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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
CIMA LABS INC.
- ---------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- ---------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box)
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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CIMA LABS INC.
10000 Valley View Road
Eden Prairie, Minnesota 55344
----------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 2, 1999
----------------------
TO THE STOCKHOLDERS OF CIMA LABS INC.:
Notice Is Hereby Given that the Annual Meeting of Stockholders of CIMA
LABS INC., a Delaware corporation (the "Company"), will be held on Wednesday,
June 2, 1999 at 2:00 p.m., local time, at the offices of the Company at 10000
Valley View Road, Eden Prairie, Minnesota 55344, for the following purposes:
1. To elect four directors to serve for the ensuing year and until
their successors are elected.
2. To approve the amendment and restatement of the Company's Equity
Incentive Plan to increase the aggregate number of shares of
Common Stock authorized for issuance under such plan by 250,000
shares to 2,650,000 shares.
3. To ratify the appointment of Ernst & Young LLP as independent
auditors of the Company for its fiscal year ending December 31,
1999.
4. To transact such other business as may properly come before the
meeting.
The Board of Directors has fixed the close of business on April 15, 1999
as the record date for the determination of stockholders entitled to notice of
and to vote at this Annual Meeting and at any adjournment or postponement
thereof.
By Order of the Board of Directors
/s/ Keith P. Salenger
Keith P. Salenger
SECRETARY
Eden Prairie, Minnesota
April 30, 1999
ALL STOCKHOLDERS ARE INVITED TO ATTEND THE MEETING IN PERSON. WHETHER OR
NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN THE
ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR REPRESENTATION AT
THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED
STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE GIVEN YOUR PROXY, YOU MAY
STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE NOTE, HOWEVER, THAT IF
YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER NOMINEE AND YOU WISH
TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD HOLDER A PROXY ISSUED IN
YOUR NAME.
<PAGE>
[LOGO]
CIMA LABS INC.
10000 Valley View Road
Eden Prairie, Minnesota 55344
-------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
---------------------
JUNE 2, 1999
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
CIMA LABS INC., a Delaware corporation (the "Company"), for use at the Annual
Meeting of Stockholders to be held on June 2, 1999, at 2:00 p.m. local time (the
"Annual Meeting"), or at any adjournment or postponement thereof, for the
purposes set forth herein and in the accompanying Notice of Annual Meeting. The
Annual Meeting will be held at the offices of the Company, 10000 Valley View
Road, Eden Prairie, Minnesota 55344. The Company intends to mail this proxy
statement and accompanying proxy card on or about April 30, 1999 to all
stockholders entitled to vote at the Annual Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies,
including preparation, assembly, printing and mailing of this proxy statement,
the proxy and any additional information furnished to stockholders. Copies of
solicitation materials will be furnished to banks, brokerage houses, fiduciaries
and custodians holding in their names shares of Common Stock beneficially owned
by others to forward to such beneficial owners. The Company may reimburse
persons representing beneficial owners of Common Stock for their costs of
forwarding solicitation materials to such beneficial owners. Original
solicitation of proxies by mail may be supplemented by telephone, telegram or
personal solicitation by directors, officers or other regular employees of the
Company. No additional compensation will be paid to directors, officers or other
regular employees for such services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on April
15, 1999 will be entitled to notice of and to vote at the Annual Meeting. At the
close of business April 15, 1999, the Company had outstanding and entitled to
vote 9,610,394 shares of Common Stock.
Each holder of record of Common Stock on such date will be entitled to
one vote for each share held on all matters to be voted upon at the Annual
Meeting. All votes will be tabulated by the inspector of election appointed for
the meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether a matter has
been approved.
<PAGE>
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive offices, 10000
Valley View Road, Eden Prairie, Minnesota 55344, a written notice of revocation
or a duly executed proxy bearing a later date, or it may be revoked by attending
the meeting and voting in person. Attendance at the meeting will not, by itself,
revoke a proxy.
STOCKHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the
Company's Year 2000 Annual Meeting of Stockholders must be received by the
Company not later than January 1, 2000 in order to be included in the proxy
statement and proxy relating to that Annual Meeting.
Under the Second Restated Bylaws of the Company (the "Bylaws"),
stockholder proposals to be brought before any meeting of stockholders or
nominations of persons for election as a director at any meeting of stockholders
must be made pursuant to timely notice in writing to the Secretary of the
Company. To be timely, notice by the stockholder must be delivered or received
at the Company's principle executive offices not less than 90 days before the
first anniversary of the preceding year's annual meeting. If, however, the date
of the annual meeting is more than 30 days before or after such anniversary
date, notice by a stockholder shall be timely only if delivered or received not
less than 90 days before such annual meeting, or, if later, within 10 business
days after the first public announcement of the date of such annual meeting. The
notice must set forth certain information concerning such proposal or such
shareholder and the nominees, as specified in the Company's Bylaws. The
presiding officer of the meeting may refuse to acknowledge any proposal or
nominations not made in compliance with the foregoing procedure.
PROPOSAL 1
ELECTION OF DIRECTORS
There are four nominees for the four Board positions authorized by
resolution of the Board in accordance with the Company's Bylaws. Each director
to be elected will hold office until the next annual meeting of stockholders and
until his successor is elected and has qualified, or until such director's
earlier death, resignation or removal. Each nominee listed below is currently a
director of the Company, each director having been elected by the stockholders.
Shares represented by executed proxies will be voted, if authority to do
so is not withheld, for the election of the four nominees named below. In the
event that any nominee should be unavailable for election as a result of an
unexpected occurrence, such shares will be voted for the election of such
substitute nominee as management may propose. Each person nominated for election
has agreed to serve if elected, and management has no reason to believe that any
nominee will be unable to serve. Directors are elected by a plurality of the
votes present in person or represented by proxy and entitled to vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF EACH NAMED NOMINEE.
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NOMINEES
The names of the nominees and certain information about them are set forth
below:
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION
- ---- --- ------------------------------------------------------------------
<S> <C> <C>
John M. Siebert, Ph.D. 59 President and Chief Executive Officer of the Company
Terrence W. Glarner 55 Chairman of the Board; President, West Concord Ventures, Inc.
Steven B. Ratoff 56 Executive Vice President and Chief Financial Officer,
Brown-Forman Corporation
Joseph R. Robinson, Ph.D. 60 Professor of Pharmacy, University of Wisconsin at Madison
</TABLE>
JOHN M. SIEBERT, PH.D., has been the President and Chief Executive
Officer of the Company since September 1995 and a director of the Company since
May 1992. From 1992 to 1995, Dr. Siebert was Vice President, Technical Affairs
at Dey Laboratories, Inc., a pharmaceutical company. From 1988 to 1992, Dr.
Siebert worked at Miles, Inc. Dr Siebert has also been employed by E.R. Squibb &
Sons, Inc., G.D. Searle & Co. and The Procter & Gamble Company.
TERRENCE W. GLARNER has been a director of the Company since July 1990
and has served as the Chairman of the Board since April 1995. Mr. Glarner has
been President of West Concord Ventures, Inc. since February 1993. He also
consults with Norwest Venture Capital. Mr. Glarner was President of North Star
Ventures, Inc. from 1988 to February 1993 and held various other positions there
since 1976. Mr. Glarner is a Chartered Financial Analyst. He serves as a
director of Aetrium Incorporated, Datakey, Inc., FSI International, Inc., and
Premis Corporation as well as of several privately-held corporations.
STEVEN B. RATOFF has been a director of the Company since March 1995. Mr.
Ratoff has been Executive Vice President and Chief Financial Officer of
Brown-Forman Corporation since December 1994. From February 1992 to November
1994, Mr. Ratoff was a private investor in a number of small privately-held
companies. Mr. Ratoff was Senior Vice President and Chief Financial Officer of
the Pharmaceutical Group of Bristol-Myers Squibb from January 1990 to January
1992. Mr. Ratoff serves as a director of Inkine Pharmaceutical Company.
JOSEPH R. ROBINSON, PH.D. has been a director of the Company since
January 1993. Dr. Robinson is Professor of Pharmacy, University of Wisconsin at
Madison. Dr. Robinson is the past President of the Controlled Release Society
and of the American Association of Pharmaceutical Scientists. Dr. Robinson
serves as a director of Emisphere Technologies, Inc. He serves on the scientific
advisory boards of several companies.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended December 31, 1998, the Board of Directors
held ten meetings. The Board has an Audit Committee and a Compensation
Committee. The Board does not have a standing nominating committee.
The Audit Committee reviews the results and scope of the annual audit and
other services provided by the Company's independent auditors. It also reviews
the Company's accounting principles and its system of internal controls, and
reports the results of these reviews to management and the Board. The Audit
Committee meets with the Company's independent auditors at least once annually
to review the results of the annual audit and discuss the financial statements,
recommends to the Board the independent auditors to be retained and receives and
considers the auditors' comments as to controls, adequacy of staff
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and management performance and procedures in connection with audit and
financial controls. The Audit Committee is currently composed of two
non-employee directors: Messrs. Glarner and Ratoff. David B. Musket and Jerry
A. Weisbach, Ph.D., former directors of the Company, served on the Audit
Committee with Mr. Ratoff until April 1998. The Audit Committee met once
during the fiscal year ended December 31, 1998.
The Compensation Committee (i) determines the amount of compensation for
the Chief Executive Officer and President of the Company, (ii) reviews
recommendations of the Chief Executive Officer concerning compensation for the
other executive officers and incentive compensation, including stock options,
for the other employees of the Company, subject to ratification by the Board,
and (iii) otherwise administers the Company's performance compensation and stock
option plans. The Compensation Committee is currently composed of two
non-employee directors: Messrs. Glarner and Ratoff. Dr. Weisbach, a former
director of the Company, served on the Compensation Committee with Mr. Glarner
until April 1998. The Compensation Committee met once during the fiscal year
ended December 31, 1998.
During the fiscal year ended December 31, 1998, each incumbent Board
member attended at least 75% or more of the aggregate of the meetings of the
Board and of the committees on which he served held during the period for which
he was a director or committee member, respectively.
PROPOSAL 2
APPROVAL OF AMENDMENT AND RESTATEMENT OF
EQUITY INCENTIVE PLAN
In 1987, the Board of Directors adopted, and the stockholders
subsequently approved, the CIMA LABS INC. Stock Option and Stock Award Plan,
later retitled the Equity Incentive Plan (the "Plan"). As a result of a series
of subsequent amendments, as of December 31, 1998 there were 2,400,000 shares of
the Company's Common Stock authorized for issuance under the Plan.
As of March 1, 1999, options (net of canceled or expired awards) covering
an aggregate of 2,200,705 shares of the Company's Common Stock had been granted
under the Plan, and only 199,295 shares (plus any shares that might in the
future be returned to the Plan as a result of cancellations or expiration of
awards) remained available for future grant under the Plan. During 1998, the
Company under the Plan granted to all current executive officers as a group
options to purchase 470,000 shares at an exercise price of $4.375 per share, and
to all employees (excluding current executive officers) as a group options to
purchase 10,000 shares at exercise price ranging from $2.625 to $4.00 per share.
For further information regarding stock option grants, see "Stock Option Grants
and Exercises."
On March 8, 1999, the Board approved the amendment and restatement of the
Plan, subject to stockholder approval, to increase the number of shares
authorized for issuance under the Plan from a total of 2,400,000 shares to
2,650,000 shares. The Board adopted this amendment to ensure that the Company
can continue to grant stock awards to employees at levels determined appropriate
by the Board and the Compensation Committee.
Stockholders are requested in this Proposal 2 to approve the Plan, as
amended and restated. If the stockholders fail to approve this Proposal 2, the
Company may experience difficulty in attracting and retaining employees and
consultants and in motivating them to exert their best efforts for the success
of the Company. The affirmative vote of the holders of a majority of the shares
present in person or
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<PAGE>
represented by proxy and entitled to vote at the Annual Meeting will be
required to approve the amendment and restatement of the Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 2.
The essential features of the Plan, as amended and restated, are outlined
below.
GENERAL
The Plan provides for the grant or issuance of incentive stock options to
employees and nonstatutory stock options, restricted stock purchase awards,
stock bonuses and stock appreciation rights to consultants, employees, officers
and employee directors. To date, only incentive stock options and nonstatutory
stock options have been awarded under the Plan. Incentive stock options granted
under the Plan are intended to qualify as "incentive stock options" within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"). Nonstatutory stock options granted under the Plan are intended not to
qualify as incentive stock options under the Code. See "Federal Income Tax
Information" for a discussion of the tax treatment of the various awards
included in the Plan.
PURPOSE
The Plan was adopted to provide a means by which selected officers and
employees of and consultants to the Company and its affiliates could be given an
opportunity to receive stock in the Company, to assist in retaining the services
of employees holding key positions, to secure and retain the services of persons
capable of filling such positions and to provide incentives for such persons to
exert maximum efforts for the success of the Company. All of the Company's
approximately 80 employees and consultants are eligible to participate in the
Plan.
ADMINISTRATION
The Plan is administered by the Board of Directors of the Company. The
Board has the power to construe and interpret the Plan and, subject to the
provisions of the Plan, to determine the persons to whom and the dates on which
awards will be granted, what type of award will be granted, the number of shares
to be subject to each award, the time or times during the term of each award
within which all or a portion of such award may be exercised, the exercise
price, the type of consideration and other terms of the award. The Board of
Directors is authorized to delegate administration of the Plan to a committee
composed of not fewer than two members of the Board. If administration is
delegated to a committee, the committee will have the powers to administer the
Plan which were originally possessed by the Board, subject to such limitations
as the Board provides.
In order to maximize the Company's ability to recognize a business
expense deduction under Section 162(m) of the Code in connection with
compensation recognized by "covered employees" (defined in Section 162(m) as the
chief executive officer and other four most highly compensated officers), the
regulations under Section 162(m) require that the directors must be "outside
directors" who serve as members of the committee responsible for administering
the Plan with respect to these covered employees. The Plan was amended to
provide that, in the Board's discretion, directors serving on the Committee will
be "outside directors" within the meaning of Section 162(m). As amended, the
Plan maximizes the Board's ability to delegate among various committees the
responsibility for administering the Plan with respect to different groups of
employees without overburdening any single committee.
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ELIGIBILITY
Incentive stock options may be granted under the Plan only to employees
(including officers) of the Company and its affiliates. Employees (including
officers) and consultants are eligible to receive awards other than incentive
stock options under the Plan. Directors who are not salaried employees of or
consultants to the Company or to any affiliate of the Company are not eligible
to participate in the Plan. Directors who administer the Plan may not receive
options under the Plan during the period of their service as administrators or
during the one-year period prior to their service as administrators of the Plan.
No incentive stock option may be granted under the Plan to any person
who, at the time of the grant, owns (or is deemed to own) stock possessing more
than 10% of the total combined voting power of the Company or any affiliate of
the Company, unless the exercise price of the incentive stock option is at least
110% of the fair market value of the stock subject to the incentive stock option
on the date of grant, and the term of the incentive stock option does not exceed
five years from the date of grant. For incentive stock options granted under the
Plan the aggregate fair market value, determined at the time of grant, of the
shares of Common Stock with respect to which such options are exercisable for
the first time by an optionee during any calendar year (under all such plans of
the Company and its affiliates) may not exceed $100,000.
No person is eligible to be granted options or stock appreciation rights
covering more than 500,000 shares of the Company's Common Stock in any period of
three calendar years.
STOCK SUBJECT TO THE PLAN
If awards granted under the Plan expire or otherwise terminate without
being exercised, the Common Stock not purchased pursuant to such awards again
becomes available for issuance under the Plan.
TERMS OF OPTIONS
The following is a description of the permissible terms of options under
the Plan. Individual option grants may be more restrictive as to any or all of
the permissible terms described below.
EXERCISE PRICE; PAYMENT. The exercise price of incentive stock options
under the Plan may not be less than the fair market value of the Common Stock
subject to the option on the date of the option grant, and in some cases (see
"Eligibility" above), may not be less than 110% of such fair market value. The
exercise price of nonstatutory options under the Plan is determined by the
Board. However, if options were granted with exercise prices below market value,
deductions for compensation attributable to the exercise of such options could
be limited by Section 162(m). See "Federal Income Tax Information." On March 31,
1999, the closing price of the Company's Common Stock as reported on the Nasdaq
National Market was $3.063 per share.
The exercise price of options granted under the Plan must be paid either:
(a) in cash at the time the option is exercised; or (b) at the discretion of the
Board, (i) by delivery of other Common Stock of the Company, (ii) pursuant to a
deferred payment arrangement or (c) in any other form of legal consideration
acceptable to the Board.
OPTION EXERCISE. Options granted under the Plan may become exercisable in
cumulative increments ("vest") as determined by the Board. Shares covered by
currently outstanding options under the Plan typically vest at the rate of 25%
per year during the optionee's employment or services as a consultant. Shares
covered by options granted in the future under the Plan may be subject to
different
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vesting terms. The Board has the power to accelerate the time during which an
option may be exercised. In addition, options granted under the Plan may
permit exercise prior to vesting, but in such event the optionee may be
required to enter into an early exercise stock purchase agreement that allows
the Company to repurchase shares not yet vested at their exercise price
should the optionee leave the employ of the Company before vesting. To the
extent provided by the terms of an option, an optionee may satisfy any
federal, state or local tax withholding obligation relating to the exercise
of such option by a cash payment upon exercise, by authorizing the Company to
withhold a portion of the stock otherwise issuable to the optionee, by
delivering already-owned stock of the Company or by a combination of these
means.
TERM. The maximum term of stock options under the Plan is ten years,
except that in certain cases (see "Eligibility") the maximum term is five years.
Options under the Plan terminate three months after termination of the
optionee's employment or relationship as a consultant or director of the Company
or any affiliate of the Company, unless (a) such termination is due to such
person's permanent and total disability (as defined in the Code), in which case
the option may, but need not, provide that it may be exercised at any time
within one year of such termination; (b) the optionee dies while employed by or
serving as a consultant or director of the Company or any affiliate of the
Company, or within three months after termination of such relationship, in which
case the option may, but need not, provide that it may be exercised (to the
extent the option was exercisable at the time of the optionee's death) within
eighteen months of the optionee's death by the person or persons to whom the
rights to such option pass by will or by the laws of descent and distribution;
or (c) the option by its terms specifically provides otherwise. Individual
options by their terms may provide for exercise within a longer period of time
following termination of employment or the consulting relationship. The option
term may also be extended in the event that exercise of the option within these
periods is prohibited for specified reasons.
TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK
PURCHASE PRICE; PAYMENT. The purchase price under each stock purchase
agreement will be determined by the Board. The purchase price of stock pursuant
to a stock purchase agreement must be paid either: (i) in cash at the time of
purchase; (ii) at the discretion of the Board, according to a deferred payment
or other arrangement with the person to whom the Common Stock is sold; or (iii)
in any other form of legal consideration that may be acceptable to the Board in
its discretion. Eligible participants may be awarded stock pursuant to a stock
bonus agreement in consideration of past services actually rendered to the
Company or for its benefit.
REPURCHASE. Shares of the Common Stock sold or awarded under the Plan
may, but need not, be subject to a repurchase option in favor of the Company in
accordance with a vesting schedule determined by the Board. In the event a
person ceases to be an employee of or ceases to serve as a director of or
consultant to the Company or an affiliate of the Company, the Company may
repurchase or otherwise reacquire any or all of the shares of the Common Stock
held by that person that have not vested as of the date of termination under the
terms of the stock bonus or restricted stock purchase agreement between the
Company and such person.
STOCK APPRECIATION RIGHTS
The Board may grant stock appreciation rights to employees or directors
of, or consultants to, the Company or its affiliates. The Plan authorizes three
types of stock appreciation rights.
TANDEM STOCK APPRECIATION RIGHTS. Tandem stock appreciation rights are
tied to an underlying option and require the holder to elect whether to
exercise the underlying option or to surrender the option for an appreciation
distribution equal to the market price of the vested shares purchasable under
the
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surrendered option less the aggregate exercise price payable for such shares.
Appreciation distributions payable upon exercise of tandem stock appreciation
rights must be made in cash.
CONCURRENT STOCK APPRECIATION RIGHTS. Concurrent stock appreciation
rights are tied to an underlying option and are exercised automatically at the
same time the underlying option is exercised. The holder receives an
appreciation distribution equal to the market price of the vested shares
purchased under the option less the aggregate exercise price payable for such
shares. Appreciation distributions payable upon exercise of concurrent stock
appreciation rights must be made in cash.
INDEPENDENT STOCK APPRECIATION RIGHTS. Independent stock appreciation
rights are granted independently of any option and entitle the holder to receive
upon exercise an appreciation distribution equal to the market price of a number
of shares equal to the number of share equivalents to which the holder is vested
under the independent stock appreciation right less than fair market value of
such number of shares of stock on the date of grant of the independent stock
appreciation rights. Appreciation distributions payable upon exercise of
independent stock appreciation rights may, at the Board's discretion, be made in
cash, in shares of the Common Stock or a combination thereof.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the Plan or subject to any
award granted under the Plan (through merger, consolidation, reorganization,
recapitalization, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or otherwise), the Plan and awards outstanding thereunder
will be appropriately adjusted as to the type of security and the maximum number
of shares subject to such plan, the maximum number of shares which may be
granted to an employee during a period of three calendar years, and the type of
security, number of shares and price per share of stock subject to such
outstanding awards.
EFFECT OF CERTAIN CORPORATE EVENTS
The Plan provides that, in the event of a dissolution or liquidation of
the Company, specified type of merger or other corporate reorganization, to the
extent permitted by law, any surviving corporation will be required to either
assume awards outstanding under the Plan or substitute similar awards for those
outstanding under such plan, or such outstanding awards will continue in full
force and effect. In the event that any surviving corporation declines to assume
or continue awards outstanding under the Plan, or to substitute similar awards,
then the time during which such awards may be exercised will be accelerated and
the awards terminated if not exercised during such time. The acceleration of an
award in the event of an acquisition or similar corporate event may be viewed as
an anti-takeover provision, which may have the effect of discouraging a proposal
to acquire or otherwise obtain control of the Company.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the Plan without stockholder approval
or ratification at any time or from time to time. Unless sooner terminated, the
Plan will terminate on May 31, 2004.
The Board may also amend the Plan at any time or from time to time.
However, no amendment will be effective unless approved by the stockholders of
the Company within twelve months before or after its adoption by the Board if
the amendment would: (a) modify the requirements as to eligibility for
participation (to the extent such modification requires stockholder approval in
order for the Plan to satisfy Section 422 of the Code, if applicable, or Rule
16b-3 ("Rule 16b-3") of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")); (b) increase the number of shares reserved for issuance upon
exercise of awards; or (c) change any other provision of the Plan in any other
way if such modification
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requires stockholder approval in order to comply with Rule 16b-3 or satisfy
the requirements of Section 422 of the Code. The Board may submit any other
amendment to the Plan for stockholder approval, including, but not limited
to, amendments intended to satisfy the requirements of Section 162(m) of the
Code regarding the exclusion of performance-based compensation from the
limitation on the deductibility of compensation paid to certain employees.
RESTRICTIONS ON TRANSFER
Under the Plan, an option may not be transferred by the optionee
otherwise than by will or by the laws of descent and distribution and during the
lifetime of the optionee, may be exercised only by the optionee. An independent
stock appreciation right may not be transferred except by will or by the laws of
descent and distribution. In any case, the optionee or holder of an independent
stock appreciation right may designate in writing a third party who may exercise
the option in the event of the optionee's death. No rights under a stock bonus
or restricted stock purchase agreement are transferable except where required by
law or expressly authorized by the terms of the applicable stock bonus or
restricted stock purchase agreement. A tandem stock appreciation right or
concurrent stock appreciation right may be transferred only by the method(s)
applicable to the underlying option. In addition, shares subject to repurchase
by the Company under an early exercise stock purchase agreement may be subject
to restrictions on transfer which the Board deems appropriate.
FEDERAL INCOME TAX INFORMATION
INCENTIVE STOCK OPTIONS. Incentive stock options under the Plan are
intended to be eligible for the favorable federal income tax treatment accorded
"incentive stock options" under the Code.
There generally are no federal income tax consequences to the optionee or
the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may increase the optionee's
alternative minimum tax liability, if any.
Depending on how long an optionee holds stock acquired through exercise
of an incentive stock option from the date on which the option is granted and
from the date on which the shares are transferred to the optionee upon exercise
of the option, any gain or loss on a disposition of such stock will be capital
gain or loss. Generally, if the optionee disposes of the stock before the
expiration of either of these holding periods (a "disqualifying disposition"),
at the time of disposition, the optionee will realize taxable ordinary income
equal to the lesser of (a) the excess of the stock's fair market value on the
date of exercise over the exercise price, or (b) the optionee's actual gain, if
any, on the purchase and sale. The optionee's additional gain, or any loss, upon
the disqualifying disposition will be a capital gain or loss. Capital gains
currently are generally subject to lower tax rates than ordinary income.
Slightly different rules may apply to optionees who acquire stock subject to
certain repurchase options or who are subject to Section 16(b) of the Exchange
Act.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, the provisions of Section 162(m) of the Code
and the satisfaction of a tax reporting obligation) to a corresponding business
expense deduction in the tax year in which the disqualifying disposition occurs.
NONSTATUTORY STOCK OPTIONS. Nonstatutory stock options granted under
the Plan generally have the following federal income tax consequences:
There are no tax consequences to the optionee or the Company by reason of
the grant of a nonstatutory stock option. Upon exercise of a nonstatutory stock
option, the optionee normally will
9
<PAGE>
recognize taxable ordinary income equal to the excess of the stock's fair
market value on the date of exercise over the option exercise price.
Generally, with respect to employees, the Company is required to withhold
from regular wages or supplemental wage payments an amount based on the
ordinary income recognized. Subject to the requirement of reasonableness, the
provisions of Section 162(m) of the Code and the satisfaction of a tax
reporting obligation, the Company will generally be entitled to a business
expense deduction equal to the taxable ordinary income realized by the
optionee. Upon disposition of the stock, the optionee will recognize a
capital gain or loss equal to the difference between the selling price and
the sum of the amount paid for such stock plus any amount recognized as
ordinary income upon exercise of the option. Such gain or loss will be
long-term, mid-term or short-term depending on how long the stock was held.
Slightly different rules may apply to optionees who acquire stock subject to
certain repurchase options or who are subject to Section 16(b) of the
Exchange Act.
RESTRICTED STOCK AND STOCK BONUSES. Restricted stock and stock bonuses
granted under the Incentive Plan generally have the following federal income tax
consequences:
Upon acquisition of stock under a restricted stock or stock bonus award,
the recipient normally will recognize taxable ordinary income equal to the
excess of the stock's fair market value over the purchase price, if any.
However, to the extent the stock is subject to certain types of vesting
restrictions, the taxable event will be delayed until the vesting restrictions
lapse unless the recipient elects to be taxed on receipt of the stock.
Generally, with respect to employees, the Company is required to withhold from
regular wages or supplemental wage payments an amount based on the ordinary
income recognized. Subject to the requirement of reasonableness, Section 162(m)
of the Code and the satisfaction of a tax reporting obligation, the Company will
generally be entitled to a business expense deduction equal to the taxable
ordinary income realized by the recipient. Upon disposition of the stock, the
recipient will recognize a capital gain or loss equal to the difference between
the selling price and the sum of the amount paid for such stock, if any, plus
any amount recognized as ordinary income upon acquisition (or vesting) of the
stock. Such gain or loss will be long-term, mid-term or short-term depending on
how long the stock was held from the date ordinary income is measured. Slightly
different rules may apply to persons who acquire stock subject to forfeiture
under Section 16(b) of the Exchange Act.
STOCK APPRECIATION RIGHTS. No taxable income is realized upon the receipt
of a stock appreciation right, but upon exercise of the stock appreciation right
the fair market value of the shares (or cash in lieu of shares) received must be
treated as compensation taxable as ordinary income to the recipient in the year
of such exercise. Generally, with respect to employees, the Company is required
to withhold from the payment made on exercise of the stock appreciation right or
from regular wages or supplemental wage payments an amount based on the ordinary
income recognized. Subject to the requirement of reasonableness, Section 162(m)
of the Code and the satisfaction of a reporting obligation, the Company will be
entitled to a business expense deduction equal to the taxable ordinary income
recognized by the recipient.
POTENTIAL LIMITATION ON COMPANY DEDUCTIONS. As part of the Omnibus Budget
Reconciliation Act of 1993, the U.S. Congress amended the Code to add Section
162(m), which denies a deduction to any publicly held corporation for
compensation paid to certain employees in a taxable year to the extent that
compensation exceeds $1,000,000 for a covered employee. It is possible that
compensation attributable to awards under the Plan, when combined with all other
types of compensation received by a covered employee from the Company, may cause
this limitation to be exceeded in any particular year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with Treasury regulations issued under Section 162(m) of the Code,
compensation attributable to stock options and stock appreciation rights will
qualify as performance-based compensation, provided that: (i) the stock award
plan contains a
10
<PAGE>
per-employee limitation on the number of shares for which stock options and
stock appreciation rights may be granted during a specified period; (ii) the
per-employee limitation is approved by the stockholders; (iii) the award is
granted by a compensation committee comprised solely of "outside directors";
and (iv) the exercise price of the award is no less than the fair market
value of the stock on the date of grant. Restricted stock and stock bonuses
qualify as performance-based compensation under these Treasury regulations
only if: (i) the award is granted by a compensation committee comprised
solely of "outside directors"; (ii) the award is granted (or exercisable)
only upon the achievement of an objective performance goal established in
writing by the compensation committee while the outcome is substantially
uncertain; (iii) the compensation committee certifies in writing prior to the
granting (or exercisability) of the award that the performance goal has been
satisfied; and (iv) prior to the granting (or exercisability) of the award,
stockholders have approved the material terms of the award (including the
class of employees eligible for such award, the business criteria on which
the performance goal is based, and the maximum amount (or formula used to
calculate the amount) payable upon attainment of the performance goal).
PROPOSAL 3
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 1999 and has
further directed that management submit the selection of independent auditors
for ratification by the stockholders at the Annual Meeting. Ernst & Young LLP
has audited the Company's financial statements since its inception in 1986.
Representatives of Ernst & Young LLP are expected to be present at the Annual
Meeting, will have an opportunity to make a statement if they so desire and will
be available to respond to appropriate questions.
Stockholder ratification of the selection of Ernst & Young LLP as the
Company's independent auditors is not required by the Company's Bylaws or
otherwise. However, the Board is submitting the selection of Ernst & Young LLP
to the stockholders for ratification as a matter of good corporate practice. If
the stockholders fail to ratify the selection, the Audit Committee and the Board
will reconsider whether or not to retain that firm. Even if the selection is
ratified, the Audit Committee and the Board in their discretion may direct the
appointment of different independent auditors at any time during the year if
they determine that such a change would be in the best interests of the Company
and its stockholders.
The affirmative vote of the holders of a majority of the shares present
in person or represented by proxy and entitled to vote at the Annual Meeting
will be required to ratify the selection of Ernst & Young LLP.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 3.
11
<PAGE>
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
ownership of the Company's Common Stock as of March 15, 1999 by: (i) each
director; (ii) each of the executive officers of the Company employed by the
Company in that capacity on such date; (iii) all executive officers and
directors of the Company as a group; and (iv) all those known by the Company to
be beneficial owners of more than five percent of its Common Stock.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
-------------------------
NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES TOTAL
- ---------------- --------- ----------
<S> <C> <C>
President and Fellows of Harvard College 1,437,900 15.0
c/o Harvard Management Company, Inc.
600 Atlantic Avenue, Boston, Massachusetts 02210
Dresdner RCM Global Investor, LLC (2) 921,951 9.6
4 Embarcadero Center, Suite 2900
San Francisco, California 94111
Biotechnology Value Fund, L.P. 678,600 7.1
and BVF Partners L. P. (3)
333 West Wacher Drive, Suite 1600
Chicago, Illinois 60606
Capital Research and Management Company 617,200 6.4
and SMALLCAP World Fund, Inc.
333 South Hope Street
Los Angeles, California 90071
John M. Siebert, Ph.D. (4) 280,833 2.9
John Hontz, Ph.D. (5) 33,500 *
Jack A. Khattar (6) 83,500 *
Keith P. Salenger (7) 38,600 *
Terrence W. Glarner (8) 110,440 1.1
Steven B. Ratoff (9) 98,494 1.0
Joseph R. Robinson, Ph.D. (10) 77,188 *
All executive officers and directors as a group (7 persons) (11) 722,555 7.1
</TABLE>
- -----------------------
* Less than one percent.
(1) This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G filed with the Securities
and Exchange Commission (the "SEC"). Unless otherwise indicated in the
footnotes to this table and subject to community property laws where
applicable, the Company believes that each of the stockholders named in
this table has sole voting and investment power with respect to the shares
indicated as beneficially owned. Applicable percentages are based on
9,610,394 shares outstanding on March 15, 1999, adjusted as required by
rules promulgated by the SEC.
(2) Dresdner RCM Global Investor LLC is a wholly owned subsidiary of Dresdner
RCM Global Investors US Holdings LLC, which is a wholly owned subsidiary
of Dresdner Bank AG.
12
<PAGE>
(3) Biotechnology Value Fund, L.P. and BVF Partners L.P. have shared voting
and investment power with respect to the shares indicated in the table
with BVF Inc., which is an advisor to, and general partner of, BVF
Partners L.P.
(4) Includes 240,833 shares which may be acquired within 60 days of March 15,
1999, pursuant to outstanding options.
(5) Includes 27,000 shares which may be acquired within 60 days of March 15,
1999 pursuant to outstanding options.
(6) Includes 71,500 shares which may be acquired within 60 days of March 15,
1999 pursuant to outstanding options and 12,000 shares Mr. Khattar owns
jointly with his wife.
(7) Includes 31,500 shares which may be acquired within 60 days of March 15,
1999 pursuant to outstanding options and 100 shares owned by Mr.
Salenger's minor child.
(8) Includes 80,000 shares which may be acquired within 60 days of March 15,
1999 pursuant to outstanding options.
(9) Includes 55,994 shares which may be acquired within 60 days of March 15,
1999 pursuant to outstanding options.
(10) Consists of shares which may be acquired within 60 days of March 15, 1999
pursuant to outstanding options.
(11) Includes an aggregate of 584,015 shares which may be acquired within 60
days of March 15, 1999 pursuant to outstanding options. See footnotes 4
through 10.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of a registered
class of the Company's equity securities, to file with the SEC initial reports
of ownership and reports of changes in ownership of Common Stock and other
equity securities of the Company. Officers, directors and greater than ten
percent stockholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1998, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with, except that Mr.
Khattar failed to timely file one report with respect to the purchase of 3,000
shares of Common Stock. Mr. Khattar filed such report shortly after being
notified of this failure to timely file.
13
<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
Information with respect to the executive officers of the Company as of
April 1, 1999 is set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------------------------------------------------------
<S> <C> <C>
John M. Siebert, Ph.D. 59 President, Chief Executive Officer and Director
John Hontz Ph.D. 42 Vice President, Research and Development/Operations
Keith P. Salenger 48 Vice President, Finance and Chief Financial Officer
Jack A. Khattar 37 Vice President, Business Development
</TABLE>
JOHN M. SIEBERT, PH.D., has been the President and Chief Executive
Officer of the Company since September 1995 and a director of the Company since
May 1992. From 1992 to 1995, Dr. Siebert was Vice President, Technical Affairs
at Dey Laboratories, Inc., a pharmaceutical company. From 1988 to 1992, Dr.
Siebert worked at Miles, Inc. Dr. Siebert has also been employed by E.R. Squibb
& Sons, Inc., G.D. Searle & Co. and The Procter & Gamble Company.
JOHN HONTZ, PH.D. has served as Vice President of Research and
Development since January 1997. From August 1995 to January 1997, Dr. Hontz was
Senior Group Leader of Product Development at Glaxo-Wellcome. From March 1987 to
August 1995, he was Section Head of Product Development for Burroughs-Wellcome,
which was subsequently acquired by Glaxo in 1995. Dr. Hontz received his B.S. in
Pharmacy from the Philadelphia College of Pharmacy and Science, his M.B.A. from
Duke University and his Masters and Ph.D. in Pharmaceuticals from the University
of Maryland.
KEITH P. SALENGER has served as Vice President, Finance and Chief
Financial Officer since September 1996. From 1994 to 1996, Mr. Salenger was Vice
President Finance, North American Ethicals, at Rhone Poulenc Rorer, Inc.
("RPR"). From 1988 to 1992, Mr. Salenger held other positions with RPR,
including Finance Director and Chief Financial Officer for the United Kingdom
and Ireland Subsidiary of RPR, and Vice President for the Research and
Development Division of RPR. Prior to joining RPR, he was Manager, Internal
Audit at Bristol-Myers Squibb and a Senior Accountant/CPA at Main Hurdman. Mr.
Salenger received his B.S. in Accounting from Pennsylvania State University and
is a Certified Public Accountant.
JACK A. KHATTAR was designated an executive officer of the Company in
April 1998 and has served as Vice President, Business Development since January
1995. From 1991 through 1994, Mr. Khattar was with Merck & Co., a pharmaceutical
company, where he last served as Director of Marketing. Mr. Khattar received his
M.B.A. in 1985 from the Wharton School of the University of Pennsylvania.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Each non-employee director of the Company is entitled to receive an
annual fee of $5,000, payable quarterly, a per meeting fee of $2,500 for each
meeting (including telephonic meetings) of the Board attended by such
non-employee director and a per meeting fee of $1,250 for each meeting of (i) a
committee of the Board not held in connection with a regular Board meeting or
(ii) operating committee of the Company, in each case attended by such
non-employee director; PROVIDED, HOWEVER, that the aggregate amount of fees paid
shall not exceed $20,000 (excluding expense reimbursement) per director per
year. The members of the Board of Directors are also eligible for reimbursement
for their reasonable
14
<PAGE>
expenses incurred in connection with attendance at Board meetings in
accordance with Company policy. In the fiscal year ended December 31, 1998,
the total cash compensation paid to non-employee directors was $9,987. Mr.
Glarner voluntarily chose to forgo the payment of any fees.
Pursuant to the Non-Employee Directors' Fee Option Grant Program (the
"Directors' Program"), non-employee directors may defer receipt of cash
compensation attributable solely to services as a Board member and receive
future payment of those fees in the form of stock options to acquire Common
Stock of the Company. Under the Directors' Program, the maximum number of shares
of Common Stock that may be issued pursuant to options is 60,000, which may be
unissued shares or reacquired shares, bought in the open market or otherwise.
Shares subject to options which expire or otherwise terminate without having
been exercised in full shall again become available for issuance.
Non-employee directors who deferred director's fees and timely filed a
deferral election were automatically granted an option to purchase common stock
of the Company on the date of the Annual Meeting. In addition, each non-employee
director who has a deferral election in effect as of any annual meeting of the
Company will automatically be granted an option to purchase common stock of the
Company on the date of such annual meeting.
The number of shares of Common Stock subject to each option granted under
the Directors' Program is equal to A/(B x 66 2/3%), where A is the maximum
amount of the director's fees subject to the non-employee director's deferral
election and applied to the grant of such option under the Directors' Program;
and B is the fair market value per share of Common Stock on the last day of the
month prior to the option grant date. The exercise price of options granted
under the Director's Program is 33 1/3% of the fair market value of the Common
Stock subject to such option on the last day of the month prior to the date such
option is granted. Options shall become exercisable in installments based on
when director's fees would become payable in cash. The term of options granted
under the Directors' Program is the earlier of ten years from the grant date or
three years following termination of service as a director.
During the year ended December 31, 1998, the Company granted options
under the Directors' Program covering 15,360 shares to the non-employee
directors as a group at an exercise price per share of $1.30. The fair market
value of such Common Stock on the date of grant was $2.625 per share (based on
the closing sales price reported on the Nasdaq National Market System for the
date specified in the Directors' Program). As of March 15, 1999, no options had
been exercised under the Directors' Program.
Each non-employee director of the Company also receives stock option
grants under the 1994 Directors' Stock Option Plan (the "Directors' Plan"). Only
directors of the Company who are not employees of the Company or a subsidiary of
the Company are eligible to receive grants of options under the Directors' Plan.
Options granted under the Directors' Plan are intended by the Company not to
qualify as incentive stock options under the Code.
Option grants under the Directors' Plan are non-discretionary. On the
first business day immediately following the annual meeting of each year, each
non-employee director of the Company is automatically granted under the
Directors' Plan, without further action by the Company, the Board of Directors
or the stockholders of the Company, an option to purchase 7,500 shares of Common
Stock of the Company. In addition, each new non-employee director will receive
an option to purchase 20,000 shares of Common Stock on the first business day
following the date such new director is elected to the Board of Directors. No
other options may be granted at any time under the Directors' Plan. The exercise
price of options granted under the Directors' Plan is 100% of the fair market
value of the Common Stock subject to the option on the date of the option grant.
15
<PAGE>
Options granted pursuant to the initial grant to purchase of 20,000
shares of Common Stock under the Director's Plan become exercisable as to 50% of
the option shares on the 12-month anniversary of the date of grant and the
remainder become exercisable on the 24-month anniversary of the date of grant.
Options granted on the business day following the annual meeting become fully
exercisable six months subsequent to the date of grant. The term of options
granted under the Directors' Plan is ten years. In the event of a merger of the
Company with or into another corporation or a consolidation, reorganization,
recapitalization, stock dividend, stock split, or other change in the corporate
structure, appropriate adjustments to the Directors' Plan and the outstanding
options will be made so as not to increase or decrease the option rights
outstanding.
During the year ended December 31, 1998, the Company granted options
under the Directors' Plan covering 7,500 shares to each non-employee director of
the Company at an exercise price per share of $4.094. The fair market value of
such Common Stock on the date of grant was $4.094 per share (based on the
closing sales price reported on the Nasdaq National Market System for the date
of specified in the Directors' Plan). As of March 15, 1999, no options had been
exercised under the Directors' Plan.
16
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY OF COMPENSATION
The following table shows for the fiscal years ended December 31, 1998,
1997 and 1996, compensation awarded or paid to, or earned by, the Company's
Chief Executive Officer and each of its other executive officers who were
serving as such at the end of the most recent fiscal year and whose Annual
Compensation for the most recent fiscal year exceeded $100,000 (the "Named
Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
STOCK ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) OPTIONS(2) COMPENSATION(3)
- --------------------------- ---- ------ --------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
John M. Siebert 1998 $246,818 $ 55,000 80,000 $ 8,483 (4)
President and 1997 236,509 75,020 100,000 8,465 (4)
Chief Executive Officer 1996 223,957 110,000 -- 9,216 (4)
John Hontz, Ph.D (5) 1998 $150,105 $ 54,250 125,000 $ 5,792 (6)
Vice President, Research 1997 143,093 21,600 72,000 30,526 (7)
and Development/Operations 1996 -- 36,250 (5) -- --
Jack A. Khattar 1998 $169,760 $ 20,750 150,000 $ 2,898 (8)
Vice President, Business 1997 148,564 22,800 38,000 5,566 (9)
Development 1996 141,754 34,438 4,000 5,256 (10)
Keith P. Salenger (11) 1998 $150,775 $ 20,250 115,000 $34,615 (12)
Vice President, Finance and 1997 142,488 21,600 36,000 23,761 (13)
Chief Financial Officer 1996 43,077 28,000 (14) 5,000 22,657 (15)
</TABLE>
- ------------------------------------
(1) Except as otherwise noted, the bonus amounts are comprised of bonuses
paid at the discretion of the Compensation Committee pursuant to the
Company's executive bonus plan.
(2) Although the Company's Equity Incentive Plan permits awards of stock
options, restricted stock, stock appreciation rights, performance awards
and other long-term incentive awards, no awards other than stock options
have been made to date to any of the Named Executive Officers.
(3) Except as otherwise noted, includes Company matching contributions under
the Company's 401(k) retirement plan.
(4) Includes $7,800 of car allowance paid by the Company.
(5) Dr. Hontz commenced employment with the Company in January 1997. The
compensation reported in 1996 represents a signing bonus.
(6) Includes $4,442 of relocation expenses.
17
<PAGE>
(7) Includes $29,851 of relocation expenses.
(8) Includes $1,200 of life insurance premiums paid by the Company.
(9) Includes $2,806 of relocation expenses and $1,200 of life insurance
premiums paid by the Company.
(10) Includes $3,120 of relocation expenses and $1,200 of life insurance
premiums paid by the Company.
(11) Mr. Salenger commenced employment with the Company in September 1996.
(12) Includes $33,119 of relocation expenses.
(13) Includes $22,306 of relocation expenses.
(14) Consists of signing bonus and performance bonus.
(15) Consists of $22,657 of relocation expenses.
18
<PAGE>
STOCK OPTION GRANTS AND EXERCISES
The Company grants options to its executive officers under its Equity
Incentive Plan. As of March 1, 1999, options to purchase a total of 1,480,465
shares were outstanding under the Plan and options to purchase 199,295 shares
remained available for grant thereunder (before giving effect to the proposal to
amend the Plan to increase the number of shares authorized for issuance
thereunder from 2,400,000 shares to 2,650,000).
The following tables show for the year ended December 31, 1998, certain
information regarding options granted to, exercised by, and held at December 31,
1998 by, the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF STOCK
OPTIONS PRICE APPRECIATION FOR
NUMBER OF GRANTED TO EXERCISE OPTION TERM (4)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION -------------------------
NAME GRANTED (1) FISCAL YEAR (2) SHARE (3) DATE 5% 10%
- ------------------ -------------- --------------- ------------ ------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
John M. Siebert 80,000 16.7 $4.375 4/24/08 $ 96,699 $220,113
John Hontz 125,000 26.0 4.375 4/24/08 151,091 343,927
Jack A. Khattar 150,000 31.3 4.375 4/24/08 181,310 412,712
Keith P. Salenger 115,000 24.0 4.375 4/24/08 139,004 316,413
</TABLE>
- -------------
(1) The options vest, if at all, at the rate of 25% of the option grants upon
the occurrence of each of four certain milestones identified in the
option agreements related to the grants. Each of the milestones must be
accomplished by no later than March 31, 2003. The option will fully vest
upon change of control as defined in the option agreements, unless the
acquiring company substitutes similar options.
(2) Based on options to purchase an aggregate of 480,000 shares of the
Company's Common Stock granted in 1998.
(3) All options were granted at the fair market value at the date of grant.
(4) Reflects the value of the stock option on the date of grant assuming (i)
for the 5% column, a five-percent annual rate of appreciation in the
Company's Common Stock over the ten-year term of the option and (ii) for
the 10% column, a ten-percent annual rate of appreciation in the
Company's Common stock over the ten-year term of the option, in each case
without any discounting to net present value and before income taxes
associated with the exercise. The 5% and 10% assumed rates of
appreciation are based on the rules of the SEC and do not represent the
Company's estimate or projection of the future Common Stock price.
The amounts in this table may not necessarily be achieved.
19
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MARKET OPTIONS AT
DECEMBER 31, 1998 DECEMBER 31, 1998(1)
--------------------------------- ---------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
--------------------- ------------- --------------- ------------- ----------------
<S> <C> <C> <C> <C>
John M. Siebert 240,833 146,667 $ -- $ --
John Hontz 27,000 170,000 -- --
Jack A. Khattar 71,500 185,000 -- --
Keith P. Salenger 31,500 164,500 -- --
</TABLE>
--------------
(1) Based on the fair market value of the Company's Common Stock at
December 31, 1998 of $2.625 per share minus the exercise price of
the options.
EMPLOYMENT AGREEMENTS
Dr. Siebert has entered into an employment agreement (the "Agreement")
with the Company whereby the Company agrees to employ Dr. Siebert as President
and Chief Executive Officer of the Company until January 1, 2001. Under the
terms of the Agreement, Dr. Siebert's annual base salary was set at $255,000 as
of January 1, 1998. Dr. Siebert receives annual salary increases of 5% per year
on January 1st for each year of the Agreement. In addition, the Agreement
provides that Dr. Siebert will be paid a cash incentive bonus of up to 50% of
his salary upon the Company's achievement of certain objectives. In the case of
a change of control of the Company, Dr. Siebert will receive twelve months of
compensation or the remainder of his compensation under the Agreement, whichever
is longer (less amounts received in a subsequent job during such period), and a
minimum cash bonus of $100,000 per year for each year remaining under the
Agreement for which he has not already received a bonus. Pursuant to the
Agreement, the Company pays Dr. Siebert a car allowance of $650 per month. The
Agreement contains standard provisions regarding the protection of confidential
information, a one-year covenant not to compete and a covenant not to recruit.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF
DIRECTORS ON EXECUTIVE COMPENSATION*
The Compensation Committee of the Board of Directors (the "Committee") is
currently composed of two non-employee directors: Messrs. Glarner and Ratoff.
Dr. Weisbach, a former director of the Company, served on the Compensation
Committee until April 1998.
The Committee is responsible for setting and administering the
compensation policies, annual executive officer compensation, making
recommendations on potential bonus and stock option plans, granting bonuses and
recommending to the Board of Directors grants of stock options to executive
officers.
- -------------------
* This Section is not "soliciting material," is not deemed "filed" with the
SEC and is not to be incorporated by reference in any filing of the Company
under the Securities Act of 1933, as amended (the "Securities Act") or the
Exchange Act whether made before or after the date hereof and irrespective of
any general incorporation language contained in any such filing.
20
<PAGE>
COMPENSATION PHILOSOPHY
The goals of the Company's compensation program are to align
compensation with business objectives and performance and to ensure the
compensation program is sufficient to attract, motivate and retain executives of
outstanding ability, potential and drive commensurate with the size and
innovative development requirements of the Company. Key elements of this
philosophy are:
- The Company pays competitively with comparable small companies
with which the Company competes for talent. To ensure that pay is
competitive, the Company compares its pay practices with these
companies and sets it pay parameters based in part on this review.
- The Company maintains annual incentive opportunities sufficient to
provide motivation to achieve specific operating goals and to
generate rewards that bring total compensation to competitive
levels.
- The Company provides significant equity-based incentives for
executives to ensure that they are motivated over the long-term to
respond to the Company's business challenges.
The Committee endeavors to balance Company needs and values with the
employees' needs and believes that it is important that the Committee maintain
this relationship.
BASE SALARY
The base salaries of the executive officers are determined initially on
the basis of one or more salary surveys conducted by third parties as well as
surveys of pharmaceutical companies both nationally and more specifically in the
midwest obtained from public information such as filings with the Securities and
Exchange Commission and surveys conducted by technical analysts at financial
institutions. Based upon such surveys, the executive officers' salaries are set
within the ranges of the surveys targeted at the median. The exact level of base
salary is determined after the Committee considers the experience and capability
of the executive officer, the level of responsibility, and the needs of the
Company.
PERFORMANCE COMPENSATION
Corporate and individual goals are used to establish the basis for annual
performance compensation awards. During the first quarter of each year, the
President and Chief Executive Officer establishes corporate and individual
objectives and assigns relative weights to each of such goals. At the end of the
year, results are compared to such objectives which are then used to develop
final bonus and stock option recommendations to the Committee for the executive
officers. Recommended awards are reviewed by the Committee generally in the last
quarter of the plan year based on these corporate and individual performance
objectives, and must be approved by the Committee prior to being granted or, in
the case of stock options, recommended to the Board of Directors by the
Committee and subsequently approved by the Board of Directors.
STOCK OPTIONS
The President and Chief Executive Officer makes recommendations to the
Committee regarding grants of stock options to the executive officers based on
performance against individual and corporate objectives as well as surveys
conducted by technical analysts at financial institutions based on public
knowledge of other small development companies. The Committee reviews these
recommendations and performance against corporate objectives, as well as such
surveys, and recommends to the Board of Directors grants of stock options to the
executive officers. Such recommendation of grants may vary
21
<PAGE>
from the recommendation of the President and Chief Executive Officer as the
Committee determines based on their knowledge and experience as well as other
factors they deem relevant. The Committee views grants of stock options as
incentives for performance and, as a result, current holdings are considered
in recommending grants of additional stock options.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
Dr. Siebert's salary, potential bonus and stock option grants are set
forth in an employment agreement between the Company and Dr. Siebert, which was
negotiated on behalf of the Board of Directors by Mr. Glarner at the direction
of the Committee with due regard to Dr. Siebert's knowledge, experience,
competitive salary information and market conditions at the time. The Employment
Agreement is in the second year of its three-year term. Pursuant to the
Employment Agreement, Dr. Siebert's salary and bonus for 1998 were $246,818 and
$55,000, respectively. Bonuses and stock option grants in future years will be
at the discretion of the Committee; provided that Dr. Siebert meets certain
minimums established by the Committee in the case of bonuses.
From the members of the Compensation Committee of CIMA LABS INC.
Terrence W. Glarner
Steven B. Ratoff
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<PAGE>
PERFORMANCE MEASUREMENT COMPARISON*
The comparative stock performance graph below represents the total
stockholder return of an investment of $100 in cash on July 29, 1994 (the first
trading date after the Company's Common Stock became registered under Section 12
of the Exchange Act) for (i) the Company's Common Stock; (ii) the Russell 2000
Index (the "Russell 2000"); (iii) the Total Return Index for The Nasdaq Stock
Market (U.S. Companies) (the "Nasdaq Stock Market--U.S."); and (iv) the Total
Return Index for Nasdaq Pharmaceutical Stocks (the "Nasdaq Pharmaceuticals
Index"). All values assume reinvestment of the full amount of all dividends and
are calculated as of December 31 of each year. The Company has determined to
change the broad equity market comparative index from the Nasdaq Stock
Market--U.S. to the Russell 2000 because the Company believes that the
predominance of technology stocks on the Nasdaq Stock Market--U.S. makes it a
poor reference for comparison to the performance of the Company's Common Stock.
COMPARISON OF 53 MONTH CUMULATIVE TOTAL RETURN**
AMONG CIMA LABS INC., THE RUSSELL 2000 INDEX, THE NASDAQ STOCK
MARKET-U.S. INDEX AND THE NASDAQ PHARMACEUTICALS INDEX
[GRAPHICAL REPRESENTATION OF COMPARATIVE DATA]
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
----------------------------------------------------------------
7/94 12/94 12/95 12/96 12/97 12/98
------ ------- -------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
CIMA LABS INC . . . . . . . . . . . . 100 114 67 68 47 29
Russell 2000 . . . . . . . . . . . . . 100 105 135 157 192 191
Nasdaq Stock Market--U.S . . . . . . . . 100 105 148 182 224 315
Nasdaq Pharmaceuticals . . . . . . . . 100 103 198 189 295 250
</TABLE>
- -----------------------
* This Section is not "soliciting material," is not deemed "filed" with the
SEC and is not to be incorporated by reference in any filing of the
Company under the Securities Act or the Exchange Act whether made before
or after the date hereof and irrespective of any general incorporation
language contained in any such filing.
** $100 invested on July 29, 1994 in the Company's Common Stock or
applicable index, including reinvestment of dividends. Fiscal years
ending December 31.
23
<PAGE>
CERTAIN TRANSACTIONS
Pursuant to a certain Letter Agreement, dated January 28, 1998, between
the Company and Dr. Robinson, the Company paid the University of Wisconsin
Extension Services in Pharmacy $12,500 in March 1998 as compensation for the
performance of certain research work by Dr. Robinson, a director of the Company.
The Company has also agreed to pay Dr. Robinson a royalty based on the sale of
products developed from patents resulting from Dr. Robinson's research.
The Company has entered into indemnity agreements with certain officers
and directors which provide, among other things, that the Company will indemnify
such officer or director for such liabilities permitted under Delaware Law, to
the full extent permitted under Delaware law, subject to certain limitations.
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented
for consideration at the Annual Meeting. If any other matters are properly
brought before the Annual Meeting, it is the intention of the persons named in
the accompanying proxy to vote on such matters in accordance with their best
judgment.
By Order of the Board of Directors
/s/ Keith P. Salenger
Keith P. Salenger
SECRETARY
April 30, 1999
24
<PAGE>
[LOGO]
CIMA LABS INC.
ANNUAL MEETING
WEDNESDAY, JUNE 2, 1999
2:00 P.M. CENTRAL DAYLIGHT TIME
CIMA LABS INC.
10000 VALLEY VIEW ROAD
EDEN PRAIRIE, MINNESOTA
CIMA LABS INC.
10000 VALLEY VIEW ROAD, EDEN PRAIRIE, MINNESOTA PROXY
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
By signing this proxy, you revoke all prior proxies and appoint John M.
Siebert, Ph.D. and Keith P. Salenger, or either one of them, as Proxies, each
with the power to appoint his substitute and to act without the other, and
authorize each of them to represent and to vote, as designated herein, all
shares of common stock of CIMA LABS INC. (the "Company") held of record by
the undersigned on April 15, 1999, at the Annual Meeting of Stockholders of
the Company to be held on June 2, 1999 or at any adjournment thereof.
IF NO CHOICE IS SPECIFIED, THE PROXY WILL BE VOTED "FOR" ITEMS 1, 2, AND 3.
SEE REVERSE FOR VOTING INSTRUCTIONS.
<PAGE>
[LOGO]
ARROW PLEASE DETACH HERE ARROW
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2, AND 3.
1. Election of directors: 01 John M. Siebert, Ph.D. 03 Steven B. Ratoff
02 Terrence W. Glarner 04 Joseph R. Robinson, Ph.D.
Vote FOR all nominees / /
(except as marked to the contrary below)
Vote WITHHELD for all nominees / /
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDICATED NOMINEE, WRITE
THE NUMBER(S) OF THE NOMINEE(S) IN THE BOX PROVIDED TO THE RIGHT.)
- --------------------------------------------------------------------------------
2. Approval of the amendment and restatement of the Company's Equity
Incentive Plan to increase the aggregate number of shares of Common Stock
authorized for issuance under such plan by 250,000 shares to 2,650,000
shares.
For / / Against / / Abstain / /
3. Ratification of the appointment of Ernst & Young LLP as the independent
auditors of the Company for the fiscal year ending Ddecember 31, 1999.
For / / Against / / Abstain / /
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED. IF NO
DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR EACH ITEM. THE PROXIES ARE
AUTHORIZED TO VOTE IN THEIR DISCRETION WITH RESPECT TO OTHER MATTERS WHICH
MAY PROPERLY COME BEFORE THE MEETING.
Address Change? Mark Box / /
Indicate changes below:
Date
------------------------------------------------
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/ /
/ /
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Signature(s) in Box
Please sign exactly as your name(s) appear(s) on the Proxy. If held in joint
tenancy, all persons must sign. Trustees, administrators, etc. should include
title and authority. Corporations should provide the full name of corporation
and title of authorized officer signing the Proxy.
