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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 0-24424
CIMA LABS INC.
(Exact name of registrant as specified in its charter)
Delaware 41-1569769
- -------------------------------------------------------------------------------
State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10000 Valley View Road, Eden Prairie, Minnesota 55344-9361
(Address of principal executive offices, including zip code)
(612) 947-8700
(Registrant's telephone number, including area code)
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, $.01 par value 9,616,154 Shares
-------------------------------- ----------------------------------
(Class) (Outstanding at July 30, 1999)
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CIMA LABS INC.
TABLE OF CONTENTS
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PAGE NUMBER
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COVER PAGE 1
TABLE OF CONTENTS 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Balance Sheets as of June 30, 1999
and December 31, 1998 3
Condensed Statements of Operations for the three-
month and six-month periods ended June 30, 1999
and 1998 4
Condensed Statements of Cash Flows for the six-month
periods ended June 30, 1999 and 1998 5
Notes to Condensed Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 7
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 12
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 13
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 13
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 13
ITEM 5. OTHER INFORMATION 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES 15
EXHIBIT INDEX 16
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CIMA LABS INC.
CONDENSED BALANCE SHEETS (UNAUDITED)
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June 30, December 31,
1999 1998(1)
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(Note)
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ASSETS
Cash and cash equivalents $ 718,665 $ 2,722,590
Accounts receivable 2,321,200 1,654,796
Inventories, net 1,664,979 479,045
Prepaid expenses 118,199 79,866
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Total current assets 4,823,043 4,936,297
Property, plant and equipment:
Construction in progress 494,299 72,204
Equipment 9,314,867 9,314,867
Leasehold improvements 4,757,169 4,757,169
Furniture and fixtures 604,204 604,204
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15,170,539 14,748,444
Less accumulated depreciation (6,160,622) (5,318,107)
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9,009,917 9,430,337
Other assets:
Lease deposits 311,804 345,146
Patents and trademarks, net 182,143 204,648
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Total other assets 493,947 549,794
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Total assets $ 14,326,907 $ 14,916,428
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,331,272 $ 670,597
Accrued expenses 791,304 835,043
Advance royalties 468,334 459,105
Current portion of lease obligation 68,164 64,998
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Total current liabilities 2,659,074 2,029,743
Lease obligations 196,252 231,145
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Total liabilities: 2,855,326 2,260,888
Stockholders' equity
Convertible Preferred Stock, $0.01 par value:
Authorized shares--5,000,000; issued and
outstanding shares--none
Common Stock, $0.01 par value:
Authorized shares--20,000,000; issued and
outstanding shares:
9,610,394 June 30, 1999 and December 31, 1998 96,104 96,104
Additional paid-in capital 57,274,274 57,274,274
Accumulated losses (45,898,797) (44,714,838)
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Total stockholders' equity 11,471,581 12,655,540
------------ ------------
Total liabilities and stockholders' equity $ 14,326,907 $ 14,916,428
============ ============
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</TABLE>
1 The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. See notes to condensed financial statements.
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CIMA LABS INC.
Condensed Statements of Income (Unaudited)
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Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ ------------------------------
1999 1998 1999 1998
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REVENUES:
Net sales $ 1,398,862 $ - $ 1,433,862 $ 157,692
R&D fees and licensing revenue 1,738,153 1,336,125 3,382,605 2,317,925
------------------------------ ------------------------------
3,137,015 1,336,125 4,816,467 2,475,617
COSTS AND EXPENSES:
Cost of goods sold 1,866,108 296,900 2,299,679 637,522
Research and product development 872,762 869,276 2,270,032 2,347,776
Selling, general and administrative 790,171 940,094 1,475,142 1,700,942
------------------------------ ------------------------------
3,529,041 2,106,270 6,044,853 4,686,240
OTHER INCOME (EXPENSE):
Interest income, net 13,329 34,339 42,869 92,298
Other income (expense), net 10,139 (609) 1,558 882
------------------------------ ------------------------------
23,468 33,730 44,427 93,180
NET LOSS: $ (368,558) $ (736,415) $(1,183,959) $(2,117,443)
====================================================================
Net loss per share:
Basic and diluted $ (0.04) $ (0.08) $ (0.12) $ (0.22)
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic and diluted 9,610,394 9,610,394 9,610,394 9,609,808
</TABLE>
See notes to financial statements
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CIMA LABS INC.
Condensed Statements of Cash Flows (Unaudited)
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Six Months Ended
June 30,
-----------------------------------
1999 1998
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OPERATING ACTIVITIES
Net loss $(1,183,959) $(2,117,443)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 897,299 807,438
Gain on sale of property, plant and equipment - 2,982
Changes in operating assets and liabilities:
Accounts receivable (666,403) 545,662
Inventories (1,185,933) (545,222)
Other current assets (38,333) 22,916
Accounts payable 660,674 209,824
Accrued expenses (43,741) (35,958)
Advance royalties 9,229 (105,000)
-----------------------------------
NET CASH USED IN OPERATING ACTIVITIES (1,551,167) (1,214,801)
-----------------------------------
INVESTING ACTIVITIES
Purchases of property, plant and equipment (420,478) (349,878)
Proceeds from sale of property, plant & equipment - 27,000
Proceeds of maturities of short-term investments - 3,277,297
Patents and trademarks (32,280) (56,255)
-----------------------------------
Net cash used in investing activities (452,758) 2,898,164
-----------------------------------
FINANCING ACTIVITIES
Proceeds from issuance of common stock - 5,700
-----------------------------------
Net Cash Used In Financing Activities - 5,700
-----------------------------------
Increase (decrease) in cash and cash equivalents (2,003,925) 1,689,063
Cash and cash equivalents at beginning of period 2,722,590 1,145,760
-----------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 718,665 $ 2,834,823
===================================
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of equipment pursuant to equipment loan and
capital lease obligation 257,490
</TABLE>
See notes to financial statements.
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CIMA LABS INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1999 (UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three-month and
six-month periods ended June 30, 1999 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1999. For
further information, refer to the financial statements and footnotes thereto
included in the Company's annual report on Form 10-K for the year ended
December 31, 1998.
NOTE B - INVENTORIES
Inventories are stated at the lower of cost (first in, first out) or fair
market value.
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<CAPTION>
June 30, December 31,
1999 1998
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Raw materials $1,190,966 $479,045
Work in process 60,342 --
Finished products 413,671 --
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$1,664,979 $479,045
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</TABLE>
NOTE C - NET 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 effect 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 to conform with Statement 128
requirements.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE FOLLOWING
DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. WHEN USED HEREIN, THE WORDS "ANTICIPATE," "BELIEVE," "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 ANTICIPATED LAUNCHES OF CIMA'S PRODUCTS BY ITS PARTNERS,
THE ABILITY TO ACHIEVE THE DESIRED LEVELS OF PRODUCTION REQUESTED BY CIMA'S
PARTNERS, THE MARKET ACCEPTANCE OF THE COMPANY'S ORASOLV-Registered
Trademark- TECHNOLOGY, AND THE SUCCESSFUL PERFORMANCE UNDER THE COLLABORATIVE
ARRANGEMENTS WITH THE COMPANY'S PARTNERS. CIMA'S RESULTS OF OPERATIONS AND
FINANCIAL POSITION COULD ALSO BE AFFECTED BY SEVERAL FACTORS THAT MAY CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY INCLUDING, BUT NOT LIMITED TO, CIMA'S
RELIANCE ON COLLABORATIVE PARTNERS, THE GROWTH OF THE ANTIMIGRAINE MARKET,
THE SUCCESS OF THE COMPANY IN SCALE-UP AND COMMERCIALIZING ITS CURRENT
DEVELOPMENT PROGRAMS, THE COMPANY'S ABILITY TO RAISE ADDITIONAL CAPITAL TO
FUND ITS OPERATION, AND FUTURE CAPITAL REQUIREMENTS. THESE AND OTHER FACTORS
ARE MORE FULLY DISCUSSED IN "BUSINESS RISKS" BELOW.
GENERAL
CIMA LABS INC. ("CIMA" or 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 the issuance of the
OraSolv patent, CIMA changed its focus and emerged as a drug delivery company
offering technologies in the fast-dissolve and transmucosal area. OraSolv and
DuraSolv-TM-, the Company's premier fast-dissolve technologies, are oral
dosage formulations incorporating microencapsulated active drug ingredients
into tablets which dissolve quickly in the mouth without chewing or water
which effectively mask the taste of the medication being delivered. OraSolv's
and DuraSolv'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
dosage form. In addition, OraSolv and DuraSolv can provide more accurate
administration of doses than liquid or suspension formulations as no
measuring is required. Additional drug delivery technologies in the
transmucosal area are also under development by the Company.
In early-1997 the Company recorded its first commercial sales using the
Company's OraSolv technology. In 1998, another over-the-counter product for a
second partner was launched using the OraSolv technology. In the second
quarter this year, AstraZeneca received regulatory approval from the Swedish
regulatory authority for the OraSolv fast-dissolving version of its
Zomig-Registered Trademark- antimigraine medication. Sweden is also the
rapporteur country for European Union approval. Based on this approval, the
Company anticipates that the first prescription pharmaceutical product using
the OraSolv technology will be launched by AstraZeneca, later in 1999. Prior
to emerging as a drug delivery company, the Company's revenues had been from
sales using the Company's AutoLution (a liquid effervescent) technology,
license fees paid by corporate partners in consideration of the transfer of
rights under collaborative agreements, and product development fees paid by
corporate partners to fund the Company's research efforts for products
developed under such agreements. Approximately 38% of the Company's lifetime
revenues through June 30, 1999 have been generated from development work and
sales of AutoLution products. It is expected that this figure will be less
than 33% by the end of calendar year 1999, as the Company does not anticipate
that it will manufacture liquid effervescent products, and has not recognized
any revenue from such products since 1995. Since 1995, approximately
$18,527,000 of revenue has been generated primarily from three major sources:
product development fees (approximately 45% of the total) for work primarily
related to OraSolv and DuraSolv products, and to a lesser extent sales
(approximately 28%) related to OraSolv products and licenses and milestone
fees (approximately 25%) related to OraSolv and DuraSolv products. In
addition to revenue
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from the above sources, the Company has funded operations from private and
public sales of equity securities, realizing net proceeds of approximately
$26,000,000 from private sales of equity securities and $16,400,000 and
$12,000,000 from the Company's July 1994 initial public offering and May 1996
public offering of its Common Stock, respectively. At June 30, 1999 the
Company had 9,610,394 shares of its Common Stock outstanding.
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 and
DuraSolv products, and products based on such new technologies to be marketed
by these corporate partners. The Company is highly dependent upon the efforts
of the corporate partners to successfully market OraSolv and DuraSolv
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 revenues. Moreover, certain of the Company's products are seasonal in
nature and the Company's revenues could vary materially from quarter to
quarter depending on which of such products, if any, are then being marketed.
The Company expects that losses will continue through at least 1999.
These losses will continue to decrease for the balance of the year. It is
anticipated that sales will continue to increase as it is expected that two
of the Company's partners will be launching their products in the OraSolv
dosage form. AstraZeneca is expected to launch a fast-dissolving version of
Zomig in European countries, and Novartis will launch Triaminic-Registered
Trademark- Softchews-Registered Trademark- utilizing the OraSolv dosage form.
It is also expected that other revenues for the second half of 1999 will meet
or exceed the figures generated in the first half of the year. As the Company
has geared up production for the previously mentioned upcoming launches for
its partners the Company has hired additional personnel to meet their initial
orders. Manufacturing infrastructure fixed costs should not need to increase
materially as there is production capacity to meet short-term production
needs. Research and development expenses are expected to show a minimal
increase as the Company continues investigating new coating and drug delivery
technologies, including the possibilities of utilizing sublingual systems,
and to support our partners' development projects. At June 30, 1999, the
Company had accumulated net losses of approximately $45,900,000.
The Company has substantially completed the assessment of the impact
that the Year 2000 date conversion may have on its internal systems and
software, including information technology ("IT") and non-IT, or embedded
technology systems. The Company believes that its risks relating to Year 2000
issues in its systems to be very low, as its IT systems are relatively small
and predominately new and its software consists entirely of "off the shelf"
packages for which Year 2000 compliant up-grades are available and have
already been implemented. There is however additional testing that is
currently underway to ensure that there are no Year 2000 issues with the
embedded systems in the Company's production equipment. The initial testing
has indicated that there are not any issues that can not be resolved with a
minimum amount of expenditure. This testing is anticipated to be completed by
the end of the third quarter 1999. If there were unanticipated issues that
were to arise relating to Year 2000, it could have a negative effect to the
Company's ability to achieve the desired level of production requested by its
partners.
The Company has designated an individual to oversee Year 2000
compliance. It was their responsibility, by the end of the first half of
1999, to ensure that all software packages have been converted or replaced,
if necessary, to be free of Year 2000 problems. This task has been completed,
except for, as
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noted above, the embedded systems in production operations. The Company has
spent, to date, approximately $22,000 on software upgrades and expects the
total upgrades to be less than $50,000.
The Company is substantially complete in replacing or reallocating
hardware that may present Year 2000 concerns, and estimates the total cost of
any such replacement to be less than $20,000. A review performed by an
outside consultant has indicated that the risks related to the Company's
internal systems is immaterial as far as Year 2000 compliance is concerned.
The Company is still in the process of determining if its major
suppliers and corporate partners have appropriate plans to remediate Year
2000 issues. To date, none of the parties have indicated significant concerns
about their ability to do so. However, a substantial negative impact of Year
2000 on one of the Company's few large major suppliers or corporate partners
that would affect their ability to do business could have a material adverse
effect on the operations and financial condition of the Company.
RESULTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
The Company's results of operations for the three- and six-month periods
ended June 30, 1999 reflect the continued emphasis of developing OraSolv
products for our corporate partners and progressing them into commercial
projects. Total revenues increased to $3,137,000 and $4,816,000 in the
three- and six-month periods ended June 30, 1999, respectively, from
$1,336,000 and $2,476,000 in the three- and six-month periods ended June 30,
1998. Sales were $1,399,000 for the three-month period ended June 30, 1999,
as compared to zero for the same period in 1998. The majority of these sales
represent the sales to Novartis Consumer Health, Inc. for their anticipated
national launch of Triaminic-Registered Trademark- Softchews-Registered
Trademark- in the OraSolv dosage form. Sales were $1,434,000 for the
six-month period ended June 30, 1999, as compared to $158,000, for the same
period in 1998. Other revenues, which consist primarily of product
development fees and licensing and milestone revenues, increased to
$1,738,000 and $3,383,000 in the three- and six-month periods ended June 30,
1999, respectively, from $1,336,000 and $2,318,000 in the three- and
six-month periods ended June 30, 1998. In 1999, the majority of these
revenues were generated by two prescription product collaborations, one each
with AstraZeneca and Organon, and the Novartis over-the-counter cough, cold
product, Triaminic Softchews. Revenues have increased in 1999, as the
projects continue to progress, and the financial results include milestone
payments received related to this progress.
These revenues reflect the signing of license option and development
agreements with multinational pharmaceutical companies that provide for
licensing fees, milestone payments, royalties and manufacturing fees. So long
as the Company has relatively few agreements with corporate partners, license
revenues and product development fees will tend to fluctuate on a
quarter-to-quarter basis.
Cost of goods sold increased to $1,866,000 and $2,300,000 in the three-
and six-month periods ended June 30, 1999, respectively, from $297,000 and
$638,000 in the three- and six-month periods ended June 30, 1998. The
increase in 1999 costs is primarily attributable to increased production. The
manufacturing facility is not running at full capacity, therefore resulting
in cost of sales exceeding sales due to the under-absorbed overhead. Research
and development expenses were $873,000 for the three-months ended June 30,
1999, as compared to $869,000 for the same period in 1998. For the six-month
period ended June 30, 1999, research and development expenses were $2,270,000
compared to $2,348,000 for the same period ended June 30, 1998. Research and
development expenses have remained fairly constant over these periods as
efforts continue on the development programs for our partners, and internal
efforts to develop new technologies. Selling, general and administrative
expenses decreased to $790,000 and $1,475,000 in the three- and six-
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month periods ended June 30, 1999, respectively, from $940,000 and $1,701,000
for the same periods in 1998, respectively. This decrease was primarily due
to the reduction in legal expenses and outside consulting fees. Other income
decreased to $23,000, and $44,000 in the three- and six-month periods ended
June 30, 1999, respectively, from $34,000 and $93,000 for the same periods in
1998, respectively. Other income is comprised mainly of interest income which
has decreased as it is dependent on the cash position of the Company.
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 supply
agreements. Through June 30, 1999, the Company had received net offering
proceeds from such private and public sales of approximately $57,300,000 and
had net sales from manufacturing and supply agreements of approximately
$18,910,000, and other revenues that include licensing revenue, product
development and milestone fees of $16,924,000. Among other things, these
funds were used to purchase approximately $16,500,000 of capital equipment,
including approximately $7,500,000 in the last two quarters of 1994 in
connection with completing the Company's manufacturing facility.
Cash and cash equivalents were approximately $719,000 at June 30, 1999,
a decrease of $2,004,000 from $2,723,000 at the period ended December 31,
1998. The majority of the decrease can be attributable to the increase in the
trade receivables of $461,000, and the $1,186,000 increase in inventory for
the forthcoming production for our corporate partners, as well as research
and development efforts.
The Company's expects that its cash position will improve during the
remainder of the year. It already has built satisfactory inventory levels to
support the two anticipated product launches, later this year, by its
corporate partners Novartis Consumer Health and AstraZeneca. The Company
expects its cash flow from these sales, and continued product development and
milestone fees, and licensing revenues to exceed expenditures for the
remainder of the year, and into year 2000. To ensure that the Company would
have enough cash during this phase, in July 1999, the Company secured a
$2,000,000 line of credit to be available to provide financing, if necessary.
The Company's long-term capital requirements will depend upon numerous
factors, including the status of the Company's collaborative arrangements
with corporate partners, the progress of the Company's research and
development programs and receipt of revenues from the collaborative
agreements, and the potential need to expand production capacity. As
previously noted, the Company believes that its currently available funds
together with revenues from operations, and a bank line of credit should be
sufficient to meet its anticipated needs through 1999. Thereafter, if
conditions make it necessary, the Company may need to raise additional funds
for capital expansion needs through public or private financings, including
equity financing which may be dilutive to shareholders and/or through
research and development relationships with suitable potential corporate
partners. 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 June 30, 1999. At
December 31, 1998, the net operating losses available to offset taxable
income were approximately $45,700,000. Because the Company has experienced
ownership changes, pursuant to Internal Revenue Code regulations, future
utilization of the operating loss carryforwards will be limited in any one
fiscal year. The carryforwards expire beginning in 2001. As a result of the
annual limitation, a portion of these carryforwards may expire before
ultimately becoming available to reduce potential federal income tax
liabilities.
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BUSINESS RISKS
The Company began commercial production of its first product in the
Company's OraSolv dosage form in 1997 and must be evaluated in light of the
uncertainties and complications present for any company that has just
recently begun to derive product revenues and, in particular, a company in
the pharmaceutical industry. The Company has accumulated net losses of
$45,900,000 from inception through June 30, 1999. Losses have resulted
principally from costs incurred in research and development of the Company's
technologies, supporting the manufacturing facility, and from general and
administrative costs. These costs have exceeded the Company's revenues. The
Company expects to continue to incur additional losses at least through the
remainder of 1999. There can be no assurance that the Company will ever
generate substantial revenue or achieve profitability.
The Company believes that its currently available funds, together with the
line of credit, product development and milestone fees, license and sales
revenue anticipated to be received in the future, should be sufficient to
meet its needs through 1999. After 1999, the Company may need to raise
additional funds to expand production capacity to meet corporate partners
anticipated needs. The Company is considering numerous types of financing.
These include public or private financing, including equity financing which
may be dilutive to shareholders, debt or equity financing with a potential or
present corporate partners and/or expanding the current line of credit. 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 is dependent upon its ability to enter into and perform
under collaborative arrangements with pharmaceutical companies for the
development and commercialization of its products and technologies. 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 Company's technologies as an alternative to conventional
oral dosage forms. The Company expects that products using its technologies
will be priced slightly higher than conventional swallow or chewable tablets.
Although the Company believes that its consumer research, and the launch of
some fast-dissolve products has been encouraging, there can be no assurance
that market acceptance for the Company's OraSolv products and/or its new drug
delivery technologies 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. The Company expects that two
of its partners will launch their products in the OraSolv dosage form later
in 1999. The Company has sufficient capacity to meet these demands. However,
to achieve future desired levels of production, the Company may 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 to pursue internal
proprietary drug delivery technologies. Even if these technologies appear
promising during various stages of development, they may not reach the
commercialization stage for a number of reasons. Such reasons include the
possibilities of not finding a partner to market the technology in their
product, of being difficult to manufacture on a large scale or of being
uneconomical to market.
The fast-dissolve drug delivery field is fairly new and rapidly
evolving. Within the past fifteen months the Company's two major competitors
(Fuisz Technologies Ltd., and RP Scherer Corporation) have been acquired by
two larger companies. It is unclear how these acquisitions will impact the
Company, but the competitors most likely have additional resources to develop
their technologies. It can be expected that the fast-dissolve drug delivery
field will
11
<PAGE>
continue to undergo improvements and changes, and the Company may be at a
competitive disadvantage to react to these changes as many of its
competitors, or any new competitors will have greater financial resources.
There can be no assurance that these competitors will not succeed in
developing technologies and products that are more effective than any which
are developed by the Company or which could render the Company's technologies
and products non-competitive or that any technology developed by the Company
will be preferred by consumers to any existing or newly developed
technologies.
The foregoing risks reflect the Company's stage of development and the
nature of the Company's industry. The Company is also subject to a range of
additional risks, including competition, uncertainties regarding the effects
of healthcare reform on the pharmaceutical industry, including pressures
exerted on the prices charged for pharmaceutical products and uncertainties
regarding protection of patents and proprietary rights, all of which may have
a material adverse effect on the Company's business.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's operations are not currently subject to market risks for
interest rates, foreign currency exchange rates, commodity prices or other
market price risks of a material nature.
12
<PAGE>
CIMA LABS INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company has instituted an opposition proceeding in the
European Patent Office, and has requested that the United States Patent and
Trademark Office declare an interference proceeding, each of which has been
reported in the Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission for the year ended December 31, 1998.
ITEM 2. CHANGES IN SECURITIES.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On June 2, 1999, the Company held its annual meeting of
stockholders, at which meeting the stockholders took the following
actions:
(i) elected John M. Siebert, Ph.D., Terrence W. Glarner,
Steven B. Ratoff and Joseph R. Robinson, Ph.D., to serve as
directors of the Company for the ensuing year and until their
successors are elected;
(ii) approved 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; and
(iii) ratified the selection of Ernst & Young LLP as
independent auditors of the Company for its fiscal year ending
December 31, 1999.
Such actions were taken by the following votes:
<TABLE>
<CAPTION>
VOTES
VOTES FOR WITHHELD
--------- --------
<S> <C> <C>
Election of Directors:
John M. Siebert, Ph.D. 9,049,187 18,975
Terrence W. Glarner 9,049,187 18,975
Steven B. Ratoff 9,049,187 18,975
Joseph R. Robinson, Ph.D. 9,049,187 18,975
</TABLE>
<TABLE>
<CAPTION>
VOTES FOR VOTES AGAINST ABSTENTIONS
--------- ------------- -----------
<S> <C> <C> <C>
Amendment of Stock Plan 5,319,723 3,739,439 9,000
Ratification of Auditors 9,056,887 5,500 5,775
</TABLE>
13
<PAGE>
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
<TABLE>
<CAPTION>
Item Description
---- -----------
<C> <S>
3.2 Third Restated Bylaws of the Company.
10.6 Equity Incentive Plan, as amended and
restated.
10.17 License Agreement dated May 28, 1999,
between IPR Pharmaceticals, Inc. and the
Company.
27 Financial Data Schedule.
</TABLE>
14
<PAGE>
CIMA LABS INC.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
CIMA LABS INC.
Date: August 16, 1999 By: /s/ John M. Siebert
------------------- ---------------------------
John M. Siebert
President and Chief Executive Officer
Date: August 16, 1999 By: /s/ Keith P. Salenger
------------------- ---------------------------
Keith P. Salenger
Vice President, Finance and
Chief Financial Officer
(Principal Financial and Accounting Officer)
15
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NO. OF EXHIBIT DESCRIPTION
- -------------- -----------
<C> <S>
3.2 Third Restated Bylaws of the Company.
10.6 Equity Incentive Plan, as amended and restated.
10.17 License Agreement dated May 28, 1999, between IPR
Pharmaceuticals, Inc. and the Company.
27 Financial Data Schedule.
</TABLE>
16
<PAGE>
THIRD RESTATED BYLAWS
OF
CIMA LABS INC.
ARTICLE I. OFFICES.
Section 1. OFFICES. The corporation shall have a registered office,
a principal office and such other offices as the Board of Directors (the
"Board") may determine. The Board is granted full power and authority to
change any of said offices at any time.
ARTICLE II. STOCKHOLDERS.
Section I. PLACE OF MEETINGS. Meetings of stockholders shall be held
either at the principal office of the corporation or at any other place
within or without the State of Delaware which may be designated by the Board.
Section 2. ANNUAL MEETINGS. The annual meetings of stockholders
shall be held on such date and at such time as may be fixed by the Board. At
such meetings, directors shall be elected and any other proper business may
be transacted.
Section 3. SPECIAL MEETINGS. Special meetings of the stockholders
may be called at any time by the Board, the Chairman of the Board, the Chief
Executive Officer or the President. Upon request in writing to the Chairman
of the Board, the Chief Executive Officer, the President, any Vice President
or the Secretary by any person (other than the Board) entitled to call a
special meeting of stockholders, the officer forthwith shall cause notice to
be given to the stockholders entitled to vote that a meeting will be held at
a time requested by the person or persons calling the meeting, not less than
thirty-five (35) nor more than sixty (60) days after the receipt of the
request. If the notice is not given within twenty (20) days after receipt of
the request, the persons entitled to call the meeting may give the notice.
Section 4. NOTICE OF ANNUAL OR SPECIAL MEETING. Written notice of
each annual or special meeting of stockholders shall be given not less than
ten (10) nor more than sixty (60) days before the date of the meeting to each
stockholder entitled to vote thereat. Such notice shall state the place,
date and hour of the meeting and in the case of a special meeting, the
purpose or purposes for which the meeting is called. Except as otherwise
expressly required by law, notice of any adjourned meeting of the
stockholders need not be given if the time and place thereof are announced at
the meeting at which the adjournment is taken.
Notice of a stockholders' meeting shall be given either personally or
by mail or by other means of written communication, addressed to the
stockholder at the address of such stockholder appearing on the books of the
corporation or given by the stockholder to the corporation for the purpose of
notice. Notice by mail shall be deemed to have been given at the time a
written notice is deposited in the United States' mail, postage prepaid. Any
other written notice shall be deemed to have been given at the time it is
personally delivered to the recipient or is delivered to a common carrier for
transmission, or actually transmitted by the person giving the notice by
electronic means, to the recipient.
Section 5. NOTICE OF BUSINESS. At any regular or special meeting of
stockholders of the corporation, only such business (other than the
nomination and election of directors, which shall be subject to
17
<PAGE>
Article II Section 6 of these Bylaws) may be conducted as shall be
appropriate for consideration at the meeting of stockholders and as shall
have been brought before the meeting (i) by or at the direction of the Board,
or (ii) by any stockholder of the corporation entitled to vote at the meeting
who complies with the notice procedures set forth in this Section 5.
(a) TIMING OF NOTICE. For such business to be properly
brought before any regular or special meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary
of the corporation. To be timely, a stockholder's notice of any such business
to be conducted at an annual meeting must be delivered to the Secretary of
the corporation, or mailed and received at the principal executive office of
the corporation, not less than 90 days before the first anniversary of the
date of the preceding year's annual meeting of stockholders. If, however,
the date of the annual meeting of stockholders is more than 30 days before or
after such anniversary date, notice by a stockholder shall be timely only if
so delivered or so mailed and received not less than 90 days before such
annual meeting or, if later, within 10 days after the first public
announcement of the date of such annual meeting. If a special meeting of
stockholders of the corporation is called in accordance with Article II
Section 3 of these Bylaws for any purpose other than electing directors to
the Board or if a regular meeting other than an annual meeting is held, for a
stockholder's notice of any such business to be timely it must be delivered
to the Secretary of the corporation, or mailed and received at the principal
executive office of the corporation, not less than 90 days before such
special meeting or such regular meeting or, if later, within 10 days after
the first public announcement of the date of such special meeting or such
regular meeting. Except to the extent otherwise required by law, the
adjournment of a regular or special meeting of stockholders shall not
commence a new time period for the giving of a stockholder's notice as
required above.
(b) CONTENT OF NOTICE. A stockholder's notice to the
corporation shall set forth as to each matter the stockholder proposes to
bring before the regular or special meeting (w) a brief description of the
business desired to be brought before the meeting and the reasons for
conducting such business at the meeting, (x) the name and address, as they
appear on the corporation's books, of the stockholder proposing such
business, (y) the class or series (if any) and number of shares of the
corporation that arc beneficially owned by the stockholder, and (z) any
material interest of the stockholder in such business.
(c) CONSEQUENCES OF FAILURE TO GIVE TIMELY NOTICE.
Notwithstanding anything in these Bylaws to the contrary, no business (other
than the nomination and election of directors) shall be conducted at any
regular or special meeting except in accordance with the procedures set forth
in this Section 5 and, as an additional limitation, the business transacted
at any special meeting shall be limited to the purposes stated in the notice
of the special meeting pursuant to Article II Sections 3 and 4 of these
Bylaws. The Chairman of the meeting shall, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the
meeting in accordance with the provisions of this Section 5 and, if the
Chairman should so determine, the Chairman shall so declare to the meeting,
and any such business not properly brought before the meeting shall not be
transacted. Nothing in this Section 5 shall be deemed to preclude discussion
by any stockholder of any business properly brought before the meeting in
accordance with these Bylaws.
(d) PUBLIC ANNOUNCEMENT. For purposes of this Article II
Sections 5 and 6 of these Bylaws, "public announcement" means disclosure (i)
when made in a press release reported by the Dow Jones News Service,
Associated Press, or comparable national news service, (ii) when filed in a
document publicly filed by the corporation with the Securities and Exchange
Commission pursuant to Section 13, 14, or 15(d) of the Securities Exchange
Act of 1934, as amended, or (iii) when mailed as the notice of the meeting
pursuant to Article II Sections 3 and 4 of these Bylaws.
18
<PAGE>
Section 6. NOTICE OF NOMINATIONS OF DIRECTIONS. Only persons
who are nominated in accordance with the procedures set forth in this Section
6 shall be eligible for election as directors at stockholder meetings.
Nominations of persons for election to the Board may be made at a meeting of
stockholders (i) by or at the direction of the Board or (ii) by any
stockholder of the corporation entitled to vote for the election of directors
at the meeting who complies with the notice procedures set forth in this
Section 6.
(a) TIMING OF NOTICE. Nominations by stockholders shall be
made pursuant to timely notice in writing to the Secretary of the
corporation. To be timely, a stockholder's notice of nominations to be made
at an annual meeting of stockholders must be delivered to the Secretary of
the corporation, or mailed and received at the principal executive office of
the corporation, not less than 90 days before the first anniversary of the
date of the preceding year's annual meeting of stockholders. If, however,
the date of the annual meeting of stockholders is more than 30 days before or
after such anniversary date, notice by a stockholder shall be timely only if
so delivered or so mailed and received not less than 90 days before such
annual meeting or, if later, within 10 days after the first public
announcement of the date of such annual meeting. If a special meeting of
stockholders of the corporation is called in accordance with Article II
Section 3 of these Bylaws for the purpose of electing one or more directors
to the Board of Directors or if a regular meeting other than an annual
meeting is held, for a stockholder's notice of nominations to be timely it
must be delivered to the Secretary of the corporation, or mailed and received
at the principal executive office of the corporation, not less than 90 days
before such special meeting or such regular meeting or, if later, within 10
days after the first public announcement of the date of such special meeting
or such regular meeting. Except to the extent otherwise required by law, the
adjournment of a regular or special meeting of stockholders shall not
commence a new time period for the giving of a stockholder's notice as
described above.
(b) CONTENT OF NOTICE. A stockholder's notice of nomination
for a regular or special meeting of stockholders shall set forth (x) as to
each person whom the stockholder proposes to nominate for election or
re-election as a director: (i) such person's name, (ii) all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors in an election contest, or is otherwise
required, pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended, including Rule 14a-11 thereof, or any successor thereto,
and (iii) such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected; and (y) as to the
stockholder giving the notice: (i) the name and address, as they appear on
the corporation's books, of such stockholder, (ii) the class or series (if
any) and number of shares of the corporation that are beneficially owned by
such stockholder and (iii) a representation that the stockholder is a holder
of record of shares of the corporation entitled to vote for the election of
directors and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice. At the request of
the Board, any person nominated by the Board for election as a director shall
furnish to the Secretary of the corporation the information required to be
set forth in a stockholder's notice of nomination that pertains to a nominee.
(c) CONSEQUENCES OF FAILURE TO GIVE TIMELY NOTICE.
Notwithstanding anything in these Bylaws to the contrary, no person shall be
eligible for election as a director of the corporation unless nominated in
accordance with the procedures set forth in this Section 6. The Chairman of
the meeting shall, if the facts warrant, determine and declare to the meeting
that a nomination was not made in accordance with the procedures prescribed
in this Section 6 and, if the Chairman should so determine, the Chairman
shall so declare to the meeting, and the defective nomination shall be
disregarded.
Section 7. QUORUM AND ADJOURNMENT. The holders of a majority of the
stock issued and outstanding and entitled to vote thereat, present in person
or represented by proxy, shall constitute a
19
<PAGE>
quorum for holding all meetings of stockholders, except as otherwise provided
by applicable law or by the Certificate of Incorporation; PROVIDED, HOWEVER,
that the stockholders present at a duly called or held meeting at which a
quorum is present may continue to transact business until adjournment
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum, if any action taken (other than adjournment) is approved by at least
a majority of the shares required to constitute a quorum. If it shall appear
that such quorum is not present or represented at any meeting of
stockholders, the Chairman of the meeting shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may
be transacted which might have been transacted at the meeting as originally
noticed. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting. The Chairman of the meeting may determine that a
quorum is present based upon any reasonable evidence of the presence in
person or by proxy of stockholders holding a majority of the outstanding
votes, including without limitation, evidence from any record of stockholders
who have signed a register indicating their presence at the meeting.
Section 8. VOTNG. In all matters, when a quorum is present at any
meeting, the vote of the holders of a majority of the capital stock having
voting power present in person or represented by proxy shall decide any
question brought before such meeting, unless the question is one upon which
by express provision of applicable law or of the Certificate of
Incorporation, a different vote is required in which case such express
provision shall govern and control the decision of such question. Such vote
may be viva voce or by written ballot; PROVIDED, HOWEVER, that the Board may,
in its discretion, require a written ballot for any vote, and further
provided that all elections for directors must be by written ballot upon
demand made by a stockholder at any election and before the voting begins.
Unless otherwise provided in the Certificate of Incorporation, each
stockholder shall at every meeting of the stockholders be entitled to one
vote in person or by proxy for each share of the capital stock having voting
power held by such stockholder.
Section 9. RECORD DATE. The Board may fix, in advance, a record date
for the determination of the stockholders entitled to notice of any meeting
or to vote or entitled to receive payment of any dividend or other
distribution, or any allotment of rights, or to exercise rights in respect of
any other lawful actions. The record date so fixed shall be not more than
sixty (60) days nor less than ten (10) days prior to the date of the meeting
nor more than sixty (60) days prior to any other action.
Section 10. CONSENT OF ABSENTEES; WAIVER OF NOTICE. The transactions
of any meeting of stockholders, however called and noticed, and wherever
held, are as valid as though had a meeting been duly held after regular call
and notice, if a quorum is present either in person or by proxy, and if,
either in person or by proxy, and if, either before or after the meeting,
each of the persons entitled to vote, not present in person or by proxy,
signs a written waiver of notice, or a consent to the holding of the meeting
or an approval of the minutes thereof. All such waivers, consents or
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting. Neither the business to be transacted at nor the
purpose of any regular or special meeting of stockholders need be specified
in any written waiver of notice.
Section 11. PROXIES. Every person entitled to vote shares has the
right to do so either in person or by one or more persons authorized by a
written proxy executed by such stockholder and filed with the Secretary. Any
proxy duly executed is not revoked and continues in full force and effect
until revoked by the person executing it prior to the vote pursuant thereto
by a writing delivered to the corporation stating that the proxy is revoked
or by a subsequent proxy executed by, or by attendance at the meeting;
PROVIDED,
20
<PAGE>
HOWEVER, that no proxy shall be valid after expiration of three (3) years
from the date of its execution unless otherwise provided in the proxy.
Section 12. JUDGES OF ELECTION. The Board may appoint a Judge or
Judges of Election for any meeting of stockholders. Such Judges shall decide
upon the qualification of the voters and report the number of shares
represented at the meeting and entitled to vote, shall conduct the voting and
accept the votes and when the voting is completed shall ascertain and report
the number of shares voted respectively for and against each position upon
which a vote is taken by ballot. The Judges need not be stockholders, and
any officer of the corporation may be a Judge on any position other than a
vote for or against a proposal in which such person shall have a material
interest.
Section 13. STOCKHOLDER LISTS. The officer who has charge of the
stock ledger of the corporation shall prepare and make, at least ten days
before every meeting of stockholders, a complete list of stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing
the address of each stockholder and the number of shares registered in the
name of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting or at the place of the meeting, and
the list shall also be available at the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
ARTICLE III. DIRECTORS.
Section 1. POWERS. Subject to the limitations of the Certificate of
Incorporation or these Bylaws or the Delaware General Corporation Law
relating to actions required to be approved by the stockholders or by the
outstanding shares, the business and affairs of the corporation shall be
managed and all corporate powers shall be exercised by or under the direction
of the Board. The Board may delegate the management of the day-to-day
operation of the business of the corporation to management or other persons
provided that the business and affairs of the corporation shall be managed
and all corporate powers shall be exercised under the ultimate direction of
the Board.
Section 2. NUMBER OF DIRECTORS. The authorized number of directors
of the corporation shall be fixed from time to time by resolution adopted by
the Board.
Section 3. ELECTION AND TERM OF OFFICE. Directors shall be elected
at the annual meeting of stockholders and each director shall hold office
until his successor is elected and qualified or until his death, retirement,
earlier resignation or removal.
Section 4. VACANCIES. Any director may resign effective upon giving
written notice to the Chairman of the Board, the Chief Executive Officer, the
President, Secretary or the Board, unless the notice specifies a later time
for the effectiveness of such resignation. Any vacancy in the Board or
increase in the authorized number of directors may be filled for the
unexpired term by a majority of the directors then in office. When one or
more directors shall resign from the Board, effective at a future date, a
majority of the directors then in office may fill such vacancy or vacancies
to take effect when such resignation or resignations shall become effective.
Section 5. PLACE OF MEETING. Regular or special meetings of the Board
shall be held at any place designated from time to time by the Board. In the
absence of such designation, regular meetings shall be held at the principal
office of the corporation.
21
<PAGE>
Section 6. REGULAR MEETINGS. Regular meetings of the Board shall be
held without call at such dates, times and places as the Board may establish
from time to time. Call and notice of all regular meetings of the Board are
hereby dispensed with.
Section 7. SPECIAL MEETINGS. Special meetings of the Board for any
purpose or purposes may be called at any time by the Chairman of the Board,
the Chief Executive Officer, the President or the Secretary or by any two (2)
directors.
Special meetings of the Board shall be held upon four (4) days'
written notice or forty-eight (48) hours' notice given personally or by
telephone, facsimile transmission or other similar means of communication.
Any such notice shall be addressed or delivered to each director at such
director's address as it is shown upon the records of the corporation or as
may have been given to the corporation by the director for purposes of notice
or, if such address is not shown on such records or is not readily
ascertainable, at the place in which the meetings of the directors are
regularly held.
Notice by mail shall be deemed to have been given at the time a
written notice is deposited in the United States mail, postage prepaid. Any
other written notice shall be deemed to have been given at the time it is
personally delivered to the recipient or is delivered to a common carrier for
transmission or actually transmitted by the person giving the notice by
electronic means, to the recipient. Oral notice shall be deemed to have been
given at the time it is communicated, in person or by telephone or wireless,
to the recipient or to a person at the office of the recipient who the person
giving the notice has reason to believe will promptly communicate it to the
recipient.
Section 8. QUORUM. A majority of the whole Board shall constitute a
quorum except when a vacancy or vacancies prevents such majority, whereupon a
majority of the directors in office shall constitute a quorum, PROVIDED,
HOWEVER, that such majority shall constitute at least one-third of the whole
Board. Every act or decision done or made by a majority of the directors
present at a meeting duly held at which a quorum is present shall be regarded
as the act of the Board, unless a greater number be required by law or by the
Certificate of Incorporation. A meeting at which a quorum is initially
present may continue to transact business notwithstanding the withdrawal of
directors, if any action is approved by at least a majority of the required
quorum for such meeting.
Section 9. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE.
Members of the Board may participate in a meeting through use of conference
telephone or similar communications equipment, so long as all members
participating in such meeting can hear one another.
Section 10. WAIVER OF NOTICE. The transactions of any meeting of the
Board, however called and noticed, and wherever held, are as valid as though
a meeting had been duly held after regular call and notice if a quorum be
present and if, either before or after the meeting, each of the directors not
present signs a written waiver of notice, a consent to holding such meeting
or an approval of the minutes thereof. All such waivers, consents or
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.
Section 11. ADJOURNMENT. A majority of the directors present, whether
or not a quorum is present, may adjourn any directors' meeting to another time
and place. Notice of the time and place of holding an adjourned meeting need
not be given to absent directors if the time and place be fixed at the meeting
adjourned. If the meeting is adjourned for more than twenty-four (24) hours,
notice of any adjournment to another time or place shall be given prior to the
time of the adjourned meeting to the directors who were not present at the time
of the adjournment.
22
<PAGE>
Section 12. FEES AND COMPENSATION. Directors and members of
committees may receive such compensation, if any, for their services, and
such reimbursement for expenses, as may be fixed or determined by the Board.
Section 13. ACTION WITHOUT MEETING. Any action required or permitted to
be taken by the Board or committee thereof may be taken without a meeting if all
members of the Board or committee shall individually or collectively consent in
writing to such action. Such consent or consents shall have the same effect as
a unanimous vote of the Board or committee and shall be filed with the minutes
of the proceedings of the Board or committee.
Section 14. COMMITTEES. The Board may appoint one (1) or more
committees, each consisting of two (2) or more directors, and delegate to such
committees any of the authority of the Board as the Board may lawfully delegate
pursuant to the Delaware General Corporation Law.
Any such committee must be appointed by resolution adopted by a majority
of the whole board of directors and may be designated an Executive Committee or
by such other name as the Board shall specify. The Board shall have the power
to prescribe the manner in which the proceedings of any such committee shall be
conducted. In the absence of any such prescription, such committee shall have
the power to prescribe the manner in which its proceedings shall be conducted.
Unless the Board or such committee shall otherwise provide, the regular and
special meetings and other actions of any such committee shall be governed by
the provisions of this Article applicable to meetings and actions of the Board.
Minutes shall be kept of each meeting of each committee.
Section 15. RIGHTS OF INSPECTION. Every director shall have the
absolute right at any reasonable time to inspect and copy all the books, records
and documents of every kind and to inspect physical properties of the
corporation and also of its subsidiary corporations, domestic or foreign. Such
inspection by a director may be made in person or by agent or attorney and
includes the right to copy and obtain extracts.
ARTICLE IV. OFFICERS.
Section 1. OFFICERS. The officers of the corporation shall be a
Chairman of the Board, a Chief Executive Officer, a President, a Secretary and a
Chief Financial Officer; PROVIDED, HOWEVER, that in its discretion the Board may
determine not to appoint any one or more of such officers. The corporation may
also have, at the discretion of the Board, one or more Vice Presidents, one or
more Assistant Secretaries, one or more Financial Officers, and such other
officers as may be elected or appointed in accordance with the provisions of
Section 2 of this Article.
Section 2. APPOINTMENT OF OFFICERS. The officers of the
corporation shall be appointed by the Board of Directors or the Chairman of the
Board. Each of these officers shall hold office for such period and shall have
such authority and perform such duties as are prescribed by these Bylaws or
determined from time to time by the Board of Directors or the Chairman of the
Board.
Section 3. REMOVAL AND RESIGNATION. Any officer may be removed, with
or without cause, by the Board of Directors at any time or, except in the
case of an officer chosen by the Board, by any officer upon whom such power
of removal may be conferred by the Board. Any such removal shall be without
prejudice to the rights, if any, of the officer under any contract of
employment of the officer.
23
<PAGE>
Any officer may resign at any time by giving written notice to the
corporation, but without prejudice to the rights, if any, of the corporation
under any contract to which the officer is a party. Any such resignation shall
take effect at the date of the receipt of such notice or at any later time
specified therein and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
Section 4. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in these Bylaws for regular election or appointment to such
office.
Section 5. CHAIRMAN OF THE BOARD. The Chairman of the Board shall
preside at all meetings of the stockholders and at all meetings of the Board and
shall have such other powers and duties as may from time to time be assigned by
the Board.
Section 6. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer,
subject to the control of the Board, the committees of the Board and the
Chairman of the Board, is the general manager of the corporation. The Chief
Executive Officer shall have supervising authority over and may exercise general
executive power concerning the supervision, direction and control of the
business and officers of the corporation, with the authority from time to time
to delegate to the President and other officers such executive powers and duties
as the Chief Executive Officer may deem advisable. In the absence of the
Chairman of the Board, the Chief Executive Officer shall preside at all meetings
of the Board and the stockholders.
Section 7. PRESIDENT. The President is the chief operating officer
of the corporation and, subject to the control of the Board, the committees of
the Board, the Chairman of the Board and the Chief Executive Officer, has
supervisory authority over and may exercise general executive powers concerning
the operations, business and subordinate officers of the corporation, with the
authority from time to time to delegate to other officers such executive powers
and duties as the President may deem advisable. In the absence of the Chairman
of the Board and the Chief Executive Officer, the President shall preside at all
meetings of the stockholders and at all meetings of the Board. The President
has the general powers and duties of management usually vested in the office of
President of a corporation and such other powers and duties as may be prescribed
by the Board.
Section 8. VICE PRESIDENTS. In the absence or disability of the
President, the Vice Presidents in order of their rank as fixed by the Board or,
if not ranked, the Vice President designated by the Board, shall perform all
duties of the President and, when so acting, shall have all the powers of, and
be subject to all the restrictions upon, the President. The Vice Presidents
shall have such other powers and perform such other duties as from time to time
may be prescribed for them respectively by the Board.
Section 9. SECRETARY. The Secretary shall keep or cause to be
kept, at the principal office and such other place as the Board may order, a
book of minutes of all meetings of stockholders, the Board and its
committees, with the time and place of holding, whether regular or special,
and if special, how authorized, the notice thereof given, the names of those
present at Board and committee meetings, and the number of shares present or
represented at stockholders' meetings, and the proceedings thereof. The
Secretary shall keep, or cause to be kept, a copy of the Bylaws of the
corporation at the principal office or business office.
The Secretary shall keep, or cause to be kept, at the principal office a
share register, or a duplicate share register, showing the name of the
stockholders and their addresses, the number and classes of
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shares held by each, the number and date of certificates issued for the same,
and the number and date of cancellation of every certificate surrendered for
cancellation.
The Secretary shall give, or cause to be given, notice of all meetings of
the stockholders and of the Board and of any committees thereof required by
these Bylaws or by law to be given, shall keep the seal of the corporation in
safe custody, and shall have such other powers and perform such other duties as
may be prescribed by the Board.
Section 10. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall
keep and maintain, or cause to be kept and maintained, adequate and correct
accounts of the properties and business transactions of the corporation. The
books of account shall at all times be open to inspection by any director.
The Chief Financial Officer shall deposit all moneys and other valuables
in the name and to the credit of the corporation with such depositories as may
be designated by the Board. The Chief Financial Officer shall disburse the
funds of the corporation as may be ordered by the Board, shall render to the
Chief Executive Officer and directors, whenever they request it, an account of
all transactions as Chief Financial Officer and of the financial condition of
the corporation, and shall have such other powers and perform such other duties
as may be prescribed by the Board.
The Financial Officer or Officers, who are subordinate to the Chief
Financial Officer, if any, shall, in the absence or disability of the Chief
Financial Officer, or at his request, or if a vacancy shall exist perform his
duties and exercise his powers and authority, and shall perform such other
duties and have such other powers as the Board of Directors may from time to
time prescribe.
Section 11. CONTROLLER. The Controller is the Chief Accounting Officer
of the corporation. The Controller shall keep and maintain, or cause to be kept
and maintained, adequate and correct accounts of the properties and business
transactions of the corporation, including accounts of its assets, liabilities,
receipts, disbursements, gains, losses, capital, surplus and surplus shares.
The Controller is responsible for the formulation of the corporation's
accounting policies, procedures and practices, and the preparation of the
corporation's financial reports. The Controller shall establish and administer
a plan for the financial control of the corporation and compare performance with
that plan. The Controller shall have such other powers and duties as the Board
of Directors may from time to tine prescribe.
ARTICLE V. STOCK.
Section 1. FORM OF STOCK CERTIFICATE. Every holder of stock in the
corporation shall be entitled to have a certificate signed by, or in the name
of, the corporation by the Chairman or Vice-Chairman of the Board of
Directors, if any, or by the Chief Executive Officer, the President or a Vice
President, and by the Chief Financial Officer or a subordinate Financial
Officer, or the Secretary or an Assistant Secretary certifying the number of
shares owned in the corporation. Any or all of the signatures on the
certificate may be a facsimile signature. If any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the corporation with
the same effect as if such person were such officer, transfer agent or
registrar at the date of the issuance.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such
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preferences and/or rights shall be set forth in full or summarized on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock. Except as otherwise provided in Section 202
of the General Corporation Law of Delaware, in lieu of the foregoing
requirements, there may be set forth on the face or back of the certificate a
statement that the corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions
of such preferences and/or rights.
Section 2. TRANSFERS OF STOCK. Upon surrender of a certificate for
shares duly endorsed or accompanied by proper evidence of succession,
assignment or authority to transfer, it shall be the duty of the corporation
to issue a new certificate to the person entitled thereto, cancel the old
certificate and record the transaction upon its books.
Section 3. LOST, STOLEN OR DESTROYED CERTIFICATES. The Board may
direct a new certificate or certificates be issued in place of any
certificate theretofore issued alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of the fact by the person claiming
the certificate to be lost, stolen or destroyed. When authorizing such issue
of a new certificate, the Board may, in its discretion and as a condition
precedent to the issuance, require the owner of such certificate or
certificates, or such person's legal representative, to give the corporation
a bond in such sum as it may direct as indemnity against any claim that may
be made against the corporation with respect to the lost, stolen or destroyed
certificate.
Section 4. REGISTERED STOCKHOLDERS. The corporation shall be
entitled to treat the holder of record of any share or shares of stock of the
corporation as the holder in fact thereof and shall not be bound to recognize
any equitable or other claim to or interest in such share on the part of any
other person, whether or not it shall have express or other notice thereof,
except as expressly provided by applicable law.
ARTICLE VI. OTHER PROVISIONS.
Section 1. ENDORSEMENT OF DOCUMENTS; CONTRACTS. Subject to the
provisions of applicable law, any note, mortgage, evidence of indebtedness,
contract, share certificate, conveyance or other instrument in writing and any
assignment or endorsements thereof executed or entered into between the
corporation and any other person, when signed by the Chairman of the Board, the
Chief Executive Officer, the President or any Vice President and the Secretary,
any Assistant Secretary, the Chief Financial Officer or any Assistant Chief
Financial Officer of the corporation shall be valid and binding on the
corporation in the absence of actual knowledge on the part of the other person
that the signing officers had no authority to execute the same. Any such
instruments may be signed by any other person or persons and in such manner as
from time to time shall be determined by the Board, and, unless so authorized by
the Board, no officer, agent or employee shall have any power or authority to
bind the corporation by any contract or engagement or to pledge its credit or to
render it liable for any purpose or amount.
Section 2. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The
Chairman of the Board, the Chief Executive Officer, the President, any Vice
President, Secretary or any other officer or officers authorized by the Board or
the Chairman of the Board are each authorized to vote, represent and exercise on
behalf of the corporation all rights incident to any and all shares of any other
corporation or corporations standing in the name of the corporation. The
authority herein granted may be exercised either by any such officer or by any
other person authorized so to do by proxy or power of attorney duly executed by
said officer.
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Section 3. SEAL. The corporation shall have no corporate seal.
Section 4. FISCAL YEAR. The fiscal year of the corporation
shall be fixed by resolution of the Board.
Section 5. DIVIDENDS. Dividends on the capital stock of the
corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board at any regular or special meeting, pursuant to
law, and may be paid in cash, in property or in shares of capital stock.
Before payment of any dividend, there may be set aside out of
any funds of the corporation available for dividends such sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or
for repairing or maintaining any property of the corporation, or for such
other purpose as the directors shall determine to be in the best interest of
the corporation, and the directors may modify or abolish any such reserve in
the manner in which it was created.
ARTICLE VII. INDEMNIFICATION.
The corporation shall indemnify such persons for such liabilities in
such manner under such circumstances and to such extent as permitted by the
Delaware General Corporation Law, as now enacted or hereafter amended. The
Board may authorize the purchase and maintenance of insurance and/or the
execution of individual agreements for the purpose of such indemnification,
and the corporation shall advance all reasonable costs and expenses
(including attorneys' fees) incurred in defending any action, suit or
proceeding to all persons entitled to indemnification under this Article, all
in the manner, under the circumstances and to the extent permitted by the
Delaware General Corporation Law, as now enacted or hereafter amended.
ARTICLE VIII. AMENDMENTS.
These Bylaws may be amended or repealed in accordance with the
Certificate of Incorporation.
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CIMA LABS INC.
EQUITY INCENTIVE PLAN
AMENDED AND RESTATED MARCH 25, 1996
FURTHER AMENDED, EFFECTIVE SEPTEMBER 24, 1996
AMENDED AND RESTATED, EFFECTIVE JUNE 2, 1999
INTRODUCTION.
In 1987, the Board of Directors adopted the CIMA LABS, INC. Stock Option
and Stock Award Plan, which was later amended and restated. On March 25, 1996,
the Board of Directors adopted a subsequent amendment and restatement and
retitled this the Equity Incentive Plan. On February 23, 1998, the Board of
Directors amended and restated the Equity Incentive Plan to increase the number
of shares of Common Stock available for issuance pursuant to the grant of awards
hereunder. And, again on March 8, 1999, the Board of Directors amended and
restated the Equity Incentive Plan to increase the number of common stock
available for issuance pursuant to the grant of awards hereunder.
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which selected
Employees and Directors of and Consultants to the Company, and its Affiliates,
may be given an opportunity to benefit from increases in value of the stock of
the Company through the granting of (i) Incentive Stock Options, (ii)
Nonstatutory Stock Options, (iii) stock bonuses, (iv) rights to purchase
restricted stock, and (v) stock appreciation rights, all as defined below.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees or Directors of or Consultants to the Company or
its Affiliates, to secure and retain the services of new Employees, Directors
and Consultants, and to provide incentives for such persons to exert maximum
efforts for the success of the Company and its Affiliates.
(c) The Company intends that the Stock Awards issued under the Plan
shall, in the discretion of the Board or any Committee to which responsibility
for administration of the Plan has been delegated pursuant to subsection 3(c),
be either (i) Options granted pursuant to Section 6 hereof, including Incentive
Stock Options and Nonstatutory Stock Options, (ii) stock bonuses or rights to
purchase restricted stock granted pursuant to Section 7 hereof, or (iii) stock
appreciation rights granted pursuant to Section 8 hereof. All Options shall be
separately designated Incentive Stock Options or Nonstatutory Stock Options at
the time of grant, and in such form as issued pursuant to Section 6, and a
separate certificate or certificates will be issued for shares purchased on
exercise of each type of Option.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary
corporation, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f) respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in
accordance with subsection 3(c) of the Plan.
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(e) "COMPANY" means CIMA LABS INC., a Delaware corporation.
(f) "CONCURRENT STOCK APPRECIATION RIGHT" or "CONCURRENT RIGHT"
means a right granted pursuant to subsection 8(b)(2) of the Plan.
(g) "CONSULTANT" means any person, including an advisor, engaged by
the Company or an Affiliate to render consulting services and who is
compensated for such services, provided that the term "Consultant" shall not
include Directors who are paid only a director's fee by the Company or who
are not compensated by the Company for their services as Directors.
(h) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means
the employment or relationship as a Director or Consultant is not interrupted
or terminated. The Board or the chief executive officer of the Company, in
that party's sole discretion, may determine whether Continuous Status as an
Employee, Director or Consultant shall be considered interrupted in the case
of: (i) any leave of absence approved by the Board or chief executive
officer of the Company, including sick leave, military leave, or any other
personal leave; or (ii) transfers between locations of the Company or between
the Company, Affiliates or their successors.
(i) "COVERED EMPLOYEE" means the chief executive officer and the
four (4) other highest compensated officers of the Company for whom total
compensation is required to be reported to shareholders under the Exchange
Act, as determined for purposes of Section 162(m) of the Code.
(j) "DIRECTOR" means a member of the Board.
(k) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as
a Director nor payment of a director's fee by the Company shall be sufficient
to constitute "employment" by the Company.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(m) "FAIR MARKET VALUE" means, as of any date, the value of the
common stock of the Company determined as follows:
(1) If the common stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market, the Fair Market Value of a share of common stock shall be
the closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such system or exchange (or the exchange with the
greatest volume of trading in common stock) on the last market trading day
prior to the day of determination, as reported in the Wall Street Journal or
such other source as the Board deems reliable;
(2) If the common stock is quoted on the Nasdaq Stock Market
(but not on the National Market thereof) or is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a share of common stock shall be the mean between the bid and
asked prices for the common stock on the last market trading day prior to the
day of determination, as reported in the Wall Street Journal or such other
source as the Board deems reliable;
(3) In the absence of an established market for the common
stock, the Fair Market Value shall be determined in good faith by the Board.
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(n) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(o) "INDEPENDENT STOCK APPRECIATION RIGHT" or "INDEPENDENT RIGHT"
means a right granted pursuant to subsection 8(b)(3) of the Plan.
(p) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
of 1933 ("Regulation S-K")), does not possess an interest in any other
transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K, and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(q) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
(r) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(s) "OPTION" means a stock option granted pursuant to the Plan.
(t) "OPTION AGREEMENT" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of
the Plan.
(u) "OPTIONEE" means an Employee, Director or Consultant who holds an
outstanding Option.
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(v) "OUTSIDE DIRECTOR" means a Director who either (i) is not a
current employee of the Company or an "affiliated corporation" (within the
meaning of Treasury regulations promulgated under Section 162(m) of the
Code), is not a former employee of the Company or an "affiliated corporation"
receiving compensation for prior services (other than benefits under a tax
qualified pension plan), was not an officer of the Company or an "affiliated
corporation" at any time, and is not currently receiving direct or indirect
remuneration from the Company or an "affiliated corporation" for services in
any capacity other than as a Director, or (ii) is otherwise considered an
"outside director" for purposes of Section 162(m) of the Code.
(w) "PLAN" means this CIMA LABS INC. Equity Incentive Plan.
(x) "RULE 16B-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect with respect to the Company when
discretion is being exercised with respect to the Plan.
(y) "STOCK APPRECIATION RIGHT" means any of the various types of
rights which may be granted under Section 8 of the Plan.
(z) "STOCK AWARD" means any right granted under the Plan, including
any Option, any stock bonus, any right to purchase restricted stock, and any
Stock Appreciation Right.
(aa) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of
an individual Stock Award grant. Each Stock Award Agreement shall be subject
to the terms and conditions of the Plan.
(bb) "TANDEM STOCK APPRECIATION RIGHT" or "TANDEM RIGHT" means a
right granted pursuant to subsection 8(b)(1) of the Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the
Board delegates administration to a Committee, as provided in subsection 3(c).
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(1) To determine from time to time which of the persons
eligible under the Plan shall be granted Stock Awards; when and how each
Stock Award shall be granted; whether a Stock Award will be an Incentive
Stock Option, a Nonstatutory Stock Option, a stock bonus, a right to purchase
restricted stock, a Stock Appreciation Right, or a combination of the
foregoing; the provisions of each Stock Award granted (which need not be
identical), including the time or times when a person shall be permitted to
receive stock pursuant to a Stock Award; whether a person shall be permitted
to receive stock upon exercise of an Independent Stock Appreciation Right;
and the number of shares with respect to which a Stock Award shall be granted
to each such person.
(2) To construe and interpret the Plan and Stock Awards
granted under it, and to establish, amend and revoke rules and regulations
for its administration. The Board, in the exercise of this power, may
correct any defect, omission or inconsistency in the Plan or in any Stock
Award Agreement, in a manner and to the extent it shall deem necessary or
expedient to make the Plan fully effective.
(3) To amend the Plan or a Stock Award as provided in Section
13.
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(4) Generally, to exercise such powers and to perform such
acts as the Board deems necessary or expedient to promote the best interests
of the Company which are not in conflict with the provisions of the Plan.
(c) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members (the "Committee"), all of the
members of which Committee may be, in the discretion of the Board,
Non-Employee Directors and/or Outside Directors. If administration is
delegated to a Committee, the Committee shall have, in connection with the
administration of the Plan, the powers theretofore possessed by the Board,
including the power to delegate to a subcommittee of two (2) or more Outside
Directors any of the administrative powers the Committee is authorized to
exercise (and references in this Plan to the Board shall thereafter be to the
Committee or such subcommittee), subject, however, to such resolutions, not
inconsistent with the provisions of the Plan, as may be adopted from time to
time by the Board. The Board may abolish the Committee at any time and
revest in the Board the administration of the Plan. Notwithstanding anything
in this Section 3 to the contrary, at any time the Board or the Committee may
delegate to a committee of one or more members of the Board the authority to
grant Stock Awards to eligible persons who (1) are not then subject to
Section 16 of the Exchange Act and/or (2) are either (i) not then Covered
Employees and are not expected to be Covered Employees at the time of
recognition of income resulting from such Stock Award, or (ii) not persons
with respect to whom the Company wishes to avoid the application of Section
162(m) of the Code.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 12 relating to adjustments
upon changes in stock, the stock that may be issued pursuant to Stock Awards
shall not exceed in the aggregate Two Million Six Hundred Fifty Thousand
(2,650,000) shares of the Company's common stock. If any Stock Award shall
for any reason expire or otherwise terminate, in whole or in part, without
having been exercised in full, the stock not acquired under such Stock Award
shall revert to and again become available for issuance under the Plan.
Shares subject to Stock Appreciation Rights exercised in accordance with
Section 8 of the Plan shall not be available for subsequent issuance under
the Plan.
(b) The stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) Incentive Stock Options and Stock Appreciation Rights
appurtenant thereto may be granted only to Employees. Stock Awards other
than Incentive Stock Options and Stock Appreciation Rights appurtenant
thereto may be granted only to Employees, Directors or Consultants.
(b) No person shall be eligible for the grant of an Incentive Stock
Option or an award to purchase restricted stock if, at the time of grant,
such person owns (or is deemed to own pursuant to Section 424(d) of the Code)
stock possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or of any of its Affiliates
unless the exercise price of such Incentive Stock Option is at least one
hundred ten percent (110%) of the Fair Market Value of such stock at the date
of grant and the Incentive Stock Option is not exercisable after the
expiration of five (5) years from the date of grant.
(c) Subject to the provisions of Section 12 relating to adjustments
upon changes in stock, no person shall be eligible to be granted Options and
Stock Appreciation Rights covering more than five hundred thousand (500,000)
shares of the Company's common stock in any three (3) calendar year period.
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6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.
(b) PRICE. The exercise price of each Incentive Stock Option shall be
not less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted; the exercise price of
each Nonstatutory Stock Option shall be determined by the Board.
Notwithstanding the foregoing, an Option (whether an Incentive Stock Option or a
Nonstatutory Stock Option) may be granted with an exercise price lower than that
set forth in the preceding sentence or determined by the Board if such Option is
granted pursuant to an assumption or substitution for another option in a manner
satisfying the provisions of Section 424(a) of the Code.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to
an Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board or the Committee, at the time of the grant of the
Option, (A) by delivery to the Company of other common stock of the Company,
(B) according to a deferred payment or other arrangement (which may include,
without limiting the generality of the foregoing, the use of other common stock
of the Company) with the person to whom the Option is granted or to whom the
Option is transferred pursuant to subsection 6(d), or (C) in any other form of
legal consideration that may be acceptable to the Board.
In the case of any deferred payment arrangement, interest shall be
payable at least annually and shall be charged at the minimum rate of interest
necessary to avoid the treatment as interest, under any applicable provisions of
the Code, of any amounts other than amounts stated to be interest under the
deferred payment arrangement.
(d) TRANSFERABILITY. An Incentive Stock Option shall not be
transferable except by will or by the laws of descent and distribution, and
shall be exercisable during the lifetime of the person to whom the Option is
granted only by such person. A Nonstatutory Stock Option shall not be
transferable, except by the Optionee upon such terms and conditions as are set
forth in the Option Agreement for such Nonstatutory Stock Option, as the Board
or the Committee shall determine in its discretion. Notwithstanding the
foregoing, the person to whom the Option is granted may, by delivering written
notice to the Company, in a form satisfactory to the Company, designate a third
party who, in the event of the death of the Optionee, shall thereafter be
entitled to exercise the Option.
(e) VESTING. The total number of shares of stock subject to an Option
may, but need not, be allotted in periodic installments (which may, but need
not, be equal). The Option Agreement may provide that from time to time during
each of such installment periods, the Option may become exercisable ("vest")
with respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such period
and/or any prior period as to which the Option became vested but was not fully
exercised. The Option may be subject to such other terms and conditions on the
time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem
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appropriate. The provisions of this subsection 6(e) are subject to any
Option provisions governing the minimum number of shares as to which an
Option may be exercised.
(f) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event an Optionee's Continuous Status as an Employee,
Director or Consultant terminates (other than upon the Optionee's death or
disability), the Optionee may exercise his or her Option (to the extent that
the Optionee was entitled to exercise it at the date of termination) but only
within such period of time ending on the earlier of (i) the date three (3)
months after the termination of the Optionee's Continuous Status as an
Employee, Director or Consultant (or such longer or shorter period specified
in the Option Agreement), or (ii) the expiration of the term of the Option as
set forth in the Option Agreement. If, after termination, the Optionee does
not exercise his or her Option within the time specified in the Option
Agreement, the Option shall terminate, and the shares covered by such Option
shall revert to and again become available for issuance under the Plan.
An Optionee's Option Agreement may also provide that if the exercise
of the Option following the termination of the Optionee's Continuous Status
as an Employee, Director, or Consultant (other than upon the Optionee's death
or disability) would result in liability under Section 16(b) of the Exchange
Act, then the Option shall terminate on the earlier of (i) the expiration of
the term of the Option set forth in the Option Agreement, or (ii) the tenth
(10th) day after the last date on which such exercise would result in such
liability under Section 16(b) of the Exchange Act. Finally, an Optionee's
Option Agreement may also provide that if the exercise of the Option
following the termination of the Optionee's Continuous Status as an Employee,
Director or Consultant (other than upon the Optionee's death or disability)
would be prohibited at any time solely because the issuance of shares would
violate the registration requirements under the Act, then the Option shall
terminate on the earlier of (i) the expiration of the term of the Option set
forth in the first paragraph of this subsection 6(f), or (ii) the expiration
of a period of three (3) months after the termination of the Optionee's
Continuous Status as an Employee, Director or Consultant during which the
exercise of the Option would not be in violation of such registration
requirements.
(g) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous
Status as an Employee, Director or Consultant terminates as a result of the
Optionee's disability, the Optionee may exercise his or her Option (to the
extent that the Optionee was entitled to exercise it at the date of
termination), but only within such period of time ending on the earlier of
(i) the date twelve (12) months following such termination (or such longer or
shorter period specified in the Option Agreement), or (ii) the expiration of
the term of the Option as set forth in the Option Agreement. If, at the date
of termination, the Optionee is not entitled to exercise his or her entire
Option, the shares covered by the unexercisable portion of the Option shall
revert to and again become available for issuance under the Plan. If, after
termination, the Optionee does not exercise his or her Option within the time
specified herein, the Option shall terminate, and the shares covered by such
Option shall revert to and again become available for issuance under the Plan.
(h) DEATH OF OPTIONEE. In the event of the death of an Optionee
during, or within a period specified in the Option after the termination of,
the Optionee's Continuous Status as an Employee, Director or Consultant, the
Option may be exercised (to the extent the Optionee was entitled to exercise
the Option at the date of death) by the Optionee's estate, by a person who
acquired the right to exercise the Option by bequest or inheritance or by a
person designated to exercise the option upon the Optionee's death pursuant
to subsection 6(d), but only within the period ending on the earlier of (i)
the date eighteen (18) months following the date of death (or such longer or
shorter period specified in the Option Agreement), or (ii) the expiration of
the term of such Option as set forth in the Option Agreement. If, at the
time of death, the Optionee was not entitled to exercise his or her entire
Option, the shares covered by the unexercisable portion of the Option shall
revert to and again become available for issuance under the Plan. If, after
death, the Option is not
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<PAGE>
exercised within the time specified herein, the Option shall terminate, and
the shares covered by such Option shall revert to and again become available
for issuance under the Plan.
7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.
Each stock bonus or restricted stock purchase agreement shall be in
such form and shall contain such terms and conditions as the Board or the
Committee shall deem appropriate. The terms and conditions of stock bonus or
restricted stock purchase agreements may change from time to time, and the
terms and conditions of separate agreements need not be identical, but each
stock bonus or restricted stock purchase agreement shall include (through
incorporation of provisions hereof by reference in the agreement or
otherwise) the substance of each of the following provisions as appropriate:
(a) PURCHASE PRICE. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board or Committee shall
determine and designate in such agreement. Notwithstanding the foregoing,
the Board or the Committee may determine that eligible participants in the
Plan may be awarded stock pursuant to a stock bonus agreement in
consideration for past services actually rendered to the Company or for its
benefit.
(b) TRANSFERABILITY. No rights under a stock bonus or restricted
stock purchase agreement shall be transferable except by will or the laws of
descent and distribution so long as stock awarded under such agreement
remains subject to the terms of the agreement, except as specifically
provided in the applicable stock bonus or restricted stock purchase agreement.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to
a restricted stock purchase agreement shall be paid either: (i) in cash at
the time of purchase; (ii) at the discretion of the Board or the Committee,
according to a deferred payment or other arrangement with the person to whom
the stock is sold; or (iii) in any other form of legal consideration that may
be acceptable to the Board or the Committee in its discretion.
Notwithstanding the foregoing, the Board or the Committee to which
administration of the Plan has been delegated may award stock pursuant to a
stock bonus agreement in consideration for past services actually rendered to
the Company or for its benefit.
(d) VESTING. Shares of stock sold or awarded under the Plan may,
but need not, be subject to a repurchase option in favor of the Company in
accordance with a vesting schedule to be determined by the Board or the
Committee.
(e) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event a Participant's Continuous Status as an Employee,
Director or Consultant terminates, the Company may repurchase or otherwise
reacquire, subject to the limitations described in subsection 7(d), any or
all of the shares of stock held by that person which have not vested as of
the date of termination under the terms of the stock bonus or restricted
stock purchase agreement between the Company and such person.
8. STOCK APPRECIATION RIGHTS.
(a) The Board or Committee shall have full power and authority,
exercisable in its sole discretion, to grant Stock Appreciation Rights under
the Plan to Employees or Directors of or Consultants to, the Company or its
Affiliates. To exercise any outstanding Stock Appreciation Right, the holder
must provide written notice of exercise to the Company in compliance with the
provisions of the Stock Award Agreement evidencing such right. Except as
provided in subsection 5(c), no limitation shall exist on the aggregate
amount of cash payments the Company may make under the Plan in connection
with the exercise of a Stock Appreciation Rights.
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<PAGE>
(b) Three types of Stock Appreciation Rights shall be authorized
for issuance under the Plan:
(1) TANDEM STOCK APPRECIATION RIGHTS. Tandem Stock
Appreciation Rights will be granted appurtenant to an Option, and shall,
except as specifically set forth in this Section 8, be subject to the same
terms and conditions applicable to the particular Option grant to which it
pertains. Tandem Stock Appreciation Rights will require the holder to elect
between the exercise of the underlying Option for shares of stock and the
surrender, in whole or in part, of such Option for an appreciation
distribution. The appreciation distribution payable on the exercised Tandem
Right shall be in cash (or, if so provided, in an equivalent number of shares
of stock based on Fair Market Value on the date of the Option surrender) in
an amount up to the excess of (A) the Fair Market Value (on the date of the
Option surrender) of the number of shares of stock covered by that portion of
the surrendered Option in which the Optionee is vested over (B) the aggregate
exercise price payable for such vested shares.
(2) CONCURRENT STOCK APPRECIATION RIGHTS. Concurrent Rights
will be granted appurtenant to an Option and may apply to all or any portion
of the shares of stock subject to the underlying Option and shall, except as
specifically set forth in this Section 8, be subject to the same terms and
conditions applicable to the particular Option grant to which it pertains. A
Concurrent Right shall be exercised automatically at the same time the
underlying Option is exercised with respect to the particular shares of stock
to which the Concurrent Right pertains. The appreciation distribution
payable on an exercised Concurrent Right shall be in cash (or, if so
provided, in an equivalent number of shares of stock based on Fair Market
Value on the date of the exercise of the Concurrent Right) in an amount equal
to such portion as shall be determined by the Board or the Committee at the
time of the grant of the excess of (A) the aggregate Fair Market Value (on
the date of the exercise of the Concurrent Right) of the vested shares of
stock purchased under the underlying Option which have Concurrent Rights
appurtenant to them over (B) the aggregate exercise price paid for such
shares.
(3) INDEPENDENT STOCK APPRECIATION RIGHTS. Independent
Rights will be granted independently of any Option and shall, except as
specifically set forth in this Section 8, be subject to the same terms and
conditions applicable to Nonstatutory Stock Options as set forth in Section
6. They shall be denominated in share equivalents. The appreciation
distribution payable on the exercised Independent Right shall be not greater
than an amount equal to the excess of (A) the aggregate Fair Market Value (on
the date of the exercise of the Independent Right) of a number of shares of
Company stock equal to the number of share equivalents in which the holder is
vested under such Independent Right, and with respect to which the holder is
exercising the Independent Right on such date, over (B) the aggregate Fair
Market Value (on the date of the grant of the Independent Right) of such
number of shares of Company stock. The appreciation distribution payable on
the exercised Independent Right shall be in cash or, if so provided, in an
equivalent number of shares of stock based on Fair Market Value on the date
of the exercise of the Independent Right.
9. COVENANTS OF THE COMPANY.
(a) During the terms of the Stock Awards, the Company shall keep
available at all times the number of shares of stock required to satisfy such
Stock Awards.
(b) The Company shall seek to obtain from each regulatory commission
or agency having jurisdiction over the Plan such authority as may be required
to issue and sell shares of stock upon exercise of the Stock Award; provided,
however, that this undertaking shall not require the Company to register
under the Securities Act of 1933, as amended (the "Securities Act") either
the Plan, any Stock Award or any stock issued or issuable pursuant to any
such Stock Award. If, after reasonable efforts, the Company is unable to
obtain from any such regulatory commission or agency the authority which
counsel for the Company deems necessary for the lawful issuance and sale of
stock under the Plan, the Company shall be relieved from any
36
<PAGE>
liability for failure to issue and sell stock upon exercise of such Stock
Awards unless and until such authority is obtained.
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall
constitute general funds of the Company.
11. MISCELLANEOUS.
(a) The Board shall have the power to accelerate the time at which a
Stock Award may first be exercised or the time during which a Stock Award or
any part thereof will vest pursuant to subsection 6(e), 7(d) or 8(b),
notwithstanding the provisions in the Stock Award stating the time at which
it may first be exercised or the time during which it will vest.
(b) Neither an Employee, Director or Consultant nor any person to
whom a Stock Award is transferred under subsection 6(d), 7(b), or 8(b) shall
be deemed to be the holder of, or to have any of the rights of a holder with
respect to, any shares subject to such Stock Award unless and until such
person has satisfied all requirements for exercise of the Stock Award
pursuant to its terms.
(c) Nothing in the Plan or any instrument executed or Stock Award
granted pursuant thereto shall confer upon any Employee, Director, Consultant
or other holder of Stock Awards any right to continue in the employ of the
Company or any Affiliate (or to continue acting as a Director or Consultant)
or shall affect the right of the Company or any Affiliate to terminate the
employment of any Employee with or without cause the right of the Company's
Board of Directors and/or the Company's shareholders to remove any Director
pursuant to the terms of the Company's By-Laws and the provisions of the
Delaware General Corporation Law, or the right to terminate the relationship
of any Consultant pursuant to the terms of such Consultant's agreement with
the Company or Affiliate.
(d) To the extent that the aggregate Fair Market Value (determined
at the time of grant) of stock with respect to which Incentive Stock Options
are exercisable for the first time by any Optionee during any calendar year
under all plans of the Company and its Affiliates exceeds one hundred
thousand dollars ($100,000), the Options or portions thereof which exceed
such limit (according to the order in which they were granted) shall be
treated as Nonstatutory Stock Options.
(e) The Company may require any person to whom a Stock Award is
granted, or any person to whom a Stock Award is transferred pursuant to
subsection 6(d), 7(b) or 8(b), as a condition of exercising or acquiring
stock under any Stock Award, (1) to give written assurances satisfactory to
the Company as to such person's knowledge and experience in financial and
business matters and/or to employ a purchaser representative reasonably
satisfactory to the Company who is knowledgeable and experienced in financial
and business matters, and that he or she is capable of evaluating, alone or
together with the purchaser representative, the merits and risks of
exercising the Stock Award; and (2) to give written assurances satisfactory
to the Company stating that such person is acquiring the stock subject to the
Stock Award for such person's own account and not with any present intention
of selling or otherwise distributing the stock. The foregoing requirements,
and any assurances given pursuant to such requirements, shall be inoperative
if (i) the issuance of the shares upon the exercise or acquisition of stock
under the Stock Award has been registered under a then currently effective
registration statement under the Securities Act, or (ii) as to any particular
requirement, a determination is made by counsel for the Company that such
requirement need not be met in the circumstances under the then applicable
securities laws. The Company may, upon advice of counsel to the Company,
place legends on stock certificates issued under the Plan as such counsel
deems
37
<PAGE>
necessary or appropriate in order to comply with applicable securities laws,
including, but not limited to, legends restricting the transfer of the stock.
(f) To the extent provided by the terms of a Stock Award Agreement,
the person to whom a Stock Award is granted may satisfy any federal, state or
local tax withholding obligation relating to the exercise or acquisition of
stock under a Stock Award by any of the following means or by a combination
of such means: (1) tendering a cash payment; (2) authorizing the Company to
withhold shares from the shares of the common stock otherwise issuable to the
participant as a result of the exercise or acquisition of stock under the
Stock Award; or (3) delivering to the Company owned and unencumbered shares
of the common stock of the Company.
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or
subject to any Stock Award, without the receipt of consideration by the
Company (through merger, consolidation, reorganization, recapitalization,
reincorporation, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares,
change in corporate structure or other transaction not involving the receipt
of consideration by the Company), the Plan will be appropriately adjusted in
the type(s) and maximum number of securities subject to the Plan pursuant to
subsection 4(a) and the maximum number of securities subject to award to any
person during any three (3) calendar year period pursuant to subsection 5(c),
and the outstanding Stock Awards will be appropriately adjusted in the
type(s) and number of securities and price per share of stock subject to such
outstanding Stock Awards. Such adjustments shall be made by the Board or the
Committee, the determination of which shall be final, binding and conclusive.
(The conversion of any convertible securities of the Company shall not be
treated as a "transaction not involving the receipt of consideration by the
Company".)
(b) In the event of: (1) a dissolution, liquidation or sale of
substantially all of the assets of the Company; (2) a merger or consolidation
in which the Company is not the surviving corporation; (3) a reverse merger
in which the Company is the surviving corporation but the shares of the
Company's common stock outstanding immediately preceding the merger are
converted by virtue of the merger into other property, whether in the form of
securities, cash or otherwise; or (4) the acquisition by any person, entity
or group within the meaning of Section 13(d) or 14(d) of the Exchange Act, or
any comparable successor provisions (excluding any employee benefit plan, or
related trust, sponsored or maintained by the Company or any Affiliate of the
Company) of the beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act, or comparable successor rule) of
securities of the Company representing at least fifty percent (50%) of the
combined voting power entitled to vote in the election of directors, then to
the extent permitted by applicable law: (i) any surviving or acquiring
corporation or an Affiliate of such surviving or acquiring corporation shall
assume any Stock Awards outstanding under the Plan or shall substitute
similar Stock Awards (including a stock award resulting in the acquisition of
the same consideration paid to the stockholders in the transaction described
in this subsection 12(b)) for those outstanding under the Plan, or (ii) such
Stock Awards shall continue in full force and effect. In the event any
surviving or acquiring corporation or its Affiliates refuse to assume or
continue such Stock Awards, or to substitute similar Stock Awards for those
outstanding under the Plan, then, with respect to Stock Awards held by
persons then performing services as Employees, Directors or Consultants, the
time during which such Stock Awards may be exercised shall be accelerated and
the Stock Awards terminated if not exercised after such acceleration and at
or prior to such event.
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<PAGE>
13. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) The Board at any time, and from time to time, may amend the
Plan. However, except as provided in Section 12 relating to adjustments upon
changes in stock, no amendment shall be effective unless approved by the
stockholders of the Company within twelve (12) months before or after the
adoption of the amendment, where the amendment will:
(i) Increase the number of shares reserved for Stock
Awards under the Plan;
(ii) Modify the requirements as to eligibility for
participation in the Plan (to the extent such modification requires stockholder
approval in order for the Plan to satisfy the requirements of Section 422 of the
Code); or
(iii) Modify the Plan in any other way if such
modification requires stockholder approval in order for the Plan to satisfy the
requirements of Section 422 of the Code or to comply with the requirements of
Rule 16b-3.
(b) The Board may in its sole discretion submit any other amendment
to the Plan for s tockholder approval, including, but not limited to,
amendments to the Plan intended to satisfy the requirements of Section 162(m)
of the Code and the regulations promulgated thereunder regarding the
exclusion of performance-based compensation from the limit on corporate
deductibility of compensation paid to certain executive officers.
(c) It is expressly contemplated that the Board may amend the Plan
in any respect the Board deems necessary or advisable to provide eligible
Employees, Directors or Consultants with the maximum benefits provided or to
be provided under the provisions of the Code and the regulations promulgated
thereunder relating to Incentive Stock Options and/or to bring the Plan
and/or Incentive Stock Options granted under it into compliance therewith.
(d) Rights and obligations under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the person to whom the Stock Award was
granted and (ii) such person consents in writing.
(e) The Board at any time, and from time to time, may amend the terms
of any one or more Stock Award; provided, however, that the rights and
obligations under any Stock Award shall not be impaired by any such amendment
unless (i) the Company requests the consent of the person to whom the Stock
Award was granted and (ii) such person consents in writing.
14. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on May 31, 2004, which
shall be within ten (10) years from the date the Plan is adopted by the Board
or approved by the stockholders of the Company, whichever is earlier. No
Stock Awards may be granted under the Plan while the Plan is suspended or
after it is terminated.
(b) Rights and obligations under any Stock Award granted while the
Plan is in effect shall not be impaired by suspension or termination of the
Plan, except with the consent of the person to whom the Stock Award was
granted.
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<PAGE>
15. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no
Stock Awards granted under the Plan shall be exercised unless and until the
Plan has been approved by the stockholders of the Company, which approval
shall be within twelve (12) months before or after the date the Plan is
adopted by the Board.
40
<PAGE>
LICENSE AGREEMENT
This License Agreement (this "AGREEMENT"), is made and entered into
as of May 28, 1999, by and between CIMA LABS, INC., a Delaware corporation
("CIMA") and IPR Pharmaceuticals, Inc., a Puerto Rico corporation ("IPR").
WHEREAS, CIMA owns or has rights to certain oral drug-delivery
technology marketed under the trademark OraSolv-Registered Trademark- and
related know-how; and
WHEREAS, IPR has an exclusive license to make, have made, use and sell
products containing the pharmaceutical drug "zolmitriptan" on a worldwide basis
and has access to substantial expertise in the development, commercialization
and marketing of human pharmaceutical products; and
WHEREAS, CIMA and IPR have entered into a Development and License
Option Agreement, dated as of September 10, 1997 (the "DEVELOPMENT AGREEMENT"),
under which CIMA is developing a pharmaceutical product formulation
incorporating zolmitriptan and the OraSolv-Registered Trademark- Technology (as
defined below); and
WHEREAS, CIMA granted to IPR under the Development Agreement an option
to license from CIMA the OraSolv-Registered Trademark- Technology; and
WHEREAS, IPR desires to exercise the option granted to IPR by CIMA
under the Development Agreement such that CIMA will enter into a license
agreement with IPR to allow IPR or IPR Affiliates (as defined below) to utilize
the OraSolv-Registered Trademark- Technology for the development, marketing,
distribution and sale of a product incorporating zolmitriptan and the
OraSolv-Registered Trademark- Technology and CIMA desires to enter into such an
agreement with IPR; and
WHEREAS, CIMA and Zeneca Limited., an Affiliate of IPR, will enter
into a Supply Agreement (the "SUPPLY AGREEMENT") under which CIMA will supply to
such Affiliate all of IPR's requirements for the Product (as defined below)
under this Agreement;
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants set forth below, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms have the following
meanings:
1.1. "AFFILIATE" means, with respect to each party, any corporation
or other business entity that (a) directly or indirectly controls, is owned by
or is under common ownership with a party to this Agreement to the extent of at
least fifty percent (50%) of the equity (or such lesser percentage which is the
maximum allowed to be owned by a foreign organization in a particular
jurisdiction) having the power to vote or direct the affairs of such entity, or
(b) directly or indirectly controls, is controlled by or is under common control
with such party. As used herein, the term "control" means possession of the
power to direct, or cause the direction of, the management and policies of a
corporation or other entity, whether through the ownership of voting securities,
by contract or otherwise.
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<PAGE>
1.2. "COMMERCIAL LAUNCH" has the meaning contained in Section 5.1.
1.3. "FIELD" means [...***...].
1.4. "MAJOR COUNTRIES" means [...***...].
1.5. "NET SALES" means the amount billed or invoiced by IPR, its
Affiliates, or sublicensee(s) for sales of the Product, less the following
deductions:
(a) an amount equal to [...***...], for transportation and
delivery charges, including insurance premiums;
(b) taxes, duties and other governmental charges imposed upon the
production, importation, use or sale of the Product and paid by
the selling party (other than franchise or income taxes on the
income of the selling party);
(c) trade, quantity and cash discounts allowed and taken, in
amounts as are customary in the trade; and
(d) credits or allowances given or made on account of rejections,
returns or retroactive price adjustments.
Net Sales does not include sales or transfers of the Product among IPR, its
Affiliates or sublicensee(s) unless the receiving party is the consumer or user
of the Product. The subsequent resale or transfer of the finished product to a
third party is included in Net Sales. Net Sales does not include supply of the
Product for clinical trials or sampling purposes. For purposes of this
definition, the term "sublicensees" does not include third-party distributors
that purchase the Product from IPR or from an IPR Affiliate to re-sell such
Product for their own account.
1.6. "ORASOLV-Registered Trademark- TECHNOLOGY" means CIMA's
effervescent, fast-dissolving, oral drug-delivery tablet technology,
including (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 and listed on Exhibit A hereto (the "PATENTS"),
(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 relating to the
technology marketed under the trade name OraSolv-Registered Trademark-,
including use with either a taste masked or an untreated substance and (iii)
[...***...]. OraSolv-Registered Trademark- Technology includes only technology
relating to tablets that disintegrate or dissolve in the mouth in 30 seconds
or less by either placing on the tongue or by chewing, such disintegration or
dissolution time measured in accordance with the in vitro test specification
set out in Exhibit B hereto. [...***...].
1.7. "PRODUCT" means the pharmaceutical dosage form which is
formulated using the OraSolv-Registered Trademark- Technology and contains
zolmitriptan as its active ingredient, [...***...].
1.8. "SCALE-UP AND VALIDATION PLAN" means a scale-up and
validation plan to be agreed between the parties.
1.9. "U.S. FDA" means the United States Food and Drug
Administration.
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<PAGE>
ARTICLE II
GRANT OF LICENSE
2.1 TECHNOLOGY LICENSE. CIMA hereby grants to IPR and its
Affiliates [...***...] license under the OraSolv-Registered Trademark-
Technology in the Field, during the term of this Agreement, to use, sell,
import or otherwise distribute, or to make, have made, or make for others
solely under IPR's right to self-supply contained in Section 2.4 of the
Supply Agreement, [...***...](including, without limitation, the Product).
2.2. RIGHT TO SUBLICENSE. IPR and its Affiliates have the right to
sublicense the rights granted to them herein upon the prior written approval of
CIMA, which approval will not be unreasonably withheld or delayed.
ARTICLE III
LICENSE FEE AND ROYALTIES
3.1. LICENSE FEE. The parties acknowledge that, in partial
consideration of the license granted by CIMA to IPR and its Affiliates
hereunder, IPR has paid to CIMA a license fee of [...***...].
3.2. MILESTONE PAYMENTS. The parties acknowledge that IPR has
paid to CIMA [...***...]. As further consideration for the license granted
by CIMA to IPR and its Affiliates hereunder, IPR will pay to CIMA the
following amounts within ten days after IPR or an IPR Affiliate or
sublicensee has achieved the corresponding milestones:
[...***...]
3.3. ROYALTY RATES.
(a) As further consideration for the license granted by CIMA to
IPR and its Affiliates hereunder, IPR will pay to CIMA royalties on worldwide
annual Net Sales of the Product as follows:
<TABLE>
<CAPTION>
ANNUAL NET SALES RATE
---------------- ----
<S> <C>
(i) Up to [...***...] ("TRIGGER POINT I") [...***...]
(ii) Above [...***...] but less than $120 million [...***...]
("TRIGGER POINT II")
(iii) Above [...***...] [...***...]
</TABLE>
The royalty rates shown above are applicable to marginal annual Net Sales;
that is, the rate of [...***...] applies to all annual Net Sales up to
[...***...], the rate...of [...***...] applies only to that amount of annual
Net Sales in excess of [...***...] but less than [...***...], and so forth.
The Net Sales amounts set forth above are subject to annual increases as
provided below. Within ninety (90) days after the end of each calendar year
in which IPR or an IPR Affiliate or sublicensee sells the Product under this
Agreement, IPR will report to CIMA the percentages of worldwide Net Sales of
the Product during that calendar year resulting from the sale of the Product
(i) within the United States and (ii) outside the United States.
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<PAGE>
(b) The sales levels of Trigger Point I and Trigger Point II
will increase as follows for the purpose of calculating royalties payable to
CIMA during the following calendar year:
[...***...]
(c) In no event will Trigger Point I decrease below [...***...]
or will Trigger Point II decrease below [...***...].
(d) The currency conversion from local currencies into U.S.
dollars for the purposes of this Agreement will be carried out by IPR in
accordance with its current accounting policies or such other policies as may
in the future be applied by IPR and approved by its independent auditors.
IPR will pay all royalty payments to CIMA within forty-five (45) days after
the end of each calendar quarter. IPR will include with each payment a
certificate of a financial officer of IPR detailing the basis for the
calculation of the payment.
3.4. ADJUSTMENTS.
(a) If IPR or an IPR Affiliate must pay a license fee to any
third party, based upon a claim of patent infringement made by the third
party arising solely from the OraSolv-Registered Trademark- Technology, in
order to enable IPR or its Affiliate or sublicensee to continue to use the
OraSolv-Registered Trademark- Technology, then [...***...]. IPR may not take
as a credit an amount in excess of 50% of the royalties due in any royalty
payment period, and any excess credit will be carried over to the next
royalty payment period until all such credit is exhausted. If the license
granted to IPR in that country has become non-exclusive under this Agreement,
then CIMA, IPR and any other licensee(s) of CIMA for the Product in that
country shall share equally the cost of any fees to be paid to any such third
party, and IPR may offset the amount payable by it against royalties due to
CIMA, as described above.
(b) The royalty rates on Net Sales used to determine royalty
payments due by IPR to CIMA under this Agreement may also be adjusted in
accordance with Section 7.5 ("Infringement") below.
(c) IPR will deduct from the quarterly royalty payment to be
made to CIMA any taxes required to be paid to any governmental authority in
respect of royalty payments paid by IPR to CIMA in the corresponding calendar
quarter and will remit such tax payments to such governmental authority on a
timely basis. IPR will remit to CIMA official documentation of such payments
or withholdings as may be required by CIMA for its tax records on or before
the date on which such payment is due to CIMA under this Agreement.
3.5. RECORDS. IPR will keep, or will cause its Affiliate(s)
or sublicensees to keep, as appropriate, accurate and complete records in
sufficient detail to enable royalties payable to CIMA hereunder to be
verified by CIMA. IPR will permit CIMA to inspect such records once per year
upon written notice by CIMA. Such inspection may be made, at CIMA's expense,
during normal business hours by certified public accountants chosen by CIMA
and reasonably acceptable to IPR. Three years after furnishing the
certificate referred to in paragraph (d) of Section 3.3, IPR may destroy the
records which formed the basis for such certificate, and the certificate will
thereafter be presumed to be correct and accurate unless CIMA has notified
IPR of a discrepancy therein.
3.6. TERM OF ROYALTY OBLIGATION. IPR's royalty payment
obligations will expire or terminate upon the expiration or termination of
this Agreement under Article IX below, and subject to the terms of Article IX.
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ARTICLE IV
SCALE-UP AND VALIDATION
4.1 SCALE-UP AND VALIDATION OBLIGATIONS. CIMA will conduct the
Scale-Up and Validation activities set forth on the Scale-Up and Validation
Plan in consideration for payment by IPR of the amounts set forth on such
Scale-Up and Validation Plan. The parties may amend the Scale-Up and
Validation Plan from time to time during the term of this Agreement by
written agreement.
4.2. SCALE-UP AND VALIDATION PAYMENTS. In consideration for
CIMA's scale-up and validation activities in accordance with this Agreement,
IPR has made a non-refundable payment to CIMA in the amount of [...***...], and
shall make an additional non-refundable payment of [...***...] to CIMA within
thirty (30) days after completion of the Scale-Up and Validation Plan.
ARTICLE V
REGULATORY APPROVALS AND COMMERCIALIZATION
5.1. REGULATORY AND COMMERCIALIZATION DILIGENCE. IPR or an IPR
Affiliate will file for U.S. FDA approval to market the Product in the United
States and for comparable approval in one of the other Major Countries within
[...***...] after final stability data for the Product reasonably acceptable
to IPR are made available to IPR, if the regulatory authorities in the
relevant countries will approve the Product (a) on the basis of a successful
bioequivalence study only, (b) without requiring an efficacy study and (c) on
the basis of the following stability data:
12 months' data on one laboratory batch,
6 months' data on three pilot batches, and
3 months' data on one full-scale batch.
If clinical efficacy data or additional stability data is required, IPR or an
IPR Affiliate will obtain and file, at its sole expense, such data within
[...***...] after the last required data becomes available to IPR or an IPR
Affiliate. IPR or an IPR Affiliate will use commercially reasonable efforts
to launch the Product on a commercial scale and on a national scale
("COMMERCIAL LAUNCH") in each Major Country in which it receives regulatory
and pricing approval reasonably acceptable to IPR to market the Product
within [...***...], after receiving such regulatory and pricing approval.
5.2. FAILURE TO MEET REGULATORY AND COMMERCIALIZATION
OBLIGATIONS. If IPR or an IPR Affiliate fails to meet the timetable set out
in Section 5.1 above in any Major Country, CIMA may, at its sole election,
[...***...].
5.3. REGULATORY ASSISTANCE. After the submission of applications
for approval to market the Product in any country, CIMA will provide
assistance to IPR or its Affiliates in connection with such applications to
the extent that such assistance may be reasonably necessary to IPR or its
Affiliates in obtaining such approval. CIMA will provide a total of fifteen
(15) man-days of such assistance per year at CIMA's expense for all such
applications, and any further assistance will be provided only at IPR's
expense at a rate of [...***...]. Assistance provided by CIMA to remedy any
inadequacies in data generated by CIMA shall be provided at CIMA's expense
and shall not be counted as part of the fifteen (15) man-days of assistance
referred to above.
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5.4. MARKETING DILIGENCE. IPR will use commercially reasonable
efforts to market the Product worldwide consistent with its usual practice in
commercializing and marketing products of similar market potential.
5.5. MINIMUM SALES REQUIREMENTS. Beginning on the first
anniversary of the later of (i) Commercial Launch by IPR, an IPR Affiliate or
sublicensee of the Product in the United States or (ii) Commercial Launch by
IPR, an IPR Affiliate or sublicensee of the Product in a Major Country other
than the United States, IPR will meet an annual minimum sales obligation of
[...***...] of the projected sales for the Product set forth in Exhibit C
hereto. Exhibit C may be amended only as provided in Section 11.3 below and,
in any case, is not subject to amendment by virtue of the forecasting and
ordering procedures set out in the Supply Agreement. If IPR fails to obtain
marketing or price approval for the Product in one or more Major Countries or
fails to launch the Product in any Major Country in accordance with Section
5.1 above, the parties will meet to agree to a fair and reasonable adjustment
to the projected sales for the Product set forth on Exhibit C in order to
adjust for such non-approval.
5.6. FAILURE TO MEET MINIMUM SALES REQUIREMENTS.
(a) If IPR fails to meet the minimum sales target set forth in
Section 5.5 above in any year in which such minimum sales target applies,
then CIMA may, at its option, convert the license granted to IPR and its
Affiliates hereunder into a non-exclusive license, and CIMA may, at its
option, license the OraSolv-Registered Trademark- Technology in the Field to
third parties. CIMA will have no financial or accounting obligations to IPR
as a result of any license granted by CIMA in the OraSolv-Registered
Trademark- Technology to any third party under this Section 5.6.
(b) Prior to exercising its rights under Section 5.6(a), CIMA
will provide to IPR the opportunity to pay the difference between the royalty
amount due on the minimum sales of IPR or its Affiliates under Section 5.5
above for the appropriate year and the royalties actually paid under Section
3.3 above, in order to make up for the shortfall in sales. If IPR makes such
payment to CIMA, then this Agreement will continue in full force and effect
on an exclusive basis as if the shortfall in sales had not occurred.
5.7. EXPORT CONTROL. IPR will, and will cause its Affiliates and
sublicensee(s) to, adhere to the U.S. Export Administration Laws and
Regulations in performing under this Agreement, and will not export or
re-export any technical data or products received from CIMA, or the direct
product of such technical data, to any proscribed country listed in the U.S.
Export Administration Regulations unless properly authorized by the U.S.
Government.
ARTICLE VI
CONFIDENTIALITY; USE LIMITATIONS
6.1. CONFIDENTIAL INFORMATION. "Confidential Information" means
any information disclosed by a party (the "DISCLOSING PARTY") to the other
party (the "RECIPIENT") in performing under this Agreement, the Development
Agreement or the Supply Agreement, including, but not limited to, information
related to zolmitriptan, any patent application or drawing or pending or
potential patent claim the subject matter of which is directly or indirectly
derived from information disclosed by the Disclosing Party, any trade secret,
information, invention, idea, physical, chemical or biological development,
samples, process, method, procedures, formulations, 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. The
material terms of this Agreement are Confidential Information of both
parties.
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6.2. EXCLUSIONS. Confidential Information does not include
information which is (i) in the public domain without fault of the Recipient,
(ii) known to the Recipient before receipt from the Disclosing Party, (iii)
is disclosed to the Recipient by a third party without restriction, or (iv)
is independently developed by the Recipient without breach of this Agreement.
6.3. CONFIDENTIAL TREATMENT.
(a) During the term of this Agreement and for a period of five
(5) years after its termination (but ten (10) years after its termination
with respect to information pertaining to manufacturing processes and
know-how), the Recipient will maintain all Confidential Information of the
Disclosing Party in trust and confidence, will not use such Confidential
Information for any unauthorized purpose and, except as set forth below, will
not disclose such Confidential Information to any third party. Title to all
Confidential Information provided to the Recipient by the Disclosing Party
will remain vested in the Disclosing Party.
(b) The Recipient will use and disclose to its Affiliates the
Confidential Information of the Disclosing Party only to the extent required
to accomplish the purposes of this Agreement. The Recipient will advise its
employees, agents, consultants and potential sublicensees who might have
access to Confidential Information of the Disclosing Party or to whom such
information is disclosed under the terms of this Agreement, of the
confidential nature thereof and will obtain the agreement of such third
parties to hold such information in confidence and not make use of such
information for any purpose other than those permitted by this Agreement.
The Recipient will promptly notify the Disclosing Party upon discovery of any
unauthorized use or disclosure of the Confidential Information of the
Disclosing Party.
6.4. AUTHORIZED DISCLOSURE. Notwithstanding the foregoing, the
Recipient may disclose the Confidential Information of the Disclosing Party
if such disclosure:
(a) is in response to a valid order of a court or other
governmental body of any country or any political subdivision thereof;
(b) is otherwise required by law; or
(c) is otherwise, and to the extent which it is, necessary to
file or prosecute patent applications, prosecute or defend litigation or
comply with applicable governmental regulations or otherwise establish rights
or enforce obligations under this Agreement;
provided, however, that the Recipient will first give notice to the
Disclosing Party and will make a reasonable effort to obtain a protective
order requiring that the Confidential Information so disclosed be used only
for the purposes for which the disclosure was required.
6.5. PUBLICITY. Any public disclosure of the existence of this
Agreement or the terms hereof, including but not limited to press releases
and other than the authorized disclosure set forth in Section 6.4 above, will
be reviewed and consented to by each party prior to such disclosure. Neither
party will unreasonably withhold or delay such consent. The parties hereby
consent to the press release attached hereto as Exhibit D announcing
execution of this Agreement. IPR may disclose the existence of this
Agreement and the terms hereof to bona fide potential sublicensees under this
Agreement, and both parties may disclose the existence of this Agreement and
the terms hereof to any potential acquirer, merger partner or other bona fide
potential financial partner or investment banking firm in connection with
financing efforts, subject to the provisions of paragraph (b) of Section 6.3
above.
6.6. LIMITATIONS ON USE. (a) IPR will use the Product and the
Confidential Information of CIMA solely for the purposes specified in this
Agreement and for no other purpose. IPR will not use the
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Confidential Information of CIMA for any research or commercial activities
other than those that relate directly to the purposes specified herein, nor
will it perform any reverse-engineering or other research on the Product not
contemplated by this Agreement. IPR's use of the Product will be in
compliance with all applicable laws and regulations. Upon expiration or
termination of the Agreement, IPR will return or destroy, as directed by
CIMA, all copies of any and all information, data and results obtained from
conduct of evaluations under this Agreement, all of which constitute part of
CIMA's Confidential Information and will be treated by IPR in accordance with
Section 6.3 above.
(b) CIMA will use the Confidential Information of IPR solely for
the purposes specified in this Agreement and for no other purpose. CIMA will
not use the Confidential Information of IPR for any research or commercial
activities other than those that relate directly to the purposes specified
herein. Upon expiration or termination of the Agreement, CIMA will return or
destroy, as directed by IPR, all copies of any and all information, data and
results obtained from conduct of evaluations under this Agreement, all of
which constitute part of IPR's Confidential Information and will be treated
by CIMA in accordance with Section 6.3 above.
ARTICLE VII
PATENTS AND OTHER INTELLECTUAL PROPERTY
7.1. OWNERSHIP. Title and ownership rights in the
OraSolv-Registered Trademark- Technology and other Confidential Information
of CIMA will remain at all times with CIMA, and IPR will acquire no title
thereto as a result of this Agreement. Title and ownership rights in IPR's
Confidential Information will remain at all times with IPR, and CIMA will
acquire no title thereto as a result of this Agreement. Nothing in this
Agreement confers 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.
7.2 INVENTIONS AND DEVELOPMENTS. CIMA will solely own all
right, title and interest in and to any technology invented and developments
made or conceived by it or its Affiliates during the term of this Agreement,
whether patentable or not, that relate to the OraSolv-Registered Trademark-
Technology or that is necessary or useful to the manufacture or distribution
of the Product ("NEW TECHNOLOGY"). Any New Technology developed before
December 31, 2010 will be included in the OraSolv-Registered Trademark-
Technology (except to the extent that such New Technology would otherwise be
excluded from the definition of OraSolv-Registered Trademark- Technology),
and as such will be subject to the terms of this Agreement. CIMA may, in its
sole discretion and at its sole expense, file and prosecute patent
applications on New Technology and obtain and enforce patents issuing from
such applications. CIMA will solely own all such patent applications and
patents. [...***...]. IPR will execute such documents and render such
assistance, other than financial assistance, to CIMA as may be necessary or
appropriate to enable CIMA to obtain and maintain title to any New Technology
and to any patent application or patent on New Technology, and to enforce any
such patents. [...***...].
7.3. PROSECUTION OF PATENTS. CIMA may prosecute all patents or patent
applications encompassed by the OraSolv-Registered Trademark- Technology and
the New Technology. [...***...].
7.4. MARKING. IPR will mark the Product with the proper legend
concerning patent coverage in accordance with the laws of each country where
patent marking is required.
7.5. INFRINGEMENT.
(a) If either party becomes aware of any infringement or
threatened infringement of any Patents, the party having such knowledge will
promptly notify the other party thereof, giving all available details. If
CIMA determines that any rights under any Patents are being infringed by an
unlicensed third
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party, CIMA has the right to initiate patent infringement litigation in its
own name, or in the name of IPR if necessary, as reasonably necessary against
such third party. Such litigation will be under the sole direction of CIMA
and at CIMA's expense, but IPR agrees to perform all actions that CIMA's
legal counsel determines to be reasonably necessary in the conduct of the
litigation. IPR may join such proceeding at its own election and own expense
(including the expense of legal counsel). CIMA will receive any relief
obtained by such litigation, including all monetary awards. CIMA will keep
IPR informed of the progress of such litigation and related matters.
(b) [...***...].
(c) If any third party brings, or threatens to bring, an action
against CIMA, IPR or IPR's Affiliates, sublicensees or distributors for
patent infringement involving the manufacture, use, sale, distribution or
marketing of the Product, which action relates solely to the
OraSolv-Registered Trademark-Technology, then the party sued will notify the
other party to this Agreement of such action, in writing. CIMA will
indemnify, defend and hold harmless IPR and its directors, officers,
employees, agents, Affiliates, and third parties performing services for IPR,
from and against any such claim, provided that it is given full and complete
authority, information and reasonable assistance in the defense of such
claim. IPR may join such proceeding at its own expense (including the
expense of legal counsel) with the prior written consent of CIMA, which
consent will not be unreasonably withheld. If IPR or an IPR Affiliate or
sublicensee are obligated to pay royalties or make further payments to such
third party in order to make, have made, make for others, use, import, offer
for sale, sell or otherwise distribute the Product as a result of such
action, such payments will be creditable against the amount of royalties
payable to CIMA with respect to that country in accordance with Section
3.4(a) above.
(d) If any third party brings, or threatens to bring, an action
against CIMA, IPR or IPR's Affiliates, sublicensees or distributors for
patent infringement involving the manufacture, use, sale, distribution or
marketing of the Product, which action relates to zolmitriptan, then the
party sued will notify other party to this Agreement of such action, in
writing. IPR will indemnify, defend and hold harmless CIMA and its
directors, officers, employees, agents, Affiliates, and third parties
performing services for CIMA, from and against any such claim, provided that
it is given full and complete authority, information and reasonable
assistance in the defense of such claim. CIMA may, in its sole discretion,
require that IPR, or the appropriate IPR Affiliate or sublicensee, cease
commercialization of the Product in any country in which such a claim has
arisen.
(e) If the manufacture, use, sale, offer for sale or import of
the Product in a Major Country would, but for the license granted to IPR
under this Agreement, infringe a Patent included in the OraSolv-Registered
Trademark-Technology, and if all claims of such Patents in such country
subsequently become invalid, [...***...].
(f) To the extent permitted by applicable law, CIMA has the
right to terminate the license granted hereunder with respect to any country
if IPR, its Affiliates or any individual or entity acting on their behalf
attempts to challenge the validity of any of the Patents.
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ARTICLE VIII
REPRESENTATIONS AND WARRANTIES
8.1. REPRESENTATIONS AND WARRANTIES OF CIMA. CIMA hereby
represents and warrants to IPR that:
(a) CIMA is duly organized and validly existing under the laws
of the state of Delaware and has full corporate power and authority to enter
into this Agreement and to carry out the provisions hereof;
(b) CIMA is duly authorized to execute and deliver this
Agreement and to perform its obligations hereunder;
(c) This Agreement is a legal and valid obligation binding upon
CIMA and enforceable in accordance with its terms. The execution, delivery
and performance of this Agreement by CIMA does not conflict with any
agreement, instrument or understanding, oral or written, to which it is a
party or by which it may be bound, nor does it violate any law or regulation
of any court, governmental body or administrative or other agency having
jurisdiction over it,
(d) CIMA is the owner of the entire right, title and interest in
the OraSolv-Registered Trademark- Technology and it has full right and power
to grant the rights set forth in this Agreement; and
(e) There is no pending or, to CIMA's knowledge, threatened
litigation by or against CIMA relating to the OraSolv-Registered Trademark-
Technology other than an interference proceeding requested by CIMA regarding
CIMA's U.S. Patent Application Serial No. 08/468,913 and U.S. Patent No.
5,464,632 of a French company, Laboratories Prographarm. CIMA is also one of
several parties who have filed oppositions with respect to Prographarm's
European Patent EP 548356.
8.2. REPRESENTATIONS AND WARRANTIES OF IPR. IPR hereby
represents and warrants to CIMA that:
(a) IPR is duly organized and validly existing under the laws of
Puerto Rico and has full corporate power and authority to enter into this
Agreement and to carry out the provisions hereof;
(b) IPR is duly authorized to execute and deliver this Agreement
and to perform its obligations hereunder; and
(c) This Agreement is a legal and valid obligation binding upon
IPR and enforceable in accordance with its terms. The execution, delivery
and performance of this Agreement by IPR does not conflict with any
agreement, instrument or understanding, oral or written, to which it is a
party or by which it may be bound, nor does it violate any law or regulation
of any court, governmental body or administrative or other agency having
jurisdiction over it.
8.3. NO WARRANTY ON PATENTS. Nothing in this Agreement will be
construed as a warranty that the Patents are valid or enforceable or that the
OraSolv-Registered Trademark- Technology is free from the rightful claim of
any third party, by way of infringement or the like, of any patent or
proprietary rights of such party. CIMA hereby represents to IPR that CIMA
has not sought to determine whether any patent or item of prior art, other
than the patents and other items of prior art disclosed to IPR heretofore by
CIMA, renders any of the Patents invalid. CIMA further represents to IPR
that CIMA has not sought to determine whether the Product would infringe any
patent other than the Patents disclosed to IPR heretofore by CIMA. IPR
acknowledges
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that it has received copies of the prosecution histories of the Patents and
enters into this Agreement with full knowledge of the contents thereof.
ARTICLE IX
TERM AND TERMINATION
9.1. TERM. This Agreement will be effective as of the date
hereof and will expire on a country by country basis, upon the later date of
(a) ten (10) years after the date of first commercial sale of the Product in
the country, or (b) the expiration of the last Patent covering the Product
filed in that country. The parties will jointly consider ways to extend the
term of the license granted under this Agreement to the extent permitted by
applicable law or regulation and may so extend the term in a writing signed
by both parties. [...***...].
9.2. TERMINATION.
(a) IPR may terminate this Agreement in its entirety or with
respect to use of the rights licensed hereunder in any country or countries,
[...***...]. Such termination will not relieve IPR of any obligation to make
payments to CIMA for royalties accrued prior to the effective date of such
termination. IPR may sell, transfer or otherwise dispose of for payment any
of the Product that is not sold prior to the effective date of such
termination, so long as such sale, transfer or disposal occurs within three
(3) months of the effective date of termination of this Agreement. IPR will
pay to CIMA royalties on such sales as set out in Article III hereof. IPR
will continue to provide CIMA with the certificate referred to in Section
3.3(d) above with respect to sales made during such three-month period.
(b) Either party may terminate this Agreement prior to its
expiration by giving written notice to the other party, if the other party
materially fails or neglects to perform its obligations under this Agreement
and the same is not cured or being cured to the non-breaching party's
reasonable satisfaction within [...***...] after the non-breaching party
gives written notice specifying the nature and extent of such material
breach; provided, however, that CIMA may not assert a material payment
default by IPR on invoiced amounts disputed in good faith by IPR if IPR
provides a written description of the disputed amounts to CIMA. Cure of a
material payment default by IPR will be made by remitting to CIMA the amount
of the overdue payment with accrued interest thereon, calculated using a
major U.S. commercial bank rate selected by CIMA, during the [...***...]
period.
(c) Either party may terminate this Agreement immediately and
without notice in the event that an application is made by the other party
for the appointment of a receiver, trustee or custodian for any of the other
party's assets; a petition under any section or chapter of the federal
Bankruptcy Code or any similar law or regulation of the United States or
Puerto Rico is filed by or against the other party is not dismissed within
sixty (60) days; the other party makes an assignment for the benefit of its
creditors; or the other party becomes insolvent or fails generally to pay its
debts when they come due.
(d) If IPR terminates this Agreement other than under Sections
9.2(b) or (c), or if CIMA terminates this Agreement under Section 9.2(b),
then [...***...].
(e) The parties acknowledge that there are many technologies
competing with the OraSolv-Registered Trademark- Technology in the world
marketplace for drug dosage forms and that IPR is not a competitor of CIMA in
the field of drug dosage forms. The parties hereby agree that, in order for
CIMA to provide IPR with the exclusive rights granted to IPR under this
Agreement, IPR must commit to provide adequate resources toward
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commercialization of the Product, and to that end IPR agrees that CIMA may
terminate this Agreement upon thirty (30) days' notice in the event that IPR
or its Affiliates [...***...].
9.3. ADDITIONAL REMEDIES. Termination of this Agreement for any
reason will be without prejudice to, and will not affect the right of, either
party to recover any and all damages to which it may be entitled, or to
exercise any other remedies that it may otherwise have.
9.4. SURVIVAL. The provisions of Article VI relating to
confidentiality, Section 9.1 and Articles X and XI will survive expiration or
termination of this Agreement.
ARTICLE X
INDEMNIFICATION
10.1. INDEMNIFICATION BY CIMA. CIMA will indemnify and hold IPR
and its Affiliates 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)
that IPR or its Affiliates may incur, arising out of any third party's claim
of property damage or personal injury or death arising from CIMA's
application of the OraSolv-Registered Trademark- Technology to zolmitriptan
or CIMA's negligent or willful misconduct in its performance of this
Agreement or any breach of a representation or warranty given herein by CIMA.
However, CIMA will in no event be liable for any such claims, damages,
losses, costs or expenses to the extent they arise out of or result from
materials supplied by IPR to CIMA, or from IPR's negligence or willful
misconduct.
10.2. INDEMNIFICATION BY IPR. IPR will indemnify and hold CIMA
and its Affiliates 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)
that CIMA or its Affiliates may incur, arising out of any third party's claim
of property damage or personal injury or death arising from use of the
Product to the extent that such liability results from IPR's negligent or
willful misconduct in its performance of this Agreement or any breach of a
representation or warranty given herein by IPR. However, IPR will in no
event be liable for any such claims, damages, losses, costs or expenses to
the extent they arise out of or result from materials supplied by CIMA to IPR
or its Affiliates, or from CIMA's negligence or willful misconduct.
10.3. DEFENSE OF CLAIMS. In the event any third party asserts a
claim covered by Sections 10.1 or 10.2, the indemnified party will give
prompt notice to the indemnifying party, who may, at its election, handle and
control the defense or settlement of the claim at its own expense by giving
prompt notice to the indemnified party. However, the indemnifying party will
not settle any such claim without the indemnified party's prior written
consent, which will not be unreasonably withheld. If the indemnifying party
does not give such notice and does not proceed diligently to defend the claim
within [...***...] days after receipt of notice, the indemnifying party will
be bound by any defense or settlement that the indemnified party may make as
to that claim and will reimburse the indemnified party for any expenses
related to the defense or settlement of the claim. The parties will
cooperate in defending against any asserted third-party claims.
Indemnification of the indemnified party will also cover the indemnified
party's directors, officers, employees, agents, Affiliates, and third parties
performing services for the indemnified party.
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ARTICLE XI
MISCELLANEOUS
11.1. ASSIGNMENT. Except as otherwise provided herein, neither
this Agreement nor any interest hereunder will be assignable in whole or in
part by either party without the prior written consent of the other. Either
party may assign this Agreement without such consent to any of its Affiliates
or to any successor by merger or sale of substantially all of its stock or of
its assets to which this Agreement relates, or the sale or transfer of
substantially all of the rights relating to the Product. This Agreement will
be binding upon the successors and permitted assigns of the parties. Any
assignment that is not in accordance with the terms of this Section 11.1 will
be void.
11.2. SUBCONTRACTING. CIMA acknowledges that IPR and Zeneca
Limited have entered into certain agreements regarding the performance of
scale-up and validation activities relevant to IPR's obligations under this
Agreement, and that IPR may subcontract certain scale-up and validation
activities set out in the Scale-Up and Validation Plan to Zeneca Limited
under such agreements upon prior notice of such subcontracting to CIMA.
11.3. AMENDMENT. This Agreement, including the Exhibits hereto,
may only be amended by a writing signed by both parties hereto.
11.4. NOTICES. Any notices or communications given to the parties
under this Agreement must be in writing and will be deemed to be duly given
by either party to the other on the date hand-delivered, sent by facsimile or
mailed first class, postage pre-paid or by overnight delivery to the address
of each party set forth below its name on the signature page hereof, or at
such other address as a party may specify in writing.
11.5. GOVERNING LAW. This Agreement will be governed by,
interpreted and enforced in accordance with the laws of the State of
Delaware, without regard to its choice-of-law provisions.
11.6. WAIVER. A waiver by either party of any term or condition
of this Agreement in any one instance will not be deemed or construed to be a
waiver of such term or condition for any similar instance in the future or of
any subsequent breach hereof. All rights, remedies, undertaking, obligations
and agreements contained in this Agreement will be cumulative and none of
them will be a limitation of any other remedy, right, undertaking, obligation
or agreement.
11.7. FORCE MAJEURE. Any delay in performance by either party
under this Agreement (other than IPR's failure to pay money to CIMA) will not
be considered to be a breach of this Agreement if, and to the extent, caused
by occurrences beyond the reasonable control of the party affected, including
but not limited to acts of God, embargoes, governmental restrictions, strikes
or other concerted acts of workers, fire, flood, explosion, riots, war, civil
disorder, rebellion or sabotage. After the party suffering from such
occurrence notifies the other party of the occurrence, any time for
performance hereunder will be extended by the actual time of delay caused by
the occurrence.
11.8. RELATIONSHIP OF THE PARTIES. The relationship hereby
established between IPR and CIMA is solely that of independent contractors.
This Agreement does not create an agency, partnership, joint venture or
employer/employee relationship, and nothing hereunder shall be deemed to
authorize either party to act for, represent or bind the other except as
expressly provided in this Agreement.
11.9. DISPUTE RESOLUTION. The parties will use all reasonable
efforts to resolve in an amicable fashion any dispute, claim or controversy
that may arise relating to the terms or performance of this Agreement. If
the parties are unable to resolve such dispute within thirty (30) days after
initial notice, either
53
<PAGE>
party may, by notice to the other, have such dispute referred to a senior
officer of each company. Such officers shall attempt to resolve the dispute
by good faith negotiation within thirty (30) days after receipt of such
notice. If the designated officers are not able to resolve such dispute
within ninety (90) days after receipt of such notice, the parties will submit
the dispute to arbitration by a single arbitrator in Minneapolis, Minnesota,
in accordance with the Commercial Arbitration Rules of the American
Arbitration Association then in effect. The arbitrator must be a retired
judge of a state or federal court of the United States or a licensed lawyer
with at least ten (10) years of intellectual property law experience from a
law firm with at least ten (10) attorneys and at least an AV rating by
Martindale Hubbell. A list of ten (10) potential arbitrators shall be
obtained from the AAA. Each party to the dispute will rank the potential
arbitrators from one to ten with one being the most desirable. The
arbitrator who receives the least points shall be the arbitrator for such
dispute. If there is a tie, a random drawing will be held and the first
arbitrator chosen will be the arbitrator for the dispute. Judgment upon the
arbitration award will be final, binding and conclusive and may be entered in
any court having jurisdiction. The parties hereto further agree that the
arbitrator is not authorized to award any punitive damages in connection with
any controversy or claim settled by arbitration hereunder.
11.10. SEVERABILITY. If any provision of this Agreement is found
by a proper authority to be unenforceable or invalid, that provision will be,
to the extent possible, interpreted to achieve the intent of the parties to
this Agreement. Otherwise, that provision will be severed and such severance
will not effect the remainder of this Agreement, which will continue in full
force and effect.
11.11. ENTIRE AGREEMENT. This Agreement and the Supply Agreement
embody the complete and final understanding of the parties with respect to
the subject matter hereof, and this Agreement supersedes all prior and
contemporaneous negotiations, understandings and agreements between the
parties with respect to the subject matter hereof other than the Supply
Agreement.
11.12. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, which together constitute one original.
54
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement by their
respective duly authorized officers as of the date first hereinabove written.
CIMA LABS INC. IPR PHARMACEUTICALS, INC.
By: /s/ John M. Siebert By: /s/ B.J. Thorpe
-------------------------------- ---------------------------------
Name: John M. Siebert Name: B.J. Thorpe
Title: President and CEO Title: Chairman
10000 Valley View Road P.O. Box 1967
Eden Prairie, MN 55344-9361 Carolina
Tel: (612) 947-8700 Puerto Rico 00984
Fax: (612) 947-8770 Tel: (809) 750-5353
Fax: (809) 750-5332
55
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 718,665
<SECURITIES> 0
<RECEIVABLES> 2,321,200
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0
0
<COMMON> 96,104
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<TOTAL-LIABILITY-AND-EQUITY> 14,326,907
<SALES> 1,433,862
<TOTAL-REVENUES> 4,816,467
<CGS> 2,299,679
<TOTAL-COSTS> 6,044,853
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