2, the Option granted in Section 3.1 and the rights granted in
Section 3.5, Novartis shall pay to CIMA the sum of [...***...] (the "OPTION
FEE") on the Effective Date. The total Option Fee payable hereunder shall be
creditable against any upfront license fee or milestone payments payable to
CIMA upon execution and during the course of the License Agreement.
3.4 OPTION WAIVER BUYOUT. If Novartis fails to exercise its Option and
the cause for such failure is other than the events set forth in Section
4.2.3, Novartis shall pay to CIMA the sum [...***...] upon the earlier of
notification to CIMA that Novartis will not exercise the
<PAGE>
Option or termination of this Agreement, but in any event no later than the
expiration date of the Option Term.
3.5 [...***...]. For the period from the Effective Date until the
expiration or termination of the Option term set forth in Section 3.1, CIMA
hereby grants to Novartis [...***...] which contain as an active ingredient a
compound approved for sale [...***...] after the Effective Date (the
[...***...]). For the same period, CIMA hereby grants to Novartis [...***...]
, PROVIDED THAT the [...***...] shall only be [...***...].
3.5.1 EXERCISE OF [...***...]. If during the term of the
[...***...] CIMA decides to [...***...], which product contains as an active
ingredient a compound approved for sale [...***...] after the Effective Date,
CIMA will notify Novartis in writing of such decision. Novartis shall
[...***...] within [...***...] from CIMA (whether or not the Option Term has
expired), and [...***...] if accepted by CIMA within [...***...]. CIMA may
[...***...] in its discretion. If CIMA elects to [...***...], the rights to
be acquired by Novartis shall be incorporated in the License Agreement on
terms agreeable to both parties.
3.5.2 EXERCISE OF [...***...]. If during the term of the
[...***...] CIMA receives [...***...] the Products in the Field in [...***...]
, CIMA shall [...***...]. Novartis shall [...***...] set forth in Section
3.1 (but where such date is less than [...***...], Novartis shall [...***...]
to consider [...***...] and may [...***...] in its discretion. Upon the
expiration of the [...***...]. If Novartis [...***...], the rights to be
acquired by Novartis shall be incorporated in the License Agreement on terms
agreeable to both parties and consistent [...***...].
3.6 COMMERCIALIZATION AND SUPPLY AGREEMENT. Simultaneously with the
execution of the License Agreement, the parties shall enter into a
commercialization and supply agreement on mutually agreeable terms pursuant
to which CIMA shall [...***...]. Such agreement shall also set forth the
obligations of CIMA with respect to finalization of development, scale-up and
validation of the Product.
3.7 FACILITIES VISITS. During the term of this Agreement, CIMA shall
allow personnel of Novartis, at Novartis' expense, to visit the manufacturing
and research facilities of CIMA and to consult with CIMA personnel, at
mutually agreeable times, to discuss and review the development of the
Product.
3.8 MARKET RESEARCH REPORT. Novartis shall provide to CIMA, at CIMA's
request, a copy of Novartis' final summary market research report relating to
market research testing of the Prototypes. CIMA acknowledges that this
report is Confidential Information and shall be governed by the
confidentiality provisions of Section 4.3.
<PAGE>
ARTICLE 4
GENERAL PROVISIONS
4.1 LIMITATIONS ON USE. CIMA and Novartis each agree that it shall use
the Prototypes, and the Confidential Information (as defined in Section
4.3.1) of the other, solely for the purposes specified in this Agreement and
for no other purpose, including without limitation, use of the Prototypes in
any research or commercial activities other than those which relate directly
to the purposes specified herein. Each party's permitted use of the
Prototypes shall be in compliance with all applicable laws and regulations.
Upon expiration or termination of the Agreement, Novartis shall destroy, as
directed by CIMA, all unused quantities of the Prototypes, and that CIMA
shall be permitted to retain reasonable quantities of the Prototypes for
CIMA's internal use, and shall be permitted to retain archive copies of any
and all Results. Novartis shall not sell, transfer, disclose or otherwise
provide access to the Prototypes or the Results, any method or process
relating thereto or any material that could not have been made but for access
to the foregoing, to any person or entity without the prior expressed written
consent of CIMA, except that Novartis may allow access to the Prototypes and
the Results to employees, subcontractors or agents during the term of, and
solely for purposes consistent with, this Agreement. Novartis will make
diligent efforts to ensure that such employees, agents and subcontractors
will use the Prototypes and the Results in a manner consistent with the terms
of this Agreement.
4.2 TERM AND TERMINATION.
4.2.1 TERM. Unless sooner terminated in accordance with
Section 4.2.2 or 4.2.3 below, this Agreement shall expire upon the expiration
or termination of the Option.
4.2.2 TERMINATION BY CIMA. CIMA may terminate this Agreement
upon [...***...] written notice to Novartis in the event Novartis commits a
material breach of a provision of this Agreement and fails to cure such
breach prior to the end of such [...***...].
4.2.3 TERMINATION BY NOVARTIS. Novartis shall have the right
to terminate this Agreement prior to exercise of the Option in the event
(i) CIMA commits a material breach of a provision of this
Agreement and fails to cure such breach prior to the end of such [...***...]
days' written notice to CIMA;
(ii) the [...***...] set forth on Exhibit E;
(iii) Novartis notifies CIMA, within [...***...] of the
Effective Date, of a [...***...] (other than patents which CIMA owns or to
which CIMA has the right to grant licenses, and the patents set forth on
Schedule 1) which would be [...***...] and CIMA fails, prior to the
expiration of the Option, [...***...] the Product, (b) obtain for Novartis
[...***...] the Product, or (c) take other steps which cause Novartis to
withdraw its notice to CIMA;
(iv) the parties do not agree upon [...***...] of the Product,
[...***...] to be incorporated in the License Agreement or [...***...] to be
incorporated in the Supply Agreement.
<PAGE>
4.2.4 EFFECT OF TERMINATION. Upon termination or expiration of
this Agreement pursuant to Sections 4.2.1, 4.2.2, or 4.2.3 above, (i)
Novartis shall [...***...] of the Option Fee, and (ii) CIMA shall [...***...]
of Products. Nothing in this Agreement shall be construed to relieve either
party of any obligations incurred by it hereunder prior to the effective date
of termination hereof. This Article 4 shall survive any termination or
expiration of this Agreement.
4.3 CONFIDENTIALITY. Each of the parties shall be bound by the
following terms and conditions:
4.3.1 Subject to the limitations set forth in Section 4.3.2
below, all information disclosed to the other party and identified by the
disclosing party as confidential shall be deemed "CONFIDENTIAL INFORMATION"
of the disclosing party. In particular, Confidential Information shall be
deemed to include, but not be limited to, the Prototypes and any
documentation relating thereto, the Results, any patent application or
drawing or potential patent claim the subject matter of which is directly or
indirectly derived from information disclosed hereunder, any trade secret,
information, invention, idea, samples, process, method, procedures,
formulations, packaging designs and materials, test data relating to any
research project, work in process, future development, engineering,
manufacturing, regulatory, marketing, servicing, financing, or personnel
matter relating to the disclosing party, its present or future products,
sales, suppliers, clients, customers, employees, investors or business,
whether in oral, written, graphic or electronic form.
4.3.2 The term "Confidential Information" shall not be deemed
to include information which (i) is now, or hereafter becomes, through no act
or failure to act on the part of the receiving party, generally known or
available; (ii) is known by the receiving party at the time of receiving such
information, as evidenced by its records; (iii) is hereafter furnished to the
receiving party by a third party, as a matter of right and without
restriction on disclosure; (iv) is independently developed by the receiving
party without use of Confidential Information of the other party; (v) is the
subject of a written permission to disclose provided by the disclosing party
(vi) is required to be disclosed by law; or (vii) is required to be disclosed
to establish rights or enforce obligations under this Agreement, but only to
the extent such disclosure is necessary.
4.3.3 During the term of this Agreement and for a period of
[...***...] after termination hereof ([...***...] with respect to information
pertaining to manufacturing processes and know-how), each party shall
maintain all Confidential Information in trust and confidence and shall not
disclose any Confidential Information to any third party or use any
Confidential Information for any unauthorized purpose. Each party may use
such Confidential Information only to the extent required to accomplish the
purposes of this Agreement. Confidential Information shall not be used for
any purpose or in any manner that would constitute a violation of any laws or
regulations, including without limitation the export control laws of the
United States. Each party hereby agrees that it will not in any way attempt
to obtain, either directly or indirectly, any information regarding any
Confidential Information from any third party who has been employed by,
provided consulting services to, or received in confidence information from,
the other party.
4.3.4 The parties under this Agreement shall advise their
employees who might have access to Confidential Information of the
confidential nature thereof and agree that their
<PAGE>
employees and agents shall be bound by the terms of this Agreement. No
Confidential Information shall be disclosed to any employee who does not have
a need for such information.
4.4 OWNERSHIP. Title and ownership rights in the OraSolv-Registered
Trademark- Technology and other Confidential Information of CIMA shall remain
at all times with CIMA. Novartis acknowledges that the OraSolv-Registered
Trademark- Technology and such Confidential Information shall remain the sole
property of CIMA and Novartis will acquire no title thereto as a result of
this Agreement. Title and ownership rights in the Prototypes and Results and
Confidential Information of Novartis shall remain at all times with Novartis,
PROVIDED, HOWEVER that if for any reason Novartis does not exercise its
Option under Section 3.1, title and ownership rights in the Prototypes and
Results shall revert to CIMA, except that if Novartis does not exercise its
Option under Section 3.1 because it has instead exercised its rights under
Section 4.2.3(i), CIMA shall not own any Results comprised of [...***...] by
Novartis or by a third party on behalf of Novartis, and CIMA [...***...].
CIMA acknowledges that Novartis' Confidential Information shall remain the
sole property of Novartis and CIMA will acquire no title thereto as a result
of this Agreement. Nothing in this Agreement shall be construed as
conferring on either party an expressed or implied license or option to
license any disclosed Confidential Information, technology, or any patent or
patent application except as expressly provided herein.
4.5 REPRESENTATIONS AND WARRANTIES.
4.5.1 CIMA WARRANTS THAT DEVELOPMENT AND PILOT-SCALE MANUFACTURE BY CIMA
OF THE PROTOTYPE SHALL BE CONDUCTED IN A WORKMANLIKE MANNER AND, WHERE
PROVIDED HEREIN, IN ACCORDANCE WITH (A) CURRENT GOOD MANUFACTURING PRACTICES
PROMULGATED BY THE U.S. FDA AND ALL OTHER APPLICABLE LAWS AND REGULATIONS,
(B) PRODUCT SPECIFICATIONS FOR THE PROTOTYPES AS SHALL BE MUTUALLY AGREED
UPON BY THE PARTIES. CIMA FURTHER WARRANTS THAT THE PROTOTYPES SHALL NOT BE
ADULTERATED OR MISBRANDED WITHIN THE MEANING OF THE U.S. FOOD, DRUG AND
COSMETIC ACT AND THE REGULATIONS PROMULGATED THEREUNDER. EXCEPT AS SET FORTH
ABOVE, THE PROTOTYPES ARE BEING SUPPLIED TO NOVARTIS WITH NO WARRANTIES OF
ANY KIND, EXPRESSED OR IMPLIED, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE OR THAT IT IS FREE FROM THE RIGHTFUL CLAIM
OF ANY THIRD PARTY, BY WAY OF INFRINGEMENT OR THE LIKE, OF ANY PATENT OR
OTHER PROPRIETARY RIGHTS OF SUCH PARTY.
4.5.2 CIMA represents and warrants that:
(i) CIMA is a corporation duly organized, existing and in
good standing under the laws of the State of Delaware, with full right, power
and authority to enter into and perform this Agreement and to grant all of
the rights, powers and authorities herein granted.
(ii) The execution, delivery and performance of this Agreement
do not conflict with, violate or breach any agreement to which CIMA is a
party, or CIMA's Certificate of Incorporation or Bylaws.
<PAGE>
(iii) This Agreement has been duly executed and delivered
by CIMA and is a legal, valid and binding obligation enforceable against CIMA
in accordance with its terms.
(iv) CIMA has the right, title and interest in and to the
intellectual property which is the subject of this Agreement necessary to
grant the rights granted hereunder. To the best of CIMA's knowledge having
undertaken no investigation, the practice of the patents relating to the
OraSolv-Registered Trademark- Technology does not infringe any valid patents
or other proprietary rights of third parties.
4.5.3 Novartis represents and warrants that:
(i) Novartis is a corporation duly organized, existing and in
good standing under the laws of the State of Delaware, with full right, power
and authority to enter into and perform this Agreement and to grant all of
the rights, powers and authorities herein granted.
(ii) The execution, delivery and performance of this Agreement
do not conflict with, violate or breach any agreement to which Novartis is a
party, or Novartis' Certificate of Incorporation or Bylaws.
(iii) This Agreement has been duly executed and delivered
by Novartis, and is a legal, valid and binding obligation enforceable against
Novartis in accordance with its terms.
4.6 INDEMNITY.
4.6.1 CIMA agrees to and hereby does indemnify, defend and hold
Novartis harmless from and against all claims, suits and proceedings, and all
damages, losses, costs, recoveries and expenses, including reasonable legal
expenses and costs (including attorneys' fees), which Novartis may incur,
arising out of any third party claim of property damages or personal injury
or death arising from CIMA's negligent or willful misconduct in its
performance of this Agreement or any breach of a representation or warranty
given herein by CIMA.
4.6.2 Novartis agrees to and hereby does indemnify, defend and
hold CIMA harmless from and against all claims, suits and proceedings, and
all damages, losses, costs, recoveries and expenses, including reasonable
legal expenses and costs (including attorneys' fees) which CIMA may incur,
arising out of any third party claim relating to the products developed by
CIMA for Novartis hereunder or any aspect of Novartis' performance of this
Agreement, to the extent such liability results from the negligence or
willful misconduct of Novartis, or any breach of a representation or warranty
given herein by Novartis.
4.7 INDEPENDENT CONTRACTORS. The parties shall perform their
obligations under this Agreement as independent contractors and nothing
contained in this Agreement shall be construed to be inconsistent with such
relationship or status. This agreement shall not constitute, create or in
any way be interpreted as a joint venture or partnership of any kind.
4.8 PUBLICITY. Any public disclosure of this Agreement or of the
activities or rights hereunder, including but not limited to press releases,
shall be reviewed and consented to by each
<PAGE>
party prior to such disclosure; PROVIDED, HOWEVER, that either party may make
such disclosures as may be required by law (including securities laws)
without such consent. Any consent required hereunder shall not be untimely
or unreasonably withheld by either party. Notwithstanding the foregoing, the
parties consent to a press release announcing this Agreement, in the form
attached hereto as Exhibit F
4.9 FINAL AGREEMENT; AMENDMENTS. This Agreement sets forth the
complete and final agreement of the parties and supersedes all prior and
contemporaneous negotiations, understandings and agreements with respect to
the subject matter hereof. No subsequent amendment or modification to this
Agreement shall be binding upon the parties hereto unless reduced to writing
and signed by the respective officers of the parties hereto.
4.10 ASSIGNMENT. Except as otherwise provided herein, neither this
Agreement nor any interest hereunder will be assignable in part or in whole
by any party without the prior written consent of the other; PROVIDED,
HOWEVER, that either party may assign this Agreement to an Affiliate or any
successor by merger or sale of substantially all of its business unit to
which this Agreement relates without such consent. This Agreement will be
binding upon the successors and permitted assigns of the parties and the name
of a party appearing herein will be deemed to include the names of such
party's successors and permitted assigns to the extent necessary to carry out
the intent of this Agreement. Any assignment which is not in accordance with
this Section 4.10 will be void.
4.11 MISCELLANEOUS. This Agreement shall be governed by the laws of the
State of Delaware. If any provision of this Agreement is found by a proper
authority to be unenforceable, that provision shall be severed and the
remainder of this Agreement will continue in full force and effect. This
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original.
4.12 NOTICES. Any notices required or permitted hereunder shall be
given in writing to the appropriate party at the address specified below or
at such other address as the party shall specify in writing.
IN WITNESS WHEREOF, the parties have by duly authorized persons,
executed this Agreement, as of the date first written above.
CIMA LABS INC. NOVARTIS CONSUMER HEALTH, INC.
10000 Valley View Road _____________________________
Eden Prairie, Minnesota 55344 _____________________________
Tel: (612) 947-8700 Tel:_________________________
FAX: (612) 947-8770 FAX:_________________________
By: /s/ Jack Khattar By: /s/ Fred Huser
------------------------ --------------------------
Name: Jack Khattar Name: Fred Huser
Title: Vice President, Title: President
Business Development
<PAGE>
EXHIBIT A
DEVELOPMENT PLAN*
<TABLE>
<CAPTION>
Cost Target Completion Dates
<S> <C> <C>
I. Formulation Development [...***...]
- Finalize Prototypes of [...***...] [...***...]
- Analytical development and support, and [...***...] [...***...]
II. Scale-Up of Three Prototypes [...***...]
- GMP manufacturing of [...***...] for each Prototype [...***...] [...***...]
- [...***...] under [...***...] per Prototype [...***...] [...***...]
- Delivery of samples for [...***...] [...***...]
III. Full Scale Manufacturing [...***...]
- GMP manufacturing of [...***...] formulation [...***...] [...***...]
- GMP manufacturing of [...***...] for each product [...***...] [...***...]
- [...***...] under [...***...] on the [...***...] [...***...]
- Delivery of [...***...] [...***...]
IV. Validation/Commercialization [...***...]
- Manufacture of [...***....] per product: [...***...]
1. If saleable . . . . . . . . .
[...***...]
2. If not saleable . . . . . [...***...]
- - Stability on above [...***...] under
[...***...] up to [...***...]
--[...*** ...]
--Subject to NCH [...***...] [...***...]
- - Validation Testing and Documentation Costs for [...***...] [...***...]
</TABLE>
*DOES NOT INCLUDE TOOLING
<PAGE>
EXHIBIT B
PATENTS AND PATENT APPLICATIONS
<TABLE>
<CAPTION>
Country Patent/Application No. Filing/Issue Date
- ------- ---------------------- -----------------
<S> <C> <C>
US [...***...] JANUARY 12, 1993
US [...***...] JULY 6, 1993
US [...***...] APRIL 21, 1994
US [...***...] APRIL 1, 1997
- -----------------------------------------------------------------------------
CAN [...***...] FEBRUARY 26, 1992
- -----------------------------------------------------------------------------
</TABLE>
- ------------------------
(1) Issued Patents
(2) Pending Patent Applications
<PAGE>
EXHIBIT C
GENERAL SPECIFICATIONS
- - TABLET SIZE/SHAPE
[...***...]
- - FLAVOR
Tablet flavor(s) [...***...] based upon [...***...] and [...***...].
- - COLOR
Tablet color(s) will [...***...].
- - TABLET DISINTEGRATION
Targeted tablet disintegration [...***...] or less.
- - PACKAGING
The tablet will be packaged in [...***...].
- - STABILITY
Prototype development (implementation of the Development Plan) will
include [...***...].
<PAGE>
EXHIBIT D
PROTOTYPE ACTIVES
- - [...***...]
- - [...***...]
- - [...***...]
<PAGE>
EXHIBIT E
[...***...]
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
TEST DESIGN [...***...] PRODUCT PRODUCT PRODUCT TOTAL [...***...]
PROTOTYPE PROTOTYPE PROTOTYPE PRODUCT
[...***...] [...***...] [...***...] PROTOTYPE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CELL 1 2 3 4 2+3+4 5
- ---------------------------------------------------------------------------------------------------------
DOSE [...***...] [...***...] [...***...] [...***...] [...***...]
- ---------------------------------------------------------------------------------------------------------
RESPON- [...***...] [...***...] [...***...] [...***...] [...***...]
DENTS
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
OVERALL
LIKING
- ---------------------------------------------------------------------------------------------------------
TOP TWO BOX A B C D E F
- ---------------------------------------------------------------------------------------------------------
</TABLE>
1. The [...***...] results are considered to be acceptable to Novartis in
either of the following cases:
- [...***...]
- [...***...] and not less than [...***...] and is higher than
[...***...].
2. If the [...***...] results are acceptable, and either [...***...] with
statistical significance at [...***...], then Novartis and CIMA will
consider [...***...] the product type.
EXHIBIT F
PRESS RELEASE
FOR IMMEDIATE RELEASE: Contact: John M. Siebert, Ph.D
President and Chief Executive Officer
CIMA LABS INC.
(612) 947-8700
Keith P. Salenger
Vice President and Chief Financial Officer
CIMA LABS INC.
(612) 947-8700
<PAGE>
CIMA LABS INC. ANNOUNCES DEVELOPMENT &
LICENSE OPTION AGREEMENT WITH NOVARTIS
NOVARTIS' PRODUCT TO BE COMBINED WITH ORASOLV-REGISTERED TRADEMARK-
Eden Prairie, MN, XXXXXXXXXX,XX, 1997 - CIMA LABS INC. (NASDAQ: CIMA) today
announced the signing of a development and license option agreement pertaining
to one of Novartis' currently marketed non-prescription products. In exchange
for its development work and license option, CIMA will receive an option fee
and development fees.
"Our partnership with Novartis combines one of their major non-prescription
drugs with a second generation improved OraSolv-Registered Trademark- fast-
dissolve dosage form," commented John M. Siebert, Ph.D., President and Chief
Executive Officer of CIMA LABS INC. "This key milestone provides additional
confirmation of the progress by CIMA and its efforts to further commercialize
OraSolv-Registered Trademark-."
OraSolv-Registered Trademark- is a patented oral dosage form which incorporates
microencapsulated drug ingredients into tablets that dissolve quickly in the
mouth. OraSolv-Registered Trademark- is designed to improve taste acceptance,
address difficulty of swallowing traditional tablets and capsules, while
offering a convenient oral dosage form that can be taken anywhere and anytime,
therefore increasing compliance.
CIMA LABS INC. is a drug delivery company that develops and manufactures
products based upon its OraSolv-Registered Trademark- technology for marketing
by multinational pharmaceutical companies to improve patient compliance and
drug efficacy. CIMA was founded in 1986 and has been publicly held since July
1994. The Company's corporate headquarters and manufacturing facility is
located in Eden Prairie, MN and its Research and Development facility is
located in Brooklyn Park, MN.
###
SCHEDULE 1
1. [...***...]
<PAGE>
LEASE
THIS LEASE is made as of March 6, 1998, by and between BRAUN-KAISER
AND COMPANY, a Minnesota general partnership ("Landlord"), and CIMA LABS, INC.,
a Delaware corporation ("Tenant").
RECITALS:
A. Landlord and Braun's Fashions, Inc. ("Sublandlord") are parties
to that certain lease (the "Prime Lease") dated as of December 11, 1980, as
amended by that certain First Amendment to Lease dated as of June 10, 1981, as
further amended by that certain Second Amendment to Lease dated as of December
19, 1986, and as further amended by that certain Third Amendment to Lease dated
as of January 18, 1994, relating to certain premises (the "Leased Premises")
consisting of the real property described on Exhibit A annexed hereto, together
with all buildings, surface driveways and parking areas constructed thereon,
all as more particularly described in the Prime Lease. Tenant and Sublandlord
are parties to that certain sublease (the "Sublease") dated as of February 16,
1994, whereby Tenant subleased the Leased Premises from Sublandlord. Tenant,
Landlord, and Sublandlord are parties to that certain Consent, Non-Disturbance
and Prime Lessor's Agreement (the "Consent Agreement") dated as of February 22,
1994, whereby Landlord consented to the Sublease.
B. Sublandlord rejected the Prime Lease in bankruptcy effective as
of September 30, 1996. Pursuant to Section 2 of the Consent Agreement,
Landlord is not disturbing Tenant's current possession of the Leased Premises.
Tenant is exercising its option for a Direct Lease, and Landlord and Tenant are
entering into this Lease.
C. In fulfillment of the terms of the Consent Agreement, Landlord
wishes to lease the entire Leased Premises to Tenant and Tenant wishes to lease
the entire Leased Premises from Landlord, upon the terms and conditions
contained herein, and effective as of the date of this Lease. This Lease
supersedes in all respects the Prime Lease and the Sublease with respect to all
periods from and after the date of this Lease.
NOW, THEREFORE, in consideration of the mutual covenants set forth
below, the parties hereby agree as follows:
1. TERM. Landlord hereby demises and leases to Tenant, and Tenant
hereby hires and takes from Landlord, the Leased Premises for an initial term
commencing effective as of September 30, 1996 (the "Commencement Date") and
expiring June 1, 2009.
<PAGE>
2. TENANT'S OPTION TO EXTEND. Tenant shall have the right to
extend the initial terms of this Lease (the "Extension Option") for one (1)
period of ten (10) years, provided the following conditions are met:
(a) There shall be no Event of Default outstanding under
this Lease on the date Tenant exercises its option hereunder nor as
of the beginning of the extended term.
(b) Tenant shall send Landlord written notice by certified
mail, return receipt requested, of its election to extend the term of
this Lease on or before September 1, 2008. Said notice shall be
effective upon mailing. Tenant shall include a check (the "Extension
Deposit") for one-twelfth of the then-current annual rent with its
mailed extension notice. Landlord shall apply the Extension Deposit
towards the first month's rent during the extended term, and Landlord
may retain the Extension Deposit as liquidated damages should Tenant
fail to occupy the Leased Premises pursuant to its exercise of the
Extension Option.
(c) If this Lease is canceled or terminated prior to the
natural expiration of the initial term, Tenant's option to extend
hereunder shall be null and void, having no further force or effect.
(d) The terms of this lease shall remain in full force and
effect during the extended term; provided, however, that the annual
rent during the first five years of the extended term shall be the
greater of (i) $500,000 or (ii) Adjusted Rent as defined in Section
4.2 hereunder, and the annual rent during the second five years of
the extended term shall be the greater of (i) $550,000 or (ii)
Adjusted Rent as defined in Section 4.2 hereunder.
(e) If Tenant exercises the right to extend the term of
this Lease, this Lease shall be extended for the extended term
beginning immediately following the expiration of the initial term.
Tenant may assign or transfer the Extension Option without Landlord's consent
to any entity to which Tenant would be entitled to assign this Lease under
Section 16.3 herein. Landlord's consent shall be required for any other
assignment or transfer of the Extension Option.
3. USE. Tenant shall use the Leased Premises solely for
general office space, warehouse and light industrial manufacturing and assembly
applications (including, but not limited to, production of pharmaceutical
products) which do not involve Hazardous Materials (as defined herein), unless
otherwise specifically permitted herein,
<PAGE>
and for no other purpose. Tenant may also use the Leased Premises for other
lawful uses provided Tenant obtains Landlord's prior written consent, which
consent shall not be unreasonably withheld or delayed. Tenant shall use the
Leased Premises in conformance with all applicable codes, ordinances and
zoning regulations and shall not exceed any applicable load restrictions
within the building.
4. RENT.
4.1 ANNUAL RENT. Tenant shall pay to Landlord as annual
rent the greater of (i) Initial Rent or (ii) Adjusted Rent, as such terms
are defined in Section 4.2 hereunder, payable in equal monthly
installments of one-twelfth (1/12) of Initial Rent or Adjusted Rent, as
the case may be, in advance and on or before the first day of each month.
4.2 RENT CALCULATION. For the purposes of this Lease,
"Initial Rent" shall mean Three Hundred Sixty Eight Thousand and no/100
Dollars ($368,000.00) per annum. "Adjusted Rent" shall mean a per annum
amount, calculated on June 1, 1996 and June 1 of every fifth year
thereafter, equal to the sum of $368,000, plus (or minus, in the event of
decrease) (x), plus (or minus, in the event of decrease) (y), where (x)
equals 13,000 (the approximate number of office square feet in the Leased
Premises) multiplied by the amount by which the then-existing NAIOP Office
Rate has increased or decreased in comparison with the 1991 NAIOP Office
Rate, and (y) equals 62,000 (the approximate number of warehouse square
feet in the Leased Premises) multiplied by the amount by which the then-
existing NAIOP Warehouse Rate has increased or decreased in comparison
with the 1991 NAIOP Warehouse Rate. For the purposes of this Section 4.2,
the term "NAIOP Office Rate" shall mean the stated "average" office space
rental rate (measured in annual dollars and cents per square foot) for
"office warehouse" properties in the "Southwest Suburban" submarket (or
other appropriate description of the submarket in which the Leased
Premises are located), as published by the Minnesota Chapter of the
National Association of Industrial Office Parks in the June update to
their annual Industrial Space Update, and the term "NAIOP Warehouse Rate"
shall mean the stated "average" warehouse space rental rate (measured in
annual dollars and cents per square foot) for "office warehouse"
properties in the "Southwest Suburban" submarket (or other appropriate
description of the submarket in which the Leased Premises are located), as
published by the Minnesota Chapter of the National Association of
Industrial Office Parks in the June update to their annual Industrial
Space Update. In the event that the National Association of Industrial
Office Parks ceases to publish the data necessary to calculate the "NAIOP
Warehouse Rate" and/or "NAIOP Office Rate", Landlord and Tenant shall
reasonably agree on an alternative method for calculating these amounts.
The applicable NAIOP Office Rate for 1991 and 1996,
<PAGE>
respectively, was $6.88 psf and $6.87 psf, and the applicable NAIOP
Warehouse Rate for 1991 and 1996, respectively, was $3.48 psf and $3.56
psf The Adjusted Rent effective as of October 1, 1996, is $372,829.92.
Notwithstanding anything contained herein to the contrary, in no event
shall the annual rent payable by Tenant hereunder be less than the highest
of any previously established annual rent, whether "Initial Rent",
"Adjusted Rent" (during either initial or extended term), or, during the
extended term, the amount of minimum annual rent specified in Section 2(d)
above for the extended term.
4.3 UTILITIES. Tenant shall pay, prior to delinquency,
for all utilities and similar services provided to the Leased Premises
during the term of this Lease. Such payments shall be made directly to
the supplier of the utility or service. Any payments made by Landlord on
Tenant's behalf for such utilities or services shall be considered
additional rent hereunder. All additional rent obligations shall be
prorated for partial calendar years.
4.4 REAL ESTATE TAXES. Tenant shall be responsible for
payment of, prior to delinquency, one hundred percent (100%) of the real
estate tax obligations and installments of special assessments due and
payable for the Leased Premises during the term of this Lease. Tenant
shall deliver paid receipts evidencing Tenant's payment of real estate
taxes within ten (10) days after the dates such payments are due under
Minnesota law (e.g., by no later than May 25th and October 25th) (for the
purposes of an Event of Default, the foregoing shall be considered a
monetary obligation). Landlord shall use reasonable efforts to deliver
the real estate tax statements covering the Leased Premises to Tenant in a
timely manner, provided, however, that Landlord's failure to do so shall
not be a default hereunder and shall not affect Tenant's obligation to pay
real estate taxes in a timely manner. Tenant shall, at its sole expense,
have the right to contest real estate taxes assessed against the Leased
Premises provided it does so in good faith, in strict accordance with all
applicable laws and rules and either makes all payments required prior to
delinquency or provides sufficient security to Landlord and to protect its
interest in the Leased Premises.
4.5 PAYMENT. All annual rent, additional rent and other
charges due under this Lease shall be paid by Tenant without setoff,
deduction or demand except as expressly permitted in this Lease. All
rents hereunder shall be paid to Landlord at the address and in the manner
directed by Landlord, and shall be paid in United States funds by check
drafts from a United States banking institution. If any rental check
fails and is returned to Landlord because of insufficient funds, then, at
Landlord's option, all future rental payments shall be made in certified
funds. All rental for any partial month shall be prorated on a per diem
basis.
<PAGE>
4.6 LATE CHARGES AND INTEREST. In the event any portion
of the rent payable hereunder is not received when due, Tenant shall pay,
as additional rent, a service charge of Two Hundred Dollars ($200.00) for
bookkeeping and administrative expenses. If real estate taxes are not
paid prior to delinquency, Tenant shall be solely responsible for all
penalties and interest in conjunction therewith, as well as Landlord's
damages attributable thereto. In addition, any Rent not paid when due
shall accrue interest at the lesser rate of fifteen percent (15%) per
annum or the highest lawful rate of interest until payment is received by
Landlord. Such service charges and interest charges shall not be deemed
consent by Landlord to late payments, nor a waiver of Landlord's right to
insist on timely payments, nor a waiver of any remedies to which Landlord
is entitled hereunder.
5. INSURANCE.
5.1 LIABILITY INSURANCE. Throughout the term of this
Lease, Tenant shall maintain commercial general liability insurance
covering claims for personal injuries, death and property damage occurring
in or about the Leased Premises with a combined single limit of at least
the Minimum Insurance Amount. For the purposes of this Lease, the term
"Minimum Insurance Amount" shall initially mean $2,500,000. Commencing
effective as of December 31, 2001, and as of each succeeding fifth
anniversary of said date thereafter during the initial term of this Lease
and any extensions thereof (each, an "Adjustment Date"), the Minimum
Insurance Amount for the five (5) year period prior to the next-succeeding
Adjustment Date (each, an "Adjustment Period") shall be adjusted, based
upon any increases or decreases in the Consumer Price Index for All Urban
Consumers (CPI-U), North Central/B, All-Items, 1982-84 = 100, as published
by the Bureau of Labor Statistics, United States Department of Labor (the
"Index"), in the following manner:
(i) The Minimum Insurance Amount for the subject Adjustment
Period shall be calculated by multiplying (A) the then-current annual
Minimum Insurance Amount by (B) the quotient obtained by dividing (1) the
Index figure applicable to the month prior to the subject Adjustment Date
(the "Adjustment Index") by (2) the Index figure applicable to December
1997 (the "Beginning Index"), and then rounding this number off to the
nearest $500,000; provided, however, that in no event shall the Minimum
Insurance Amount be less than $2 500.000.
(ii) Not later than fifteen (15) days following the Adjustment
Date, Landlord shall notify Tenant of Landlord's calculation of the Minimum
Insurance Amount for the next succeeding Adjustment Period. Unless Tenant
shall notify Landlord within ten (10) days after receipt of Landlord's
notice that Tenant disputes
<PAGE>
Landlord's calculation of the Minimum Insurance Amount, Landlord's
calculation shall be deemed to be correct.
(iii) If the Index is no longer published, then a successor index
published by the Bureau of Labor Statistics of the United States
Department of Labor shall be substituted for the Index, and the base used
by any substituted index shall be reconciled to the Index.
5.2 PROPERTY INSURANCE. Throughout the term of this
Lease, Tenant shall maintain property insurance on an "All Risk" form
insuring the building and other permanent improvements on the Leased
Premises, and insuring all Tenant's improvements, betterments, fixtures,
merchandise and personal property owned or installed in the Leased
Premises, for 100% of replacement value, with a standard coinsurance
endorsement of not more than 90%, with a deductible of $5,000.00 or less.
5.3 STANDARDS. The insurance required by this Section 5 shall:
(a) be placed with reputable insurance companies authorized to do business
in Minnesota and having a rating by Best's of A or better; (b) name
Landlord as insured, as its interests may appear; (c) provide that such
insurance may not be canceled, and no change in the amount or terms of
said coverage shall be allowed, without 30 days' advance written notice to
Landlord; (d) contain such terms, conditions and endorsements of coverage
as are reasonably required by Landlord from time to time, and (e) waive
subrogation rights against Landlord. The liability insurance required by
this Section 5 shall provide claims-made coverage provided Tenant
continues such coverage through the end of any applicable statute of
limitations period, or otherwise provides occurrence-based coverage. Not
later than fifteen (15) days prior to the commencement of the term of this
Lease and thereafter at least thirty (30) days prior to the expiration of
current policies, Tenant shall deliver to Landlord certificates of
insurance evidencing coverage which complies with the requirements of this
Lease.
5.4 LANDLORD'S RIGHT. If Tenant fails to comply with any of
its obligations under this Section 5 regarding the obtaining and
maintenance of insurance coverages, Landlord shall have the right to
obtain any or all such coverages at Tenant's expenses, plus an
administrative fee of 20%. Tenant shall pay such sums to Landlord as
additional rent upon demand.
6. CARE OF PREMISES. Tenant shall not perform any acts or
carry on any practices which may injure the building or the Leased Premises, or
be a nuisance or menace, and Tenant shall keep and maintain the premises under
its control clean and free from rubbish and dirt and in good order at all
times, and shall store all trash and garbage within the Leased Premises and
arrange for the regular removal of such trash
<PAGE>
and garbage. Tenant shall at all times, keep the Leased Premises in a clean
and sanitary condition in accordance with the laws, directions, rules and
regulations of the governmental agencies having jurisdiction, at the sole
cost and expense of Tenant; and in all respects Tenant shall comply with all
requirements of law applicable to operation of its business. Tenant shall
forthwith at its own cost and expense replace any broken glass in exterior
and interior windows and doors in or upon the Leased Premises, with glass of
the same quality, including plate glass. At the expiration of the tenancy
hereby created, whether by lapse of time or otherwise, Tenant shall surrender
the Leased Premises in good condition, reasonable wear and tear excepted, and
Tenant shall surrender all keys for the Leased Premises to Landlord at the
place then fixed for payment of rent and shall inform Landlord of the
combinations for locks, safes and vaults, if any, in the Leased Premises
which have been placed therein by Tenant and not removed as hereinafter set
forth.
7. REPAIRS AND MAINTENANCE. Tenant shall at all times be
responsible for all structural, nonstructural, interior and exterior repairs
and maintenance of the Leased Premises, including, but not limited to, repair
and maintenance of the grounds, parking lot and the building and repair and
maintenance of all doors, windows, partitions, fixtures, equipment and
appurtenances (including lighting, heating, plumbing fixtures, air conditioning
and ventilation systems) in good order, condition and repair. If Tenant
refuses or neglects to repair property as required hereunder to the reasonable
satisfaction of Landlord, as soon as possible after written demand, Landlord
may make such repairs without liability to Tenant for any loss or damage that
may accrue to Tenant's merchandise, fixtures, or other property or to Tenant's
business by reason thereof, and upon completion thereof, Tenant shall reimburse
Landlord for the cost of making such repairs on or before the date on which the
next payment of rent becomes due.
8. COVENANT TO HOLD HARMLESS. Tenant agrees to indemnify and
hold Landlord harmless against and from any and all claims, damages, cost and
expenses, including reasonable attorney's fees, arising from the conduct or
management of the business conducted by Tenant in the Leased Premises or from
any breach or default on the part of the Tenant in the performance of any
covenant or agreement to be performed by Tenant pursuant to the terms of this
lease, or from any act of negligence of Tenant, its agent, contractors,
servants, employees, sublessees, concessionaires or licensees in or about the
Leased Premises. In the event any action or proceeding is brought against the
Landlord by reason of any such claim, Tenant, upon notice from Landlord,
covenants to defend such action or proceeding and employ legal counsel
satisfactory to Landlord. Landlord shall not be responsible or liable for
damages at any time to Tenant, or to those claiming by, through or under
Tenant, for any loss of life, bodily or personal injury, or damage to property
or business, or for business interruption, that may be occasioned by or through
the acts, omissions or negligence of any other persons, or any sub-tenants or
occupants of any portion of the Leased Premises. Landlord shall not be
responsible or liable for damages at any time for any defects, latent or
otherwise, in any buildings or improvements in the Leased Premises or any of
the
<PAGE>
equipment, machinery, utilities, appliances or apparatus therein, nor shall
Landlord be responsible or liable for damages at any time for loss of life,
or injury or damage to any person or to any property or business of Tenant,
or those claiming by, through or under Tenant, caused by or resulting from
the bursting, breaking, leaking, running, seeping, overflowing or backing up
of water, steam, gas sewage, snow or ice in any part of the Leased Premises
or caused by or resulting from acts of God or the elements, or resulting from
any defect or negligence in the occupancy, construction, operation or use of
the Leased Premises, or any of the equipment, fixtures, machinery, appliances
or apparatus therein.
9. ALTERATIONS AND IMPROVEMENTS. Tenant shall have the right,
from time to time, to make such alterations and improvements to, and decoration
of, the Leased Premises as shall be necessary and appropriate in the Tenant's
judgment for Tenant's conduct of its business thereon; provided, however, that
Tenant shall not suffer or permit any additions, alterations or improvements to
the Leased Premises without the prior written consents of Landlord as to the
plans and specifications therefor. The consent of Landlord shall not be
unreasonably withheld or delayed. Any additions, alterations or improvements
made to the Leased Premises by Tenant shall be made in accordance with plans
and specifications prepared by Tenant ("Tenant's Plans"). Tenant shall submit
any required plans and specifications to Landlord and Landlord shall have
thirty (30) days to review the same. If, within thirty (30) days after such
plans and specifications are submitted by Tenant to Landlord for such approval,
Landlord shall not have given Tenant notice of disapproval thereof, stating the
reason for such disapproval, such plans and specifications shall be considered
approved by Landlord. Notwithstanding the foregoing Tenant may, without
Landlord's consent, make non-structural alterations and improvements to the
Leased Premises at an out-of-pocket cost to Tenant not exceeding $25,000 for
any alteration project. In making any such additions, alterations,
improvements or decorations, Tenant shall comply with all applicable laws,
codes, ordinances and regulations.
10. DAMAGE OR DESTRUCTION, UNTENANTABILITY. Except as
hereinafter provided, in the event at any time during the term of this lease,
the Leased Premises or any portion thereof, shall be damaged or destroyed by
fire, explosion, windstorm or other casualty, Landlord will, after collecting
the proceeds from insurance, at its own expense, repair, restore and rebuild
the same to substantially the same condition which existed prior to such damage
or destruction, but Landlord shall not be obligated to expend any amount
greater than the proceeds of such insurance and, if the cost of repairing and
restoring the Leased Premises to substantially the same condition shall exceed
the proceeds of any such insurance, Tenant shall pay to Landlord the amount of
any such excess costs. Rent shall abate during the time and to the extent that
Tenant reasonably shall be unable to conduct his business in the Leased
Premises. If Tenant shall be able to conduct business in only part of the
Leased Premises during such restoration, rent shall
<PAGE>
abate in proportion to the extent of such damage until the Leased Premises
have been repaired or rebuilt.
11. EMINENT DOMAIN. If the entire Leased Premises shall be
acquired or condemned by eminent domain for any public or quasi-public use or
purpose, then the term of the lease shall cease and terminate as of the date
that the condemning authority takes physical possession of the Leased Premises,
and all rental shall be paid up to that date. Any 'd rent shall be refunded to
Tenant. If a part of the Leased Premises shall be acquired or condemned as
aforesaid, and such part is such that the floor area of the building situated
on the Leased Premises is reduced by more than twenty percent (20%), then the
term of the lease shall cease and terminate as to the part so taken as of the
date the condemning authority takes physical possession, and at the option of
either party hereto, this lease may be terminated in its entirety. Either
party may exercise its option at any time after receiving notice of said
condemnation but prior to the date on which the condemning authority takes
physical possession of the Leased Premises. The termination date, in the event
either party exercises its option to terminate, shall be as of the date the
condemning authority takes physical possession of the Leased Premises, unless
otherwise mutually agreed by the parties hereto. Rent shall be paid to the
termination date and prepaid rent shall be refunded to Tenant. If less than
twenty percent (20%) of the floor area of the building situated on the Leased
Premises is acquired or condemned as aforesaid, and this lease is not
terminated, then Landlord, at its sole expense, shall as promptly as reasonably
possible after physical possession of said part has been taken by the
condemning authority, restore the remaining part to as near the condition which
existed immediately prior to the taking as is then reasonably possible, but
Landlord shall not be obligated to expend any sum greater than an award of
proceeds which it receives. If part of the building is acquired or condemned
as aforesaid and this lease is not therefor terminated by Tenant as provided
above, the rental payments hereunder shall be proportionately reduced from and
after the date the condemning authority takes physical possession of the part
of the Leased Premises subject to such proceedings, based upon the proportion
so taken. Any award on account of a taking of all or any portion of the Leased
Premises shall be the sole property of Landlord and Tenant waives any right to
seek any award or claim on account of loss of its leasehold estate.
12. SURRENDER. Subject to the further obligations set forth in
Paragraph 20 herein, Tenant shall peacefully and quietly vacate and surrender
the Leased Premises to Landlord at the expiration of the term of this Lease, or
at any earlier termination as may be provided elsewhere herein. Tenant shall
surrender the Leased Premises in broom clean condition and Tenant shall have
removed all of its trade fixtures and equipment (including, without limitation,
signage), repairing any damage caused by such removal or the installation or
operation of the fixtures or equipment. In no event shall Tenant remove any
fixtures or equipment owned by Landlord.
<PAGE>
13. LANDLORD'S REPRESENTATIONS. Except as specifically provided
below, Landlord makes no representations or warranties, express or implied, as
to (i) the condition or state of repair of the Leased Premises, (ii) the
compliance of the Leased Premises with any laws, ordinances, rules or
regulations, or (iii) the suitability of the Leased Premises for utilization
for any particular purpose. Furthermore, Landlord further represents that, to
its knowledge without inquiry, the Leased Premises in general currently comply
with all federal, state and local laws, ordinances, rules and regulations which
are now applicable with respect to the Lease Premises. EXCEPT AS PROVIDED IN
THE PRECEDING SENTENCE, TENANT REPRESENTS THAT IT HAS INSPECTED THE LEASED
PREMISES, INCLUDING WITHOUT LIMITATION UTILITY SYSTEMS AND COMPLIANCE WITH THE
AMERICANS WITH DISABILITIES ACT, AND AGREES TO ACCEPT THE LEASED PREMISES "AS
IS".
14. INDEMNIFICATION. Except to the extent resulting from the
negligence or intentional misconduct of Landlord, its agents, employees or
contractors, Landlord shall not be liable for, and Tenant releases Landlord
from all liability for, any personal injury, loss of life, or damage to or loss
of property occurring on or near the Leased Premises or arising out of Tenant's
occupancy. Tenant agrees to indemnify, defend and hold Landlord harmless from
all liability, cost and expense (including without limitation attorneys' fees
and other litigation costs) arising out of or connected with (i) Tenant's
failure to perform any agreement, term or condition of this Lease, (ii) any
personal injury, loss of life, or damage to or loss of property which occurs on
or near the Leased Premises, or (iii) Tenant's failure to comply with statutes,
ordinances, regulations or orders of any government authority. Landlord will
not be liable for any damages (except to the extent resulting from the
negligence or intentional misconduct of Landlord, its agents, employees or
contractors) or for any loss of profits due to the interruption of Tenant's
business for any cause whatsoever, including without limitation fire or other
casualty or unavoidable accident, strikes or lockout.
15. DEFAULT.
15.1 EVENTS OF DEFAULT. Any of the events listed below shall be
an Event of Default: (i) Tenant violates or fails to perform or observe
any covenant, obligation or provision requiring the payment of monies
contained in this Lease and Tenant fails to cure such violation or failure
within five (5) business days after Tenant receives notice of such
violation or failure; or (ii) Tenant violates or fails to perform or
observe any non-monetary covenant, obligation or provision contained in
this Lease, and Tenant fails to cure such violation or failure within
twenty (20) days after Tenant receives notice from Landlord of such
violation or failure (except that Tenant shall have a reasonable period in
excess of 20 days in the event necessary to cure the default, provided
Tenant commences the cure within the 20 day period and diligently
prosecutes the same to completion); or (iii) Tenant files for bankruptcy
or becomes insolvent, or the property of Tenant comes into the
<PAGE>
hands of any assignee for the benefit of creditors or anyone acting under
the order of any court; or (iv) Tenant assigns or attempts to assign this
Lease, or Leases or attempts to Lease all or any portion of the Leased
Premises, in violation of this Lease.
15.2 REMEDIES.
15.2.1 TERMINATION/REPOSSESSION. If an Event of
Default shall have occurred and be continuing, Landlord may do either
or both of the following: (i) Landlord may terminate this Lease upon
giving written notice of termination to Tenant; or (ii) Landlord may
enter and repossess the Leased Premises by force, summary
proceedings, ejectment, or otherwise, and may remove Tenant and all
other persons and property from the Leased Premises.
15.2.2 RELETTING. After repossessing the Leased
Premises as provided in this Section 15, whether or not this Lease
has been terminated, Landlord shall have the right, but not the
obligation, to attempt to relet the Leased Premises for the account
of Tenant in the name of Landlord or otherwise, for such term or
terms (which may be greater or less than the period which would
otherwise have been the balance of the term of this Lease) and on
such conditions (which may include concessions or free rent) and for
such uses as Landlord, in its sole discretion, may determine, and may
collect and receive the rent therefor. Any rent received shall be
applied against Tenant's obligations under this Lease, but Landlord
shall not be responsible or liable for any failure to collect any
rent due upon any such reletting.
15.2.3 TENANT'S OBLIGATIONS. Neither the
termination of this Lease nor the repossession of the Leased Premises
by Landlord under this Section 15 shall relieve Tenant of its
liabilities and obligations under this Lease, all of which shall
survive any such termination or repossession. If such termination or
repossession occurs, whether or not the Leased Premises shall have
been relet, Tenant shall pay to Landlord the rent and other sums and
charges to be paid by Tenant up to the time of such termination or
repossession, and thereafter Tenant, until the end of what would have
been the term of this Lease in the absence of such termination or
repossession, shall pay to Landlord, as and for liquidated and agreed
current damages for Tenant's default, the equivalent of the amount of
the annual rent and other sums and charges which would have been
payable under this Lease by Tenant if this Lease were still in
effect, less the net proceeds, if any, of any reletting done under
this Section 15 after deducting all of Landlord's commercially
reasonable expenses as to such reletting, including without
<PAGE>
limitation all repossession costs, brokerage and management
commissions, operating expenses, legal expenses, attorneys' fees,
alteration costs, costs of repairs and removal of Tenant's equipment,
fixtures, alterations and other installations, and expenses of
preparation for such reletting. Tenant shall pay such current
damages to Landlord monthly on the days when the annual rent would
have been payable under this Lease if this Lease were still in
effect, and Landlord shall be entitled to recover the same from
Tenant on each such day. At any time after such termination or
repossession, whether or not Landlord shall have collected any
current damages as provided above, Landlord shall be entitled to
recover from Tenant, and Tenant shall pay to Landlord on demand, as
and for liquidated and agreed final damages for Tenant's default, an
amount equal to the then present value of the excess of the annual
rent and other sums or charges reserved under this Lease from the day
of such termination or repossession for what would have been the then-
unexpired term of this Lease if the same had remained in effect, said
present value to be arrived at on the basis of a discount rate of
four percent per annum.
15.2.4 REIMBURSEMENT. In addition to all other
remedies of Landlord, Landlord shall be entitled to reimbursement
upon demand of all reasonable attorneys' fees, court costs and costs
of investigation incurred by Landlord with respect to an event of
Default or enforcement by Landlord of its remedies therefor.
15.2.5 NO LIMITATIONS. The rights, options,
powers, and remedies of Landlord under this Lease shall be cumulative
and in addition to any other rights given to Landlord by law. The
exercise by Landlord of any right, option, power, or remedy shall not
impair Landlord's right to any other rights, options, powers, or
remedies. The passage of time after the occurrence of an Event of
Default shall not limit Landlord's rights, options, powers, or
remedies.
16. ASSIGNMENT & SUBLETTING.
16.1 LANDLORD'S CONSENT. Tenant shall not, voluntarily or
by operation of law, sell, assign, mortgage, or pledge this Lease (each,
an "Assignment"), or sublet the Leased Premises or any part thereof (each,
a "Subletting"), without the prior written consent of Landlord, which
consent shall not be unreasonably withheld or delayed. Any change in the
ownership of Tenant (whether by transfer of shares of stock or partnership
interest, or by merger or reorganization) that, when combined with all
transfers and other dispositions since the date of this Lease, exceeds
fifty percent of the ownership interest in Tenant, shall be deemed an
Assignment.
<PAGE>
16.2 NO RELEASE. No Assignment or Subletting (with or
without the consent of Landlord) shall release Tenant from its obligations
under this Lease. No consent by Landlord to an Assignment or Subletting
shall be deemed to be a consent to, or relieve Tenant from obtaining
Landlord's consent to, any subsequent Assignment or Subletting. The
collection or acceptance of rent by Landlord from any person or entity
other than Tenant shall not constitute a consent by Landlord to an
Assignment or Subletting.
16.3 AFFILIATES. Notwithstanding the foregoing, Tenant
may, without the consent of Landlord, assign this Lease to any corporation
resulting from the consolidation or merger of Tenant into or with any
other entity, or to any Affiliate. As used in this Lease, the term
"Affiliate" shall mean a person or business entity, corporate or
otherwise, that directly or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with Tenant. The
word "control" means the right and power, direct or indirect, to direct
the management and policies by ownership of partnership interests or
voting securities. Notwithstanding anything contained herein to the
contrary, the following shall not be deemed an assignment or violation of
this Lease: (a) any public offering of stock of Tenant or (b) the
conversion of Tenant from a publicly held corporation to a privately held
corporation, or vice versa. Notwithstanding anything contained herein to
the contrary, in no event shall Tenant be relieved of any liability
hereunder in the case of any assignment whether or not permitted by
Landlord.
17. SUBORDINATION AND NON-DISTURBANCE. Landlord hereby
reserves the right to subordinate this lease at all times to the lien of any
mortgage or mortgages now placed, or hereinafter placed, upon Landlord's
interest in the Leased Premises and Tenant agrees to enter into any written
agreement, at Landlord's request, which will subordinate this lease to any such
mortgage; provided, however, that Landlord's rights and Tenant's obligations
under this Section 17 are contingent upon the proposed mortgagee entering into
a commercially reasonable non-disturbance and attornment agreement with Tenant.
18. SIGNS. Tenant shall affix to or display from any part of
the outside of the building on the Leased Premises only signs and
advertisements which comply with all applicable laws, ordinances and
regulations and are reasonable and customary in the business. Landlord agrees
to join with and cooperate with Tenant in securing the necessary permits and
other authorizations for the erection and maintenance of signs. Tenant shall
remove all of its signage from the Leased Premises upon the expiration or
earlier termination of this Lease and shall repair all damage caused by the
installation and/or removal thereof.
<PAGE>
19. NOTICE. All notices required or furnished under this Lease
shall be mailed by U.S. certified mail, postage prepaid, and addressed as
follows, until such addresses are changed by 30 days' notice in writing:
LANDLORD: Braun-Kaiser and Company
c/o G.A. Kaiser
7734 Lochmere Terrace
Edina, MN 55439
TENANT: CIMA LABS INC.
Attn: Keith Salenger
10000 Valley View Road
Eden Prairie, MN 55344
Notices shall be effective upon the earlier of (i) delivery to (or rejection
by) the addressee or (ii) the third business day after deposit in the mail in
accordance with the above.
20. FIXTURES & EQUIPMENT.
20.1 TELEPHONES. Tenant accepts the current telephone system
serving the premises in its "as is" condition, acknowledging that Landlord
makes no warranties or representations as to the condition or utility of
the same. Tenant shall be responsible for all repairs and maintenance of
the telephone system. If Tenant desires to replace the telephone system,
it may do so pursuant to plans and specifications approved by Landlord
(which approval shall not be unreasonably withheld or delayed) and
provided that the new telephone system shall be considered a fixture of
the Leased Premises which must be abandoned in place by Tenant, in good
condition and repair, upon Tenant's surrender of the Leased Premises.
Notwithstanding the foregoing, Tenant shall be allowed to remove any new
telephone system which it installs to replace a previous system if, and
only if, Tenant commenced to install such new system within eighteen (18)
months before the expiration of then-current term of this Lease. If
Tenant has the right to remove said system, Tenant shall replace said
newest telephone system with the telephone system which served the Leased
Premises immediately prior to the installation of the newest telephone
system, provided that Tenant shall not be obligated to abandon in place
any current main-frame computer units or servers which serve substantive
purposes other than providing the telephone services. However, it is the
intent of the parties hereunder that when the Leased Premises are
surrendered by Tenant, the Leased Premises shall contain a fully
operational telephone system.
20.2 MODULAR PARTITION SYSTEMS. Tenant accepts the current
modular partition systems in the Leased Premises in their "as is"
condition, acknowledging that
<PAGE>
Landlord makes no warranties or representations as to the condition or
utility of the same.
20.3 REMOVAL. All fixtures, equipment and furniture installed
or placed on the Leased Premises by Tenant, whether attached to the
building or not, may be removed by Tenant provided that Tenant is not in
default under this Lease or in default on any other obligation that Tenant
has with Landlord. Tenant, at its expense, shall repair any damage to the
Leased Premises caused by such removal.
21. ADDITIONAL REPRESENTATIONS. Tenant represents that (a) it is
duly organized and in good standing under the laws of the State of Delaware;
(b) it has full power and authority to enter into this Lease and to perform its
terms; (c) its directors and shareholders have duly authorized Tenant's
officers to execute this Lease and to perform its terms; and (d) it is
authorized to do business in the state where the Leased Premises are located.
Landlord represents that (a) it is duly organized and in good standing under
the laws of the State of Minnesota; (b) it has full power and authority to
enter into this Lease and to perform its terms; (c) its partners have duly
authorized Landlord to execute this Lease and to perform its terms; and (d) it
is authorized to do business in the state where the Leased Premises are
located.
22. NON-WAIVER. No waiver of any default of Tenant or of Landlord
hereunder shall be implied from any omission by the non-defaulting party to
take any action on account of such default if such default persists or is
repeated. One or more waivers by Landlord shall not be construed as a waiver
of a subsequent breach of the same covenant, term or condition. The consent to
or approval by Landlord of any act by Tenant requiring Landlord's consent or
approval shall not waive or render unnecessary Landlord's consent to or
approval of any subsequent similar act by Tenant. Time is of the essence of
each and every provision of this Lease.
23. WORDS AND PHRASES. Words used in this instrument in the
masculine gender include feminine and neuter, the singular number includes the
plural and the plural the singular wherever the context so requires.
24. HAZARDOUS MATERIALS.
24.1 IN GENERAL. Tenant shall not use, transport, store,
maintain, generate, manufacture, handle, release or discharge and
Hazardous Materials upon, about or under the Leased Premises, or permit
Tenant's employees, agents, contractors, invitees or other visitors or
occupants of the Leased Premises to engage in such activities on or about
the Leased Premises. However, the foregoing shall not prohibit the
transportation to and from, and the lawful and compliant use, storage and
handling within the Leased Premises of substances customarily used in the
business or activity expressly permitted to be undertaken in the Leased
Premises provided (a) such substances shall be used and maintained only in
such quantities as are reasonably necessary for such permitted use and in
the ordinary course of
<PAGE>
Tenant's business, (b) such substances shall be
used and maintained only in strict accordance with all applicable federal,
state and local Laws and the highest prevailing standards of Tenant's
industry and the insurance industry, as well as in strict accordance with
the manufacturer's instructions and recommendations therefor, (c) such
substances shall not be disposed of, released or discharged in or about
the Leased Premises, and shall be safely transported away from the Leased
Premises in compliance with all applicable Laws and industry
recommendations, and as Landlord shall reasonably require, (d) all such
substances shall be completely, properly and lawfully removed from the
Leased Premises upon the expiration or earlier termination of this Lease,
and (e) for purposes of removal and disposal of any such substances,
Tenant shall be named as the owner and generator, obtain a waste generator
identification number, and execute all permit applications, manifests,
waste characterization documents and any other forms required by Laws.
Within thirty (30) days after the date hereof, Tenant shall deliver to
Landlord a complete listing of any Hazardous Materials to be used, stored,
handled or generated within the Leased Premises.
24.2 NOTIFICATION. Tenant shall immediately notify Landlord of
(i) any enforcement, cleanup or other regulatory action or threatened
action by any governmental or regulatory authority with respect to the
presence of any Hazardous Materials on the Leased Premises or the
migration thereof from or onto the Leased Premises, (ii) any demands or
claims made or threatened by any party relating to loss or injury from any
Hazardous Materials on the Leased Premises, (iii) any release, discharge
or non-routine, improper or unlawful disposal or transportation of any
Hazardous Materials on or from the Leased Premises in violation of this
Lease and (iv) any matters where Tenant is required by Law to give a
notice to any governmental or regulatory agency respecting any Hazardous
Materials on the Leased Premises. By no later than the lease anniversary
date each year, Tenant shall provide Landlord with a written list,
certified to be true and complete, identifying any Hazardous Materials
then used, stored, transported, maintained or generated on or in the
Leased Premises and the use and approximate quantity of each such
substance.
24.3 DEFINITION. The term "Hazardous Materials" for purposes
hereof shall mean any chemical, substance, compound, material or waste or
component thereof which is now or hereafter listed, defined or regulated
as a hazardous or toxic chemical, substance, compound, material or waste
or component thereof by any federal, state or local governing or
regulatory body having jurisdiction, or which would trigger any employee
or community "right-to-know" requirements adopted by such body.
<PAGE>
24.4 CLEAN-UP. If any Hazardous Materials are released,
discharged or disposed of by Tenant or its employees, agents, contractors,
invitees or other visitors or occupants of the Leased Premises in
violation of the foregoing requirements, Tenant shall immediately,
properly and in compliance with all applicable Laws clean up and remove
the Hazardous Materials and clean or replace any affected property at
Tenant's expense (without limiting Landlord's other remedies therefor).
Such clean up and removal shall be subject to Landlord's prior written
approval (except in emergencies), and shall include, without limitation,
any testing, investigation and preparation and implementation of any
remedial action plan required by any court or governmental or regulatory
authority with jurisdiction, all at Tenant's expense and using qualified
contractors and specialists acceptable to Landlord.
24.5 TENANT'S INDEMNIFICATION. In addition to the foregoing, if
the presence of any Hazardous Material on the Leased Premises has arisen
out of the action of Tenant or Tenant's agents, employees, contractors or
business invitees, Tenant shall indemnify, defend, protect and hold
harmless Landlord from any and all direct damages, sums paid in settlement
of claims, judgments, claims, clean up costs, penalties, fines, costs,
liabilities, losses or expenses (including without limitation commercially
reasonable attorneys, consultants and expert fees and any fees incurred by
Landlord to enforce the indemnity) which are a direct result of any such
release or contamination of the Leased Premises, including without
limitation, any and all commercially reasonable costs incurred in
connection with any investigation of site conditions or any clean up,
remedial, removal or restoration work required by any Federal, State or
local governmental agency or political subdivision because of Hazardous
Materials present in the soil or ground water on, under or originating
from the Leased Premises.
24.6 LANDLORD'S INDEMNIFICATION. If the presence of any
Hazardous Material on the Leased Premises has arisen out of the action of
Landlord or Landlord's employees, agents, contractors or business
invitees, Landlord shall indemnify, defend, protect and hold harmless
Tenant from any and all direct damages, sums paid in settlement of claims,
judgments, damages, clean up costs, penalties, fines, costs, liabilities,
claims, losses or expenses (including without limitation commercially
reasonable attorneys, consultants and expert fees and any fees incurred by
Tenant to enforce the indemnity) which are a direct result of any such
release or contamination of the Leased Premises, including without
limitation, any and all commercially reasonable costs incurred in
connection with any investigation of site conditions or any clean up,
remedial, removal or restoration work required by any Federal, State or
local governmental agency or political subdivision because of Hazardous
Materials present in the soil or ground water on, under or originating
from the Leased Premises. Tenant shall be excused from all obligations
under the Lease during any period of time that Tenant is unable to
<PAGE>
operate because of Hazardous Material present in the Leased Premises as a
result of the actions of Landlord, its agents, employees or contractors.
If Tenant is unable to operate, as a result of Landlord's violation of the
foregoing provision, for a period of more than ninety (90) days, Tenant
shall have the right to terminate this Lease and Landlord shall reimburse
Tenant for all of Tenant's actual out-of-pocket costs relating to
leasehold improvements, fixtures, closing and relocation expenses.
25. MISCELLANEOUS.
25.1 SUCCESSORS. The terms and conditions of this Lease shall
be binding upon the heirs, successors, personal representatives and
assigns of the respective parties. If Tenant is two or more persons,
their liability under this Lease shall be joint and several.
25.2 ENTIRE AGREEMENT. This Lease (together with the attached
exhibits and guaranty, if any), reflects the entire agreement of the
parties, and no representations, inducements or agreements, whether oral
or otherwise, between the parties not contained in this Lease shall be of
any force or effect. This Lease may be modified only by a writing which
is executed and delivered by both parties, and which explicitly says it
modifies this Lease. If any provision of this Lease shall, to any extent,
be invalid or unenforceable, the remainder of this Lease shall not be
affected thereby, and every other provision of this Lease shall be valid
and enforced to the fullest extent permitted by law.
25.3 NO OFFER. By submitting this document to Tenant, Landlord
is not offering to Lease the Leased Premises to Tenant, promising to
reserve the Leased Premises for Tenant, or giving Tenant an option to
Lease the Leased Premises. This Lease shall not be binding on either
party until it has been executed and delivered by both Landlord and
Tenant.
25.4 FINANCIAL STATEMENTS. Tenant agrees to furnish Landlord
with (i) a copy of each Form 1O-Q and Form 10-K (each, a "Form") (or
reasonably similar public documents should the nomenclature for such
documents be changed) that it files with the United States Securities and
Exchange Commission (the "SEC") during the term of this Lease (including
any extensions thereof) and (ii) a copy of each "Annual Report" that it
sends to shareholders during the term of this Lease (including any
extensions thereof). Tenant shall send to Landlord's then-current notice
address a copy of a given Form within thirty (30) days of filing the Form
with the SEC and a copy of a given Annual Report at such time as the
document is distributed to shareholders.
<PAGE>
25.5 NO PARTNERSHIP. Landlord shall not be in any sense a
partner of Tenant in the conduct of Tenant's business, and the
relationship between the parties hereto shall be solely that of Landlord
and Tenant.
IN WITNESS WHEREOF, the parties have executed this Lease as of the
date first written above.
LANDLORD:
BRAUN-KAISER AND COMPANY
By: /s/ Gil Kaiser
------------------------------
Its:
------------------------------
TENANT:
CIMA LABS INC.
By: /s/ Keith P. Salenger
------------------------------
Its: V.P. Finance & CFO
------------------------------
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION
Lot One (1), Block One (1), Braun's Estates, Hennepin County, Minnesota
<PAGE>
CIMA LABS INC.
NON-EMPLOYEE DIRECTORS' FEE OPTION GRANT PROGRAM
ADOPTED ON FEBRUARY 26, 1997
APPROVED BY STOCKHOLDERS
ON MAY 14, 1997
AMENDED BY THE BOARD OF DIRECTORS
ON FEBRUARY 5, 1998
1. PURPOSE.
(a) The purpose of the Non-Employee Directors' Fee Option Grant Program
(the "Program") is to provide a means by which each member of the Board of
Directors of CIMA LABS INC. (the "Company") who is not an employee of the
Company (a "Non-Employee Director") will be given an opportunity to defer
receipt of cash compensation attributable solely to service as a member of the
Board of Directors of the Company (a "Director"), including, but not limited
to, annual retainer fees and board and committee meeting fees (collectively,
"Directors' Fees"), in the form of stock options to acquire common stock of the
Company.
(b) The Company, by means of the Program, seeks to retain the services of
persons now serving as Non-Employee Directors of the Company, to secure and
retain the services of persons capable of serving in such capacity, and to
provide incentives for such persons to exert maximum efforts for the success of
the Company.
2. EFFECTIVE DATE.
The Program shall become effective on March 12, 1997 (the "Effective
Date").
3. ADMINISTRATION.
(a) The Program shall be administered by the Board of Directors of the
Company (the "Board") unless and until the Board delegates administration to a
committee, as provided in subparagraph 3(c).
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Program:
(i) To construe and interpret the Program and options granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Program or in any option, in a manner
and to the extent it shall deem necessary or expedient to make the Program
effective.
(ii) To amend the Program or an option as provided in Section 13.
(iii) Generally, to exercise such powers and to perform such acts
as the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Program.
<PAGE>
(c) The Board may delegate administration of the Program to a committee
composed of not fewer than two (2) members of the Board (the "Committee") who
may be, in the discretion of the Board, "Non-Employee Directors" within the
meaning of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or any applicable successor thereto. If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Program, the powers theretofore
possessed by the Board, subject, however, to such resolutions, not inconsistent
with the provisions of the Program, as may be adopted from time to time by the
Board. The Board may abolish the Committee at any time and revest in the Board
the administration of the Program.
4. SHARES SUBJECT TO THE PROGRAM.
(a) Subject to the provisions of Section 10 relating to adjustments upon
changes in stock, the stock that may be sold pursuant to options granted under
the Program shall not exceed in the aggregate Sixty Thousand (60,000) shares of
the Company's common stock ("Common Stock"). If any option granted under the
Program shall for any reason expire or otherwise terminate without having been
exercised in full, the stock not purchased under such option shall again become
available for the Program.
(b) The stock subject to the Program may be unissued shares or reacquired
shares, bought on the market or otherwise.
5. ELIGIBILITY.
Options may be granted only to Non-Employee Directors.
6. PARTICIPATION.
Each Non-Employee Director may elect to defer and apply all or any portion
of the Directors' Fees otherwise payable in cash for his or her service on the
Board to the acquisition of a special option grant under the Program, as
follows:
(a) ELECTIONS BY PERSONS SERVING AS NON-EMPLOYEE DIRECTORS ON THE
EFFECTIVE DATE. Persons serving as Non-Employee Directors on the Effective
Date may elect to defer Directors' Fees otherwise payable for services after
the Effective Date and until and including the 1997 Annual Meeting of
Stockholders of the Company ("1997 Annual Meeting"). Such election shall be
submitted to the Company's Chief Financial Officer no later than the Effective
Date. The deferral amount so elected (i) shall be irrevocable until such 1997
Annual Meeting, and (ii) shall remain in effect with respect to Directors' Fees
otherwise payable after the 1997 Annual Meeting until the Non-Employee Director
affirmatively submits a replacement election (including an election to cease
all such deferrals), which replacement election may only affect prospectively
Directors' Fees not yet earned as of the date of the replacement election. A
replacement election (or an initial election, in the case of a Non-Employee
Director who chooses not to submit a deferral election by the Effective Date)
must be submitted at or prior to the 1997 Annual Meeting in order to be
effective for Directors' Fees otherwise payable after the 1997 Annual Meeting.
Beginning on the date of the 1997 Annual Meeting, deferral elections in effect
must remain irrevocably in effect for Directors' Fees otherwise payable until
and including the date of the next Annual Meeting.
(B) ELECTIONS BY PERSONS NAMED TO SERVE AS NON-EMPLOYEE DIRECTORS ON OR
AFTER THE EFFECTIVE DATE. Persons named to serve as Non-Employee Directors on
or after the
<PAGE>
Effective Date may elect to defer Directors' Fees otherwise payable for
services on or after becoming a Non-Employee Director by submitting an
election to the Company's Chief Financial Officer within thirty (30) days of
becoming a Non-Employee Director. Such election shall apply only as to
amounts which the Non-Employee Director was not yet entitled to receive at
the time of submission of the election. The deferral amount so elected (i)
shall be irrevocable until and including the Annual Meeting first following
submission, and (ii) shall remain in effect with respect to Directors' Fees
otherwise payable after that first following Annual Meeting until the
Non-Employee Director affirmatively submits a replacement election (including
an election to cease all such deferrals); which replacement election may only
affect prospectively Directors' Fees not yet earned as of the date of the
replacement election. A replacement election (or an initial election, in the
case of a Non-Employee Director who chooses not to submit a deferral election
within thirty (30) days of first becoming a Non-Employee Director) must be
submitted at or prior to the date of an Annual Meeting in order to be
effective for Directors' Fees otherwise payable after such Annual Meeting.
Deferral elections in effect as of any Annual Meeting must remain in effect
for Directors' Fees otherwise payable until and including the date of the
next Annual Meeting.
7. NON-DISCRETIONARY GRANTS.
(a) Each Non-Employee Director who timely files a deferral election as to
Directors' Fees otherwise payable for services between the Effective Date and
the 1997 Annual Meeting (as described in Section 6(a) hereof) shall
automatically be granted an option to purchase common stock of the Company on
the date of the 1997 Annual Meeting, on the terms and conditions set forth
herein.
(b) Each Non-Employee Director who timely files a deferral election
within thirty (30) days of first becoming a Non-Employee Director as to
Directors' Fees payable until and including the first Annual Meeting during
such Non-Employee Director's service on the Board (as described in Section 6(b)
hereof) shall automatically be granted an option to purchase common stock of
the Company on the date on which the Non-Employee Director files the deferral
election, on the terms and conditions set forth herein.
(c) Each Non-Employee Director who has a deferral election in effect (or
is deemed to have such an election in continuing effect, in accordance with
Section 6) as of any Annual Meeting of the Stockholders of the Company
occurring after the Effective Date shall automatically be granted an option to
purchase common stock of the Company on the date of such Annual Meeting, on the
terms and conditions set forth herein.
8. OPTION PROVISIONS.
Each option shall be a nonstatutory stock option (not intended to meet the
requirements of Section 422 of the Internal Revenue Code (the "Code")), subject
to the following terms and conditions:
(a) TERM. The term of each option commences on the date it is granted
and, unless sooner terminated as set forth herein, expires on the date
("Expiration Date") ten (10) years from the date of grant. If the Non-Employee
Director's service as a Director terminates for any reason or for no reason,
the option shall terminate on the earlier of the Expiration Date or the date
three (3) years following the date of termination of such service. Except as
provided
<PAGE>
in Section 8(b) hereof, an option may be exercised following termination of
service as a Director only as to that number of shares as to which it was
exercisable as of the date of termination of such service under the
provisions of Section 8(e).
Each option held by a Director under the Program at the time of his or her
cessation of service as a Director shall immediately terminate and cease to
remain outstanding with respect to any and all shares of Common Stock for which
the option is not otherwise at that time exercisable.
(b) DEATH OR PERMANENT DISABILITY. Should the Non-Employee Director's
service as a Director cease by reason of death or permanent disability, then
each option held by that Non-Employee Director under the Program shall
immediately become exercisable for all the shares of Common Stock at the time
subject to that option, and the option may be exercised for any or all of those
shares as fully vested shares. For purposes of this plan, "permanent
disability" shall mean an inability to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment
which can be expected to result in death or which has lasted or can be expected
to last for a continuous period of not less than twelve (12) months.
Should the Non-Employee Director die while holding one or more options
under the Program, then each such option may be exercised, for any or all of
the shares for which the option is exercisable at the time of the Non-Employee
Director's cessation of service as a Director (less any shares subsequently
purchased by the Non-Employee Director prior to death), by the personal
representative of the Non-Employee Director's estate or by the person or
persons to whom the option is transferred pursuant to the Non-Employee
Director's will or in accordance with the laws of descent and distribution.
Such right of exercise under this Section 8(b) shall lapse, and the option
shall terminate, upon the earlier of (i) the expiration of the ten (10)-year
option term described in Section 8(a), or (ii) the three (3)-year period
measured from the date of the Non-Employee Director's cessation of service as a
Director.
(c) EXERCISE PRICE.
(i) The exercise price per share shall be thirty-three and
one-third percent (33-1/3%) of the fair market value (as defined in Section
11(e) hereof) of a share of Common Stock on the last day of the month prior
to the option grant date.
(ii) The exercise price must be paid in full upon exercise of the
option using one of the following alternatives:
(1) in cash (including by check); or
(2) by delivery of shares of Common Stock already owned by the
Non-Employee Director, held for the period required to avoid a charge to the
Company's reported earnings, and owned free and clear of any liens, claims,
encumbrances or security interest, which Common Stock shall be valued at its
fair market value (as defined in Section 11(e) hereof) on the date of exercise;
or
(3) by a combination of the methods of payment specified in
Section 8(c)(ii)(1) or 8(c)(ii)(2) hereof.
Notwithstanding the foregoing, this option may be exercised pursuant to a
program developed under Regulation T as promulgated by the Federal Reserve
Board which results in
<PAGE>
the receipt of cash (or check) by the Company either prior to the issuance of
shares of the Company's common stock or pursuant to the terms of irrevocable
instructions issued by the Non-Employee Director prior to the issuance of
shares of the Company's common stock.
(d) NUMBER OF OPTION SHARES. The number of shares of Common Stock subject
to the option shall be determined pursuant to the following formula (rounded
down to the nearest whole number):
X = A / (B x 66-2/3%), where
X is the number of option shares,
A is the maximum amount of the Director's Fees
subject to the Non-Employee Director's
deferral election, and
B is the fair market value per share of Common
Stock on the last day of the month prior to
the option grant date.
(e) VESTING. Each option shall vest (become exercisable) as follows:
(i) Options granted pursuant to Section 7(a) shall be fully vested
and exercisable on the date of grant.
(ii) Options granted pursuant to Sections 7(b) and 7(c) shall become
exercisable in installments on each date that Directors' Fees would have been
payable in cash during the applicable period in which the deferral election is
irrevocably in effect (the "Applicable Period") had no deferral election been
in effect under the Program with respect to the number of shares equal to (1)
the aggregate shares subject to the option multiplied by (2) the fraction
obtained where the numerator is the cash Directors' Fees that the Non-Employee
Director otherwise would have received on such date and the denominator is the
maximum amount of the Director's Fees subject to the Non-Employee Director's
deferral election during such Applicable Period. At the end of such Applicable
Period, that portion of the Option which has not become vested shall be
canceled, and the shares subject to such unvested portion of the Option shall
be returned to the Plan.
(f) The Company may require any Non-Employee Director, or any person to
whom an option is transferred under Section 8(b) or 8(h), as a condition of
exercising any such option: (i) to give written assurances satisfactory to the
Company as to the optionee's knowledge and experience in financial and business
matters; and (ii) to give written assurances satisfactory to the Company
stating that such person is acquiring the Common Stock subject to the option
for such person's own account and not with any present intention of selling or
otherwise distributing the Common Stock. These requirements, and any
assurances given pursuant to such requirements, shall be inoperative if (i) the
issuance of shares of Common Stock upon the exercise of the option has been
registered under a then-currently-effective registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), or (ii), as to any
particular requirement, a determination is made by counsel for the Company that
such requirement need not be met in the circumstances under the then applicable
securities laws. The Company may require any optionee to provide such other
representations, written assurances or information which the Company shall
determine is necessary, desirable or appropriate to comply with applicable
securities laws as a condition of granting an option to
<PAGE>
the optionee or permitting the optionee to exercise the option. The Company
may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Program as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including,
but not limited to, legends restricting the transfer of the Common Stock.
(g) Notwithstanding anything to the contrary contained herein, an option
may not be exercised unless the shares of Common Stock issuable upon exercise
of such option are then registered under the Securities Act or, if such shares
are not then so registered, the Company has determined that such exercise and
issuance would be exempt from the registration requirements of the Securities
Act.
(h) Options granted under the Program shall not be transferable, except
(i) by will or by the laws of descent and distribution, (ii) by written
designation which takes effect upon the Non-Employee Director's death, (iii) by
written instruction, in a form accepted by the Company, to the Non-Employee
Director's spouse, children, stepchildren, or grandchildren (whether adopted or
natural), to a trust created solely for the benefit of the Non-Employee
Director and the foregoing persons, or (iv) to the Non-Employee Director's
former spouse (if transfer is pursuant to a judicial decree dissolving the Non-
Employee Director's marriage). During a Non-Employee Director's life the Non-
Employee Director's option is exercisable only by the Non-Employee Director or
a transferee satisfying the above conditions. The right of a transferee to
exercise the transferred portion of an option after the Non-Employee Director's
termination of service as a Director shall terminate in accordance with the Non-
Employee Director's right of exercise under Sections 8(a) or 8(b) hereof (after
the Non-Employee Director's death, treating the transferee as a person who
acquired the right to exercise the Non-Employee Director's option by bequest or
inheritance). The terms of the Non-Employee Director's option shall be binding
upon the transferees, executors, administrators, heirs, successors, and assigns
of the Non-Employee Director.
9. COVENANTS OF THE COMPANY.
(a) During the terms of the options granted under the Program, the
Company shall keep available at all times the number of shares of Common Stock
required to satisfy such options.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Program such authority as may be required
to issue and sell shares of Common Stock upon exercise of the options granted
under the Program; PROVIDED, HOWEVER, that this undertaking shall not require
the Company to register under the Securities Act either the Program, any option
granted under the Program, or any Common Stock issued or issuable pursuant to
any such option. If, after reasonable efforts, the Company is unable to obtain
from any such regulatory commission or agency the authority which counsel for
the Company deems necessary for the lawful issuance and sale of Common Stock
under the Program, the Company shall be relieved from any liability for failure
to issue and sell Common Stock upon exercise of such options.
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of Common Stock pursuant to the exercise of options
granted under the Program shall constitute general funds of the Company.
<PAGE>
11. MISCELLANEOUS.
(a) Neither a Non-Employee Director nor any person to whom an option is
transferred under Section 8(b) or 8(h) shall be deemed to be the holder of, or
to have any of the rights of a holder with respect to, any shares subject to
such option unless and until such person has satisfied all requirements for
exercise of the option pursuant to its terms.
(b) Nothing in the Program or in any instrument executed pursuant thereto
shall confer upon any Director any right to continue in the service of the
Company in any capacity or shall affect any right of the Company, its Board or
stockholders to remove any Director pursuant to the Company's By-Laws and the
provisions of the Delaware General Corporation Law (or the applicable laws of
the Company's state of incorporation if the Company's state of incorporation
should change in the future).
(c) No Director, individually or as a member of a group, and no
beneficiary, transferee or other person claiming under or through him or her,
shall have any right, title or interest in or to any option reserved for the
purposes of the Program except as to such shares of Common Stock, if any, as
shall have been reserved for such person pursuant to an option granted (or
transferred) to such person.
(d) In connection with each option made pursuant to the Program, it shall
be a condition precedent to the Company's obligation to issue or transfer
shares to any person, or to evidence the removal of any restrictions on
transfer, that such person make arrangements satisfactory to the Company to
insure that the amount of any federal or other withholding tax required to be
withheld with respect to such sale or transfer, or such removal or lapse, is
made available to the Company for timely payment of such tax.
(e) As used in this Program, "fair market value" means, as of any date,
the value of the Common Stock of the Company determined as follows:
(i) If the Common Stock is listed on any established stock exchange
or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the fair
market value of a share of Common Stock shall be the closing sales price for
such Common Stock (or the closing bid, if no sales were reported) as quoted on
such exchange or market (or the exchange or market with the greatest volume of
trading in the Company's Common Stock in the event that the Company's Common
Stock is traded on more than one such exchange or market) on the last market
trading day prior to the day of determination, as reported in THE WALL STREET
JOURNAL or such other source as the Board deems reliable; or
(ii) In the absence of such markets for the Common Stock, the fair
market value shall be determined in good faith by the Board.
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Program, or subject
to any option granted under the Program (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange
of shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Program and outstanding options
will be appropriately adjusted in the class(es) and maximum number of
<PAGE>
shares subject to the Program and the class(es) and number of shares and
price per share of stock subject to outstanding options. Such adjustments
shall be made by the Board, the determination of which shall be final,
binding and conclusive. (The conversion of any convertible securities of the
Company shall not be treated as a "transaction not involving the receipt of
consideration by the Company.")
(b) In the event of: (1) a dissolution, liquidation, or sale of all or
substantially all of the assets of the Company; (2) a merger or consolidation
in which the Company is not the surviving corporation; (3) a reverse merger in
which the Company is the surviving corporation but the shares of the Company's
common stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise; or (4) the acquisition by any person, entity or group within
the meaning of Section 13(d) or 14(d) of the Exchange Act or any comparable
successor provisions (excluding any employee benefit plan, or related trust,
sponsored or maintained by the Company or any Affiliate of the Company) of the
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act, or comparable successor rule) of securities of the Company
representing at least fifty percent (50%) of the combined voting power entitled
to vote in the election of directors, then to the extent not prohibited by
applicable law, the time during which options outstanding under the Program
vest and may be exercised shall be accelerated prior to the occurrence of such
event and the options terminated if not exercised after such acceleration and
at or prior to the occurrence of such event.
13. AMENDMENT OF THE PROGRAM.
(a) The Board at any time, and from time to time, may amend the Program
and/or some or all of the outstanding options granted under the Program.
Except as provided in Section 12 relating to adjustments upon changes in stock,
no amendment shall be effective unless approved by the stockholders of the
Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
(i) Increase the number of shares which may be issued under the
Program;
(ii) Modify the requirements as to eligibility for participation in
the Program (to the extent such modification requires stockholder approval in
order for the Program to comply with the requirements of Rule 16b-3 promulgated
under the Exchange Act); or
(iii) Modify the Program in any other way if such modification
requires stockholder approval in order for the Program to comply with the
requirements of Rule 16b-3 promulgated under the Exchange Act.
(b) Rights and obligations under any option granted before any amendment
of the Program shall not be impaired by such amendment unless (i) the Company
requests the consent of the person to whom the option was granted and (ii) such
person consents in writing.
14. TERMINATION OR SUSPENSION OF THE PROGRAM.
(a) The Board may suspend or terminate the Program at any time. Unless
sooner terminated, the Program upon the issuance of all of the shares of Common
Stock reserved for issuance hereunder. No options may be granted under the
Program while the Program is suspended or after it is terminated.
<PAGE>
(b) Rights and obligations under any option granted while the Program is
in effect shall not be impaired by suspension or termination of the Program,
except with the consent of the person to whom the option was granted.
(c) The Program shall terminate upon the occurrence of any of the events
described in Section 12(b) above.
15. EFFECTIVE DATE OF PROGRAM; CONDITIONS OF EXERCISE.
(a) The Program shall become effective on the date specified in Section
2, subject to the condition subsequent that the Program is approved by the
stockholders of the Company. In the event that the stockholders of the Company
do not approve the Program at the 1997 Annual Meeting, then any Non-Employee
Director's election to defer Directors' Fees hereunder shall be void, and such
deferred Directors' Fees shall be paid in cash to such Non-Employee Director as
soon as reasonably practicable following the 1997 Annual Meeting.
(b) No option granted under the Program shall be exercised or exercisable
unless and until the conditions of Section 9(b) or Section 15(a) hereof has
been met.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 333-05741, Form S-8 No. 333-32233, Form S-8 No. 33-82794 and
Form S-8 No. 33-82790) pertaining to certain stock option plans of the
Company, of our report dated February 5, 1998, with respect to the financial
statements and schedule of CIMA LABS INC., included in the Annual Report
(Form 10-K) for the year ended December 31, 1997.
/s/Ernst & Young
Minneapolis, Minnesota
March 26, 1998
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<PAGE>
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,145,760
<SECURITIES> 3,277,300
<RECEIVABLES> 1,629,964
<ALLOWANCES> 32,150
<INVENTORY> 630,619
<CURRENT-ASSETS> 6,798,298
<PP&E> 14,149,345
<DEPRECIATION> 3,891,167
<TOTAL-ASSETS> 17,328,016
<CURRENT-LIABILITIES> 1,490,697
<BONDS> 0
0
0
<COMMON> 96,084
<OTHER-SE> 57,268,594
<TOTAL-LIABILITY-AND-EQUITY> 17,328,016
<SALES> 2,628,069
<TOTAL-REVENUES> 4,910,235
<CGS> 4,376,412
<TOTAL-COSTS> 11,227,195
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 32,150
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<INCOME-PRETAX> (5,838,395)
<INCOME-TAX> 0
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<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> (5,838,395)
<EPS-PRIMARY> (.61)
<EPS-DILUTED> (.61)
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